International drug makers are under fire in emerging markets as governments crack down on high prices and corporate malpractice, raising a risk to the price premiums global players enjoy over local rivals.China's probe into pricing by 60 firms, including local units of multinationals, and its dramatic charge against GlaxoSmithKline Plc of widespread bribery to boost sales and prices are the latest salvos.The trend casts a shadow over emerging markets as key growth drivers for Western drugmakers as blockbuster drugs go off patent in the United States and Europe.But Beijing is not alone. India's relations with Western drug firms have deteriorated sharply after it rejected patents on several medicines and this year introduced a new policy of pegging many prices to the average for each drug type.Brazil is stepping up its own price controls and backing local manufacturers strongly, while other fast-growing economies, including Turkey, have imposed steep price cuts."It seems there is an increasing squeeze on Western drug companies," said Simon Friend, global pharmaceutical leader at PricewaterhouseCoopers. "It is not necessarily the same story in all jurisdictions but it all comes back to politics in some shape or form."The shifts may slow growth but are unlikely to derail it for drugmakers in emerging markets, where companies like GSK and Sanofi SA already generate a quarter to a third of their revenues - a proportion that is likely to increase as diseases like diabetes and heart problems fuel demand among middle-class patients.There are questions, however, as to how sustainable current sales strategies will prove.In contrast to the West, where big companies are shifting to more specialized medicines, their emerging market business is focused on primary-care products, with firms typically packaging older medicines under their own label as "branded generics".These off-patent drugs command a hefty premium to ones made by local suppliers, since the Western drugmaker's name is a proxy for quality.That is a growing point of friction for countries like China whose government - faced with a $1 trillion healthcare bill by 2020, according to McKinsey report - is keen to cut prices, at the same time as it looks to provide universal access to cost-effective healthcare.The issue is not confined to medicines, as evidenced by cuts in infant formula milk prices by Nestle SA and Danone SA after Beijing launched a probe into the industry.But booming healthcare demand puts drugs in the front line.
PAYMENTS TO DOCTORS
Details of GSK's latest woes in China remain unclear and Britain's biggest drugmaker, which was only told of the grounds of the corruption investigation this week, says it has found no evidence of bribery of doctors or officials.That leads some industry insiders not involved with GSK to see political maneuvering behind the move - especially with Beijing aiming to build up its own domestic drugs sector.Adding to the confusion is the fact that China has always been known for payments to its doctors, who rely on rewards for writing prescriptions to offset meager salaries.While North America and Europe banned lavish gifts to doctors years ago, financial inducements remain commonplace in many parts of the world.Past improper payouts in China have landed other Western drugmakers in trouble - though with U.S. rather than Chinese, authorities.Pfizer Inc and Eli Lilly & Co have both settled with Washington in the past 11 months over alleged corrupt payments in foreign markets, including China, and more cases under the U.S. Foreign Corrupt Practices Act are pending.Eight of the world's top 10 drugmakers have warned of potential costs related to charges of corruption in overseas markets, according to a Reuters examination of U.S. filings last year. (http://link.reuters.com/sab69t)
ESSENTIAL DRUGS
Despite the adverse headlines, Mark Clark of Deutsche Bank doubts the bribery case will have an enduring impact on GSK's business in China, where it supplies key products such as vaccines, as well as drugs for lung disease and cancer.What is more, while China is expected to overtake Japan as the world's second biggest drugs market by 2016, according to consultancy IMS Health, it currently only represents around 3.5 percent of GSK's overall pharmaceuticals sales.A bigger concern is the broad drug pricing probe announced last week by the National Development and Reform Commission (NDRC) into prices charged by local and international drugmakers, including units of GSK, Merck & Co Inc and Astellas Pharma Inc.While the commission regularly conducts such audits, the latest probe is larger and wider than usual, in part because of a major expansion of the government's essential drug list to 520 items in May from 307 previously."The state is paying the bills for these drugs, so it wants to know what it's paying for," said one Chinese industry insider. "China wants to bring down the prices of imported medicine through these methods to protect its own companies."The latest NDRC probe may also involve international price comparisons, industry sources believe, as well as a hard look at whether companies are charging Chinese subsidiaries an inflated price for raw materials to make their costs look higher.Last year the government asked multinationals to submit drug prices from nine foreign markets, a move IMS Health said could lead to pegging prices to those in other countries, potentially cutting international firms' revenues by 15 to 45 percent."Enforcement is increasing," said Sebastien Evrard, Beijing-based partner at law firm Jones Day which specialises in antitrust law."They have ramped things up and gained more expertise, and they're getting more confident. Before they felt that educating firms was more important, now they've moved beyond that."
Source:REUTERS
link:http://news.yahoo.com/analysis-china-case-shows-war-drug-costs-emerging-131100295.html
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