German Price Cuts Sideline Multinationals, Favour Generics

Multinationals continue to voice their opposition to Germany's recent price cuts, while the country's larger generics makers are certain to benefit. Despite measures to soften the blow, which have included setting up a panel to review the protection of drug innovation, only drugs deemed truly innovative will be excluded from the fixed-level drug price support regime.

The new fixed-level drug price support regime groups together products in key therapeutic areas, incorporating both generics and branded medicines, with a price ceiling for the products agreed upon using the prices of all those included. A key criticism of the regime is its failure to distinguish between generic and potentially innovative versions of particular therapies, with drugs grouped together regardless of whether they are still under patent or old products. Germany's health funds are now only obliged to reimburse the products up to this amount, with patients having to pay extra for the more expensive products since the start of the year.

The generics industry has responded in kind. In a move that will no doubt please the authorities, the industry has offered to continue a moratorium on prices that expired at the end of 2004, at least until the end of 2005. The industry knows that with roughly 18 active ingredients poised to come off-patent in the country during the year, there is plenty of scope for growth.

However, while current trends in the generics market bode well for its three major players, Ratiopharm, Stada and Hexal, there is greater uncertainty for smaller players, which may become vulnerable to acquisition attempts. Generics are expected to account for 38% of the total market by 2007, with sales of EUR15.5bn at consumer prices.