Pharma Industry Agrees to Price Cuts With Irish Government: More to Come?

Cash-strapped governments have struck again. In the latest attempt to lower the cost of healthcare – and prescription medicines, in particular – the Irish government has reached a deal with the Irish Pharmaceutical Healthcare Association that is expected to save nearly $525 million over the next three years.

About half of the savings will come from lower prices for drugs that are still patent protected or have lost patent protection, and the other comes from obtaining “new and innovative drugs” at favorable prices, according to a statement from the Department of Health, which made a point of saying the deal was reached in an “exceptionally difficult economic climate.”

The terms include dropping the price of drugs marketed by IPHA companies which are off-patent prior to November 1, 2012 by 50 percent of their original price by November 1, 2013. And the price of 400 patent-protected medicines that have been available on a government formulary prior to 2006 will be subject to a price review. Price cuts are expected to average up to 16 percent.

As hard-pressed governments around the world grapple with rising healthcare costs (hello Mr. Obama and Mr. Romney), big drug makers’ – think Pfizer (PFE), Merck (MRK), Johnson & Johnson (JNJ), Novartis (NVS), Bristol-Myers Squibb (BMY) and Sanofi (SNY) -- lush profit margins could be squeezed.

PFE Profit Margin Quarterly Chart

PFE Profit Margin Quarterly data by YCharts

“The current cost of drugs in our health system at over €2bn per year represents a major challenge to the State. However, the value of life-saving life-enhancing drugs to patients is incalculable. This importance of this new deal to the State and to patients alike will be felt well into the future,” Alex White, Minister of State with responsibility for Primary Care, says in the statement.

To read the remainder of this article, go to Pharmalot.

Ed Silverman is the editor of Pharmalot and a contributor to YCharts, which includes the just-released YCharts Pro Platinum for professional investors.



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