The Spanish parliament has recently approved legislation that will make INN prescribing mandatory, thus transforming Spain into a fully unbranded market. In reality, things have been moving in this direction for some time, with individual provinces forcing the GPs in their area to prescribe by active ingredient, but the new laws will still have a big impact on the market.
The obvious losers will be originator companies selling off-patent products ad companies that rely heavily on either branded generics or copy products (non-bioequivalent generics), while the winners ought to be generic producers that have a low cost base and the capacity to supply greatly increased volumes to the Spanish market. Looking at the current market leaders (Teva, Cinfa, Normon, Stada and Kern), the top four have portfolios that are totally dominated by unbranded products, with only Kern having a meaningful proportion of its sales coming from brands (and even then, not more than 25%). On the other hand, some of the smaller companies that operate in Spain, such as Alter, still sell a lot of branded generics, as do one or two foreign players, such as Adamed.
On the face of it, Teva should do particularly well out of the new regime, as should Cinfa, Normon and Stada. Ability to actually supply will be crucial, though, as some companies (Actavis and Mylan in particular) are already suffering from stock shortages. It is also likely that prices in Spain, which are already low in the unbranded segment, will fall further. Discounts to pharmacists are the standard mechanism used by producers to get their goods on the shelf and these are likely to get larger as the volumes involved increase. Also, because pharmacists are required to dispense the cheapest generic (even if they often don’t) and the reference price, which determines the reimbursement price, is also based on the cheapest products, there is a risk that new market entrants will use price cuts as a way to force their way onto pharmacy shelves. In this respect, the Spanish market is likely to prove even tougher than the UK, because prices in the UK market are able to rise as well as fall when the supply/demand balance shifts, whereas in Spain they are likely to be capped by a reimbursement price that only ever goes down.
Overall, the shift to INN prescribing in Spain is likely to lead to a big short-term boost to the value of the generic market, as innovator products are replaced by generics. Current generic penetration by volume is close to 25%, whereas in the UK it is nearer 60%, so in theory at least, the total market could double over the next 12 months. In reality it almost certainly won’t, as even in provinces where INN prescribing is already the norm, pharmacists frequently dispense brands, either because the cheapest generic isn’t available, or because the condition being treated is one where the specialist has written the prescription, or because the patient wants brand continuity for a chronic condition. However, we would at least expect to see the most brand-oriented provinces increase their use of generics, which, if they reached the dispensing level of their most generics-oriented counterparts, would alone add about 40% to the market size. Over the longer term, aggressive price erosion it likely to at least partially offset the benefit of new patent expiries, but penetration should continue to rise, as the government closes existing loopholes and both pharmacists and patients become more comfortable with generics. We also expect to see significant restructuring among the Spanish generic companies, with sales forces being disbanded and a big push to lower costs in order to be able to compete in a lower price environment. This could well favour the international players, who are able to spread their costs over more countries, but the traditional Spanish generic companies such as Cinfa have very strong relationships with pharmacists, so we suspect that it will be the smaller operators of all nationalities that find themselves forced out of an increasingly competitive market.
Posted on 29th August 2011