October 31, 2014
Pharmaceutical firms expect price hikes soon
Gov’t focuses on tightening regulation in the highly concentrated pharmaceutical sector
POTRERO DE LOS FUNES, San Luis — Prescription drug makers expect the government to authorize them to increase their retail prices soon as the two-month freeze on prices expired last week.
Firms in the sector say they are in such financial straits because they have only been able to increase prices four percent this year that they may end up deciding on a hike unilaterally if they do not receive government authorization.
In a sector conference that took place in this small town of San Luis province last week, executives described a crisis scenario, noting that no one has been able to fill the big hole left by controversial former trade secretary Guillermo Moreno, who was pushed out amid a broad Cabinet reshuffle in November.
Meanwhile though, the federal government sees the problem with the sector as going beyond prices, and is moving forward with several bills to more strictly regulate the highly concentrated sector, emphasizing that companies have made plenty of profits in recent years.
Trade Secretary Augusto Costa ordered drug makers to freeze prices for two months at the end of June after the sector carried out unilateral hikes, which had to be rolled back. Sector executives agreed to the freeze expecting to be able to increase prices once it expired, particularly considering workers in the industry received 33 percent wage hikes this year. Yet after several meetings with Costa, the executives have not been able to convince the Trade secretary of the need to increase prices.
If the sector is blocked from increasing prices, layoffs could be inevitable, executives warned.
“We want to keep our current personnel but there’s an uncertain outlook over the whole sector. Only a four percent increase was authorized this year and we are now waiting for the Trade Secretariat,” Miguel Maito, general manager of CILFA, the chamber that brings together the major drug makers, said at the Pharmaceutical Federation (FEFARA) conference.
Drug makers say that after Moreno stepped down, his successor, Costa, has only met a few times with the sector and has not continued Moreno’s practice of handshake agreements on prices that allowed companies to raise prices on certain drugs to compensate for cheaper prices in other, more popular products
“Moreno analyzed the drug market when he started in 2007 and divided it into three categories: regular, premium and extra premium. An average 12 percent increase was authorized per year until he left in 2013,” said sector expert Carlos Vasallo, who recalled a 2001 decree that stipulates drug prices have to be updated every three months continues to be in force.
“Regardless, it’s not applied,” he said.
The sector’s failure to keep up with inflation means that Argentines spend a smaller percentage of their income on prescription drugs. The average consumer now spends three percent of his or her income on prescription drugs, down from 4.1 percent a decade ago, according to Matio.
That does not mean the sector has not seen price increases over the last year. Prices of drugs have risen 56 percent since January 2012 and remain at the regional average, while sales have dropped four percent in the first semester of the year.
“On average, prices are outdated,” Manuel Agotegaray, head of FEFARA, told the Herald. “More than 35 percent of the pharmacies in Argentina are experiencing serious sustainability problems.”
Still, even in this scenario drug makers have found ways to get around price restrictions with tactics that are well-known in the industry such as changing the packaging of a product in order to charge more.
There are some 250 domestic and foreign pharmaceutical companies that operate in the country with the likes of Roemmers, Bagó, Gador, Elea and Bayer imposing a large footprint over the sector. Yet the number is a bit misleading — only 30 companies concentrate more than 75 percent of the sales in the country, according to estimates. The large number of companies in the sector also hides the way in which a few companies have a virtual monopoly over certain categories of products.
The companies certainly have a captive market that has made it a profitable sector over the years.
Argentina is the fourth-largest consumer of prescription drugs per capita. Tied to an almost complete lack of intervention from the state when it comes to setting prices, this high level of consumption means pharmaceutical companies have been able to obtain large profits over the last decade. From 2006 to 2012, net revenue in the sector rose 12 percent according to official figures.
In order to change this scenario, the federal government has been pushing several bills in Congress that give the Trade Secretariat more tools to regulate the sector. Limits on the advertising of drugs, creating a national council to regulate the drugs market and a national agency to promote state-owned pharmaceutical labs are some of the bills proposed by Kirchnerite lawmakers.
The bill that seems to concern the pharmaceutical industry the most is the one being pushed by Victory Front (FPV) lawmaker Gloria Bidegain, who wants to amend a 2002 law that forces doctors to prescribe the generic name of a drug to forbid them from even suggesting a specific brand.
“Doctors should be allowed to prescribe a brand if they want to,” Maito said. “We defend brands because of the quality and prestige they have.”