European crisis crimps pharma's finances

While European leaders wrangled, wailed and gnashed their teeth about the sovereign debt crisis, drugmakers were feeling their own pain. Hospitals in Greece, Spain, Portugal and Italy stopped paying their bills, with some of the most delinquent three years in arrears.

Greece may have been negotiating with some creditors, but it dealt with its pharmaceuticals bills by handing over its "infamous" bonds. Australia's CSL took a $26 million charge. Nycomed said it would cut off supplies if it came to believe that it simply wouldn't get paid in the end. Roche sold its Greek bond at a 26% discount. "We didn't have a choice," CEO Severin Schwan (photo) said at the time. "The question was, you got nothing or you got government bonds." Eventually, the company cut off some of the most delinquent hospitals, making sure patients could get their drugs from nearby pharmacies, which have been better about paying their bills.

Meanwhile, Spain's unpaid bills mounted to the point where pharma leaders proposed securitizing the unpaid debt. And the Spanish government joined its European neighbors with price cuts: It instituted a new policy requiring doctors to write prescriptions using generic drug names, aiming to cut into branded med sales.

Germany and France imposed their own price cuts, too. Germany's new policy is so unfriendly to new drugs--it strips companies of their pricing power unless they can prove new meds are superior to older treatments--that some companies said they wouldn't launch their latest products there. When Pfizer announced plans to lay off 500 staffers in Germany and 200-plus layoffs in Spain, it blamed government policies.

The European crisis caused so much uncertainty for drugmakers that Bayer built up a "liquidity cushion" of more than $5 billion, when it usually keeps $1 billion or so on hand. "We have unacceptably high levels of outstanding bills in the public sector," CFO Werner Baumann told a German newspaper. No doubt his competitors feel the same way.