Pharmaceutical industry battling losses internally and in court

Drug makers, distributors and pharmacists are waging a tug of war over who will accept multimillion-złoty losses caused by the sudden switch to new drug prices on April 10. The lack of a transition period will hit the industry's bottom line as warehouses and stores are filled with drugs that distributors and pharmacists must sell at prices that are now less than they paid producers before that date. The industry's total losses may amount to some zł. 50 million-zł. 80 million ($12.2 million-$19.5 million), according to Iwona Krzyżaniak, vice president of Orfe, one of the four drug distributors listed on the Warsaw Stock Exchange (WSE). "It will affect distributors' results but not so much that they would lose all their profits," Krzyżaniak said. The government forced down prices of foreign-made drugs by an average of 20%, according to Krzyżaniak.

Organizations representing the drug industry said the government imposed the new prices without a proper transition period - violating the principle of a democratic state guaranteed by article two of the Polish Constitution. The Farmacja Polska Industry Chamber, the Association of (International) Pharmaceutical Companies Representatives in Poland (SPFFwP) and the Supreme Chamber of Pharmacists are planning to sue the health minister's regulation in the Constitutional Tribunal, hoping that the court will declare the sudden price change unconstitutional. "Those who incurred losses due to the lack of the transition period will then be able to sue the government in public courts and be awarded damages," said Irena Rej, president of Farmacja Polska, an association of 168 drug makers, distributors and pharmacies. "If someone has lost for instance zł. 2 million ($487,000), then they have the motivation to go to court."

Unloading the goods Some of the loss-making drugs are now stored at pharmacies and some at wholesalers. "When a pharmacy has two packs of a given medicine, it will sell one and return the other to the distributor and the distributor will try to return it to the producer," Rej said. Those companies along the sales chain that didn't anticipate the price cuts and didn't clear their stores will suffer the most. According to Krzyżaniak, the distributors will be hardest hit. "The pharmacy can simply refuse to pay the distributor (for the problematic drugs)," Krzyżaniak said. "And as the pharmacist buys from several wholesalers, the wholesalers cannot be too tough, because they may lose a customer."

Avoiding losses Poland's biggest medicine distributor, Polska Grupa Farmaceutyczna (PGF) estimates potential losses for its troublesome inventory at less than zł. 1 million ($244,000). "Distributors will certainly lose more than pharmacies as their inventories are bigger," said Wojciech Rosicki, PGF's marketing director.