2010 - pharmaceutical products - eu

7/29/2019 2010 - Pharmaceutical Products - EU

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CBI MARKET SURVEY:THE PHARMACEUTICAL PRODUCTS MARKET IN THE EU

Source: CBI Market Information Database URL: www.cbi.eu Contact: [email protected] www.cbi.eu/disclaimer

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CBI MARKET SURVEY

THE PHARMACEUTICAL

PRODUCTS MARKET IN THE EUPublication date: February, 2010

CONTENTS

REPORT SUMMARY ..................... ..................... ........................ ..................... ............... 2

INTRODUCTION .......................................................................................................... 4

1

CONSUMPTION ..................................................................................................... 5

2 PRODUCTION ....................... ..................... ........................ ....................... ........... 14

3 TRADE CHANNELS FOR MARKET ENTRY .............................. ........................ ........ 20

4 TRADE: IMPORTS AND EXPORTS ........................ ...................... ........................ ... 28

5 PRICE DEVELOPMENTS .................................... ........................ ....................... .... 34

6 MARKET ACCESS REQUIREMENTS ...................... ...................... ........................ ... 35

7 OPPORTUNITY OR THREAT? ....................... ...................... ........................ ........... 37

APPENDIX A PRODUCT CHARACTERISTICS ......................... ..................... ............. 39

APPENDIX B INTRODUCTION TO THE EU MARKET .................... ....................... ..... 43

APPENDIX C LIST OF DEVELOPING COUNTRIES ...................... ........................ ..... 44

APPENDIX D REFERENCES ..................... .................... ......................... ................... 46

This survey was compiled for CBI by Profound Advisers In Development

in collaboration with Jan Ramakers Fine Chemical Consulting Group

Disclaimer CBI market information tools: http://www.cbi.eu/disclaimer


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Report summary

This CBI market survey covers the EU market for pharmaceutical products. The emphasis of the survey is on those products which are of importance to developing country suppliers.

Statistical and background market information on consumption, production and trade, andinformation on trade structure, prices and market access is provided. Trends and forecasts, aswell as opportunities for and threats to developing country suppliers, are highlighted andsources for more information are provided.

ConsumptionThe global pharmaceutical market was estimated at 484.1 billion at ex-factory prices in2007. Europe (excluding Russia, Ukraine and Belarus) was the second largest regional market,accounting for approximately 31% of total sales of pharmaceutical products. The EUpharmaceutical market increased by an annual average rate of 7.3% between 2003 and 2007,amounting to approximately 141.3 billion at ex-factory prices in 2007. The highest growthrates were registered for the pharmaceutical markets in the Central and East European (CEE)and Baltic countries, mainly due to economic growth and increasing health expenditure takingplace in these regions.

The share of generic medicines in the total pharmaceutical markets in the EU varies widelyfrom country to country. In Germany, the largest pharmaceutical products market in the EU,the value share of generics is 30%, whereas in France, the second largest pharmaceuticalmarket, the share of generic medicines is only 10%. Moreover, in several countries in the CEEregion, the share of genetic medicines in the pharmaceutical market in 2007 was higher than30% (e.g. Poland 61% and Slovakia 45%). Different policies and regulations on genericmedicines explain the wide variations in the market shares of generic medicines.

The most important trends affecting consumption of pharmaceutical products in the EU are: EU demographics: The proportion of working age citizens contributing to social service funds

is diminishing, while the elderly population, which is more susceptible to diseases anddisorders, is increasing. Thus, government expenditure on health care is expected toincrease in the EU.

Self-medication: Consumers are increasingly avoiding expensive treatments by purchasinggenerally cheaper non-prescription drugs directly from pharmacies or other retail channels.

Lifestyle pharmaceutical products : Pharmaceutical companies have been promoting lifestylepharmaceutical products since the 1990s, which primarily boost the well-being andappearance of consumers.

Generic medicines: Given the increase in healthcare expenditure in the EU, the use of generic medicines, which provide inexpensive medical treatment, is expected to riseenormously in the coming years.

ProductionIn 2007, pharmaceutical production in the EU amounted to approximately 162.5 billion (atex-factory prices), representing an annual average increase of 3.5% since 2003. France wasthe leading producer of pharmaceuticals in the EU, accounting for a share of 21% in total EUproduction in 2007, followed by Germany (16%), the UK (14%) and Italy (14%).

The most important trends affecting production of pharmaceutical products in the EU are: R&D and production in CEE countries: The EU has traditionally been a centre for

pharmaceutical research and development. In the last few years, however, this leading rolehas been in decline. On the other hand, Central and East European countries in the EU arebecoming increasingly important for pharmaceutical research and production, offering low-cost manufacturing and well-qualified medical specialists.

Sourcing of Active Pharmaceutical Ingredients (APIs) : Pharmaceutical manufacturers in theEU are increasingly sourcing APIs in the CEE region and in developing countries.


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Outsourcing to low-cost countries: There is an increase in global outsourcing of pharmaceutical research and manufacturing activities from Western economies to low-costcountries, a development which is also applicable to EU companies.

Biotechnology: Biotechnology is increasingly being applied to pharmaceutical products; thisresults in the creation of products based on the knowledge of human genomics.

Generic medicines: The EU is moving towards a higher level of generic medicines production.As patents expire, pharmaceutical companies tend to focus on their generics department.

Trade channelsThe main distribution channel for pharmaceutical products in the EU is the specialised

pharmaceutical channel, which consists of pharmaceutical wholesalers, pharmacies, hospitalsand self-dispensing doctors. In some cases, agents are also involved in the distribution chainor, as it happens in some markets, other retail channels are used outside the conventional

pharmaceutical channel. It is important for exporters to note that the pharmaceutical channelimposes strict regulations for entering the EU market. Non-prescription pharmaceuticalproducts, on the other hand, are subjected to fewer quality and safety checks between theproducer and the final consumer in the EU. Therefore, other trade channels might apply, suchas direct sales to large retailers.

The trade structures of the EU markets are mostly similar, but deviate according to thedifferent pharmaceutical and healthcare systems. Some variations for prescription products liein the manner in which the product is dispensed to the end-consumer, but this does not affecta suppliers market approach. Wider variations, however, are found in the distribution trendsand channels for non-prescription products in the different markets, since weaker regulationsapply to these products, and major pharmacy chains and retailers often play a large role.Furthermore, there are no essential differences between the trade channels for packed andnon-packed medicines. The different regulations for these two product groups do not affect themanner in which they enter the EU market.

EU imports and the role of developing countries

Total EU imports of pharmaceutical products increased by an annual average rate of 6.4% invalue and decreased by 5.2% in volume between 2004 and 2008, amounting to 110 billionor 1.6 million tonnes in 2008. Due to its vital trading function for pharmaceutical products,Belgium was the leading EU importer of pharmaceutical products in 2008, accounting for 22%of the total EU imports in terms of value, followed by Germany (18%), France (11%), UK(7.8%) and Italy (7.2%).

EU imports of pharmaceutical products are dominated by intra-EU imports, which accountedfor more than 80% of total EU imports in 2008. Germany supplied 20% of total EU imports;Belgium was the second leading supplier, accounting for 15% of total imports. Imports fromextra-EU countries (excluding DCs) accounted for approximately 17% of total EU imports.Imports from developing countries accounted for only 0.8% of total EU imports of pharmaceutical products in 2008. India, Turkey and Brazil were the largest suppliers. In spiteof their low share, imports from developing countries increased by an annual average rate of 17% in value and 21% in volume between 2004 and 2008.

Opportunities for exportersHigh costs of production and pressure to reduce healthcare costs compel large pharmaceuticalcompanies to decrease the costs involved in manufacturing and drug development. As a result,these companies are increasingly outsourcing production of APIs and formulations to DCs orsourcing the needed ingredients in developing countries. This development provides anopportunity for DC suppliers to increase their competiveness and the scale of their production.However, producers in developing countries who aim at manufacturing APIs for EUpharmaceutical companies have to comply with EU legislation and to compete with other largeDC and CEE exporters.


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Introduction

This CBI market survey profiles the pharmaceutical products market in the EU. The emphasisof this survey lies on those products, which are of importance to developing country suppliers.

The role of and opportunities for developing countries are highlighted.

This market survey discusses the following product groups:Due to the limited availability of trade data on pharmaceutical products, which only make adistinction between packed and non-packed products (see Appendix A), a specific productselection cannot be made. Nonetheless, focus in this survey is given to pharmaceuticalproducts which cover the most popular therapy classes worldwide, namely: Oncologics (Antineoplastics) Lipid regulators (Hypolipidemic agents or antihyperlipidemic agents) Respiratory Agents Antidiabetics Acid Pump Inhibitors Antipsychotics Angiotensin-II Antagonists Antidepressants Anti-epileptics Autoimmune agents

For detailed information on the selected product groups please consult appendix A. Moreinformation about the EU can be found in appendix B.

CBI market surveys covering the market in specific EU countries, specific product(group)s ordocuments on market access requirements can be downloaded from the CBI website. Forinformation on how to make optimal use of the CBI market surveys and other CBI marketinformation, please consult From survey to success - export guidelines. All information can bedownloaded from http://www.cbi.eu/marketinfo Go to Search CBI database and select yourmarket sector and the EU.


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1 Consumption

1.1 Market size

According to the European Federation of Pharmaceutical Industries Associations (EFPIA), theglobal pharmaceutical market was estimated at 484.1 billion at ex-factory prices in 2007. North America, the worlds leading market, accounted for a share of 46%. Europe (excludingRussia, Ukraine and Belarus) was the region with the second largest pharmaceutical market inthe world in 2007, accounting for approximately 31% of total sales of pharmaceutical products.Despite its smaller size, the European market outpaced the North American market in terms of growth. Whereas the North American market increased at an estimated rate of approximately4% in 2007, the European market increased at an estimated rate of around 7%. The Asianmarket was the fastest-growing market in the world, increasing at an estimated rate of over13% in 2007 (EFPIA, 2008).

The EFPIA also provides more detailed data on the EU market in particular. The organisationhas reported the size of the pharmaceutical market in the individual EU countries as shownbelow. The most up-to-date data available are from 2007. According to the organisation, theEU pharmaceutical market increased by an annual average rate of 7.3% between 2003 and2007, amounting to approximately 141.3 billion at ex-factory prices in 2007.

Table 1.1 EU pharmaceutical market 1 2003-2007, in million, at ex-factory prices

2003 2004 2005 2006 2007

Annualchange

% % EUTotal EU 2 106,455 116,160 125,502 129,365 141,289 7.3% -France 21,320 22,760 23,838 24,353 25,501 4.6% 18%Germany 22,670 21,551 24,846 24,353 25,241 2.7% 18%Italy 14,606 15,195 15,749 16,472 16,734 3.5% 12%

United Kingdom 16,713 16,110 15,569 14,548 14,493 -3.5% 10%Spain 9,890 10,671 11,332 12,154 13,209 7.5% 9.3%Greece 3,020 3,468 3,821 4,244 5,503 16% 3.9%The Netherlands 3,477 3,579 3,795 4,230 4,616 7.3% 3.3%Poland n.a. 2,939 3,546 4,009 4,237 13% 3 3.0%Belgium 3,291 3,539 3,657 3,684 3,932 4.5% 2.8%Portugal 2,715 2,879 3,105 3,321 3,490 6.5% 2.5%Sweden 2,553 2,608 2,673 2,802 3,052 4.6% 2.2%Austria 2,148 2,312 2,411 2,544 2,736 6.2% 1.9%Hungary n.a. 1,556 1,844 1,954 1,955 7.8% 3 1.4%Ireland 1,130 1,306 1,514 1,706 1,902 14% 1.3%Denmark 1,351 1,410 1,536 1,685 1,860 8.3% 1.3%Finland 1,571 1,689 1,740 1,740 1,848 4.1% 1.3%Romania n.a. n.a. 1,083 1,352 1,601 22% 4 1.1%Czech Republic n.a. 1,163 1,338 1,467 1,586 11% 3 1.1%Slovakia n.a. 487 565 671 846 20% 3 0.6%Bulgaria n.a. n.a. 489 538 542 5.3% 4 0.4%Slovenia n.a. 413 442 468 487 5.6% 3 0.3%Lithuania n.a. 276 322 411 404 13% 3 0.3%Latvia n.a. 144 181 213 257 21% 3 0.2%Cyprus n.a. n.a. n.a. 177 174 -1.7% 5 0.1%Estonia n.a. 105 106 189 137 9.2% 3 0.1%Malta n.a. n.a. n.a. 80 77 -3.8% 5 0.1%

Source: EFPIA, The Pharmaceutical Industry in Figures 2004, 2005, 2006, 2007, 2008 and 20091 Data are not available for Luxembourg2 Please note that data are not always available for all EU countries in the different periods. For this

reason, the total figure for each year does not include all 26 countries from 2002 to 2005.3 Annual change is calculated on data available between 2004-2007


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4 Annual change is calculated on data available between 2005-2007 5 Annual change is calculated on data available between 2006-2007

As seen in Table 1.1, France and Germany were the largest markets in the EU, eachaccounting for approximately 18% of the total pharmaceutical sales in 2007. Italy, the thirdlargest market in the EU, accounted for 12% of the total pharmaceutical market and the UK,

the fourth largest market, accounted for an 10% share. Spain, the fifth largest market,accounted for 9.3% of the total pharmaceutical market in the EU.

Among the largest pharmaceutical markets in the EU, the UK is the only one which showed anegative development in the review period. The countrys pharmaceutical market decreased byan annual average rate of 3.5% between 2003 and 2007. Considering the ten largest marketsin the EU, Greece represented the pharmaceutical market which increased at the highestannual average rate between 2003 and 2007, achieving 16%.

The pharmaceutical markets in the CEE (Central and East European) and Baltic countries haveregistered the highest growth rates in the EU in the last few years. Although 2003 and 2004data are not available for most of these countries, one can see that their markets achieved an

impressive positive development as of 2004. Between 2004 and 2007, Polish consumptionincreased by 13% annually, affirming the countrys position as the largest CEE market. TheRomanian market for pharmaceutical products, for instance, increased by an annual averagerate of 22% between 2005 and 2007. Latvia and Lithuania have seen their pharmaceuticalproducts market increase by an annual average increase of 22% and 13% respectively.Estonian demand for pharmaceutical products increased by 9.2% annually between 2004 and2007. The rapid development of the pharmaceutical market in the CEE region and in the Balticcountries can be explained by the economic growth and increasing health expenditure takingplace in these regions. National governments in these regions are committed to increasingpatient access to medicine and improving the quality of health care (Pharmaceutical Pricingand Reimbursement in Central and Eastern Europe, 2008).

Forecast: According to IMS Health, the global pharmaceutical market is expected to increaseby approximately 4.5 to 5.5% in 2009, which is an almost similar annual increase incomparison to 2008. This would indicate that the pharmaceutical sector at large seems to bedoing relatively well, since health concerns are only affected to a limited extent by theeconomic turndown. In addition, a 2007 report on the pharmaceutical industry byPricewaterhouseCoopers also forecasted that the global pharmaceutical market will more thandouble in value by 2020, reaching approximately 950 billion (US$ 1.3 trillion). Regarding theEU, it is forecasted that strong growth in the ten European markets which joined the EuropeanUnion in 2004 helped to boost European sales over the past years. Nonetheless, no forecast onthe growth of the EU pharmaceutical market is provided.

This review above covers the pharmaceutical market as a whole (i.e. originator and genericmedicines). The section below concentrates specifically on the generic medicines market.

Generic medicinesThe EU market for generic medicines has gone through major changes in the past few years.By the end of 2004, EU patents expired for approximately 35% of the most frequently soldpharmaceutical products. This created a major opportunity over the ensuing years toincreasing the share of generics, both in the pharmacy and hospital sectors (European GenericMedicines Association- EGA, 2007). In this manner, generic medicines producers areincreasingly becoming the main suppliers of almost all pharmaceutical products dispensed toEuropean patients. Generic medicines are used for a wide variety of common chronicconditions, such as cancer, diabetes, depression, asthma and Parkinsons disease (EGA, 2007).

According to the EGA, generic medicines accounted for approximately 50% of the volume of

pharmaceutical products in the EU in 2006, saving healthcare systems approximately 25 billion each year (EGA, 2007). In terms of value (at ex-factory prices), the EU market for


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generic medicines was worth approximately 27.4 billion in 2007, accounting for around 21%of the total EU pharmaceutical market (Table 1.2). In 2007, KPMG estimated that the EUaccounted for approximately 30% of worldwide sales of generic medicines (KPMG, 2007).

Incidence of generics in the EU and EU countriesThe size of the market for generic medicines in the EU varies widely from country to country.

In countries where generic medicines have been promoted for 10-15 years, the market is moremature than in countries where promotion is more recent, which explains the higher proportionof these products in the pharmaceutical market. Table 1.2 shows the size of the genericmedicines market in the EU as a whole and in the individual EU countries. It providesinformation on the generic medicines market in two distinct but related ways: the absolutesize of the generics market (in value) and the percentage of the pharmaceutical market as awhole accounted for by generic medicines. For each EU country, further information is providedon the share of their individual generics market in relation to the total EU generics market. Ascan be observed in Table 1.2, therefore, the market share of generic medicines is not directlyrelated to the size of a countrys pharmaceutical market. Please note that the values in thistable are given at ex-factory prices.

In 2007, Germany was the largest pharmaceutical products market in the EU of which genericmedicines accounted for 30% of the total pharmaceutical market. In contrast, the share of generic medicines with respect to the French pharmaceutical market was only 10%. In thismanner, Germany is the leading market for generic medicines in the EU; it has the mostgeneric medicines sold in absolute terms, accounting for 28% of the total EU generic medicinesmarket. France, on the other hand, has only the fifth largest generic medicines market inabsolute terms, accounting for 8.8% of the total EU generic medicines market.

Regarding Central, East European and Baltic countries, the share of generic medicines in thepharmaceutical market in 2007 was higher than 30%. In Slovakia, for instance, the share of generic medicines was 45%. In spite of a significant market share of generic medicines, thepharmaceutical market in these countries is very small. Consequently, the market for generic

medicines in these countries is also very small when considered in absolute - rather than inrelative - terms.

Table 1.2 EU generic market value in mln between 2005-2007, share of genericswithin the country in % value, share of generics with respect to EU totalin % value, by EU country

CountryGenerics market

(in million) 2 % Share of

generics withrespect to its

pharmaceuticalmarket in 2007 2

% Annualchange ingenericsmarket

% Share of generics withrespect to the

EU total in20072005 2006 2007

Total EU 1 20,426 21,532 27,409 21% 16%Germany 7,230 7,428 7,648 30% 2.8% 28%

United Kingdom 4,095 3,462 4,217 29% 1.5% 15%Italy 2,063 2,257 3,397 20% 28% 12%Poland 3 2,128 2,405 2,585 61% 10% 9.4%France 1,883 2,119 2,423 10% 13% 8.8%Spain 669 778 951 7.2% 19% 3.5%The Netherlands 668 778 886 19% 15% 3.2%Greece 409 594 715 13% 32% 2.6%Portugal 394 485 607 17% 24% 2.2%Austria 323 435 512 19% 26% 1.9%Romania 337 416 456 29% 16% 1.7%Sweden 353 392 443 15% 12% 1.6%Belgium 311 368 401 10% 14% 1.5%Denmark 198 356 381 21% 39% 1.4%Slovakia n.a. 306 377 45% 23% 4 1.4%

Finland 393 358 373 20% -2.6% 1.4%Slovenia 157 154 159 33% 0.4% 0.6%Ireland 117 136 152 8.0% 14% 0.6%


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Source: EFPIA (2009)1 Data from EFPIA are not available for Bulgaria, Cyprus, Czech Republic, Estonia, Hungary, Latvia,

Lithuania, Luxembourg and Malta.2 at ex-factory prices3 The data for 2005 and 2006 on the Polish generics market are based on an estimate. As such they are

not part of the aggregate for the EU market. Data for 2007 is based on EFPIA (2009) generics marketfigures.

4 Annual average change based on data between 2006-2007.

Please, refer to the individual country surveys for more information on generic medicines inthe individual pharmaceutical markets.

Forces which maximise or limit generic friendliness in the EU and EU countriesDifferent policies and regulations on generic medicines explain the large variations in theshares of generic medicines in the pharmaceutical markets of different countries.

Pricing and reimbursement systems are the most significant factors explaining thesedifferences. Generic medicines have a market share which varies between 15% and 30% of the pharmaceutical market as a whole (in terms of value) in countries where relatively free

pricing of pharmaceutical products is possible (e.g. Germany, The Netherlands, the UnitedKingdom). In countries with regulated prices (e.g. Austria, Belgium, France, Italy, Portugal,Spain), the market share of generic medicines amounts to less than 15%. When free pricing isin place, the prices of pharmaceutical products are usually higher, resulting in larger pricedifferences between generic and originator pharmaceutical products, thereby facilitating theentry of generic medicines in the market. Pricing and reimbursement systems are furtherexplained in Chapter 3 of this survey.

Another factor influencing differences in the penetration of generic medicines in a countryspharmaceutical market is its legislation concerning generic substitution. According to theAssociation of the British Pharmaceutical Industry, generic substitution is different to genericprescribing, and it happens when the pharmacist substitutes an originator pharmaceutical

products prescribed by a physician with a generic medicine, without consulting either thepatient or the doctor. Generic substitution is not permitted in certain EU countries, it ispermitted and/or encouraged in some and it is permitted under certain conditions in others. Insome countries (e.g. the UK), physicians are in fact allowed and encouraged to prescribe by apharmaceutical products INN (International Non-proprietary Name), which is considered to bea force contributing to a higher incidence of generic medicines in the pharmaceutical market.

In order to be sustained in a pharmaceutical market, generic medicines should be sold atcompetitive prices. In addition to regulations which establish pharmaceutical prices de facto ,competitive prices for generic medicines can only be maintained when there is a high marketvolume. In order to achieve this volume, financial incentives for physicians, pharmacists andpatients to prescribe/sell/consume generic medicines are essential. In order to createincentives for patients to accept generics, for instance, several governments and genericmedicines associations in the EU have launched awareness-raising campaigns.

Next to these incentives, the structure of reimbursement systems in different countries alsoimpacts the penetration of generic medicines. In some reimbursement systems, a systemcalled patient co-payment is in place, which consists of the amount which is not reimbursed bya third party, for example health insurance companies. In countries such as Portugal andPoland, this payment is not covered by the patients insurance; in some countries, however,patient co-payments are covered by private insurance (e.g. in France). In cases where patientsdirectly participate in the payment of their pharmaceutical products, the choice for genericmedicines is more natural, since the payment burden falls directly in the hands of the patients,and generics make this payment more economically viable. For a more elaborate discussion onreimbursement systems in the EU, refer to the section Price structure, in Chapter 3.


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A patients choice for generic medicines might also be affected by a countrys cultural aspects.In Cyprus and Italy, for instance, patients have a reportedly general preference for originatorpharmaceutical products over generic medicines, triggered by concerns about product safetyand quality.

Finally, it is relevant to mention that consumption of generic medicines may also be affected

by a countrys economic situation. The dominance of generic medicines in Central, EastEuropean and Baltic countries reflects the relative poor economic situation in the region(Espicom, 2008); in some countries (e.g. Slovakia) generic medicines account for 45% of thepharmaceutical market in terms of value (see Table 1.2).

Product groupsIn relation to the specific product groups considered in this survey, Table 1.3 shows thestatistics on the worldwide sales of the ten leading pharmaceutical products in terms of valuebetween 2006 and 2008. The information provided in this section covers the pharmaceuticalmarket as a whole, and is not specific for generic medicines. Please also note that noinformation is available for the EU or for individual EU countries.

Obviously, the pharmaceutical market consists of a much wider variety of product groups thanthe ten presented below. Pharmaceutical products cover a great diversity of diseases anddisorders, which could not possibly be investigated thoroughly in this survey especiallyconsidering that the pharmaceutical market in the EU is very fragmented.

In 2008, the ten leading product groups accounted for nearly 34% of the total pharmaceuticalmarket and sales amounted to 181.8 billion, indicating a increase in sales of 1.3% between2006 and 2008. The group of oncologics was the leading one in terms of sales in 2008,accounting for 6.7% of the global pharmaceutical market, followed by lipid regulators andrespiratory agents, which accounted for respective market shares of 4.7% and 4.3%. Out of the ten leading product groups, only three experienced a decrease in worldwide sales between2006 and 2008, namely lipid regulators, acid pump inhibitors and antidepressants. Between

2006 and 2008, the sales value of lipid regulators decreased by 9.3% annually, sales of antidepressants decreased by 8.0% and sales of acid pump inhibitors decreased by 2.9% perannum. Worldwide sales of oncologics and angiotensin-II antagonists experienced the highestincrease between 2006 and 2008, at respective annual increase rates of 9.2% and 8.9%.Autoimmune agents increased by 12% between 2007 and 2008.

Table 1.3 Leading pharmaceutical product groups between 2006-2008, salesin billion, share of global sales in %

Leading product groups

2006 sales(- in

billion) 1

2007 sales(- in

billion) 1

2008 sales(- in

billion) 1

Share2008(%)

Annualchange

(%)Oncologics 27.6 30.2 32.9 6.7% 9.2%Lipid regulators 28.1 24.6 23.1 4.7% -9.3%Respiratory agents 19.6 20.9 21.4 4.3% 4.5%Antidiabetics 16.9 17.6 18.7 3.8% 5.1%Acid pump inhibitors 19.2 18.7 18.1 3.7% -2.9%Antipsychotics 14.5 15.1 15.7 3.2% 3.9%Angiotensin-II antagonists 13.2 14.2 15.7 3.2% 8.9%Antidepressants 16.4 14.4 13.9 2.8% -8.0%Anti-epileptics 10.4 11.1 11.5 2.3% 5.4%Autoimmune agents n.a. 9.7 10.9 2.2% 12% 2

Erythropoietin products 11.1 n.a. n.a. n.a. n.a.Total 177 176.5 181.8 33.9% 1.3%Source: IMS MIDAS, MAT (2007, 2008 and 2009)1 Sales cover purchases from pharmaceutical wholesalers and manufacturers worldwide. The figures

above include prescription and certain over-the-counter data, and represent manufacturer prices.2 Annual change based on data for 2007 and 2008.


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1.2 Market segmentation

The pharmaceutical market can be segmented in two distinct but interlinked manners: thedispensing method and the channels through which pharmaceutical products are dispensed topatients.

Dispensing methodPharmaceutical products can be divided into two categories: prescription and non-prescriptionproducts (see Table 1.4). Prescription products are those which are dispensed only when aprescription by a physician is presented, whereas non-prescription products can be distributedover-the-counter (these products are also referred to as over-the-counter products), without aprescription.

Table 1.4 Market segmentation in the EU: prescription and non-prescriptionpharmaceutical products, in 2008, at consumer level prices 1

Country PrescriptionNon-prescription Country Prescription

Non-prescription

Total EU 2 86% 14% Ireland 84% 16%Austria 92% 8% Italy 89% 11%Belgium 85% 15% Netherlands 88% 12%Bulgaria 72% 28% Poland 73% 27%Czech Republic 73% 27% Portugal 93% 7%Denmark 89% 11% Romania 78% 22%Finland 89% 11% Slovakia 85% 15%France 82% 18% Slovenia 93% 7%Germany 85% 15% Spain 94% 6%Greece 94% 6% Sweden 91% 9%Hungary 85% 15% UK 83% 17%

Source: AESGP (2009)1 Data excludes hospital sales.2 Excluding Cyprus, Estonia, Latvia, Lithuania, Luxembourg and Malta

Dispensing channelsRegarding dispensing channels, the EU market for pharmaceutical products can be divided intothree segments: (general access) pharmacies, hospital pharmacies and other retail channels.In some countries in the EU, pharmaceutical products (prescription and non-prescription) canonly be dispensed through pharmacies and hospital pharmacies, whereas other countries allownon-prescription products to be dispensed through other retail channels. Prescription products,however, can only be dispensed through pharmacies and hospital pharmacies.

Pharmacies (general access): these pharmacies consist of a retail storefront, with adispensary where pharmaceutical products are stored and dispensed. The dispensary is subjectto the pharmaceutical legislation, which has specific requirements for storage conditions,handling equipment, warnings, etc.

Hospital pharmacies: they usually handle more complex pharmaceutical products, withspecific indications which require stricter safety regulations and patient compliance. Most of the products in these pharmacies are single-dose or unit dose. Hospital pharmacies are usuallylocated in the premises of hospitals, with trained personnel, quality assurance and adequatefacilities. In some cases, hospital pharmacies are only used for inpatient treatment, beingrestricted to internal use. In other cases, hospital pharmacies might also be allowed todispense pharmaceutical products, which means that they also serve the outpatient sector.Other retail outlets: this segment consists of supermarkets, convenience outlets and massmerchandisers which sell non-prescription pharmaceutical products. For these outlets,regulations are less strict than in pharmaceutical outlets which sell prescription products.

According to EFPIA, the vast majority of pharmaceutical products is sold through general

access pharmacies and hospital pharmacies, in the form of prescription products. Non-prescription pharmaceutical products are accessible through (general access) pharmacies andhospital pharmacies as well, but they are additionally marketed through retail outlets in some


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EU countries, although their availability in this segment varies widely from country to country.As mentioned previously, dispensing pharmaceutical products through channels other than(general access) pharmacies or hospital pharmacies is prohibited in some EU countries. Asshown in Table 1.4, the share of non-prescription pharmaceutical products in thepharmaceutical market is still limited. However, availability of non-prescription pharmaceuticalproducts through retail outlets other than pharmacies is becoming more important in some EU

countries, as sales of more products are gradually permitted through these channels.

Further information on country-specific market segmentation is presented in the individualcountry surveys. Please also refer to Chapter 2 of this survey for more information on thetrade channels concerning the EU market for pharmaceutical products.

1.3 Trends in consumption

General trends EU demographics: According to a report of The European Commission and Economic

Policy Committee (2009), estimates that there will be four elderly persons for every tenworking persons in the EU by 2020, increasing to 7 elderly persons to 10 working persons

in 2060. This means that the proportion of working age citizens contributing to socialservice funds is rapidly diminishing, while the elderly population, which is more susceptibleto diseases and disorders, is increasing. Thus, government expenditure on health care isexpected to proportionally increase in the EU.

Cost cuts on health care: Due to the economic recession, government spending is beingsqueezed in many EU countries. Health services across Europe will be under increasingpressure in the coming years. Governments are likely to pressure prices of pharmaceuticalsand limit access to more expensive medicines, for instance by only reimbursing genericmedicines or other cheap pharmaceutical products (Reuters, 2009).

Self-medication: Consumers are increasingly willing to buy non-prescription drugs, due toconvenience and cost-saving. In addition, governments of some EU countries (i.e. Irelandor Austria) have eased their regulations, providing more opportunities for consumers to

buy medicines without prescription. The economic crisis is believed to have had a positiveeffect on this trend, as consumers can save money by buying non-prescription drugs froma pharmacist instead of other, more expensive, treatments.

Generic medicines: Given the increase in healthcare expenditure in the EU, the use of generic medicines, which provide inexpensive medical treatment, is expected to riseenormously in the coming years (EGA, 2006). At the same time, however, some EUpharmaceutical companies which produce branded products have fought to slow theintroduction of generic medicines into the market, often taking actions to extend theirproducts patents (International Herald Tribune, 2008). Lately, the European Commission(EC) also acknowledged a delay in entry of generic pharmaceuticals on the EU market,which potentially leads to significant extra costs for EU consumers.

Lifestyle pharmaceutical products: Pharmaceutical companies have been promoting thelucrative lifestyle pharmaceutical products since the 1990s. These products do not cure anydiseases, but are primarily designed to boost the well-being and appearance of consumers(e.g. weight loss and rejuvenation). The market for these products has indeed grown in thelast few years. Hair loss, sleep, weight loss and sexual dysfunction pharmaceutical productsare currently the most popular sub-groups of lifestyle pharmaceutical products in the globaland EU market (Businessweek, 2007). Although they are products which are not includedin this surveys product selection, it is important to keep in mind that they are increasinglypopular.

Product-specific trends Oncologics: The rising consumption of oncologics can be attributed to the changing

perceptions on cancer and to product innovations for the treatment of this disease. Canceris no longer perceived as a life-ending disease, but as a chronic illness which can be treatedwith long-term therapies. Thus, the number of patients on chemotherapy in the EU, butalso in Japan and North America, is increasing rapidly. IMS Health estimates that between


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2007 and 2012, the global consumption of oncologics will grow by an annual average rateof 12 to 15%. This increase can also be attributed to the introduction of innovations to theoncologics market, which improve the patients quality of life, delay disease progressionand help prolong the survival for patients suffering from different kinds of cancer (Reuters,2008).

Lipid regulators: the consumption of lipid regulators in the EU increases as the number of individuals who suffer from obesity and related chronic diseases (i.e. heart diseases,strokes, certain types of cancer) expands, a factor which is also related to the ageing of theEU population.

Respiratory agents: This group is increasing in demand due to the expanding incidenceof disorders in the respiratory system, such as asthma and chronic obstructive pulmonarydisease. In the EU, this increase is also coupled to an ageing population, which is moresusceptible to respiratory illnesses. About 80 million Europeans have some form of allergicdisease and their prevalence is increasing. Around 30 million people in Europe haveasthma, and as many as 6 million suffer from symptoms. Approximately 44 millionEuropeans have Chronic Obstructive Pulmonary Disease (COPD) (EFA, 2006).

Acid pump inhibitors: The wide use of acid pump inhibitors may be attributed to factorssuch as stress and deficient diets. These factors increase the amounts of acid in the

stomach, explaining the correlation between contemporary lifestyle, also experienced in theEU, and the increasing consumption of acid pump inhibitors. Antidiabetics: Due to an ageing population, and a lifestyle which contributes to the

expansion of diabetes, the EU represents an increasingly important market for antidiabetics(International Diabetes Federation, 2008). The influx of more affordable and innovativeproduct solutions drive up sales of antidiabetics in the EU, although reimbursementpolicies, which generally do not cover the more expensive forms of insulin, still restrict theexpansion of novelties in the market. Nonetheless, the insulin market is at a growth stagein the EU, whereas the oral antidiabetics market has reached a mature phase (Frost & Sulivan in in-PharmaTechnologist, 2006).

Antipsychotics: The use of antipsychotics in the EU is rising due to the introduction of atypical antipsychotics, which have milder side effects than typical ones. The use of

atypical antipsychotics in the EU outstripped typical antipsychotics in 2006, providing roomfor further growth of these products in the future (Lundbeck, 2006). Antidepressants: Depression is among the health conditions showing the largest increase

worldwide. It is estimated that about 23 million people in Europe are diagnosed as havingdepression at one point in their life. However, about 40% of patients with depression arenot getting the treatment they deserve (European Alliance against Depression, 2007). TheWHO (World Health Organization) estimates that depression will be the second-largestglobal health burden by 2020. The consumption of antidepressants worldwide and in the EUis, therefore, likely to increase further.

Angiotension-II Antagonists: The increasing consumption of Angiotensin-II Antagonistscan be explained by the growing number of hypertension cases. This growth is possiblyrelated to lifestyle factors, such as stress and diet, but also to the ageing population, whichis a demographic reality in the EU.

Anti-epileptics: Although anti-epileptics are originally designed for the prevention of seizures, the growth in the application of these products for psychiatric disorders andmovement disorders explains the rising demand for these products.

Autoimmune agents: The recent increase in the consumption of autoimmune agents canbe attributed to the expanding use of anti-TNF (TNF: tumor necrosis factor, which has aninflammatory action) and to the growth of approved indications for these products(Biological Drug Report, 2007). Moreover, the global market for autoimmune agents isexpected to increase by an annual average rate of 3.7% between 2006 and 2012 (BusinessInsights, 2007). As the risk of developing autoimmune disorders develops with age, theincreasing consumption of this product group can also be related to the ageing populationin the EU.


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1.4 Opportunities and threats

+ The consumption of pharmaceutical products in the EU is expected to keep rising in thecoming years. As mentioned previously, the population in the EU is ageing and becomingmore susceptible to diseases. In addition to this demographic factor, pharmaceuticalinnovations have allowed for a wider range of product application - more diversity in

therapies is found and more diseases are treated. The growing pharmaceutical market inthe EU is, therefore, a positive prospect for exporters of pharmaceutical products indeveloping countries.

+ Due to the increasing pressure on the price of medicines and the increasing awareness of the population towards healthcare expenditure, generic markets in the EU are expanding.Because EU production is expensive, cheaper production locations are sought. At the sametime, an increasing number of EU countries is enacting policies stimulating the use of generic medicines. These factors are translated into opportunities for the promotion of generics from, and outsourcing of production in, developing countries.

+ Economic growth in the CEE and Baltic countries and increasing health expenditure providegood prospects for exporters in developing countries. The growing pharmaceutical marketin these regions offer opportunities for developing countries to meet the large demand,

especially concerning generic medicines, which are highly popular in these EU memberstates.+/- According to industry sources, the entry of developing countries into the EU pharmaceutical

market is exclusive to the generic medicines, which limits DC opportunities to this sector.Development of a new prescription pharmaceutical product takes about 12 years, at a totalcost of up to approximately 1.0 billion ($1.4 billion in year 2007 dollars). In this manner,only very large and developed pharmaceutical companies could go through the wholeprocess of developing a new product, since this process is financed by the companys ownresources. Therefore, generic medicines are a much better market for DCs, offering anopportunity but, at the same time, are a restricting factor.

- Following the recent quality issues regarding various products made in China, there is agrowing concern in relation to pharmaceutical products imported from China and other

developing countries. One of these issues involved batches of Baxters generic heparin, awidely used injectable pharmaceutical product manufactured in China, which causedadverse patient reactions (PharmaManufacturing, 2008). Although this specific event tookplace in the USA, the so-called China Syndrome may spill over and lead to even stricterregulations for exporters in developing countries aiming to access markets in the EU.

Exporters should take into account that the same trend can be an opportunity for one exporterand a threat to another. Please review these opportunities and threats according to your ownsituation. Chapter 7 of this survey presents an example of an analysis of whether atrend/development is an opportunity or a threat.

1.5 Useful sources

The European Pharmaceutical Industry Association (EFPIA) http://www.efpia.org -provides information, national codes of practice and links to national associations.

IMS Health http://www.imshealth.com global source for pharmaceutical marketintelligence. It provides critical information, analysis and services concerning this market.

The European Self-Medication Industry http://www.aesgp.be - provides facts and figureson the European pharmaceutical, self-medication, and non-prescription market.

European Generic Medicines Association http://www.egagenerics.com The World Health Organisation for Europe - http://www.euro.who.int


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2 Production

2.1 Size of production

The global production of pharmaceutical products is dominated by the USA, which accounts fornearly 40% of the total pharmaceutical production worldwide (at ex-factory prices). Europe,the second largest producer, accounts for approximately 35% of total global production andJapan, the third largest producer, accounts for approximately 9% of production. Other regionsof the world account for the remaining 16% of total global production of pharmaceuticalproducts (EFPIA, 2008).

The European Federation of Pharmaceutical Industries Association provides more detailed dataon the pharmaceutical production in the EU, as shown in Table 2.1. According to theorganisation, the EU had a pharmaceutical production of approximately 162.5 billion in 2007(at ex-factory prices). Between 2003 and 2007, EU production increased at an annual averagerate of 3.5%.

Table 2.1 EU pharmaceutical production2003-2007, in million, at ex-factory prices

2003 2004 2005 2006 2007Annualchange %EU

Total EU 1 141,744 136,673 155,346 163,012 162,502 3.5% -France 31,296 33,141 34,316 34,444 34,276 2.3% 21%Germany 21,262 20,893 22,653 23,699 26,219 5.4% 16%United Kingdom 21,685 22,555 22,935 24,849 22,857 1.3% 14%Italy 17,989 17,742 21,589 22,317 22,455 5.7% 14%Ireland 14,293 15,866 15,146 14,900 15,328 1.8% 9.4%Spain 9,374 9.656 11,114 12,459 14,004 11% 8.6%Sweden 5,758 5,565 5,720 7,196 6,688 3.8% 4.1%

Netherlands 5,811 5,660 5,664 5,664 5,664 -0.6% 3.5%Denmark 5,985 4,593 4,877 5,278 5,537 -1.9% 3.4%Belgium 4,245 4,799 4,826 5,261 5,222 5.3% 3.2%Austria 1,325 1,597 1,799 1,874 2,249 14% 1.4%Poland n.a. 1,367 1,367 1,367 2,164 16% 2 1.3%Portugal 1,560 1,590 1,745 1,829 2,003 6.4% 1.2%Finland 724 753 782 857 869 4.7% 0.5%Greece 437 449 525 666 704 13% 0.4%Romania n.a. n.a. 181 223 280 24% 3 0.2%Cyprus n.a. n.a. n.a. n.a. 120 n.a. 0.1%Latvia n.a. 59 73 95 111 23% 2 0.1%Malta n.a. 34 34 34 34 0.0% 2 0.0%

Source: EFPIA, The Pharmaceutical Industry in Figures 2005, 2006, 2007 and 2008, 20091 Data are not available for Bulgaria, Czech Republic, Estonia, Hungary, Lithuania, Luxembourg, Slovakiaand Slovenia.2 Annual change calculated between 2004 and 20073 Annual change calculated between 2005 and 2007

In 2007, France was the leading producer of pharmaceutical products in the EU, and accountedfor a share of 21% in total EU production in 2007. Germany, the second largest producer inthe EU in 2007, accounted for a share of 16% of the total EU production. The United Kingdomranks third with a share of 14% of total EU production. Italy, the fourth producer, alsoaccounted for 14% of the total EU production and Ireland, the fifth largest producer, accountedfor a 9.4% production share.

The development of the production in the individual countries in the EU shows a fairly positivescenario. Production of pharmaceutical products in Italy and Germany increased by an annual


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average rate of 5.7% and 5.4% respectively, whereas production in France, Ireland and UKachieved a more modest growth of 2.3%, 1.8% and 1.3% respectively.

Although data are not available for most of the Central, East European and Baltic countries, wecan observe that production has generally increased in the countries for which data areavailable. Production in Romania, for instance, increased by 24% between 2005 and 2007.

Production in Latvia increased by an annual average rate of 23% between 2004 and 2007. Inthe same period, production in Poland increased by 16%. Their share in the total EUproduction in 2006, however, remained very low. In 2007, Poland accounted for 1.3% of thetotal EU production, while Romania and Latvia accounted for only 0.2% and 0.1% respectively.

According to EGA, the generic medicines industry is characterized by high diversity andcompetitiveness. Large generic companies are represented in most EU countries, as well assmaller players which are represented only in one or two countries. Generic companies in theEU employ around 100,000 people in the areas of development, production and sales.

A substantial number of pharmaceutical patents is expiring in the EU market in the period2008-2012. This is expected to lead to further market expansion of the generic medicines

market. In 2011, approximately 11 drugs are expected to face generic competition. It isexpected that the generic market will expand further due to the growth in importance of biogeneric / biosimilar drugs, which are the generic versions of biotechnology-derived drugs.In the EU, biological drugs enjoy increasing popularity due to the cost-saving opportunitiesthey offer. Nonetheless, the patents of approximately 24 biological drugs will expire by 2010.This will provide possibilities for generic production (Lead Discovery, 2009).

According to Lead Discovery, the top generic companies in the EU are Actavis from Finland http://www.actavis.com, Merk KGaA from Germany http://www.merck.de, Ratiopharm fromGermany http://www.ratiopharm.com, Sandoz from Switzerland, which is Novartis AGsgenerics unit - http://www.sandoz.com and Stada from Germany http://www.stada.de. InOctober 2007, however, Merk KGaA sold its Generics division to Mylan Inc. (United States)

(Lead Discovery, 2009).Please note that data regarding the production of generic medicines in the EU are notavailable.

According to EFPIA, the pharmaceutical industry in the EU employed approximately 635,000people in 2008, of which approximately 117,000 were involved in research and development.Additionally, R&D investment in the pharmaceutical industry amounted to 26 billion in 2007. The research-based pharmaceutical industry accounts for approximately 19% of the globalbusiness R&D expenditure (EFPIA, 2009).

Forecast: In contrast to consumption, figures related to the forecast for pharmaceuticalproduction in the EU are difficult to obtain. In general, production is expected to accompanythe development of the pharmaceutical market. Even though the pharmaceutical sector hasproved to be relatively immune to the economic crisis, as spending on health remains a basicnecessity, there are certain areas in which the sector was affected. A number of R&D projectshave been stopped due to lack of finance. Many pharmaceutical companies are losing bankingfacilities, such as provision of credit or funding to invest in raw material purchasing, packagingor overall product improvement.

2.2 Trends in production

Mergers & Acquisitions: Since the beginning of 2006, there has been a number of merger and acquisition deals among originator companies. In the beginning of 2009,Pfeizer announced its acquisition of Wyeth. In 2008, Millennium was acquired by Takedaand ImClone by Eli Lilly. The acquisitions aim at expanding portfolios and increasing sales.A similar trend is also observable in the generic medicine domain. In 2007, Merck sold its


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Generics division to Mylan Inc, the third largest generics company in the world. In 2007,Apotex, the largest Canadian generics company, acquired Lareq Pharma S.L. of Spain andTopgen of Belgium. This trend is likely to continue and lead to the consolidation of theindustry.

Sourcing of Active Pharmaceutical Ingredients (APIs):The CEE region: Czech Republic and Poland are the most attractive countries within the EU

for the sourcing of APIs. The main advantage of these two countries, compared to strongcompetitors such as China and India is the low level of counterfeiting. As counterfeiting isincreasingly regulated by EU legislation, it is more difficult for counterfeited APIs comingfrom China and India to make their way to the EU market.Developing Countries: High cost of production of APIs in Europe and extensive regulation of the industry has led many companies to start sourcing APIs in developing countries. Inorder to cut costs, many (generic) pharmaceutical companies orient themselves towardlower-cost manufacturing areas. EU legislation is also, partly, the cause of increasedvolumes of APIs manufactured in developing countries, mainly in Asia, entering the EU. Thedelay or gaps in regulation at the EU level in many cases has allowed low-quality exportsfrom Asia to enter the EU market (PMR Publications, 2009).

Outsourcing to low-cost countries: There is an increase in the global outsourcing of

pharmaceutical research and manufacturing activities from Western economies to low-costcountries, a development which is also applicable to EU companies. Pharmaceuticalcontract manufacturing is steadily growing due to pressure on producers to lower costs, aswell as to stringent regulatory requirements. Consequently, producers in outsourcingdestinations have improved their manufacturing facilities to increase their competitivenesson a global scale. The global contract manufacturing market was worth approximately 18billion in 2007. The market is expected to grow at a rate of 11.4% and reach approximately 27billion by 2011 (Business Insights, 2009).

Research and Development (R&D) in the EU: The EU has traditionally been a centrefor pharmaceutical research and development. In the last few years, however, this leadingrole has been in decline. Compared to the North American and Asian regions, the EU is aless attractive location for R&D investment, in terms of both market conditions and

incentives for the creation of new biopharmaceutical companies (EFPIA, 2009). R&D and production in CEE countries: Although Western Europes production of pharmaceutical products will be negatively influenced in the future, as indicated above,Central and Eastern Europe are likely to continue increasing in importance, both for R&Dand for production. Next to well-established West European pharmaceutical industries,Central and East European EU countries (mainly Poland and the Czech Republic) areexpected to thrive. These countries offer low-cost manufacturing and well-qualified medicalpractitioners are available to conduct clinical research. Many Western pharmaceuticalcompanies are moving part of their production to this region, or are setting up newproduction capacity, to cater for growing markets (PMR Publications, 2009).

Counterfeit medicines: In developing countries, counterfeit medicines are alreadywidespread. Recently, they are also increasingly being found on the EU market. Internetsales are the major source of counterfeit medicines. Lately, however, these products arealso being found in the traditional supply chain. Some counterfeits contain toxicsubstances, others contain no active ingredient or, in some cases, the wrong amount of ingredients. This is damaging to the medical treatment, but can be extremely dangerouswhen patients take the medicine for treating serious diseases. EU associations representingpharmaceutical companies call for urgent measures against counterfeit medicines (EFPIA,2009).

EU sector inquiry on competition in the pharmaceutical sector: Given the decline inthe competitiveness of the EUs pharmaceutical industry, i.e. decreased levels of innovationand delayed market entry of generic medicines, the European Commission announced, in2005, a sector inquiry for the industry. In 2009, the European Commission issued thefindings of the final report. The EC found out that, on average, generic medicines enter themarket with a delay of seven months after expiration of patents of brand-namepharmaceuticals. Pharmaceutical innovators have become very creative in the strategiesthey employ to achieve additional protection for their products. Another way for


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pharmaceutical innovators to retain their exclusivity on the market is to file for secondarypatents or form patent clusters (there can be up to 1,300 patents for certain blockbustermedicines). Furthermore, the inquiry found that the pharmaceutical sector is highlyregulated. There are shortcomings related to market entry due to the regulatoryframework. Both generic and originator companies propose, as a possible remedy, theintroduction of a single EU Community patent. Stakeholders also emphasized concerns

related to market authorisation, reimbursement and pricing, which lead to delays inbringing pharmaceutical products to the market (European Commission, 2009). The sectorinquiry contributed to the debate regarding pharmaceuticals, in particular generics, and thefirst antitrust investigations have already started (EC, DG Competition, 2009).

Pharmaceutical legislation in CEE countries: Since their entry to the EU in May 2004,the Central and East European countries in question have harmonised much of theirpharmaceutical legislation with that of the EU. Nonetheless, some EU directives in Poland,for instance, still have to be transposed into national law. As is true for the countries which

joined the EU in 2004, Romania and Bulgaria also amended the applicable legislation andbecame full EU members in January 2007. The implementation of Good ManufacturingPractice (GMP) for pharmaceutical products is gaining ground across the region, which isexpected to improve the quality of overall production and lead to a rise in market values

(Espicom, 2009). Biotechnology: In 2006, the EU was the first region in the world to establish a regulatory

framework for biosimilar/biogeneric drugs, thus opening the EU market for generic versionsof biopharmaceuticals. This gives the EU a competitive advantage in the biosimilarsindustry. Biotechnology is being increasingly applied to pharmaceutical products, resultingin the creation of products based on the knowledge of human genomics(biopharmaceuticals). Biotechnology will allow health practitioners to predict a patientsresponse to treatments and to create pharmaceutical products which are personalised according to the genetic variations of individuals. In 2007, biopharmaceuticals accountedfor 9% of the total EU pharmaceutical market. Biopharmaceutical manufacturing isreported to have increased by 15% in 2008, driven by growth in sales of biologics(Business Insights, 2009). According to EFPIA, the biotechnology sector in Europe is

growing rapidly, but still lags behind the USA. In 2006, Europes revenues resulting frombiopharmaceuticals amounted to 9.1 billion, whereas they amounted to 44.1 billion inthe USA. This is proportional to R&D expenditure in biopharmaceuticals; in Europe,expenditure amounted to 2.9 billion in 2006, while in the USA it amounted to 18.2 billion (EFPIA, 2008).

Generic medicines: According to industry sources, the EU as a whole is moving toward ahigher level of generic medicines production. As patents expire, pharmaceutical companiestend to focus on their generics department. Large pharmaceutical companies, such asNovartis, often have a whole subsidiary company which is responsible for the production of generic medicines (in the case of Novartis, this subsidiary company is Sandoz).

Production of generic medicines in CEE countries: Generic medicines play a vital rolein CEE countries, where high demand for these pharmaceutical products can be explainedby their affordability. In spite of the recent introduction of EU pharmaceutical directives andimprovement of patent protection in these countries, counterfeiting of Westernpharmaceutical products is still prominent. The production of generic medicines hasreportedly remained strong, even in countries where originator pharmaceutical productsare manufactured (Episcom, 2009).

2.3 Opportunities and threats

+ Whereas many complex pharmaceutical products (e.g. biopharmaceuticals) are produced inthe EU or in other developed regions, pressures to achieve cost reduction imply that, atleast at the lower end of the value chain (e.g. ingredients) or regarding simpler (andgeneric) products, more and more production is shifting to developing countries.

+ A promising opportunity for exporters in developing countries is the increase in the globaloutsourcing of pharmaceutical research and manufacturing activities from Westerneconomies to low-cost countries, which is also applicable to EU companies. Another


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opportunity is the sourcing of APIs in developing countries. Led by cost-cutting strategies,an increasing number of EU pharmaceutical companies start sourcing their ingredients inlower cost manufacturing environments, especially in Asia.

+ The growth in patent expiration for medicines in the EU provides an opportunity forexporters in developing countries, since it translates into more generic medicines availablein the market. Exporters should keep an eye on patent expiration in the country/ for the

product of their interest.+ Certain EU countries have a higher share of generic medicines in their pharmaceutical

market as a whole than others; these countries offer greater opportunities for exporters indeveloping countries.

+/- There is a number of biopharmaceuticals for which the patent is expiring. After an EU-wideregulatory framework for biosimilars was established, an increasing number of biogenericdrugs is making its way to the generic market. If developing countries manage to complywith the strict regulations governing the biosimilar industry, this can potentially open awindow of opportunity for them. On the other hand, the lions share of biotechnologyproducts in the pharmaceutical industry is still under patent, which means that developingcountries have a minimal chance of accessing this segment in the EU. In addition to thestrict regulations related to biopharmaceutical products (which are even stricter than those

in place for conventional pharmaceutical products), most developing countries do not havethe capacity/expertise to produce them.- Exporters in developing countries might encounter increasing competition from developing

European countries such as Ukraine, as well as Central and East European countries in theEU, where production of pharmaceutical products and generic medicines, specifically, isestablished and growing rapidly.

- In addition to experiencing a significant growth in their pharmaceutical production, Centraland East European countries in the EU are increasingly complying with the EUs safety andquality regulations, which gives them further advantage in relation to exporters indeveloping countries aiming at accessing the EU market.

- The EU is becoming more cautious about the quality of APIs originating in DCs andimported to the EU market. After numerous cases of counterfeiting, the pharmaceutical

industry in the EU, regulatory agencies in EU member states and the European Union itself have started to impose more stringent requirements on the safety aspects of importedpharmaceutical ingredients.

- Different policies and regulations on generic medicines explain large variations in themarket shares of generics among different EU countries. Developing country exportersneed to be knowledgeable about these regulations before they attempt to export, sincecountries which encourage/do not encourage generic substitution might contributeto/reduce the penetrability in these markets. Patient co-payment and/or incentives fordoctors and/or pharmacists may also increase or decrease the use of generic medicines.

- Pricing and reimbursement systems put caps on pharmaceutical prices in some countries,and DC exporters may have to adjust to commercialize their products profitably. Forfurther information on pricing and reimbursement systems in the EU, refer to Chapter 4.

Exporters should take into account that the same trend can be an opportunity for one exporterand a threat to another. Please, review these opportunities and threats according to your ownsituation. Chapter 7 of this survey presents an example of an analysis of whether atrend/development is an opportunity or a threat.

2.4 Useful sources

European Biopharmaceutical Enterprises (EBE) http://www.ebe-biopharma.org European Medicines Agency (EMEA) - http://www.emea.europa.eu Pharma and Healthcare Insight - http://www.pharmaceuticalsinsight.com CPHI, the worlds leading pharmaceutical ingredients and pharmaceuticals trade show, 5-7

Oct 2010, Paris: http://www.cphi.com Pharmagora, French pharmaceutical trade show, 27-29 March 2010, Paris:

http://www.pharmagora.com


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Expopharm, 28-31 October 2010, Munich: http://www.expopharm.de Infarma, trade fair focused on the Iberian Peninsula, Feb 2009

http://www.interalia.es/www.infarma.net/default.htm Piribo - http://www.piribo.com is a reliable source of information for the global

biotechnology, healthcare and pharmaceutical industries. Espicom - http://www.espicom.com is an interesting and reliable source of information for

the pharmaceutical and medical devices market.


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3 Trade channels for market entry

3.1 Trade channels

The main distribution channel for pharmaceutical products in the EU is the specialised pharmaceutical channel, which consists of pharmaceutical wholesalers, pharmacies, hospitalsand self-dispensing doctors. In some cases, agents (which are normally integrated withwholesaling companies) are also involved in the distribution chain or, as it happens in somemarkets, other retail channels are used outside of the conventional pharmaceutical channel. Itis important for exporters who are entering the pharmaceutical market in the EU to note thatthe pharmaceutical channel guarantees strict regulations, which are essential for themarketing of prescription pharmaceutical products in the EU.

Non-prescription pharmaceutical products, on the other hand, are sold under weakerregulations, going through fewer quality and safety checks between the producer and the finalconsumer. Therefore, other trade channels might apply, such as direct sales to large retailers(e.g. pharmacy chains).

National policies and regulations impact the distribution trends in the different EU countries.The trade structures of these markets are mostly similar, but also deviate according to thedifferent pharmaceutical and healthcare systems. The major variations for prescriptionproducts lie at the end of the chain in the manner how the product is dispensed to the end-consumer - but this does not affect a suppliers market approach. Wider variations, however,are found in the distribution trends and channels for non-prescription products in the differentmarkets, since weaker regulations apply to these products, and major drugstore chains andretailers often play a large role. Furthermore, there are no essential differences between thetrade channels for packed and non-packed medicines. The different regulations which apply tothese two product groups do not affect the manner in which they enter the EU market. Themain trade channels for pharmaceutical products are given below:

Figure 3.1 Trade channels for pharmaceutical products

Source: Malaysia External Trade Development Corporation (MATRADE), 2005. Adapted by Profound Advisers In Development

DomesticManufacturer

ForeignManufacturer

Wholesalers/Importers

Internet & Mail Order

LargeRetail

Customers

Pharmacies Hospitals Self-dispensing

doctors

End Consumer


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Wholesalers/importersSeveral Europe-wide wholesalers operate in the EU. However, different health care systems,different pharmacy structures, different prescription patterns and, consequently, differentproduct ranges in each country result in a fragmented wholesaling structure, which hampersthe expansion of the wholesale business from the national to the EU level. Therefore, mostplayers operate on a national level or only in a limited number of EU countries.

Specialised pharmaceutical wholesalers are the most important intermediaries linking domesticand foreign manufacturers to pharmacists, hospitals and self-dispensing doctors. This tradechannel applies to both prescription and non-prescription pharmaceutical products, but differsin levels of regulations and quality and safety controls for each of these product groups.Manufacturers in developing countries usually rely on their personal contact withimporters/wholesalers in the EU for the marketing of their pharmaceutical products. The termwholesaler/importer is integrated in this survey, since wholesalers also act as importers.

The role of importers/wholesalers is to ensure a continuous supply of pharmaceutical productsfrom manufacturers to the channels dispensing these products. After buying pharmaceuticalproducts from manufacturers, wholesalers are also responsible for their safe storage. Delivery

quantities need to be small, and they work under just-in-time delivery conditions, answering topatient demand. Just-in-time delivery is more important for prescription pharmaceuticalproducts than for non-prescription products, thus wholesalers/distributors give priority to theformer group. Wholesalers provide pharmaceutical products to general access pharmacies,hospital pharmacies and other retail channels (in the case of non-prescription products).

Pharmaceutical wholesalers can be divided into full-line wholesalers and short-line wholesalers.Full-line wholesalers carry the whole assortment of pharmaceutical products available in acountry, in addition to providing various value-added services to manufacturers and retailers.In essence, they should fulfil requests for any product ordered by a pharmacist. One of themost important functions of wholesalers is the pooling of orders. In the case of pharmaceuticalproducts, pharmacies/hospitals order all the products they need by one wholesaler, who pools

the incoming orders before transferring them to the manufacturers. So the use of a wholesalerhelps to reduce the number of contacts and, therefore, transaction costs between themanufacturer and end consumer. If pharmaceutical products were supplied directly instead,each pharmacy/hospital would have to get in contact with each manufacturer in order to obtaina complete assortment of products (IPF Institute for Pharmaeconomic Research, 2005). Full-line pharmaceutical wholesalers operate under two kinds of distribution systems: the one-channel (also known as single-channel) and the multi-channel system. Under the one-channelsystem, pharmaceutical companies make an agreement with an exclusive wholesaler for theirwhole product assortment, whereas under the multi-channel system wholesalers offerpharmaceutical products from different pharmaceutical companies. With the exception of Sweden and Finland, all EU member states have established a multi-channel distributionsystem.

Short-line wholesalers only offer a limited product assortment, and do not provide the widerange of services that full-line wholesalers do. They are often sole traders who conduct theoperation as a sideline to a core business, and many of them are actually pharmacists runningthe wholesaling business alongside that of a pharmacy. Both full and short-line wholesaling arepresent in a number of EU countries; nonetheless, in countries such as France, Italy, Belgium,Greece, Portugal, Spain and some East EU countries, pharmaceutical wholesalers are legallyobliged to provide the complete product range to pharmacists thus, short-line wholesaling isprohibited (Institute for Pharmaeconomic Research, 2005). Both full and short-linepharmaceutical wholesalers are licensed and inspected equally.

Although a large number of wholesalers is active in the EU, only a few EU-wide players have avery strong position on the EU market. Together with their associated companies, which play astrong role in helping the mother companies overcome national differences, the leading threewholesalers control approximately half of the EU intermediary pharmacy market. Celesio, from


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Germany - http://www.celesio.com - controls around 18% of the market. It is the marketleader in France, Austria, Portugal and has an important position in Germany. However, it isactive across the EU as one of the largest players in most countries. It is among the largestpharmacy players in the UK. Phoenix - http://www.phoenix-group.eu.com - from Germany,together with Tamro, the leading Nordic group it acquired in 2004, holds 16% of the market.Phoenix is market leader in Germany, Italy, Hungary, the Czech Republic, Slovakia, Denmark,

Finland, Sweden, Latvia, Lithuania, Bulgaria and Estonia. UK-based Alliance Boots -http://www.allianceboots.com - holds 15% of the distribution market, but also has a very largeretail section. It is the market leader in the UK and has a very important position in France, aswell as further wholesale operations in the Czech Republic, Italy, The Netherlands, Norway,Russia, and Spain. Its retail operations lie in Ireland, Italy, The Netherlands, Norway and theUK, while its own brand of medicines is sold in a much wider range of countries.

It is important to note additionally that wholesaling activities in the EU are regulated by TitleVII of Directive 2001/83/EC as amended. These are the only EU provisions in the area of distribution of pharmaceutical products, since distribution laws are otherwise regulated at thenational level (AESGP the Association of the European Self-Medication Industry, 2007).

Please note that wholesalers may also act as agents. The agent takes an order from thecustomer and sends it to the pharmaceutical company. Please note also that the involvementof agents is restricted in the pharmaceutical sector, since a whole checking system andnumerous regulations are in place along the distribution chain. This is also the reason why theagent/wholesaler role is integrated in this sector.

PharmaciesIn the case of large pharmacy chains, the need for pharmaceutical wholesalers is eliminated,since the chains are able to distribute pharmaceutical products to their retail stores from theirown warehouses. Most countries in the EU have large pharmacy chains and, in some cases,pharmacy chains which have their own distribution logistics as well. In this case, pharmacychains also take care of the products marketing, including authorisation and registration

procedures. Since the involvement of wholesalers/importers is eliminated, this channelprovides an opportunity for both exporters and pharmacies to internalise the profit whichotherwise would be allocated to the distributors. The above-mentioned player, Alliance Boots,is an example of a large pharmacy chain - resulting from the merger between the main UKdrugstore company and an Anglo-French wholesaler that often imports directly fromdeveloping country suppliers. The role of large pharmacy chains is case-specific and contact isdirectly established with the manufacturer. Although this is not a conventional channel foraccessing the EU pharmaceutical market, it should be investigated by developing countryexporters.

Hospitals and self-dispensing doctorsIn the case of hospitals and self-dispensing doctors, direct access to manufacturers is veryrare. These two segments are usually catered to via pharmaceutical wholesalers, which areable to provide the complete product assortment required.

Direct contact between manufacturers and hospitals happens almost exclusively in thepurchase of innovative pharmaceutical products, which often consist of biopharmaceuticals.Nonetheless, innovative pharmaceutical products offer very restricted opportunities todeveloping countries, and should not be a sector of relevance in this survey.

Other retail channelsRetail distribution of non-prescription pharmaceutical products through channels other thanpharmacies is still restricted in most EU countries. Nonetheless, large retail customers aregaining an increasingly important role in the distribution of non-prescription products which arelicensed for sale in non-pharmaceutical channels, such as drugstores, supermarkets andconvenience outlets.


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Alternative trade channels for the pharmaceutical sector in the EU include manufacturersselling pharmaceutical products directly to the consumer, whether it is via the Internet orthrough direct mail drugstores. This eliminates the intermediary role represented bywholesalers and pharmacies. Direct delivery to customers is an attractive option formanufacturers, since it allows them to internalise a larger part of the value addition, whichwould otherwise be distributed along the value chain. However, the size of the market for

these newer distribution channels is minimal, thus this should not be a conventional channelfor use by exporters. Alternative pharmaceutical trade channels are increasing, especially inthe UK and Germany, although these channels are largely used by established players in theEU (and usually within the EU, thus not of major relevance to exporters in developingcountries). It is important to mention that distance-selling of pharmaceutical products is illegalin several EU countries. For more information, please refer to the country surveys.

Having analysed the main trade channels, it can be concluded that the most common andpractical trade channel for developing countries which aim to access the EU market is throughimporters/wholesalers. This channel guarantees companies in developing countries that themarketing procedure allowing them to enter the market will be taken care of. Logistics-wise,therefore, the direct contact between exporters in developing countries and pharmacies,

dispensing doctors and hospitals in the EU is costly and not practical.

Custom-manufacturingNext to the channels described above, the opportunities for custom-manufacturing directly forEU pharmaceutical companies can also be investigated. Outsourcing/custom-manufacturing forEU companies is often an excellent opportunity for companies in developing countries,especially regarding generic medicines. They can manufacture products which their partnerwants to market in the EU or, indeed, in areas outside the EU. An important benefit for thecompanies in developing countries which become involved in custom-manufacturing, is thatthey do not need to try and create brand awareness for their own products (brands) in the EU,which would normally be beyond their financial capabilities. Please, note that custom-manufacturing must be done in GMP (Good Manufacturing Practice) plants.

Parallel tradeIn addition to the conventional trade channels presented above, it is important to outline therole of parallel trade in the pharmaceutical market in the EU.

According to The Observer, parallel trade of products in the EU pharmaceutical market startedin The Netherlands in the 1970s and is now accounts for an estimated 2% to 3% of totalEuropean sales of pharmaceutical products. This type of trade is an arbitrage (i.e. takesadvantage of the price differential) between patented pharmaceutical products amongstindividual EU markets which are negotiated between each government and their respectivepharmaceutical industry. In countries such as Greece, Spain and France prices of pharmaceutical products are lower than in countries such as the UK, Germany and TheNetherlands. For this reason, traders in the latter countries buy products from the formercountries and transport, re-pack and sell them at a higher price.

Parallel trade in the EU is a controversial issue. On the one hand, the single EU market allowsfor free movement of pharmaceutical goods inside the EU, thus parallel trade does not consistof a conceptually illegal activity. Furthermore, parallel traders argue that increasingcompetition resulting from this type of trade helps reduce prices of patented products. On theother hand, parallel trade is often regarded as negative by the pharmaceutical industry, sinceshortages of pharmaceutical products have been reported in countries such as Greece due toits lower medicine costs compared to other EU countries. In addition, large internationalpharmaceutical companies have claimed that parallel trade compromises the quality andsecurity of the supply of pharmaceutical products, thus putting the safety of patients at risk(The Observer, 2008).


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Parallel trading in the pharmaceutical industry is limited, as it is - generally speaking - verydifficult to market those products, because they are sold only on prescription. Please, note thatprescription pharmaceutical products from parallel imports would in no way threaten the pricelevel of generics/ the space of generic medicines in the market, thus exporters in developingcountries should not see them as a threat to marketing their products, but as a point of awareness regarding the EU pharmaceutical industry.

3.2 Price structure

Pricing and reimbursement of pharmaceutical products in the EU are issues of nationalcompetence. In 1989, the pricing transparency measure (Council Directive 89/105/EEC) wasintroduced i

2010 - pharmaceutical products - eu

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