Effects - Pro Generika eV

Statement of Pro Generika submitted to the
German Ministry of Economics and Technology:
“Effects of tendering on the generics industry in Germany“
Generic pharmaceutical companies cover over 70% of the public health insurers’ entire
demand for medicines in Germany - with the trend pointing up. Generics hence make
an indispensable contribution to sustainable drug supply in Germany. This is borne
out by the annual prescription volume of generic drugs:
•
In 2011, some 450 million generics packs were prescribed to persons covered by
public health insurance, which is equivalent to around 28 billion defined daily
doses (DDD).
In contrast to the essential importance generics have for the supply with medicines in
Germany, their relevance for spending is very low. As little as slightly above 10% of
the entire drug spendings of public health insurers goes into generics at net exfactory prices (that is, after deduction of all statutory discounts and the revenues
from rebate contracts reported by the health insurers; Appendix 1: IGES market
development 2005-2011).
The gap between the sales volumes and sales revenues of generic pharmaceutical
companies in Germany has increasingly widened over the past few years, with the
following results:
•
•
Public health insurers have already come to spend distinctly more on the
distribution channels of generics than on the generics themselves
(remuneration paid to wholesalers and pharmacies).
Public health insurers today spend more money on value added tax than on the
generics themselves.
I. T endering in the healthcare system
1. The scale of tendering in the generics market has reached an absolute high in
2012. By the end of that year, no less than over 65%1 of all generics were
traded under rebate contracts, with a strong upward trend.
2. Rebate contracts extend to nearly all segments of the generics market, even to
products priced at a very low level anyway:
•
1
Public health insurers demand additional price discounts under rebate
contracts for over 900 generics out of around 1,000 prescription generics
costing less than 89 euro cents (ex-factory).
Insight Health, NVI KT, January 28th, 2013
1
Pro Generika Statement for the German Ministry of Economics and Technology:
“Effects of discount contract tendering on the generics industry in Germany“ 15/02/2013
The revenues generated by pharmaceutical companies have to be seen in proportion to
the ever-increasing administrative expenses caused by the continuing expansion of
legal regulations for drug approvals, production, quality monitoring, additional
pharmacovigilance rules and rising fees for the European Medicines Agency (EMA).
Moreover, the companies’ costs of development, warehousing and logistics are rising.
Generic pharmaceutical companies are thereby ever more frequently confronted with
the question of whether they are still in a position to recover the cost of marketing
certain drugs in Germany.
3. In 2012, there has been an increasing tendency towards tendering starting ever
earlier after a drug has gone off patent, often after just a few weeks:
•
Candesartan, atorvastatin, quetiapine, all active agents that went off patent
in 2012, were tendered by public health insurers after just a few weeks.
And yet scientific studies (Pharma Sector Inquiry of the EU Commission2 and a
study conducted by the IGES Institute in 20113) have clearly shown that it takes
one or two years, depending on the active agent in question, until generics
competition has fully unfolded. In other words: The earlier health insurers
tenders rebate contracts, the narrower is the time window for sustainable
generics competition to develop.
Tendering has, especially by public health insurers, been dubbed a “successful
competition model“ that “opens up the generics market to small businesses in
particular“. These assertions entirely fail to bear any scientifically founded
scrutiny.
The Berlin IGES Institute has conducted an empirical investigation into the
effects of tender procedures on the generics market4. According to this
investigation, tendering fails to enhance competition in the generics market.
The outcome of this study rather says that the intensity of competition in the
generics market is governed by how many generic pharmaceutical companies
offer their products in the market. The larger their number in a market for a
specific active agent, the higher the competition intensity, and the faster the
economically desirable level of price competition in favour of the healthcare
system will be reached.
4. In a more detailed analysis titled “Generics competition in Germany: Market
concentration and rebate contracts“ (IGES Institute, Berlin, 05/04/2012), the
IGES Institute came to the pivotal conclusion that the market concentration in
the respective active ingredient markets is predominantly very high and has
seen another pronounced increase in the past few years as a result of
tendering. The number of suppliers operating in the active agent markets plays
a leading part in this context: the higher the number of suppliers present in a
market, the lower is the market concentration.
2
http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/communication_de.pdf, accessed on 29/01/2013
3
Study conducted by the IGES Institute in 2011, “Generika in Deutschland: Wettbewerb fördern – Wirtschaftlichkeit
stärken“ (Generics in Germany: Promoting competition – strengthening economic viability), Berlin, 18 October 2012
4
Study conducted by the IGES Institute in 2011, “Generika in Deutschland: Wettbewerb fördern – Wirtschaftlichkeit
stärken“ (Generics in Germany: Promoting competition – strengthening economic viability), Berlin, 18 October 2012
2
Pro Generika Statement for the German Ministry of Economics and Technology:
“Effects of discount contract tendering on the generics industry in Germany“ 15/02/2013
5. Public health insurers, pursuing what is a purely cost-focused analysis, tend to
disregard the manifold effects tendering procedures have on the
pharmaceutical companies.
And yet, public health insurers have already seen themselves compelled to
terminate rebate contracts as businesses were no longer in a position to
deliver at these discount terms. The suppliers in question, however, risk very
high contractual penalties in such a case, a phenomenon which has already made
pharmaceutical companies refrain from participating in tender procedures.
This applies also - and in particular - to small and medium-sized enterprises
(SME).
6. Even representatives of public health insurers admit these days that “... the
entire competitive action of public health insurers [is] geared to the central
objective of not having to levy any extra premium for as long as possible“.
(Klaus Jacobs, Managing Director of WIdO, the scientific institute of AOK, in
IMPLICONplus 11/2012: 5). This means that public health insurers are exclusively
focussed on short-term price rebates in the competition between health
insurers, including tendering and therefore losing sight of the adverse effects
of this approach. The necessary sustainability of the generics competition plays
a subordinate role.
7. Tendering has, however, already caused a measurable and increasing narrowing
of the market. A very high market concentration is a trend emerging in
numerous active agent markets. However, a very high market concentration is
not a feature of competition-based markets. Accordingly, the President of the
German Federal Cartel Office, Dr Andreas Mundt, publicly expressed his concern
that tendering abets an “oligopolisation” of the generics market5 (Appendix 4).
Recent data have furnished proof of this market concentration:
a.
According to data presented by the market research institute
IMS Health, the market concentration is very high in the rebate
contract market: Out of the total sales volumes, 72% is
accounted for by the top10 manufacturers.
b.
Additionally, tendering leads to a very high market
concentration in active agent markets: For example, only one
manufacturer each accounts for market shares as high as 60%
for simvastatin, 74.4% for diclofenac and 80.1% for metamizole,
all active agents which are important and relevant to ensure
basic medical care.
8. Against this background, Pro Generika has expressly welcomed the fact that the
Federal Ministry of Economics is now performing a holistic assessment of
tendering, and that the Conference of Ministers of Economics of the German
states has also espoused this topic.
II. Effects of the tender system on generic pharmaceutical companies
5
Mundt, Andreas: Krankenkassen dürfen nicht zu mächtig werden (Public health insurers must not be allowed to become
too powerful), interview with the President of the German Cartel Office published by FAZ on 24/06/2012.
http://www.faz.net/aktuell/wirtschaft/im-gespraech-kartellamtspraesidentmundt-krankenkassen-duerfen-nicht-zu-maechtig-werden-11797999.html, accessed on 01/02/2013.
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Pro Generika Statement for the German Ministry of Economics and Technology:
“Effects of discount contract tendering on the generics industry in Germany“ 15/02/2013
1. A study commissioned by the EU Commission, “Tender systems for outpatient
pharmaceuticals in the European Union: Evidence from the Netherlands and
Germany“ which was conducted by the London School of Economics in 2012
(Appendix 2: Tendering report), used empirical analyses of the tendering
systems in the Netherlands and Germany to show that tendering very quickly
leads to pricing at marginal-cost level. As a consequence, the companies have
no funds left to invest in the further development of products or the expansion
of production facilities. Even investments of generics manufacturers which are
indispensable for the public health insurance system, like those in promising
future market segments like biosimilars, are at risk of not being made, the
consequence being that sustainable price competition is nipped in the bud in
this high-tech segment of pharmaceutical supply.
Therefore, the currently existing system of tendering is not sustainable.
2. Generic pharmaceutical companies have been forced to respond to the rising
number of rebate contracts tendered, by:
a. downsizing their workforce in Germany (e.g. in production,
marketing, sales, field staff);
b. making their employment contracts more flexible. With rebate
contracts usually being termed for two years before they have to be
re-awarded, companies have to enter into corresponding agreements
with their workers councils and redesign existing employment
contracts to make them more flexible.
c. relocating their production facilities, especially to non-EU countries.
Beyond the production of active agents, this trend towards re-siting
also applies to the production of medicines themselves. What is
evolving here is a sneaking de-industrialisation of the generics
industry in Germany, a trend that reduces the role of the local
companies to the one of a mere sales force.
d. subjecting all their production processes to permanent review:
i.
For example, advancements for the benefit of the patient, like
scorelines or dosage aids, have to be increasingly abandoned
as these would entail higher production costs. Apart from not
being rewarded in the rebate contract system, patient
convenience has clearly become a cost factor and hence a
competitive disadvantage.
ii.
Pharmaceutical companies have started eliminating generics
from their portfolio up to double-digit percentages and
withdrawing them from the German market as they are no
longer in a position to recover their costs when marketing
them in Germany. The enormous, sustained pressure on prices
and rebates witnessed in the German generics market for years
implies that every single product has to deliver a business
case on a stand-alone basis, including in a total-cost-ofownership analysis.
iii.
Quality assurance systems are being reduced to what is legally
mandatory, or, alternatively, they are completely outsourced
as a service, especially by SME, in order to scale down their
internal infrastructure as much as possible in view of the
volatility of rebate contract awards.
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Pro Generika Statement for the German Ministry of Economics and Technology:
“Effects of discount contract tendering on the generics industry in Germany“ 15/02/2013
3. Tendering, especially if performed shortly after patent expiry, makes any
market entry unattractive (study conducted by the IGES Institute in 2011,
“Generika in Deutschland: Wettbewerb fördern – Wirtschaftlichkeit stärken,
(Generics in Germany: Promoting competition – strengthening economic
viability), Berlin, 18 October 2012, page 45 et seq.)
4. In an attempt to provide evidence for the purportedly smooth functioning of
tendering, public health insurers often argue that many businesses, especially
small and medium-sized enterprises, participate in the tender procedures.
However, business success is governed, rather than by mere participation, by
whether small companies indeed receive an award in a tender procedure. And
this is indeed not the case: In the tender procedures performed by AOK alone,
the total tendered turnover of medicines goes up to 95% to the top 10
companies (see Appendix 3: IGES 2011).
5. Tendering leaves pharmaceutical companies with tremendously high
administrative costs. This impacts all generic pharmaceutical companies:
a. The large number of tender procedures (while 987 discount contracts
were tendered in 2010, this number had already risen to 1,988 in
2012), the differences in modalities between the tender procedures,
as well as the simple activity of submitting quotes in such procedures
tie up enormous human resources.
b. Time and again, legal disputes on procurement law have to be
conducted around the participation in rebate contracts, and solely
the costs of these disputes are very high, all the more as many
generic pharmaceutical companies are not in a position to maintain
internal legal affairs departments (Appendix 5: Number of litigation
cases).
c. Raw materials have to be purchased subject to minimum quantity
orders. If the sale of the ready-made product then depends on an
unpredictable award in a tender procedure, the entrepreneurial risk
of participating in tender procedures will increase tremendously.
This applies in particular to SME.
d. Contractual penalties due in the event of the manufacturer’s
incapacity to deliver - for whatever reason - additionally keep
pharmaceutical companies from taking part in tendering procedures.
This is because such incapacity to deliver poses an existential risk to
the businesses in the face of the public health insurers’ unremitting
moves towards further aggravating the penalty clauses.
e. Public health insurer AOK has partly switched away from single slot
to multiple slot tender, indicating the increase in delivery problems
as a reason. This practice presents a major problem to the
pharmaceutical companies because this makes it still more difficult to
predict the volumes actually taken off by the market.
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Pro Generika Statement for the German Ministry of Economics and Technology:
“Effects of discount contract tendering on the generics industry in Germany“ 15/02/2013
f. Additionally, it has become evident, particularly in the case of
multiple slot tenders, that the established generic pharmaceutical
companies boasting a high level of brand awareness receive a
significantly higher market share within the awarded slot in
comparison with smaller businesses.
6. The tender system leads to major distortions and volatilities in the generics
market which cannot be influenced by the generic pharmaceutical companies
themselves. The consequence: The enterprises are no longer in a position to
plan their business. Due to the conduct of other market players, generic
pharmaceutical companies are exposed to the danger of not being capable to
deliver and thereby risk high contractual penalties.
a. At the beginning of the term of rebate contracts, for example, it often
happens that individual market players pile up stocks beyond their
actual needs – at volumes normally not predictable for generic
pharmaceutical companies. This means the companies are at risk of
becoming stock out and being subjected to the resulting penalties.
b. If, for example, a rebate contract company fails to deliver, larger
volumes of the medicine in question will be requested from another
generics supplier. The latter, however, will not have produced these
as they had not received the award. Because of this unpredictable and
unexpected demand, this company will then in turn be exposed to the
risk of not being able to deliver and being fined by the public health
insurers with whom they have themselves signed rebate contracts on
delivery of this medicine.
7. Public health insurers increasingly tend to fix overly short deadlines between
the award of a contract and the start of the contract term/delivery. This
confronts enterprises, no matter of what size, with formidable challenges. This
is because generic pharmaceutical companies urgently need certainty in
planning their business in view of the volumes requested under rebate
contracts at the start date. In order to make sure the start volumes are
available, generic pharmaceutical companies need six months on average for
planning, ordering the charging stock, production, pharmaceutical and
regulatory reviews as well as the logistics. According to the targets set by the
health insurers, however, they frequently have to be ready to deliver within
less than two months. This is more than just a major logistic challenge for these
companies. Faced with the enormous pressure for rebates, they can afford it all
the less to pre-produce the volumes in question “on spec“. If they fail to get
the award, they will not be able to market the volumes put into storage through
other channels. Another point is that especially SMEs cannot sell their products
on foreign markets as they are lacking a pan-European business organisation.
This means their business risk in particular will increase with every tender
procedure.
8. Tendering is entirely unsuitable for complex biotech medicines or even sterile
products (i.e. medicines produced in a sterile environment). Biologics are
produced in living cells. This production process is highly complex and
sometimes takes several months. If, for example, production problems or delays
caused the unavailability of several batches, no manufacturer would be in a
position to produce the additional volumes of this biologic at short notice.
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Pro Generika Statement for the German Ministry of Economics and Technology:
“Effects of discount contract tendering on the generics industry in Germany“ 15/02/2013
This has already been demonstrated by some practical examples:
a. The chaotic flu vaccination situation in the 2012/2013 season which
resulted from tendering procedures performed by several public
health insurers;
b. Supply shortages of medicines relevant for general health care due to
price pressures from tenders for antibiotics and sterile products
(e.g. cytostatics).
De facto market entry barriers are also put up by the current tendering of biosimilars
as follow-up products to biopharmaceuticals which have gone off patent. This is
because the very high investments of the biosimilars manufacturers must pay back fully
in a competition environment – in contrast to the situation of the originator who
enjoys exclusivity on the basis of patent protection over many years. Germany,
however, must see to it that these market barriers to biosimilars are dismantled in
the interest of Germany as a place of business, and of sustainable patient care. While
Germany and the EU still enjoy a strategic siting advantage in high-tech production,
other countries are catching up.
III. Increasingly challenging regulatory requirements
In the past few years, the EU has adopted two overarching directives6 in the regulatory
sector which were transposed into German law by virtue of the latest amendment to
the German Medicine Act (AMG) in autumn 2012. They have come with considerable
organisational and financial burdens for the pharmaceutical companies. In some
respects, they are tantamount to nothing but considerable extra expenses of the
pharmaceutical companies without having any positive effects on drug safety (XEVMPD
data collection).
On top of that, the central European Medicines Agency (EMA) intends to charge very
high fees for its regulatory activities in future, especially in the field of
pharmacovigilance. The level of these fees is incommensurate with the actual work
input of this Agency. According to estimates, they amount to around 0.5% of the annual
sales revenues for SME, and to around 0.2% in the case of large companies. These fee
rates exceed the figures indicated in the EU7 Impact Assessment of 2008 many times
over (by a multiple of up to 12).
On the other hand, the €145 million annual savings forecast to be harvested by the
industry under the new arrangements of the Pharmacovigilance Directive have not
materialised.
Pro Generika therefore urgently pleads in favour of subjecting new regulatory
stipulations to be adopted by the EU to a much more detailed advance cost-benefit
analysis, and of proceeding to a necessary differentiation between active agent
categories.
6
7
Pharmacovigilance Directive 2010/84/EU and Falsified Medicines Directive 2011/62/EU
Pharmacovigilance Impact Assessment, EU Commission, 2008
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Pro Generika Statement for the German Ministry of Economics and Technology:
“Effects of discount contract tendering on the generics industry in Germany“ 15/02/2013
IV. Assessment
The adverse impact of the tender system can be clearly evidenced: The prices at
marginal-cost level compare with steeply rising costs due to expanding regulatory
requirements and a high administrative effort in handling rebate contracts. This has
already impaired the companies‘ capacity to deliver on the basis of rebate terms.
The prices at marginal-cost level have - as has already been observed - led to
concentration processes at both manufacturer and active agent level. These have had
grave adverse consequences on pharmaceutical companies in Germany, especially
medium-sized ones.
Cost containment instruments should be subjected to a critical scrutiny as far as their
impact on the diversity of suppliers is concerned. All available studies have indicated
that the tender system leads to an accelerated narrowing of the market and reduced
supplier diversity. However, competition and security of supply are built on a shared
foundation: the presence of a multitude of suppliers in the market. The current tender
system undermines this diversity, endangering the foundations of sustainable supply
with medicinal products in Germany in the mid-term.
February 15th, 2013
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