Daily Management Review

Why Drug Shortages In Europe Could Worsen


Why Drug Shortages In Europe Could Worsen
Ignasi Biosca-Reig immediately added shifts at his pharmaceutical company's factories to increase production of the well-known antibiotic when he learned there were shortages of amoxicillin in Spain. But he could only commit to a few more shifts.
Despite his desire to substantially increase supplies, Biosca-Reig claimed he couldn't justify spending millions of euros on new production lines unless he received a higher price for the generic medication to cover rapidly rising costs.
However, Spain set the price manufacturers are paid for pediatric amoxicillin when the drug's generic version was first introduced in the nation two decades ago, and it has barely changed since. This is true of many European nations.
"It's a non-business," said Biosca-Reig, chief executive of Spanish drugmaker Reig Jofre.
"We wanted to react, but we had a problem," he said. "The costs go up, the price remains the same."
As respiratory infections resurface with a vengeance following the removal of pandemic restrictions, many nations around the world have reported antibiotic shortages. However, the issue is particularly severe in Europe.
The cost of everything from energy for factories to cardboard for packaging to aluminum for bottle caps has increased due to the war in Ukraine, and many European drugmakers said they are reluctant to increase capacity because of this. This suggests that more shortages are likely to occur.
13 European producers and six generic drug industry associations and trade groups told Reuters that many businesses are finding it difficult to make enough money to justify producing antibiotics at all, much less increasing production.
"We cannot keep this capped pricing when all of our production, logistics and regulatory compliance costs are increasing at double digits or more," said Adrian van den Hoven, director general of lobby group Medicines for Europe, which represents makers of generic drugs in the region.
For competitive reasons, the companies Reuters spoke with declined to disclose margins for particular generics.
Many European governments establish a reference price for a generic drug prior to issuing tenders by comparing it to those of similar medications sold domestically or in other markets in the region. This reference price then serves as the benchmark when negotiating with suppliers.
According to drugmakers, they frequently choose the suppliers with the lowest bids, which pushes prices even lower in subsequent tenders.
According to Medicines for Europe, generic medications now make up about 70% of all medications prescribed in Europe, but only 29% of the money spent on medications by national health agencies.
European generic drugmakers claim that the tender system and regulated prices have fueled a race to the bottom, with Asian suppliers undercutting European firms.
Over the last decade, this has forced some European companies to reduce output or relocate manufacturing of generics and active pharmaceutical ingredients (APIs) to India and China, where costs are much lower.
Industry executives now believe that overhauling pricing schemes is the only way to re-energize European manufacturing, both to avoid future shortages and to keep the continent from becoming even more reliant on Asia for essential medicines.
"There's a growing awareness that we may have to pay more to ensure our supplies of these medicines is secure and not dependent on other regions, for our own health and national security," said Rena Conti, a drug pricing expert and professor in the department of markets, public policy and law at Boston University's Questrom School of Business.
The European Medicines Agency (EMA) and European Union legislators recognize a problem.
Since the shortages were first reported in October, the EMA and the European Commission have met with drugmakers and trade groups several times, but no major action has been announced, according to all parties involved.
Last month, EMA chief medical officer Steffen Thirstrup told Reuters that the number of countries reporting shortages of the same products was unusual, but that demand would ease as warmer weather approached.
In the meantime, Thirstrup suggests that alternative medications be used if amoxicillin is unavailable.
However, a number of patient organizations warned last month that substitutions were now squeezing supplies of other drugs.
In March, the European Commission is expected to present revisions to the bloc's pharmaceutical law.
It proposes measures such as requiring manufacturers to keep larger reserves on hand and to issue early warnings of shortages, but executives want Brussels to back their calls for governments to change their tender and pricing systems.
"The key long-term issue is not the production cost, it's the overall European market framework, which doesn't allow us as a producer to adjust prices flexibly to reflect change in input costs, especially on essential medicines," said Giovanni Barbella, global supply chain head at Sandoz, the generic division of Swiss pharmaceutical giant Novartis.
In 2003, the price of paediatric amoxicillin in Spain was set at 98 cents ($1.05) per 60 mL. That was the price for 40 ml in 2013, and it hasn't changed since. According to the country's generics manufacturing association, half of the generic medicines sold in Spain are priced under 1.60 euros per box or bottle.
According to drug pricing expert Melissa Barber, prices of antibiotic generics in the UK are comparable to those in Spain, while in Germany, Europe's largest generics market, the average amount manufacturers receive has fallen 66% over the last decade, according to Germany's generic drug association Pro Generika.
According to Elisabeth Stampa, a member of the advisory board of the Spanish pharmaceutical company Medichem, in most European countries there is no mechanism to review prices, link them to inflation, or justify an increase because APIs have become scarce.
"It's extremely difficult to keep the same products you launch competitive after 10 years," said Stampa, who was previously Medichem chief executive.
Some countries have pledged to take action.
Germany's parliament is expected to consider legal changes to its generic drug tender system this year, while Spain's Health Ministry told Reuters last month that the government was considering changes to its pricing system, which could result in temporarily higher prices for drugs like amoxicillin.
Executives and trade groups also stated that they were frequently unaware of potential shortages because there is no central EU system that tracks supplies of essential generic drugs in each country, as there is for patented medicines.
"You get what you pay for. With price being the decisive criterion in tenders, you are sending a message that security of supply, quality and environmental standards are less important," said Thomas Cueni, director general of the International Federation of Pharmaceutical Manufacturers & Associations.
Years of price pressures on manufacturers have forced many smaller firms out of business, and only a few generics manufacturers serve much of Europe for drugs like amoxicillin.
According to market researcher IQVIA, five companies - Britain's GSK, Sandoz, American drug company Viatris, India's Aurobindo, and France's Servier - control nearly 60% of the European amoxicillin market.
According to Pro Generika, Sandoz has a 70% market share for amoxicillin drugs in Germany.
When the shortages became clear, some companies increased production, but not sufficiently to meet immediate demand.
"There has been a decline in European capacity and right now in this situation, there is not the spare capacity to really respond to these shortages," said Rex Clements, chief executive of Dutch API maker Centrient Pharmaceuticals.
According to Sandoz, which spoke to Reuters, it plans to increase amoxicillin production at its Austrian factory by a double-digit percentage this year compared to 2022 by adding additional shifts, and an expanded facility will also go online in 2024.
At its amoxicillin manufacturing facilities in Britain and France, GSK also added new employees and shifts, a spokesperson said.
Companies with smaller market shares, however, such as Israel's Teva, which, according to Medicines for Europe, has 5% of the regional amoxicillin market, are restricted.
"There is no way we can increase our capacity in order to fill the market gap," said Erick Tyssier, Teva's head of government affairs in Europe. "It's just not possible."