GERMAN DRUG INDUSTRY AND HEALTH FUNDS IN PRICE-CUT TALKS

Following reforms already enacted to Germany's insurance-based reimbursement system, health funds have announced new pricing discussions with the drug industry, which are expected to affect margins. The funds, which have some 70mn members in Germany, have described the talks so far as "promising" and are negotiating individually with drugmakers.

Industry bodies have already protested that changes to the country's drug discounts structure could further impact the sector. Germany's pharmaceuticals industry, which already faces the expiry of patents on key active ingredients and a growing threat from generics makers, could now consolidate as a result of the reform process. It is widely believed that smaller drugmakers who fail to get their products onto the country's reimbursement list could be affected, as the new framework is only likely to consider drugs exclusively produced by one company.

Despite the end of a two-year drug-price freeze this year, recent trends indicate that the worst could still be ahead for the local sector. A number of price cuts, already mandated by recent reforms, have yet to be implemented by pharmacists, and non-prescription drugs are no longer reimbursed under the new framework. Meanwhile, the government will continue efforts to restrain health costs. This year's likely higher spending is expected to effectively cancel out savings achieved in 2004, a trend bound to attract strong local criticism.