At first, the mere fact that troubled European countries were deep in debt to drugmakers was news. Then, it was the mounting size of those pharma debts and that Greece, at least, was paying its drug bills with bonds worth far less than their face value. Now, the slow payments and forced discounts are a fact of life--and pharma companies have developed a variety of strategies for making the best of the situation.
As the Financial Times reports, estimates for unpaid pharma debts in Europe's troubled markets top €12 billion, or more than $15 billion. The payments problem has hurt small, regional companies more than Big Pharma, but companies of all sizes are getting creative about managing the risks. Germany's Merck KGaA has started a cash-on-delivery payment program, pharma chief Stefan Oschmann told the FT. The company is also "looking at how much we will, in future, invest in commercial infrastructure," Oschmann said.
Meanwhile, AstraZeneca ($AZN) CFO Simon Lowth said drugmakers are negotiating to offset government price cuts against their unpaid debts to reduce the losses. Novartis ($NVS) CEO Joe Jimenez (photo) says his company has changed its compensation plans to incentivize cash collections, not just sales. Smaller companies have used factoring to turn unpaid debts into cash. Some have obtained bank loans secured by those unpaid bills.
Other companies--including Novo Nordisk ($NVO) and Sanofi ($SNY)--have shifted their product offerings. Rather than supplying the newest, priciest drugs to countries that are slow to pay, they're offering older and cheaper medicines, the FT reports. Another strategic shift: supplying drugs not to the facilities slowest to pay, such as government-funded hospitals, but to faster-paying individual pharmacies. Cutting inventory is another approach, Bayer HealthCare chief Jörg Reinhardt said.
- read the FT roundup