According to IMS Health study report, in 2011 Spain became the fourth largest pharmaceutical market in Europe with a market size of $22.7 billion. The Spanish market registered a Compound Annual Growth Rate (CAGR) of ~4.4 per cent during CY2007-CY2011. The revenue of the Spanish generic pharma market stood at $2.20 billion in 2010, which is expected to reach $7.19 billion in 2017, at a CAGR of 18.4 per cent from 2010 to 2017. The market is dominated by branded medicines with a share of about 88 per cent value wise.
The highly regulated markets like the US, Germany, France and the UK have emerged as the leading suppliers of medicines to Spain. Of these four countries, three belong to the European Union and with strict manufacturing guidelines in their own countries; they are able to get easy access to the Spanish market. About 200 member companies of European Federation of Pharmaceutical Industries and Associations (EFPIA) operate in Spain. Presently, in Spain there are 1953 pharma companies including the subsidiaries, which are registered with the Agencia Española del Medicamento y Productos Sanitarios (AEMPS) for supply of medicinal products. Also, the manufacturing sites in Spain have received approvals from US Food and Drug Administration (US FDA), European Medicines Agency (EMA), Pharmaceuticals and Medical Devices Agency, Japan (PMDA).
Branded and generic market
 “The government is focused to increase the uptake of generic drugs in order to reduce the healthcare burden.”Revati Kasture Head, CARE Research |
As per information shared by research analysts from Cognizant Technology Solutions, according to the European Generic Medicines Association (EGA), generic medicines in Europe have generated savings of Euro 30.00 billion. In terms of value, Germany is the largest market with a share of 27 per cent in the European generic pharma market, closely followed by the UK with a market share of 25 per cent with growth rates of six per cent each. On the other hand, though Spain and Italy account for smaller market shares of 4.2 per cent and 2.7 per cent, these markets present remarkable growth rates of 18 per cent and 22 per cent respectively. Germany and the UK are the two most developed generic markets constituting shares of 64 per cent and 60 per cent respectively in terms of volume penetration and accounting for more than half of the total generic pharma market in Europe. However, less mature generic pharma markets such as Spain and Italy present market shares of 29 per cent and 28 per cent respectively with regards to volume penetration. Revati Kasture, Head CARE Research says, “The government is focused to increase the uptake of generic drugs in order to reduce the healthcare burden. The share of generic drugs increased by 40.3 per cent year-on— year value wise and 36.5 per cent year-on-year volume wise during 2011 on the back of the significant regulatory changes implemented in the last couple of years. The revenue of the Europe generics pharma market was $36.44 billion in 2010. The market is expected to reach $62.71 billion in 2017, at a CAGR of 8.1 per cent from 2010 to 2017.”
 “Indian and Chinese-based pharma industry; with their capacity to produce API’s at a very low cost are also driving down prices and maximising their market share at the expense of European manufacturers.”Maria Aurora Paul Analyst, Cognizant Technology Solutions |
According to Maria Aurora Paul, Analyst from Cognizant Technology Solutions, “In Spain, following the acquisition of Ratiopharm, Israel-based pharma company Teva Pharma became the leading generic pharma company in terms of sales and the second largest generic pharma company in terms of units with a portfolio of 204 products, selling in approximately 558 dosage forms and 820 packaging sizes. Indian and Chinese-based pharma industry; with their capacity to produce API’s at a very low cost are also driving down prices and maximising their market share at the expense of European manufacturers.”
Indian companies
In Spain, the generic pharma market is largely represented by local companies. Regulations in the 17 local regions have varying policies regarding generic substitution. However Paul says, “Following the reduction of gross generic prices and lower maximum discounts, we expect generic penetration to increase. Spanish pharma revenue is $22679 and in 2011 the Indian pharma exports to Spain were Rs 610 crore. Today, most of the generics sold in Spain are produced in the country by Spanish companies itself; only 37 per cent are imported from outside. Presently, Indian pharma companies operating their business in Spain through organic and inorganic procedures are Ranbaxy, Combix (Zydus Cadila), Sun Pharma, Genericos Juventus, Dr Reddy’s [Dr Reddys Laboratories (UK)], Hetero Europe, Jubilant Pharmaceuticals (Jubilant Life Sciences), Laboratorios Aurobindo, Nicholas Piramal India, Orchid Europe, Dabur Oncology and Lupin Europe. During 2011. India exported pharma drugs worth Rs 610.93 crore ($135 million) to Spain, which is mere ~1.3 per cent of India’s total drugs and pharma exports during the year. However, the exports to Spain have grown at a CAGR of seven per cent during FY2007-FY2011.
 “Spain has been delaying payment to the pharma industry for a number of years, and now its regional governments owe the industry tens of millions of euro.”Shivaji Sykam Sr. Analyst, Cognizant Technology Solutions |
Shivaji Sykam, Senior Analsyt from Cognizant Technology Solutions highlights, “Spain is one of the member states of the EU and regulatory environment is almost alike in all the member states. It is seen that the Indian healthcare providers have limited understanding about the healthcare sector in most EU countries except UK’s NHS. Since each EU country has its own complex and evolved healthcare system, according to the respondents, this lack of awareness within the Indian healthcare provider community automatically constrains the scope for providing healthcare services to the EU market at large.”
The second factor that emerged as critical for shaping bilateral relations in healthcare was linguistic, social, and cultural affinity. Lack of such affinity between India and most EU countries was seen as a major constraint to India’s delivery of healthcare and related services to the EU market. It is also seen that healthcare is a highly personalised service where perceptions, attitudes, and social and linguistic ties play an important role. Thus, India’s prospects were perceived to be limited to the UK market and a few EU countries that have English-speaking capabilities.
The adjacent table (units are in crores) shows that the trading of generic drugs from India to Spain gradually increased from 2007-2011 and would continue to do so as the Spanish government is promoting the usage of generic drugs.
 |
| Source: Cognizant Technology Solutions |
India and EU trade relation
A variety of constraints are faced by Indian healthcare providers in providing health services to the EU market. These pertained to regulation in EU Member States or at the EU-wide level, which include, restrictions on outsourcing certain kinds of health services to providers outside the EU territory; data protection and data exclusivity laws; accreditation and certification requirements for healthcare establishments and compliance issues with international or EU standards and guidelines; insurance portability restrictions and coverage issues; recognition of professional qualifications and registration requirements; immigration and visa regulations affecting mobility of providers; and national treatment restrictions and discriminatory treatment which put Indian healthcare providers on an uneven playing field with EU-based providers and undermined their market access vis-à-vis competitor countries in the EU. Such issues are likely to feature importantly in any efforts to develop bilateral relations with the EU in healthcare.
Sykam emphasises, “The trade negotiations between the EU and the Indian government have been going on for many years. Inspite of the various constraints there has always been a gradual increase in the pharma exports from India and is also expected to continue in 2013.”
The generic penetration is currently low in Spain as compared to the other European countries. As per Farmaindustria Annual Report 2011 and IMS Health, the breakup of branded and generic medicines in Spain is 87.4 per cent and 12.6 per cent respectively by value and 72.3 per cent and 27.3 per cent by volume respectively.
Kasture shares, “The Government of Spain has concentrated its efforts to make significant public spending cuts in order to achieve the 2012 budget deficit target of 5.3 per cent of GDP, bringing it down from 8.9 per cent of the GDP in 2011. During the last couple of years, significant regulatory changes have been made by the Government with a focus to reduce the public spending in pharma, which has adversely impacted the revenue and profitability of the pharma industry in the country.”
Stringent regulatory environment
The Government of Spain has made significant efforts and regulatory changes to reduce healthcare cost and this would entail increasing use of generic medicines. This would augur well for the Indian pharma companies in the long run. However, it offers a lower margin opportunity for them due to prevalent pricing and reimbursement control in the country. The Madrid Government has approved a controversial – Royal Decree 16/2012 – law in April 2012 to guarantee the ‘sustainability of the National Health Service’, aimed at saving Euro 3.6 billion in the coming years. The funding of the healthcare system will shift from one that provides coverage to all through general taxation to a system funded by social security contributions, shares Cognizant Technology Solutions report. This law incorporates and expands the latest cost-cutting measures: pricing review, de-listing, promotion of generics usage through prescribing cheapest generic version of a drug, out-of-pocket payments for patients, limits to immigrants using the national healthcare system, and centralised purchasing of flu vaccines. Introduction of mandatory prescription by active ingredient in 2011 obliges pharmacists to offer the cheapest drug to promote generic dispensing, but unbranded medicines have also suffered harsh price cuts.
IMS Health estimates that in the last three months, generics have more than doubled their market share to almost 68 per cent, although volume and revenue data may tell a different story. Also in July 1, 2012, 426 drugs were officially withdrawn from the government’s basic co-payment list. Decree Law in 2012 allowed for prescription by brand names of the drugs and also prevented their replacement by any other cheaper drug. But if the prescription is by active ingredient, then a generic drug at the same price is preferred over the branded drug. It also provided for de-listing of more than 400 medicines that are meant for minor syndromes such as heartburn, diarrhoea, constipation, cough etc. It introduced a new variable co-payment system on the basis of users’ annual income.
So far, the new Spanish Government and its Ministry of Health, with new health minister Ana Mato, is not expected to radically change any of the austerity measures and decrees in the short term, while some changes might occur in the medium-to-long term due to pressure from the national and regional pharma associations to overturn the situation and avoid a system. In the meantime, the new government looks at supporting the pharma industry which has mostly been affected by the cost-cutting decrees and pharma payments delays, and commits to pharma repayments in the short-to-medium term.
Also, the reference pricing system (RPS) was further reformed by Royal Decree Law (RDL) in 2012. The resolution, for the first time, regulated reference prices for hospital medicines. The system keeps as the reference price the lowest cost/treatment/day of the medicines that make up the group of medicines. The same active ingredient and route of administration must include, as part of the National Health System’s pharmaceutical assistance, at least one generic medicine or biosimilar medicine. Kasture reveals, “The new wording of Article 93 leaves out of the regulation of substitution, applicable to the homogeneous groupings by virtue of the conditions laid down in the new wording of Article 85. For this reason, all medicines eligible for one of the sets, regardless of whether or not they can be substituted mutually, are now affected by the RPS.”
Impact of pricing and reimbursement
According to the Ministry of Health, growth in the number of prescriptions volume increased by just 1.62 per cent in 2011, in comparison to 2.54 per cent growth in 2010 and 4.94 per cent growth in 2009. Generic penetration across the key European markets is represented in the following graph, Spain ranks fifth but cost-containment issues are due to euro crisis – affecting almost all European countries. The other regulated key European markets to venture are Netherlands, France and Italy. The UK and Germany are highly penetrated by Indian pharma companies and are in the top five of 20 leading generic drug revenue generating countries.
Sykam reveals, “Spain has been delaying payment to the pharma industry for a number of years, and now its regional governments owe the industry tens of millions of euro. Analysts at Business Monitor International say that pharma sales to pharmacies and hospitals declined 2.2 per cent in France, 3.1 per cent in Italy and nearly nine per cent in Spain. IHS Global Insight reports that Spain has cut its spending on medicines by a record 8.8 per cent, thanks to its austerity package and three cost-cutting royal decrees. Spain spent Euro 11.1 billion ($14.4 billion) on medicines in 2011, which resulted saving of Euro 1.4 billion on the previous year. This continues a decline in pharma spending in the country that began in 2010 when pharma expenditure fell by 2.3 per cent.”
Costs and pricing
In most cases, the manufacturing costs for generic medicines are the same as for the original product. The only parameter for reducing costs is the price of the active pharmaceutical ingredient (API). Price linkage requires the generic medicines to be set at a fixed percentage discount to the originator which can seriously disadvantage its introduction and financial viability. This is especially the case when the originator company adjusts prices downwards, prior to generic entry. In Spain the legislation only allows reimbursement prices to go down. This causes a problem for generics manufacturers when they have increasing costs such as salaries and energy bills year-on-year. By adopting the lowest price approach, sustaining the current supply of generic medicines in all countries could be a problem.
Increasingly stringent regulations
The generics industry also faces an increasing burden due to pharmacovigilance, periodic safety update reports (PSURs) and the necessity for Braille packaging. Rising costs in quality assurance, anti-counterfeit measures and product security are also adding costs, and must all be absorbed without the ability to counteract them with price adjustments. Farmaindustria, the pharma industry trade body reported that the sustainability of the National Healthcare System is at stake and the image of the Spanish industry abroad is being impacted”. For multinationals, there is the sense that the environment is hostile for business and unpaid debts are becoming unsustainable, leading Roche to impose credit limits on supplying oncology drugs earlier this year. Big players may well decide to divert operations to emerging markets or countries that are not affected by the Euro crisis.
Growth projection
In Spain, the generic medicines market during the 12 months ending (July 2010 – June 2011), only represented 10 per cent of the total pharma market in value and 23 per cent in volume. Today, the generic medicines market in Spain integrates 187 active substances. The number of EFG’s approved by the Spanish Agency of Medicines and Sanitary Products is of 5.105. Generally, European markets, such as the UK, Germany and Netherlands are characterised by relatively high generic penetration (~50 per cent+), other key markets like France, Italy and Spain has low generic usage at around 25 per cent. Apart from generic penetration, the reimbursement policies and consequently pricing also differ across markets.
A report by IMS Health’s Farmaindustria’s, released figures showing that drug sales in Spain have dropped by 11 per cent in 2012. But the generic industry in Spain have enjoyed some growth in the face of the branded pharma squeeze. Its market value has increased from five per cent in 2008 to 17.4 per cent in the year 2012.
- Advertisement -
