GlaxoSmithKline (NYSE: GSK) is having a tougher time than expected generating sales in Europe as the credit crisis leads governments to cut prices, Chief Executive Officer Andrew Witty says.
“What we’ve seen in the last three, four months is a much higher level of price pressure than we had anticipated, which is of course making short-term trading more challenging than expected,” Witty said in an interview in Brussels on Wednesday. “Nothing has improved since the first quarter,” when Glaxo’s European sales dropped 6 percent from the previous year.
The sovereign-debt crisis may trim industrywide drug prices by as much as 6 percent this year, Witty said. European governments are more critically reviewing new drugs and rejecting medicines that don’t meet stringent cost-benefit criteria, to the possible long-term detriment of patients, the CEO said.
Glaxo shares fell as much as 0.8 percent after Bloomberg reported Witty’s comments, and were up 0.3 percent in London. The benchmark FTSE 100 Index, which includes Glaxo, rose 1.4 percent.
The so-called parallel trade, or exporting drugs from low- price countries to nations where they can be sold for more, also will hurt drug companies by causing shortages, Witty said in the interview.
“It feels that we’re not halfway through” the crisis, Witty said. “Six months ago, I thought we had plateaued, but it’s gotten worse.”
Witty was in the Belgian capital for the annual meeting of the European Federation of Pharmaceutical Industries and Associations, of which he is president.
Glaxo is not alone in voicing its concerns. Because some governments set drug prices based on levels in neighboring nations, the pressures are spreading, said Ruud Dobber, vice president of Europe, Middle East and Africa at AstraZeneca Plc, in a statement.
“European governments should not use price changes we have accepted in countries with specific financial issues to drive down their short-term health-care bills through reference pricing,” he said. “This would dramatically reduce our ability to get medicines to patients in the long-term.”
To cope with the crisis, Witty will implement plans to make Glaxo’s manufacturing processes more efficient and improve capacity utilization over the next two to three years and also cut administrative costs, he said. The company has already reduced its European sales force by about half over the last four or five years, so “it’s more or less the right size.”
Given the difficulty in meeting conditions for reimbursement for new drugs, Glaxo is likely to prioritize certain European countries when introducing them, Witty said. Over the long term, governments will need to raise drug budgets by cutting spending elsewhere, he said.
“What are they saying, that they don’t want any new drugs ever? The drug budget will have to be expanded.”
[GSK operates its North American headquarters in Research Triangle Park, N.C.]
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