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Thu, 26th Jul 2012 13:33

By Ben Hirschler

LONDON, July 26 (Reuters) - Europe's sick economy is infecting its pharmaceuticals sector, traditionally one of the region's most successful industries.

Price cuts to rein in healthcare spending reached unprecedented levels in the second quarter, prompting fresh complaints from drugmakers about a system that can trigger knock-on discounts across the European Union.

Quarterly results show the ability to absorb the European pricing hit varies from company to company.

While France's Sanofi was able to take an expected 300 million euros ($364 million) 2012 sales loss from European austerity measures in its stride on Thursday, thanks to growth elsewhere, the issue forced Britain's GlaxoSmithKline (GSK) to trim its year outlook a day earlier.

Price cuts in Europe reached a record 7 percent in the second quarter, according to GSK, and executives at other companies agreed the pricing pressure was intensifying.

'It's been a higher level of impact than we would have expected,' Tony Zook, head of AstraZeneca's commercial organisation, told reporters as the group reported weaker sales than forecast.

Novartis told analysts last week that Europe had become the toughest market for drug pricing anywhere in the world.

Bad debts are a major headache, too.

Swiss rival Roche said it was owed 1.5 billion francs ($1.5 billion) by the indebted states of southern Europe, although this was down from 2.1 billion six months ago, following a Spanish plan to settle unpaid bills.

The European pricing crunch comes at painful moment for multinational drugs companies, which are going through the biggest-ever wave of patent expiries in both Europe and the United States.

The looming loss of sales of older products has sent the industry scouring the world for new opportunities, especially in emerging markets, where growing middle classes are eager to buy an increasingly wide range of Western medicines.











PRICE CUTS

But these new markets are not a panacea. Governments from Turkey to China are also reining in prices to curb rising drugs bills, raising doubts about earlier forecasts that emerging markets can continue to grow well above 10 percent a year.

Japan, the world's second-largest drugs market, is also experiencing mandatory price cuts in 2012, under a process the country goes through every two years.

That leaves the United States as the only market in the world where drugmakers are still able to raise prices for their products.

On the European home front, the pharmaceuticals industry is stepping up pressure for changes to the system of EU trade in medicines that it complains aggravates the situation.

The impact of exceptional price reductions in crisis-hit countries such as Greece is magnified because governments across Europe - and, indeed, across the world - refer to prices in southern Europe when setting their own drug prices.

Low prices in southern Europe have also helped suck medicines out of these countries, as wholesalers re-export drugs to markets, like Germany, where prices are higher - a process of parallel trade that was criticised by Roche CEO Severin Schwan on Thursday.

The problem is not confined to those countries at the heart of the euro zone crisis. In the last six months, price cuts in Romania, for example, have also had a significant knock-on impact in Europe.

'We're trying very hard as an industry to get the European authorities to take particularly the reference pricing issue seriously, but so far nothing has really changed,' said GSK Chief Executive Andrew Witty.

Witty also heads the European Federation of Pharmaceutical Industries and Associations, which last month wrote to EU leaders seeking a deal on reference pricing and parallel trade in order to ensure supplies of drugs keep flowing to crisis-hit countries.

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(Editing by David Holmes) Keywords: PHARMACEUTICALS EUROPE/

(ben.hirschler@thomsonreuters.com)(+44 20 7542 5082)(Reuters Messaging: ben.hirschler.thomsonreuters.com@reuters.net)(www.twitter.com/re tersBenHir)

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