GlaxoSmithKline chief executive Sir Andrew Witty, in his role as president of the European Federation of Pharmaceutical Industries and Associations, has written to the continent's leaders demanding genuine support for innovation and rewarding it by paying fair prices for added value.

On the eve of a European Council meeting in Brussels later this week, Sir Andrew states that Europe is already a world leader in the pharmaceutical sector, "built on decades of investment and on the great foundations of European universities and intellectual leadership". However, he notes that the USA and certain Asian countries, present increasingly strong competition, so in these "extraordinary times for Europe, its economies, and its citizens, business as usual - cost-containment policies that create market distortions - will drive investment elsewhere and consign Europe to a gradual decline".

Warning that "Europe must avoid complacency", Sir Andrew went on to note that "my industry has significant concerns about the implications of pharmaceutical pricing and reimbursement policies that are being implemented across the EU". He claims "itis ironic that many EU member states use various incentives to attract R&D and manufacturing investment, but then create hurdles and market distortions that prevent innovative medicines from reaching patients".

Sir Andrew said that EFPIA members "fully understand that in the current financial crisis countries need to take steps to control public spending and restore fiscal credibility [and] they have worked with governments to bridge funding gaps". In just five countries (Greece, Ireland, Italy, Portugal and Spain) the pharmaceutical industry has contributed, through price-cuts and discounts, more than 7 billion euros for the years 2010 and 2011, more than 8% of the sector’s turnover in those markets on a yearly basis.

Govts use cuts offered to Greece to slash prices

However, the EFPIA chief then spoke out on "the practice of referral to other countries when setting prices for medicines, results in inefficiencies and sometimes in limited supplies". Where the industry has agreed to temporary price cuts to bridge funding gaps (eg in Greece or Portugal) "other countries not subject to the same financial pressure automatically lower their prices".

Indeed, some 26 countries inside and outside Europe reference their prices to Greece in some way, and Sir Andrew argued that a 10% price cut in the latter cost industry 299 million euros in Greece, but 799 million euros in Europe and over 2.15 billion euros worldwide. He also complained about the re-exportation of drugs from lower-priced to higher-priced countries.

Recent months "have seen a significant increase in this arbitrage trade", he said, "which is the result of market distortions caused by pricing policies". One immediate impact has been to create a shortage of medicines for patients in countries such as Greece and Romania and "there is a genuine risk of supply disruption in several countries".

Sir Andrew urged EU leaders to exclude countries "that are undergoing fiscal restructuring programmes from the basket of countries to which they refer in setting medicine prices", adding that member states "which have committed to regaining sustainable public finances, can put in place temporary bans on re-export of medicines to higher-priced countries to prevent supply shortages".

He concluded by saying that Europe should continue to place a high priority on repayment of debts for past supply of medicines and vaccines. There have been encouraging trends in countries such as Spain, Sir Andrew said, but "overall levels of debt remain a significant concern".