Entangled in intricacies, the drug industry seeks a way out

  • 2010-04-08
  • By Linas Jegelevicius

KLAIPEDA - In Lithuania, as in the rest of the world, there is hardly another business segment expanding as rapidly as the pharmacy business. Data from the Department of Lithuania’s Statistics show that retail drug sales made up 1.72 billion litas (493 million euros), last year. In comparison, Lithuania’s national budget for 2009 is a mere 18 billion litas. The turnover in 2009 was a slight decrease compared to the previous year, which was 1.76 billion litas. Drug import has grown from 1.1 billion litas in 2006, to 1.6 billion litas in 2009, as drug exports have risen from 231 million litas to 572 million litas.

Retail drug sales is substantial, bearing in mind that the sheer majority of the business sectors have endured a massive slump due to the downturn in Lithuania. The major drugstore chains continued their expansion, as the number of drugstores and pharmacies keeps rising, reaching nearly 1,500 stores last year. There are 12 major retail pharmacy chains and 291 drug wholesale suppliers in Lithuania. However, contradictory to popular belief that all pharmacies are thriving, some are on the brink of bankruptcy. Leaving aside the 3 - 4 struggling drug store chains, the rest share the market equally. However, ‘Eurovaistine’ is considered the market leader with over 300 pharmacies in Lithuania and dozens in Latvia and Estonia. Competition among drug store chains is enormous as they zealously guard leaking information about their financial situation and plans.

“Drug turnover growth has been largely impacted by the rising demand for medicine. It has to do with more aggressive marketing, advertising and easy access to drugs. The sales have been significantly boosted by ordering prescription drugs hassle-free, via the Internet from home, which is becoming a common practice for many. In addition, we see an increasing trend in the preventive drug consumption, which means that the population is becoming more health-conscious,” Virginija Zilenaite, senior specialist of the State Medicines Control Agency, told The Baltic Times.
Breaking down the daily drug consumption data, which was provided by the agency, shows that some drug consumption was in decline last year. Thus, dermatologic drug consumption based on daily intake went down 36.9 percent; pre-infective drug consumption slumped 28.8 percent; neurological drug intake decreased 20.5 percent; blood and cardiovascular drug consumption fell 24.8 percent. There was a slight decrease in other kinds of drug consumption as well.

This is not a surprise to psychiatrist Andrius Kacergis of Taurage County Hospital. “I guess many wonder why, with the overall lesser drug consumption, drug turnover in 2009 was nearly as large as in the previous year. One should keep in mind that the difference was patched up by steadily increasing drug prices over the last year. As far as the intake of neurological drugs is concerned, I can say that mental health wellbeing, as opposed to cancer cases, for many people is not an issue of life and death. To put it simply, it is something that people tend to put off dealing with, for ‘better times.’ It has been known for many years that during times of hardship people tend to focus on their survival, which means meeting their daily needs, like housing or nourishment. This explains why during war there are very few suicide cases derived from anxieties or psychotic disorders. Suicide is often considered as an attribute of a spoiled society or good life. It may sound cynical, but it makes sense,” said Kacergis.

Interestingly, while drug consumption in most groups declined, statistically, it was on the rise at over 30 percent for hormonal treatment (excluding sexual hormones), and up 13 percent in anticancer drug intake. Iveta Skurvydiene, general practice physician of Taurage County Hospital, explains this by the lack of generic drugs. “The more generic drugs there are in a certain pharmaceutical segment, the cheaper they are. Unfortunately, there are very few generic anticancer and hormone drugs in the market. Besides, brand-name prescription drugs are not reimbursable, making them very pricey. The only way to lower their prices is by promoting generic drugmakers,” says a convinced Skurvydiene.

Due to the drug industry’s liberalization in late ’90s, the pharmaceutical industry hasn’t faced the major issue of pricing policies. Lately, however, the sector’s immunity has been challenged, as the government, nudged by President Dalia Grybauskaite, aims to harness the industry’s uncontrollable profit margins by introducing drug price caps and drug markup ceilings. All of these alterations in the legislation will be in effect from April 1.

In order to prevent any price increases before legislation takes effect, the Ministry of Health is recording product prices up to the implementation date. The new scheme will apply to both existing and newly approved medicines. Thus, it is expected that the drugmakers will be compelled to slash their prices by up to 10 percent, as drug wholesale sales’ markup is about to drop by 10 – 15 percent, and the retail sales’ markup will go down 5 – 10 percent. Generally, non-reimbursable drug retail prices, it is expected, will not exceed the drug importer’s declared price, adding VAT and the government’s set wholesale and retail sale markups. Thus, the prices of non-reimbursable prescription and over-the-counter drugs in Lithuania should decrease by 10 – 15 percent.

However, the pharmaceutical industry chiefs rushed to denounce the caps, alleging “Lithuania’s pricing and reimbursement environment is becoming increasingly negative for major pharmaceutical companies and patients.” Jurate Kulberkiene, director of Lithuania’s National Drug Trade Association, says “The legislature changes are meant to create an effective drug price regulation mechanism that will encompass all links of the pharmaceutical industry, including drug purchases from drugmakers and their representatives’ added markup, wholesalers and retailers.”

She estimates that from 72 – 93 percent of the final price goes to foreign drugmakers and their representatives. “It is impossible to implement the drug price regulation mechanism by setting it only to drug wholesalers and retailers, while not targeting drugmakers and their reps. The state’s new drug policies are first aimed to harness their appetite. However, it remains unclear whether it will work effectively,” Kulberkiene said.

The average pharmacy’s markup in Lithuania is one of the lowest in the European Union, however, when it comes to the drug final price, it is much larger than in neighboring Poland and other countries. The paradox can be explained by the fact that the drugmakers sell their drugs to Lithuania at prices averaging 100 – 150 percent higher than in Poland. The government expects that the Pharmacy law amendments, focusing on the drugmakers’ price regulations, will achieve lower prices.

“Every pharmacy’s customer will see changes in the prices of non-reimbursable drugs. The government predicts a drug price decrease of up to 20 percent. It will help Lithuania’s residents to save 50 - 60 million litas per year,” Martynas Marcinkevicius, advisor of the Minister of Health Ministry, stated in a press release.
However, some drug wholesalers and retailers evaluating caps on markups predict that the government’s efforts may produce the opposite outcome. “Personally, I believe that many patients, who are going to swallow the government’s pledges on a drug price decrease, may be very disappointed, already in April. No one should expect miracles from any regulations, as the free market sets its own rules. I doubt whether the attempts to regulate drugmakers’ prices can be effective. It is not a matter of the regulations, as the importers are not subject to our rules. Being a tiny part of the overall drug market as Lithuania, we may face a possibility of the removal of some drugs from [the shelves],” Kulberkiene cautions.

While the new regulations may only marginally reduce profits of the large chain pharmacies, small ones fear that the state’s new drug trade policies may bring them to bankruptcy. “Chain drug stores and small pharmacies have never been on a par with each other. Though the drug market was formally liberalized in the late ’90s, there exists a big monopoly of large chain pharmacies. This is something that government should heed in order to ensure equal competition. How can we compete equally when the drug suppliers give 30 – 50 percent discounts, meanwhile the discount for our small, two-person-run pharmacy is only 5 – 10 percent. With the huge competition in the market, due to this difference, we cannot allow setting larger drug markups. It is an open secret that most of the chain pharmacies have unwritten agreements with their drug suppliers over promoting certain drugs of certain drug importers,” says Macijauskiene, who together with her husband runs a small pharmacy in the southwestern town of Taurage.

The pharmacy industry has been long blamed for tampering with and coaxing physicians into prescribing certain drugs, supplied by certain drugmakers. In return, they award the doctors with lucrative holiday packages and other bonuses. It is such a widely spread practice. “Usually, new pharmaceutical companies tend to introduce their new products in a lavish way. For a better new drug kick-off, they tend either to hold a memorable presentation party with caviar, champagne, or some lure doctors with such rewards as holiday packages. Quite honestly, I have once gone on such a trip to Turkey. My colleague psychiatrists have done that as well. From a work ethic point of view, it might not be appropriate conduct, but from a legal standpoint, I see nothing wrong, as the newly introduced drugs are listed in the national drug registry, and it is my exclusive privilege to prescribe one drug or another,” says Rasa, a psychiatrist at a provincial hospital.

Some drugstores chasing large profits seize on selling cheap drugs, though they do not generate as much profit. “Such a trend overshadows the humanity in the pharmacy business. When income and profit come first, the ordinary patient suffers, regardless of  all legislation,” says Jurate Orlauskiene, director of ‘Vitabalan,’ a company specializing in designing and producing prescription drugs, over-the-counter drugs and supplements, in an interview with the daily Lietuvos Rytas.

Some industry insiders worry over the emerging drugmaker attempts to compensate their losses due to the decrease in reimbursable drug prices by billing non-reimbursable drugs. Whether the new state regulations aiming to alleviate the patients’ burden will work, one will soon know. However, expectations cannot be very high, as the pharmaceutical industry is entangled in too many intricacies and sensitivities.