(Source: David Sell The Philadelphia Inquirer (MCT) — Pharmaceutical companies, like banks, are more dependent upon governments than many people realize, and the European economic crisis that has worried global bank-watchers for several years is increasingly causing concern for drug executives.
Governments in the United States, Europe, and much of the world pay many of the bills for pills and other medicine. Government budget-tightening, whatever the cause, has meant reductions in prices paid to drug manufacturers, and that has shown up this week in quarterly earnings reports.
Europe-based companies with big Philadelphia-area operations are among those hurt by more acute problems in Europe.
GlaxoSmithKline P.L.C. chief executive officer Andrew Witty said that the industry understood the larger economic problems and that it would be challenged on prices more often than in the past.
“We know the old world is gone,” Witty said. “We want to try to help, but the only way to try to help is for both sides to understand what we need over the short, medium, and long term.”
Glaxo is based in London but has operations in Center City and other towns in Pennsylvania and New Jersey.
AstraZeneca P.L.C. is also based in the United Kingdom and has operations in Wilmington and Newark, Del. The company said Thursday that its second-quarter revenue dropped 18 percent and profit fell 27 percent from the same period in 2011.
AstraZeneca’s woes are worse than Glaxo’s because patents on more of its top drugs are expiring, which means mounting competition from generics. Revenue from the antipsychotic drug Seroquel IR fell by $763 million in the United States alone in the second quarter.
Falling drug prices contributed to a $438 million decline in second-quarter revenue in Western Europe, AstraZeneca said. That represented a 20 percent drop in revenue for the region, it said.
“It’s a higher level of impact and the hardest hit has been in Europe,” said Tony Zook, executive vice president for global commercialization. “We’ve seen incremental price impact coming out of the U.S. business, with the Affordable Care Act, and those costs will be up again, year on year.”
Drug firms generally supported President Obama’s health-care overhaul because they figured having more people insured and using primary-care providers would increase prescription-drug use. However, they have resisted the administration’s push to cut payments for drugs through programs such as Medicare for the sake of cutting overall health-care costs borne by taxpayers.
Whatever the U.S. economic problems, they are not as acute today as those of European countries such as Greece or Spain now, and Ireland and Iceland in the recent past.
Asked whether the company was requiring cash on delivery for drugs, AstraZeneca interim chief executive Simon Lowth said patients were the priority but added the company was “very focused on collecting payments.”
Glaxo’s Witty said in April that the company was clearing cash from Greek banks as soon as it arrived. Tuesday he said the downgraded sales projections for the rest of 2012 were partly because of an estimated 7 percent cut in prices paid by government health plans for drugs.
Witty said he urged European health leaders not to let crisis in one country lead to continentwide drug price cuts because there would be harm to companies and, eventually, to patients who need drug companies to make medicine.
“First, we understand the challenge, the need for things to be done, and I don’t think our industry has sat here and looked for special pleading,” Witty said. “Secondly, we are a very long-term, innovation-driven business with 10- to 12-year cycles. Nobody – shareholders included – reacts well to massive shifts in the reward framework for their investment.”
Contact David Sell at dsell@ phillynews.com or 215-854-4506. Read his blog at www.philly.com/phillypharma and on Twitter @phillypharma.
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