Prescription Drug Expenditure Declines

BMI View : Despite calls made by companies for the implementation of a system that adequately rewards innovation and supports investment in future medicines, Mariano Rajoy's centre-right administration is likely to remain committed to fiscal consolidation and will continue to target the healthcare sector and prescription drug expenditure in particular - a large recipient of government funds.

Between June 2010 and March 2014, prescription drug expenditure by Spain's National Health Service (Servicio Nacional de Salud, SNS) fell by 17%, with expenditure on patented medicines falling by 27%. During the same period, generic drug expenditure increased by a staggering 101%. The sharp decline in the value of the prescription drug sector, and in particular patented medicines, started in mid-2010 and can be attributed to the numerous cost containment measures implemented by the government in 2010, 2011 and 2012.

BMI's data for per capita prescription drug sales aligns with the data provided by Farmaindustria. Between 2010 and 2014, we calculate a 14.72% decline in prescription drug expenditure in Spain, with expenditure in the patented medicines segment experiencing a 20.19% decline during the same period.

Generic Medicines: A Jump In Spending
Sales Growth Compared With June 2010 Values. Reimbursed Prescription Drug Market

Prescription Drug Expenditure Declines

BMI View : Despite calls made by companies for the implementation of a system that adequately rewards innovation and supports investment in future medicines, Mariano Rajoy's centre-right administration is likely to remain committed to fiscal consolidation and will continue to target the healthcare sector and prescription drug expenditure in particular - a large recipient of government funds.

Between June 2010 and March 2014, prescription drug expenditure by Spain's National Health Service (Servicio Nacional de Salud, SNS) fell by 17%, with expenditure on patented medicines falling by 27%. During the same period, generic drug expenditure increased by a staggering 101%. The sharp decline in the value of the prescription drug sector, and in particular patented medicines, started in mid-2010 and can be attributed to the numerous cost containment measures implemented by the government in 2010, 2011 and 2012.

Generic Medicines: A Jump In Spending
Sales Growth Compared With June 2010 Values. Reimbursed Prescription Drug Market

BMI's data for per capita prescription drug sales aligns with the data provided by Farmaindustria. Between 2010 and 2014, we calculate a 14.72% decline in prescription drug expenditure in Spain, with expenditure in the patented medicines segment experiencing a 20.19% decline during the same period.

We continue to hold a bearish outlook for prescription drug expenditure in Spain and forecast that prescription drug spending will continue in its downward trajectory until 2018, with spending falling from EUR22.45bn (USD29.63bn) in 2013, to EUR20.01bn (USD24.01bn), experiencing a compound-annual growth rate (CAGR) of -2.3% in local currency terms and -4.1% in US dollar terms. Between 2013 and 2018, we forecast expenditure on patented medicines will decline from EUR19.97bn (USD26.37bn) to EUR16.75bn (USD20.10bn), experiencing a CAGR of -3.5% in local currency terms (-5.3% in US dollar terms). Our forecast takes into consideration the ongoing effects of the price erosion mechanisms employed by the government and the promotion of lower-value generic medicines over patented medicines.

BMI Political/Economic View:

Although the spectre of parliamentary elections in 2015 will prompt the ruling People's Party (PP) administration to ease the pace of austerity over the coming quarters, there is limited room for government spending to drive growth. In spite of years of belt-tightening, the public debt has surpassed 90% of GDP and the budget shortfall is still above 6.0% of GDP. The scale of required budgetary tightening will mean that government expenditure remains a drag on growth for some time to come.

Cost Containment Measures Targeting Prescription Drug Expenditure
Royal Decree 4/2010 - June 1 2010
This enforced a greater price reduction on originator products sold in Spain for which a generic version is available in the EU but not in Spain - products are subject to a 30% price cut. If a generic copy of a drug is available in Spain, products are subject to a 50% price cut in the first year. Highlighting the revenue limiting impact for drugmakers, previous decrees had enforced this reduction over multiple years.
 
Royal Decree 8/2010 - June 1 2010
This enforced a 7.5% mandatory rebate on medicines (and medical devices) sold through the SNS that are not included in the reference pricing system - impacting both the hospital and retail markets.
 
Royal Decree 9/2011 - August 20 2011
This was enforced to create pharmaceutical cost savings of EUR2.4bn (USD3.09bn) via:• An increase of the above mentioned mandatory rebate from 7.5% to 15%, those medicines that are excluded from the reference pricing system, have been on the market for 10 years or more and do not have a generic competitor on the Spanish market.• Obliging doctors to prescribe medicines to patients by active ingredient rather than brand name. If a branded name product is prescribed, the pharmacist must fill the prescription with the lowest price medicine with the same molecule, dosage and form. Exceptions can be made for justified therapeutic medical needs.
 
Royal Decree 16/2012 (modification of Law 29/2006) - April 20 2012
• All medicines approved in the EU for at least ten years will be subject to reference pricing, regardless of whether the patent term has expired. While creating cost savings for the government, this slows down drugmaker return on (research and development) investment.• Prescription by international non-proprietary names (INN). Although the decree now permits physicians to prescribe branded medicines, it mandates automatic substitution of those prescriptions where the price of the branded product is not the lowest in the group.
Source: BMI
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