Replies to post #108978 on Biotech Values

[jbog]

Drugmakers May Lose as Merkel Bids to Break Price ‘Monopoly’

By Naomi Kresge and Patrick Donahue

Nov. 11 (Bloomberg) -- Drugmakers face more than 2 billion euros ($2.76 billion) in price cuts in Germany, their biggest market in Europe, after lawmakers in Berlin approved the first controls on the cost of innovative medicines.

The law, backed by the lower house today, gives companies a one-year window to negotiate prices with insurers after introducing new drugs, potentially affecting Novartis AG’s multiple sclerosis treatment Gilenya and AstraZeneca Plc’s blood thinner Brilinta among other medicines that haven’t been approved yet in Europe. If no agreement is reached, the Health Ministry would set a maximum price, and the drugs would undergo a cost-benefit analysis by a semi-state agency.

“We are breaking the price monopoly of the pharma industry,” Jens Spahn, a lawmaker with Chancellor Angela Merkel’s Christian Democratic Union party who sits on parliament’s Health Committee, told the lower house, or Bundestag.

The deals that drugmakers strike with German insurers may put pressure on sales elsewhere, because other countries use German prices as a reference, said Elmar Kraus, a Frankfurt- based analyst for DZ Bank AG. Today’s curbs come on top of temporary rebates and price freezes on drugs that the government imposed last summer. Those measures will cost drugmakers 2.7 billion euros next year, according to the VFA, a Berlin-based group representing 45 drug producers.

“Everyone is trying to save,” Kraus said in an interview. “Some are waiting for the Germans. German drug prices have a certain reference function for a range of other countries.”

Companies now generally can set prices for medicines that offer an additional benefit for patients over similar treatments or lower-priced generics.

Merkel’s Plan

The changes make up a central element of Merkel’s reform of the health-care system in Germany. The government, faced with an aging population and ballooning costs, is seeking to ward off an estimated 11 billion-euro shortfall in the public insurance system next year.

Drug spending by the statutory “sick funds” that insure more than 70 percent of the country’s population rose 5.3 percent to 32 billion euros last year as companies increased their prices for patent-protected medicines by 8.9 percent, Health Minister Philipp Roesler has said, describing plans to reduce drug costs as a “paradigm shift” for Germany. The drug pricing plan will save 2 billion euros, the ministry has said.

Prices for generic drugs, many of which are already fixed through mandatory discount contracts, fell 2 percent last year.

Germany, the world’s third-biggest drug market after the U.S. and Japan, was one of the last countries in Europe in which drugmakers were allowed to set prices for their products. Today’s law will only affect drugs not yet approved for sale.

Bayer’s View

Bayer AG, Germany’s biggest drugmaker, is already selling its anti-clot drug Xarelto for European hip and knee surgery patients but has yet to win regulatory approval for people with irregular heartbeats, the biggest part of what the company has said could amount to more than 2 billion euros a year in sales.

It’s not clear how the law will affect Bayer’s new drugs, Rolf Ackermann, a spokesman for the Leverkusen-based company said in a telephone interview yesterday. The law being voted on today would require drugmakers to negotiate with an association that represents Germany’s public insurers, rather than negotiating with each insurer individually. That puts pharmaceutical companies at a disadvantage, he said.

“The coalition has promised market-oriented reforms and more competition in the health care system,” he said. “This is exactly the opposite -- a monopoly. It doesn’t have anything to do with competition.”

‘Open to Dialogue’

Also awaiting approval in Europe is AstraZeneca’s Brilinta, set to compete with the $9.8-billion-a-year blood thinner Plavix from Sanofi-Aventis SA and Bristol-Myers Squibb Co. A European Medicines Agency panel recommended the medicine be cleared on Sept. 24.

Laura Woodin, a spokeswoman for London-based AstraZeneca, declined to comment yesterday on what impact the law might have, saying the drug hasn’t yet been approved and the measure hasn’t become law. Brilinta will be sold as Brilique in Europe.

“AstraZeneca is open to dialogue with all participants of the German health care system to guarantee patient access to innovative medicines,” Woodin said in a telephone interview.

It’s too soon to tell whether Novartis’s Gilenya, approved in the U.S. in September and still under review in Europe, will be affected, Eric Althoff, a spokesman for the company in Basel, Switzerland, said in an e-mail yesterday. The pill may take 13 percent of the market within the next year, analysts at Leerink Swann & Co. said yesterday.

Insurance Premiums

Today’s step is among the final measure for a health reform that was a pledge of Merkel’s campaign for re-election last year. Merkel can also rely on her lower-house majority to back an increase in health-care premiums to be voted on tomorrow.

The two laws are a scaled-back version of changes originally proposed by Roesler, a member of Merkel’s Free Democratic Party coalition partners. He championed a plan to decouple premiums from income by introducing a single flat-fee payment.

That plan was quashed by the Christian Social Union, the Bavarian sister party of Merkel’s CDU. Instead, the government plans to limit a supplemental contribution that insurers can charge to 2 percent of wages, with any amount exceeding that to be paid through tax revenue.

To contact the reporters on this story: Naomi Kresge in Berlin at [e-mail]; Patrick Donahue in Berlin at at [e-mail].

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Novartis closes in on growth formula


http://www.ft.com/cms/s/0/62a9685e-f0e2-11df-bf4b-00144feab49a.html#axzz15OqfvxCp

By Haig Simonian

Published: November 15 2010 22:30 | Last updated: November 15 2010 22:30

Novartis could be back on the takeover trail within the next four years as debt from its $50bn acquisition of Alcon falls through strong cash flow.

“Our focus will be on great execution and on paying down debt. But we have excellent cash flow, which means we’ll become debt-free in four years. And who knows after that?” asks the Swiss pharmaceutical group’s chief executive.

Novartis’s immediate priority is on integrating Alcon, the US-focused eyecare company, in which it bought a 77 per cent stake from Nestlé, says Joe Jimenez, 50, who was appointed last February.

He is reticent about Novartis’s strategy to end the months’ long standoff with Alcon’s minority investors who own the outstanding 23 per cent. A committee of Alcon’s independent directors has aggressively demanded Novartis improve its terms to buy out the minorities.

However, Mr Jimenez notes the plunge in the dollar and rise in Novartis’s share price has improved the appeal of the offer for Alcon shareholders “without changing the terms”. Alcon’s minorities have been offered 2.8 Novartis shares, denominated in Swiss francs, for each Alcon unit.

Many analysts believe Novartis will bide its time – or may even be happy to run Alcon holding a 77 per cent stake – in spite of foregoing extra synergies arising from full ownership and integration.

“The intention is to have 100 per cent. But Nestlé owned 77 per cent and the company was run very successfully for many years, so we have not ruled that out.”

Mr Jimenez declines to indicate further areas of expansion for Novartis, which has been among the more acquisitive drugs companies in moving from discovering compounds to what he calls “focused diversification”.

On Wednesday, he will make his first big public appearance since becoming chief executive to tell analysts and investors of the future approach.

Much of the emphasis will be on elaborating strategy after criticisms from some rivals that Novartis has been turning its back on discovering medicines in favour of expanding into generics, consumer healthcare and other less risky activities.

Severin Schwan, chief executive of Roche, Novartis’s crosstown rival, argued last month in an interview with the Financial Times: “A lot of people call it diversification. I call it giving up.”

To which Mr Jimenez responds: “We’re not giving up on the traditional model or the focus on research and development. I absolutely don’t see it as surrendering. Rather, we’re leveraging what are tectonic changes in our industry to grow our business.”

A former executive in consumer goods, he argues that pharmaceuticals groups are being obliged to review strategy because of severe financial pressures on healthcare providers – whether public or private – and declining drug discovery rates.

To back his arguments, Mr Jimenez notes “focused diversification” is gaining momentum in the industry, as rivals such as Sanofi, Pfizer and even Merck broaden their activities.

Having come to pharmaceuticals from outside the sector, his core message is that the new conditions oblige drugs companies to review spending and strategy, and to squeeze out unnecessary costs to maintain R&D spending.

“There’s a new cost-conscious mentality at Novartis. It’s not about cutting wildly but about spending in a smarter way,” he says

Drawing on his experience running Heinz, he points to savings Novartis has derived from global purchasing and from competitive bidding. Such procedures, though commonplace in consumer goods, are underdeveloped in pharma, he notes.

“Our third-quarter results showed the benefits, and you’ll see more. Productivity is becoming a way of life and not just a one-time event.”

He acknowledges much of the focus on Wednesday will be on how Novartis will be on risks, notably the expiry beginning next year of patent protection on the group’s blockbuster Diovan high blood pressure treatment. But his longer-term aim is to highlight new plans for allocating resources between the group’s divisions to maximise future returns. “And we’ve never directly addressed that question before.”

[flatlander_60048]

I agree that the information in the Barrons article was readily available. However, Barron's seems to play to an older demographic which like their information packaged neatly. A bigger question is whether the hiring of Symonds (a former Goldman Sacs exec)as CFO signals a change in NVS where they will try to increase visibility. Wed should be interesting.

FL