Pain before gain for drugs industry

Date: 07/06/01

By Peter Chapman

DRUGS firms are awaiting EU enlargement with a distinct lack of enthusiasm - focusing on a nasty bout of short-term pain rather than the promise of long-term gain.

Eventually, the EU's eastward expansion promises to boost living standards and demand for expensive medicines that are currently denied to all but the rich few. But in the immediate future, firms are confronting a period of uncertainty while average incomes make the expected leap upwards.

Brian Ager, director-general of the European Federation of Pharmaceuticals Industries and Associations, says this could feed a vicious circle of parallel trade in his member companies' medicines.

Citizens of the new EU members will expect noticeable improvements in their healthcare standards once they join the club, claims Ager.

But low incomes mean that enlargement country governments will be under pressure to foist low prices on the drugs companies who will supply the products for their national health systems.

The low prices will be an irresistible target for parallel traders who will be able to snap up the products, say, in Hungary, and sell them on in rich Austria or Germany, where prices are likely to be far higher. Worse, claims Ager, is the European Commission's policy of enforcing EU single market and competition rules in the heavily regulated drugs markets. "Patients of the central Eastern European countries want enlargement. They would expect to have an elevation of their health standards. But, with this problem of economic differentials, how are we going to keep the medicines where they are?" asks Ager.

Away from the complex world of 'pharmo-economics', the drugs industry sees huge benefits stemming from EU-style intellectual protection (IP) for drugs.

Italy put in place IP rules in the early 1990s, leading to a swift transformation from low cost, low added value copycat output to innovative research and development-based production.

The same, claims Ager, will happen in countries from Hungary to the Czech Republic when their new regimes start to bite. "When Italy changed its laws, it led to a change in the industrial fabric towards R & D and innovation. That is what we need."

Article forms part of a survey on enlargement.