Greece’s rejected bailout plan poses a problem to Pharmaceutical Industry

Greece - Pharmaceutical Production in Europe 2014

This chart shows the amount of pharmaceutical production in Europe (2014) in millions of euros. Greece is the 6th lowest producer of Pharmaceuticals in Europe.

Greece’s recent decision to reject European Creditor’s offer to help bail out their country from is massive accumulated debt can significantly affect the worldwide pharmaceutical and drug industries.

This is problematic because now that it is very likely that Greece will leave the Eurozone, according to Citigroup’s chief Analyst Willem H. Buiter, Greece will have to adopt their own currency. This currency is likely to depreciate quickly due to Greece’s poor financial history and low credit due to incredibly high Greek debt. With a new currency, Greece will be able to arbitrate its new prices, and those prices will likely (due to the general Greek population having little amounts of money) be lower than the average prices around the world for medicine. Due to price arbitrage, drug vendors will choose not to sell drugs to Greece due to lower revenue they will generate as opposed to selling to wealthier countries such as Sweden and Germany.

However, due to the international price referencing theory, where other countries reference their prices based off other countries’ prices, Greece’s lower prices will drive down the price of drugs in the market, thus reducing the revenues of the drug manufacturers.

The Greek financial crisis poses an immense conundrum on the drug manufacturers and the pharmaceutical industry because in a business, it is important to maintain commercial interests that are beneficial to a company in trade, however it is also necessary to protect the Greek public health.

Pharmaceutical companies claim that there will be a shortage of drugs in Greece due to increased parallel trading. Parallel trading is the process of a wholesaler purchasing a product at a relatively low price in one country, and then shipping the product to another country to sell at a higher price. Pharmaceutical companies fear that wholesalers will take the cut-priced medicine in Greece and resell them elsewhere in Europe.

Wholesalers, represented by the European Federation of Pharmaceutical Industries and Associations, argue that wealthy pharmaceutical companies are trying to prevent parallel trading in order to exploit the Greek financial crisis for their own commercial purposes in portraying a medicine shortage in the country for in the coming months. They claim that wealthy pharmaceutical companies are attempting to maximize their profit in a time of crisis.

The EFPIA suggests that the medicine shortages arise from liquidity problems and manufacturers simply intentionally reducing supplies in hopes of bolstering profits, and not due to parallel trading. In fact, the EFPIA claims that parallel trading of pharmaceuticals has dropped by more than one third since the Greek financial crisis emerged three years ago. The EFPIA also suggests that if drug prices in Greece were to fall, we would not witness a jump in exports because they will maintain supply quotas on drug makers and wholesalers, who have public service obligations to supply Greek people with medicine in order to keep them healthy. In addition, no more medicine will be exported under these circumstances.

Greece leaving the Eurozone may affect drug-manufacturing markets. Greece’s exit will create a highly volatile market, which will likely force pharmaceutical companies to minimize their profits in order to maintain an appropriate level of health in Greece.

 

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