The cost of the Euro zone crisis is mounting for drugmakers, with unpaid debts owed to the pharmaceuticals sector now estimated by the industry's European trade body at up to $20 billion. With payment times also getting longer, drug companies expect Europe to remain a significant drag on their businesses throughout 2012.
"Things are getting rapidly worse," said Richard Bergstrom, director general of the European Federation of Pharmaceutical Industries and Associations (EFPIA).
His organisation puts the total outstanding European debt for medicines at between 12 billion and 15 billion euros ($16-20 billion), up from around 10 billion estimated last November.
Nearly all of those unpaid bills are in four countries – Greece, Portugal, Spain and Italy – which lie at the heart of the crisis, Bergstrom told Reuters in an email. The deterioration in Europe comes at a difficult time for a global drugs industry that is already struggling with a flood of patent losses, rising research costs and risk-averse regulators.
Unlike makers of other consumer goods, pharmaceutical companies face ethical pressures to continue to deliver their products, at least where alternatives are not available, even if bills go unpaid.
"There will be more pressure in Europe in terms of austerity measures," GlaxoSmithKine's finance head Simon Dingemans told an Economist pharmaceuticals conference. His company said this week it was sweeping cash on a daily basis from euro-zone banks in a bid to protect itself from potential problems in the single currency bloc.
Spain is the most in debt
Spain is the biggest single debtor, with the country's national health system owing pharmaceutical companies 6 37 billion euros at the end of December, up 36% on a year earlier, according to the Spanish industry group Farmaindustria.
The average delay in making payments in Spain is now 525 days, with four Spanish regions exceeding the 800-day mark, it added. Drugmakers – along with medical technology firms, which are owed a further 4 billion euros in Spain – have been trying to thrash out a deal with Madrid in recent months.
Companies say they are ready to accept state-guaranteed securities, following a similar move in Greece where drugmakers took some payments for unpaid bills in government bonds. The Spanish government pledged last month to pay the money owed to drugmakers by the country's debt-laden regional governments but some company officials believe the viable deal will require outside intervention.
"It's clearly an issue. How are we going to recover the money that is owed?" said Bruno Strigini, president of Europe and Canada at Merck & Co. "I don't see how we can get to a satisfactory conclusion without the help of international institutions."
(Ben Hirschler, Reuters Health, February 2012)