Is all sunny in Spanish pharma?

Ranking amid the top 10 global pharmaceutical markets, Spain has recently been described as the fastest growing EU country of Europe's 'big five'.¹ The country's physical location enables access to both European and Mediterranean countries, as well as EU member states where the circulation of goods is free. This has helped secure growth of its pharma market, which is currently estimated to value €15.3 billion, and is set to rise to €18.5 billion by 2013 at a predicted CAGR of 4%,² which is not unrespectable given that the expected forecast growth for European developed markets is between 1–4% because of the unstable economic climate.³

(DAVID SANGER/GETTY IMAGES)

Despite the uncertain global financial environment, Spain's industry is still moving forward thanks to government initiatives. Gerardo Gonzalez of Spain's Reig Jofre Group explained: "The industry is very dynamic and adopts new technologies quickly. This is encouraged by the government by plans to support investment in new technology; a government department has been created to assist and manage this."

The industry has also continued to invest heavily in R&D. According to a recent report, the Spanish pharma industry invested more than €1 billion in R&D in 2008; an increase of 9.6% compared with the previous year. Of this, €453 million was injected into clinical trials.⁴ The Spanish government has also introduced initiatives to promote public investment into R&D, such as the Ingenio 2010 programme and the 2008–2011 Nacional de Investigacion Cientifica, Desarrollo e Innovacion Technologica (National Plan for Scientific Research, Development and Technological Innovation).

Government initiative threatens the industry

In general, the market for pharmaceuticals in Spain is very similar to that of other developed European countries; there is a relatively effective public healthcare system and strong demand for new medicines as the population ages. The country's pharma industry also faces similar problems to those witnessed by its European siblings, such as competition from emerging economies (primarily China and India) that offer lower R&D and manufacturing costs and, more critically, looming patent expiries. Half of Spain's protected market faces patent expiry between 2010 and 2015, representing $4 billion of 2008 sales.¹ According to IMS Health, some companies have 20–30% of their portfolios exposed and will need to alter their strategy in order to mitigate the risk and survive.

Furthermore, Spain has not escaped the global economic crisis unscathed; although the country's public healthcare system, Servicio Nacional de Salud, is largely funded by taxes, making it less exposed to changes in the economic environment, the consumer health market declined by 5.3% in Q1 2009 after growing at almost double digits at the end of 2007. The sharpest decline was in sales of overthecounter medicines, which dropped 5.6%, with consumer purchasing behaviour showing a tendency towards cheaper products.¹

Perhaps at the forefront of pharmaceutical companies' woes, however, is the Spanish government's initiative to introduce more stringent drug pricing measures, which have resulted in an average decrease in drug prices by 40%.⁵ Although the system provides Spain's consumers with lower cost medicines than in other European countries by preventing pharmaceutical companies from freely controlling prices, it is, unsurprisingly, not favoured by pharma manufacturers.

While each of these factors poses a threat for branded pharma, generics manufacturers have reason to be optimistic as the need for cost containment is expected to lead to greater uptake of generic medicines. In 2008, generics sales reached €1.14 billion, comprising 9% of the country's health services' prescription expenditure. By 2013, this figure is expected to reach €2.3 billion and represent 12% of the total drug market.²

The generics market will also be affected by the government's cost containment system, however, and it is the belief of Spain's National Pharmacists' Association that this initiative is compromising the role of generics, and provides little incentive for manufacturers to register new generic medicines in Spain.⁵ The reference price scheme that came into effect in March 2009 affects approximately 160 groups of medications, including 2847 generic medicines.^5,6 Savings are expected to be almost three times the savings estimated for 2008⁷ and although this is good news for consumers, the industry will inevitably suffer a drop in profits.

Parallel trade success

Looking on the bright side, there is one problem the industry is beginning to gain some control over: parallel trade. Parallel trade has flourished in the EU because of differing prices across member states. As medicines in Spain are often cheaper than in other developed European countries, the country has been a prime target for parallel traders to obtain stock. In 2006, more than twothirds of Spanish pharmacies encountered delays in the supply of medicines, which the Spanish Association for the pharmaceutical industry, Farmaindustria, attributed to parallel trade.⁸ To combat this, many pharmaceutical companies, including GlaxoSmithKline, Pfizer and Novartis, have introduced (or are planning to introduce) a dual pricing system where wholesalers pay more if the drugs are to be exported. In some cases the wholesaler pays full price for the medicines, but is later offered a discount if they can prove that the products were sold in Spain.

Blossoming biotech

Although Spanish pharma has its problems, the biotechnology industry is experiencing healthy growth. According to Spain's investment agency Invest in Spain, between 2000 and 2006, turnover for the biotech industry grew by 200%.⁹ Analysis by Frost & Sullivan also highlights the country's success in biotech. "Spain is considered the fourth largest country in the EU for the production of biotech products," Frost & Sullivan analyst Sylvia Findlay explained. "The country's biotechnology sector is experiencing a significant boom, with a research pipeline of more than 190 products."

In 2008, more than €190 million was invested in biotechnology, accounting for approximately 19.8% of total pharmaceutical R&D investment.⁴ In October 2008, the sector also received a welcome boost when a new venture capitalist firm invested almost $100 million in more than 10 companies developing bio therapeutics or diagnostics.¹⁰

Spain's most important geographical biotechnology area is the Catalonia Biocluster, which is located in the northeast corner of the country and covers an area larger than Belgium. More than 40% of the country's pharma companies are located in Catalonia, including Almirall and Esteve, Spain's top national players. In 2005, Catalonia's pharma companies accounted for 60% of the country's pharmaceutical production¹¹ and by 2006, Catalonia was also declared the most dynamic region in Spain for biotechnology company creation by the Associacion Espanola de Bioempreses.¹²

How can companies mitigate risk?

The growing biotechnology industry is, of course, a welcome trophy, but Spanish pharma still has many concerns that must be addressed to sustain growth. According to IMS Health, the days of doubledigit growth have passed and may never return because of costcontainment measures and the rise of an economic mindset that makes payers focus on cost rather than clinical benefit. Despite this, many companies still have structures and resources designed for the double-digit age.

The industry must change and adapt; expenses must be minimized and profits improved, but there are no single bold moves that can help achieve this. One of the most difficult obstacles for Spanish pharma to overcome is the government's costcontainment initiative, but there is still room to boost sales. Spain has an advantage over other developed markets; it is one of the only developed countries where product sales force promotion still helps to achieve higher growth rates. Analysis by IMS Health also believes there is room for improvement in finance, human resources, market research, business intelligence and leadership skills. Effective management teams are needed that have the ability to run companies that are slowing in growth, which will require different strategies to those employed by the former highgrowth pharma company.

Together, small changes may be enough to support the Spanish pharmaceutical industry throughout the economic crisis and beyond when we will see a new type of pharmaceutical business model emerge.

Stephanie Sutton is Assistant Editor of Pharmaceutical Technology Europe.

References

1. Economic Impact — Spain (IMS Health, CT, USA, 2009).

2. Spain Pharmaceuticals and Healthcare Report Q3 2009 (Business Monitor International, August 2009).

3. IMS Health, "IMS health lowers 2009 Global Pharmaceutical Market Forecast to 2.5—3.5 Percent Growth" (2009). www.imshealth.com

4. Biocat, "Almost half of all intramural investment in Spanish pharmaceutical industry R&D takes place in Catalonia" (2009). www.biocat.cat

5. Spain Pharmaceuticals & Healthcare Report (Business Monitor International, 2009).

6. The pharmaceutical Market: Spain (Espicom, June 2009).

7. Global Insight, "New Reference Pricing Law to generate US$528 mi. in Savings for Spain's 2009 Pharmaceutical Bill" (2008). www.globalinsight.com

8. Life Science Leader, "The Rising Problem of Parallel Trade" (March 2009) www.lifescienceleader.com

9. Invest in Spain, "Biotechnology, Pharma and Life Sciences www.investinspain.org

10. Spain Pharmaceuticals and Healthcare Report Q4 2008 (Business Monitor International, December 2008).

11. Montserrat Vendrell, Catalonia Biocluster (powerpoint presentation) March 2005 www.pcb.ub.es

12. Biocat, "The BioRegion" (2009). www.biocat.cat