Spain’s pharmaceutical industry has been subject to numerous austerity measures over the past few years as a consequence of the country’s recession. Humberto Arnés, director general of Spain’s research-based pharmaceutical association Farmaindustria, talks about the impact of these measures and the necessary steps the industry will need to take to adapt accordingly.
What has been the impact of Spain’s austerity measures on the pharmaceutical industry?
Spain’s economic and financial crisis has especially impacted sectors dependent on the public budget like pharmaceuticals. Public pharmaceutical expenditure in Spain was at its all-time highest in May 2010, and by the end of 2013 this expenditure had contracted 28 percent; combined with the private market this figure totaled 19 percent. While the market has been significantly reduced, the hospital market has remained steady during this period. National companies have been affected in that they do not have enough margins to keep up with the R&D investment needed to compete in international markets. Multinational companies have also been affected because they have more difficulties to replace their investments in R&D facilities that could become obsolete. As such, Farmaindustria is working with the Ministry of Health (MoH) to build a stable framework for the long-term to avoid similar issues in the future by linking the growth rate of the pharmaceutical business to that of GDP.
Multinational companies have continued to commit to Spain despite no end in sight. What opportunities did companies see in staying?
Actually, R&D investment allocated to the pharmaceutical industry has remained steady during the last five years, at a rate of more than $1 billion per year. Some jobs have been lost in Spain, but the pharmaceutical industry has maintained employment of about 40,000 individuals and has increased their exports to over $10 billion. Despite the crisis, Spain is still the fifth biggest European market, and the general conditions to invest are favorable to the pharmaceutical industry within that. Maintaining the commitment of the pharmaceutical industry in the future in Spain will require a focus on production, internationalization (exports) and R&D. We think that the establishment of a reference price system (RPS), which affects off-patent products, the delisting of some products to treat minor symptoms, and the increase in co-payments to the level of the European average, to around twelve percent of public pharmaceutical expenditure, are structural measures adopted by the Government that can control pharmaceutical expenditure, and help in the creation of a stable framework to maintain the commitment of the pharmaceutical industry in terms of production, R&D and exports.
These three areas have not been affected by Spain’s structural measures, which we would like to continue to avoid. Unfortunately, due to the difficulties surrounding Spain’s decentralized national health system, each of the 17 autonomous regions has regulatory powers and competencies from the demand-side perspective (competencies on regulation of the supply side are held by the central government). Some regions have introduced cost-containment measures that prevent access to innovation in their territories. Farmaindustria is trying to stop such measures from happening. These measures are not only harmful to the industry but also to the national health system and patients. Preventing access to new medications in individual regions is very dangerous.
Last year, the MoH changed the Spanish law of medicines, clarifying powers between the central government and regions. The purpose was to clearly establish that regions cannot introduce measures affecting pricing and reimbursement conditions and to provide the MoH some mechanisms to monitor compliance with these rules. But there are enough instruments in our law to impede this practice in some regions. Fortunately for us, only a few regions are adopting these measures.
Spain is ranked 6th globally in terms of volume of biotech companies. What potential do you see this sector having in terms of helping to promulgate growth and how can Farmaindustria help?
Farmaindustria is the association of the R&D-based industries in Spain, which encompasses both traditional chemical products and biotechnological products. The majority of big pharma works with biotechnology, and in Spain approximately one third of the market is comprised of biological products. Thus biotech is an important market and is likely to increase its presence in the market as it has in the US and other European countries. From a regulatory point of view, and due to the specific characteristics of the biological products (non-interchangeability and non-substitution), we must prioritize the establishment of clear positions regarding these activities. For example, regarding biosimilars, it is necessary to clarify the conditions in which they can access the Spanish market. We have to take on a mindset that acknowledges that the future of this sector will rely on biotechnology products.
Many big pharma companies have production facilities in Spain, and pharmaceutical trade balance finally stabilized in 2013. Is this an opportunity arising from, or a result of, the crisis and can this help grow Spain’s economy?
We believe that public pharmaceutical expenditure, which represents 80 percent of our market, is completely under control due to the aggressive structural measures affecting off-patent products.
Many old products in the market have been generating significant savings. Consequently, now is the time to build new businesses and new opportunities, and this is why the pharmaceutical industry must grow at least at the same pace as GDP. With a predictable regulatory framework, we can maintain the rhythm of investments of both national and multinational companies, replacing old and obsolete facilities with new R&D opportunities.
Perhaps the crisis has forced Spanish companies to readapt their structures to the country’s new situation, and now they are in a good position to work within this reality. This explains why Spain has become more competitive in terms of exports. It is true that we almost balanced the trade of pharmaceutical products in 2013; our exports totaled over USD 10 billion, which roughly equaled our imports. This is partly due to the entrance of Spanish companies into third-tier markets. In general, Spain needs to be aggressive in its pursuit of internationalization and R&D. The fact that R&D investment levels have remained the same despite the reduction of the pharmaceutical market is incredibly important. In 2008, R&D investments were growing 20 percent annually, but pharmaceutical expenditure was growing 10-12 percent annually as well. Additionally, pharmaceutical exports have grown more than 10 percent annually and now represent the fourth largest export sector in Spain.
Of course, pharmaceutical R&D is important for many other countries as well. But in Spain, more than one third of public R&D relates to biomedical activities, and therefore represents an important catalyst for the industry. Forty-five percent of pharmaceutical investment and resources allocated in Spanish R&D are related to collaboration with these public centers, which include universities and hospitals. As a consequence, our responsibility and capability to set public R&D in motion is very important, not only for Spanish science but for the link between Spanish scientists and global projects. Public institutions need to take this into account in order to establish frameworks to foster private R&D in the pharmaceutical industry.
In March 2014, Farmaindustria and the MoH established a landmark protocol. What will be the outcome of this agreement?
It is always necessary for industry to have a common understanding with government. Likewise, the objective of this protocol was to establish a framework of discussion and understanding between these two sides. This protocol will establish a forum of dialogue to exchange points of view and to improve relations in five different segments.
The first segment is general pricing and reimbursement conditions. The Ministry of Health is working on a Royal Decree in this area that must be developed in the coming months, and Farmaindustria must actively participate in this process, in order to voice our concerns and principles regarding pricing and reimbursement. This forum will provide us the opportunity to work with the authorities. The second segment is to improve the RPS of off-patent products to generate more savings while preserving innovation and respecting R&D rights. The third point focuses on centralized purchases and tenders, which would provide savings in the hospital market. The fourth area is the monitoring of access to innovation in the Spanish market and the surveillance of compliance. The final point concerns the opportunity to reinforce the commitment of the industry in terms of R&D and production.
By working together and sharing principles in these five areas through a concrete forum with monthly meetings, industry and government can build a steady regulatory framework together.
The second half of 2013 saw incremental increase in pharmaceutical expenditure in Spain. Is this the beginning of a return to growth, or is this perspective too optimistic?
It is too optimistic because this incremental growth is due to the delays surrounding the implementation of the new RPS. This is why it is imperative for the pharmaceutical industry to grow at the same rate as GDP. If Spain increases its economy in the next months, so must the pharmaceutical industry. Savings in the national health system must be obtained elsewhere through greater efficiency in the system’s infrastructure, such as standardizing clinical practices, advocating the use of telemedicine and increasing advances in treatments.
Spain’s retail public market represents less than one percent of GDP, which is similar to the EU average. Pharmaceutical expenditure represents 15 percent of the total health expenditure, and this is also close to the European average. That means our main indicators are in line with the EU. Given the last three years of pharmaceutical expenditure contraction, it is time to concentrate efforts in other areas of the national health system, especially in the three fields I mentioned earlier.
Looking ahead to 2020, where can we expect to find the industry by then?
While it is difficult to predict, I sincerely hope that the next few years are more stable. The crisis has certainly introduced more discipline in the industry in general. We must consider that in 2010, Spain had a similar market size to the UK and Italy with a significantly smaller population. It would have been impossible to maintain that situation, and an adjustment of our market was absolutely necessary. But after this adjustment that has already been made, further reductions to the pharmaceutical industry are not possible, without causing irreversible harm to patients and companies. The government must concentrate its efforts in areas other than medicines.
Many companies have been able to create solid structures in order to afford the future. From this perspective, efforts in internationalization, R&D and production have been paramount.
If we can establish a predictable regulatory framework with Spain’s health authorities without further reductions in the pharmaceutical market, we will be able to maintain a rhythm of R&D investment that can introduce international competitiveness in the pharmaceutical sector. Consolidation is also a possibility but it will be a challenge to develop those three areas while creating a predictable regulatory framework with the health authorities.
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