With Europe's economic troubles causing domestic profitability concerns, established pharmaceutical companies may look to emerging markets for outsourcing partners. Each developing economy has unique economic, political, and cultural issues that help define its pharmaceutical market. To succeed, multinational pharmaceutical companies will have to adapt differently depending on the distinctive needs of each country.
Austerity pricingConstrained by compressed government budgets and sovereign debt issues, many European countries have imposed reductions in pharmaceutical pricing. Most of the pricing cuts have been in the 4–5% range, with deeper reductions generally seen in countries with sovereign debt issues or serious budgetary problems. France announced plans to reduce its 2011 pharmaceutical budget by close to $700 million, while simultaneously curtailing tax incentives for orphan-designated drugs. Another noteworthy announcement is a program in Greece designed to save more than $2.5 billion by reducing drug prices by at least 20%. Italy aims to achieve close to $2 billion in savings through price reductions and tightened consumption. As a result, the aggregate growth has been weak for the top five European pharmaceutical markets, rising approximately 2–3% in 2011.
At the micro level, deficit-led pricing pressures have had a considerable effect on financial performance for many companies that rely heavily on revenues from European pharmaceutical markets. The collective impact involves a complex matrix of price-erosion mechanisms, ranging from price reductions across the market, to pricing restrictions in certain countries. The effects of these mechanisms on company revenues, earnings and valuations have not yet fully manifested. Regardless of the massive slowdown, developed markets continue to provide core revenue streams for major pharmaceutical companies. The key to maintaining revenues involves strengthening late-stage pipelines through innovation.