Pharmaceutical companies get government pinch

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MARCO WERMAN: Officials at Europe's central bank said today they don't expect any Eurozone country to default on its debt, though the financial crisis is far from over. European countries have been struggling to rein in their spending. One area they've been targeting is prescription medications. In the US, negotiating drug prices is a complicated business. But in much of Europe, governments negotiate prices directly with drug companies and the governments pay the bills. Now some of those governments are saying they're not going to pay as much. As The World's Gerry Hadden reports, that's causing some pain.

GERRY HADDEN: In the past few months, some European governments have been offering less and less for brand name medications. That's not sitting well with drug manufacturers. For example, Greece cut what it pays for insulin by 25% this summer. The country's main supplier, Danish company Novo Nordisk, responded by pulling its leading brand of insulin from the Greek Market. This is CEO Lars Rieben Sorensen.

LARS RIEBEN SORENSEN: No, I really feel that the Greek diabetes patients have become hostages. And we have become hostages in the failed economic policy of the government which has led them to such a move on prices. And you can't do that. We can't accept a 25% cut in prices.

HADDEN: In Athens, a 32-year-old diabetic named Angie Papateodoropulu takes a dose of insulin from her fridge and loads her syringe for an injection. She says when Novo Nordisk withdrew its name brand insulin, she got scared.

ANGIE PAPATEODOROPULU: I was very stressed, because I felt like I had nothing to use. Without insulin, we cannot survive. Insulin is not a medicine that you actually take once per day and that was all. Something like, you have to do it five, six or seven times daily. Which means that without it there is no other solution.

HADDEN: In the end, Novo Nordisk offered to replace its name brand insulin with a cheaper, generic one, so supplies in Greece have not dwindled. But some patients are wary of switching to a new drug, out of fear that they won't be as effective. It's not just consumers worried about government cutbacks in drug spending. In Spain, local pharmacies earn a percentage on prescription drug sales. So they're feeling the pinch. Look no further than Ronald Leon's drug store, here in Barcelona. He says he's been forced to try to make up for losses anywhere he can. For example, he used to let clients use his blood pressure machine for free. No longer, he says.


HADDEN: He says, now clients have to pay about a buck twenty five to use the machine. Our earnings are dropping significantly. So our service isn't what it used to be. Clients used to leave here happy, he says, now we have to charge for everything. Leon says he expects to take home thirty to forty percent less this year, as Spain slashes its prescription drug spending by some 1.6 billion dollars. Germany, France and of course Greece are making similar cuts. Europe's pharmaceutical association concedes that the industry may have to share the economic pain of the global downturn. But spokesman Colin McKay says these European governments are asking for too much. He points out that drugs are expensive to bring to market. And�

COLIN MCKAY: The pharmaceutical industry provides a lot of research and development jobs and contributes to the innovative nature of the European Union. Now, if you start to cut costs dramatically to the extent of where the industry has to scale that back, then in terms of the long term economic recovery of Europe than that will become a factor as well.

HADDEN: The last thing Europe needs is to lose jobs. This month the EU announced that unemployment is still over 10% across the bloc.


HADDEN: At Ronald Leon's drug store in Barcelona, Leon says he's already had to let his two support staff go. He says if generic medicines continue to replace more profitable name brand drugs he'll be in deeper trouble. Still, there are signs that the big drug companies may not suffer all that much even with Europe's cuts. One recent British study found that drug profits in Europe are nearly as high as they are in the US. Armed with that kind of information, European governments do not appear willing to back down. For The World, I'm Gerry Hadden in Barcelona.