May 27. 2024. 9:59

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Italy urged to address almost €1 billion rise in generics’ production cost

The sharp rise of generic drugs’ production costs on the back of high inflation has caused the Italian government severe headaches, while the industry describes an “unsustainable” situation which could negatively impact patients.

Inflation, combined with the economic impact of the pandemic and the war in Ukraine, has put a serious strain on the generic drug supply chain.

In 2022, the total production costs of generic medicines in Italy increased by 21% compared to 2021, amounting about €937 million, according to the Nomisma Observatory on the Generic Medicines Industrial System data.

In particular, the cost of active ingredients and excipients is up 26.5%, the cost of transportation is up 100%, while the price of energy even showed an increase of 300%.

Enrique Häusermann, president of Egualia (Italian Association of Generic, Biosimilar and Value Added Medicines Industries), told EURACTIV Italy that this comes on top of the 2019-2021 period during which companies had to absorb significant price pressures along the supply chain.

“While all suppliers are increasing their costs, companies in the industry cannot adjust their price lists. Drug prices are set at the national level, and very often equivalent medicines are subject to additional non-negotiable containment measures”, he added.

Adjust prices to save drugs, generics industry tells EU

The generics industry is urging the EU and national governments to show “leadership” and take immediate action against rising inflation, which has resulted in drugs’ shortages and has put patients in need to the test.

Cheap drugs at risk

The main issue is that in Italy, prescription drugs have the lowest average prices in Europe, and margins have been cut by rising costs, raising the issue of manufacturing sustainability.

As many as 26% of equivalent drugs sold in pharmacies in Italy are priced at €5 or less.

Häusermann says these are the drugs most at risk of industrial sustainability, along with all sterile injectable forms sold to hospitals, which include essential and life-saving drugs, like many oncology drugs.

The current regulation of generic-equivalent drug prices does not allow any adjustment for inflation for drugs reimbursed by the National Health System and makes it impossible to renegotiate prices for public procurement procedures.

“This impasse is likely to result in future supply disruptions or the withdrawal of the relevant products from the market,” Häusermann said.

In fact, this has already happened. In the list of 3,200 deficient drugs on Italian Medicines Agency’s (Aifa) list, about half are products that have been absent from the Italian market for many years, some more than a decade.

“These are products of little interest to companies, but which have not generated problems for consumers”, Aifa’s president Domenico Di Giorgio told EURACTIV Italy.

Further shortages, however, could have a more significant impact.

The equivalents industry supplies an average of about 30% of national pharmaceutical consumption, and particularly in hospital supplies, there are entire therapeutic areas where equivalents companies supply more than 70% of the annual need for medicines that are fully paid for by the National Health Service and free to the individual citizen.

How to act on prices

Egualia urges the government to intervene. First and foremost, a way must be quickly identified for an extraordinary review of low-cost drug prices in cases where there are risks to industrial sustainability.

“We think that the range (of drugs) up to €5 is the one most at risk,” said Häusermann, highlighting up drugs such as metformin and amoxicillin as examples.

It will also be essential to revise the criteria for managing the bidding process, favoring framework agreements for off-patent drugs, with the aim of safeguarding “the presence of multiple players in the market and the mitigation of the risks of product supply disruption”.

According to Egualia, the payback (or reimbursement) mechanism, demanded by companies for drugs on the substitution list sold in pharmacies should then be cancelled, and the one demanded on drugs sold through tenders in hospitals remodelled.

“For hospital supplies, in particular, there is a need for a legal rule and a special fund dedicated to the adjustment of contract prices by regional purchasing centers, which would allow the revision of prices for ongoing supply contracts”, Häusermann explained.

He also highlighted the need for a shared industrial policy in Europe identifying tools to support investments in pharmaceutical production of active ingredients and finished products.

“Only in this way, by overcoming the limitation of state aid, could we ensure that the pharmaceutical industry has a production chain that is more controllable, safe and durable over time,” he said.

“Every single month exposes our production lines to an increasing risk of plant downtime. And it must be said that the shortage of raw materials will be the key issue for all world production systems for at least the next five years,” Häusermann added.

Italy’s health ministry was not available to provide a comment on the matter.

A difficult situation for branded products as well

For Marcello Cattani, president of Farmindustria, the Italian pharma industry association, drug production may no longer be sustainable for companies in the short term, because of inflation.

“We need to reason with Aifa on how to adjust prices, without burdening consumers too much”, he told EURACTIV Italy.

Cattani emphasised the low-cost drugs such as neuroleptics, antibiotics, antihypertensives, and diuretics, which were already in short supply in the autumn of 2022.

Production costs for Farmindustria member industries, compared to January 2021, have risen on average 40%.

Especially impactful were high energy prices, distribution costs, and higher prices for raw materials such as aluminum (used for blisters and packaging), paper, plastic, and glass. The weakness of the euro-dollar exchange rate in international trade also complicated the situation.

Prices do not guarantee affordability even for branded medicines. Non-reimbursable drugs have been eligible for price increases by law since 2005. However, these account for only 12% of the total and are worth €3.5 billion of the industry’s €29.6 of revenues in 2021. The rest are drugs that have fixed or declining prices.

“We need to open a discussion table because otherwise the situation will not be sustainable for a long time,” Cattani concluded.