The current developments and trends at the Danish Pharmaceutical Market
So the first basic questions that I really want to ask you, can you tell me the current developments and trends at the Danish Pharmaceutical Market that comes to your mind?
Yes. There is a say a number of different developments and different factors influencing the pharmaceutical market or influencing the pharmacies. I’d say that one of the most prominent developments or most… One of the developments that has changed through 2019, and again, has changed in 2020, is the average pricing of the pharmaceuticals in Denmark because in the second half, especially in the second half of 2019, we saw a number of the medicine shortages leading to sometimes harsh and rapid price increases on a selected number of the pharmaceuticals. And even if it was relatively few pharmaceuticals that experienced large price increases, it still changed the overall statistics for the average prices of the pharmaceutical set, the pharmacies. So where we have been getting used to price decreases every year, since the year 2000, then in 2019, we had for the first time a slight increase in the average prices due to these price jumps, as we call them in the second half of 2019. So the average prices increased by 1.6% in 2019. But ever since almost… Well, ever since January 2020, we’ve seen a decrease of prices again.
So the prices of the formerly rapidly increasing prices of selected generics has come to a more normal situation so that as a result of the minimizing the medicine shortages in the first half of 2020, we’ve seen correspondingly a decrease in the prices. So that most of the, if not all, then most of the generics that showed sharp price increases due to medicine shortages, most of them have been normalized, both shortage wise and price-wise, so that the latest figures we just got a few days ago representing the average overall price for pharmaceuticals at the pharmacies. Actually, in August 2020, it reached the lowest level ever recorded. It was around 1% lower than the former, lowest point, which was in November 2018. So, actually, we expect that the average pharmaceutical prices in 2020 will be lower than it was in 2019.
Okay. So, I understand the fact that in 2019 price got increased mainly because of drug shortages. But what factors played in 2020 that the price started decreasing again?
Well, it is the generic price competition that started again, because it’s the normal dynamic of the Danish Pharmaceutical Market due to… We have these 14 days sort of tenders or auctions, price auctions within each substitution group of the pharmaceuticals within the same ATC code and form. So, every 14 days, an auction is being carried out, and the winner of the auction, which is the company bidding the lowest price, wins almost the entire Danish market within that substitution group and that pharmaceutical for a period of 14 days. And so it was… For each molecule, you could see that whenever the distribution situation was normalized, whenever the shortages went away, and more generic competitors were able to supply the market again, then the normal price competition started again, implying a gradual path, fast decrease in prices again starting whenever the distribution situation was normal again.
So that’s what we normally see also when a generic price competition is starting whenever a patented product expires its patent, then you also see within two or four weeks, you usually see a drop in prices of initially 90 to 95%. It is not quite as fast a decrease we have seen whenever the market situation is normalized, then normally it’s a very rapid increase in prices, but when things are getting normal again, then you see gradual price decreases as a result of gradual generic price competition. So sometimes it takes one month. Sometimes it takes three or up to six months from a price peak until you are back at the very competitive level where we usually are… In Denmark, where we usually have one of Europe’s lowest levels of the generics prices.
Okay, suppose you’re saying that in 2020 the distribution got normalized because of which the generic competition price competition started again. Yes?
Yes.
Okay. So basically, what I am getting here is that COVID has no impact on supply chain in Denmark.
Well, you could not say it as strongly because the COVID-19 has had some influence on the distribution situation. But it was not the main driving factor behind the price increases we saw earlier because they happened already in 2019. So we haven’t seen any substantial price impact of the COVID-19 situation, but we have seen some shortages, not many shortages, but as we’ve heard of in some other countries, but we’ve seen some shortages within a limited timeframe. And within a limited scope, that’s been some formulations of the paracetamol mixture for babies that was not exactly running out but was nearly running out. So the government had to… The authorities had to make some restrictions in how you could supply it. And you’ve also seen in a number of other cases. A fear forced shortages has meant regulations from the medicines agency in order to minimize the risk for severe shortages.
So that, for instance, in the beginning of the COVID 19 period, the pharmacies were obliged not to sell more than one package of each molecule, so to speak to each customer. So you couldn’t buy two packs, two identical packs, even if you had a prescription valid for two or three packages, you could only have one at a time just to be sure that we did not run out of any medicine. So it has had some impact on the distribution situation, but not substantial impact, not noticeable impact on the price situation.
Okay. So yes, basically, because of the restrictions applied by authorities due to fear of shortages, the price situation, or the distribution situation got normalized in 2020.
Yes. But I would still say that the level of shortages is somewhat higher today than we were used to four years ago. But it’s still manageable. So it’s not very many. All you could say, there are rather many individual packs that experiences shortages. But in a market as Danish, where we have very many generic competitors, it does not affect the patient if one or two out of six or eight generics cannot supply the Danish market because there are plenty of other competitors willing to supply the Danish market at a competitive price. So we have a higher number of individual packs that is currently experiencing shortages. And we even have a slightly higher number of substitution groups that are running low or experiencing full shortages.
But it’s not the large treatment areas, not the large molecules, or not entire ATC groups that are running low or running out of stock. So the patients can still get treatment. And you often, the pharmacy can substitute to another pack that gives the patient treatment. Sometimes you have to refer the patient to the doctor in order to change the prescription slightly in order to get the same molecule within a different strength or a different form or a larger pack, for instance, because the pharmacies cannot substitute the larger pack. We can substitute to smaller packs and to other brands, of course. But we cannot substitute to other forms, other strengths, or larger packs. If we need to do so in order to get a solution to a shortage problem, then as it is today, we have to contact the patient’s doctor general practitioner in order to get a change of the prescription.
Actually, we have proposed to the authorities that they should extend the pharmacy possibility to make substitutions in more cases than today. We have suggested that the authorities should look to the British serious shortage protocol where the authorities can make it to find a protocol so that the pharmacies can substitute to other strength or the package sizes or more substitution possibilities in order to solve the problem for the patient. But we haven’t had any ruling or set off that proposal yet.
That will impact the overall… So do you think this will impact the volume uptake of medicines?
No, I don’t think it will impact the volumes because I think that the older patients get that treatment. It’s just a matter of how easy they get it. And if they get exactly what the doctor prescribed in the first place, or if they have to change the prescription so the volumes of the pharmaceuticals for treatment is what it has to be, mainly the necessary amount of drugs in order to treat the patients. So that would not be affected. And you see a normal slight increase in the amount, or in the volumes of pharmaceuticals, we’ve seen that year by year a slight increase in the volumes. Just trying to look up if I can find the… I haven’t paid for my higher-ups’ figures. Yeah, I think we have an expected increase in the total turnover of around 4% for 2020. But that is a combination of, I think, it was a prognosis made when we still thought we would end up with a small price increase on average, and now we’re looking into a small price decrease on average. So I think it might be somewhat smaller. So I think the volumes is probably also increasing slightly. I’m just trying to find out… The first half of 2020, we had an increase in volumes around 4%. So that is the main driver of the turnover increase. And I think that it is-
Do you think-
4% is slightly high. I don’t think that it… For the year, as a whole, I don’t think we will end up with a 4% volume increase. It might be two or 3%.
Do you think that 4% increase is because of medicine holding and people got panicked when logged on, was implemented and they started hoarding medicines in March?
It’s difficult to say. It might be a part of the explanation, but I don’t think it is the majority of the increase, but it is part of the increase probably. And it was also, of course, the fear of hoarding that led to the government or the authorities making regulations on how many packs the pharmacies could sell to each individual customer. So it is part of the explanation probably, yes. And that is also why that 4% increase in the number of defined daily doses in the first half is not where we are going to see the results for the year 2020. It will be somewhat lower. And you could maybe had a point in that hoarding might be one of the reasons why the figure was somewhat higher than expected in the first half.
But when you’re talking about the shortage of medicines, so in previous interviews, you said that government or the health ministry is planning to implement a voluntary price ceiling agreements in generic industry to gap the prices.
Yes.
So do you think that is still on the table or because the condition got normalized in 2020? So that’s far now.
It’s difficult to say. I think it’s… In principle, it’s still on the table or on the shelf, at least. So it’s one of the means that the health ministry is still trying to live into, but they are very busy in coping with the COVID 19 situation. So that is probably one of the reasons why nothing has happened. And one of the other reasons is just, as you mentioned, we’ve seen a more normal development in shortages and in the price development. So I think they still have ambition of probably trying to seek a voluntary price ceiling agreement with generics industry. But I think that they have also realized that it is very, very difficult to find a mechanism that will work in the same way as it does for the patented drugs because there is a completely different market dynamic for generics and even for parallel imported products.
And it is very difficult to establish a price ceiling that caps the price increases without at the same time, implying a flow under the price decreases. So you might end up with higher prices on average if you want to implement a price ceiling because it’s… And that’s one of the problems. One of the other problems is how to treat different generics producers on a level playing field, because if the generics producers enter the Danish market at different points of time, what should the price ceiling be? Should the price ceiling be the same as that governs the patented products, then it will have no effect whatsoever. Or should you establish price ceilings that is defined at the point of time where the generic producer enters the market, then there might be different price ceilings for different competitors, and maybe that would be a breach of the competition rules. So it’s very difficult to make effective price ceiling rules for generics without compromising either the level playing field or the competition rules or compromising the extremely low average level of generics prices as we see in Denmark today.
Okay. I understand that can create more shortages problem. So do you expect… Because even though now the condition is normalized, so do you think in coming years, like, for example, in two, three years, so do you expect this supply shortage to get normalized or do you expect the situation can get back to as it was in 2019?
I think that we will probably see shortages still, and we will see more shortages in the coming years. And we solved for three to four years ago. But it’s very difficult to say if we will see as many as we saw in the second half of 2019, and it is even more difficult to predict whether or not such shortages will have the same kind of impact on prices as we saw in 2019. Because I think that the generic producers, they also have learned from the political reactions and the reactions from the authorities to these price increases that if that will be the result to future shortages, then they would… Probably, they would most likely themselves be the ones that are pushing the politicians to force price ceilings into effect. And as the generics producers opposing price ceilings, we’re not sure, of course, but they might think that they would have to react differently to medicine shortages rather than with these 10 doubling of prices when they are the last generics producer on the Danish market because that was some of the examples that has also been drawn forward in the media that in some cases, the way you used to have six, eight, or 10 generic competitors when shortages international shortages were experienced, then we saw one off after another of the generic producers, they had shortages, they couldn’t supply the Danish market.
When one or two producers was left on the market, or especially when only one was left with, of course, always the patented product was always on the market, but for the patented product normally costs 20 times as much as the cheapest generic. But in these shortages situations where only one generic producer is left-back with the patented product, then they could tend to double their prices and still only cost half of the patented product. And that was blown out in the media as extremely harmful for the patients and extremely greedy by the industry. And I think that the generics industry, they know that if the same happens again in the future, then politicians will have to do something. And then they will have to make regulations that implies a price ceiling. And if it’s not by voluntary agreement, then it will be by law. And I think that the generic industry would fear that. So they would try to avoid that situation. So that might in itself put somewhat of a dampening effect on future price jumps.
Okay. So moving on to our next topic. So I would like to have some insights from you regarding the impact of COVID on Denmark pharmaceutical market.
Yeah, as I mentioned earlier, I don’t think that there has been a very much effect apart from a number of different substitution groups, as I mentioned, where shortages arose or shortages was feared, and the authorities had to make regulations in order to secure that the patients that needed the drugs the most they could get it. And I think that the authorities have managed very well to cope with the situation so that we haven’t had any severe shortages, that only been small shortages and the pharmacies and the doctors have been able to cope with them so that the patients.