PHARMA IN THE LOCAL CONTEXT
Most pharmaceutical executives rank the Netherlands as first among the "next tier" of European markets behind France, Germany,
Italy, Spain, and the UK. "The Netherlands has been for years a significant market for the international pharmaceutical industry,"
states Michael Dumas, country manager of the Italian pharmaceutical giant Menarini in the Netherlands, "not by volume and
turnover, but through the innovative character, the high level of carrying out clinical studies, the level of planning and
organization, and infrastructure in the country." Translated to the bottom line, Curd Lejaegere, managing director of Daiichi-Sankyo
Benelux, notes that "financial performance for pharmaceuticals in the Netherlands typically has slow uptakes, but continuous
growth. Other markets have initial steep curves which eventually flatten out after two years. Initial returns and results
take longer in the Netherlands, partly driven by entrance guidelines or initial market accessibility constraints, but continuous
growth can be counted on."
Netherlands already has high generic penetration of unprotected market with low generic price and very fast penetration after
According to Nefarma, pharmaceuticals generated $4.88 billion (€3.55 billion) in total revenues in 2009. Employing over 50,000
people—27 percent in R&D—and accounting for 9 percent of private Dutch R&D investment, a 2010 study by Roland Berger Strategy
Consultants cites the high-quality, cost-effective healthcare that pharmaceuticals provide by imparting health and wealth
to Dutch society. Cost-effective is a defining term for pharmaceuticals in the Netherlands. The same study concluded that in 2008, the Netherlands spent only
$430 (€313) per person on medicines—10 percent below the European average. In 2010, pharmaceutical expenditures were estimated
to account for only 9 percent of the €60 billion ($82.5 billion) total Dutch healthcare budget, similarly low for European
averages. Largely driving these trends is a greater than 70 percent generic penetration rate, among the highest in Europe.
Generic penetration, however, is just a piece of what many local executives describe as the unsustainable pressures of cost-containment
in the Netherlands today.
A TURNING POINT
Despite enviable research infrastructure and a knowledge economy that are conducive for the pharmaceutical industry in the
Netherlands, enormous cost-containment pressures make it difficult to bring products to market with favorable returns.
The Netherlands underwent a major overhaul in 2006 by implementing a universal insurance mandate to curb soaring healthcare
costs. Previously a public system, the Health Insurance Act of 2006 required every Dutch citizen to purchase health coverage
from a private insurer, with the government establishing quality of care guidelines. The theory behind managed competition
was for providers to attract as many patients as possible and allow freedom of mobility across insurers to stimulate better
Dr. Uloff Münster, Managing Director, Merck
Successfully, compulsory insurance now covers all but approximately 1 percent of the Dutch population. However, a negative
side-effect since 2006 has been a preponderant shift in deciding power to the health insurers who are neither equipped nor
incentivized to uphold quality. A growing one-sided cost focus on reforms risks overshooting its initial objectives and jeopardizes
the long-term sustainability of pharmaceutical care.
PENNY WISE, POUND FOOLISH?
Managed competition has effectively increased the buying power of insurers without a concurrent rise in advising power by
pharmaceutical companies. The generics industry has been hit particularly hard by a cost-containment "preference policy."
In 2006 "along came a new stakeholder to the table called health insurance companies, which made this business completely
different," says Kalman Petro, managing director of Actavis Benelux, No. 3 in the Dutch generics market. The preference policy
means that when a number of medicines contain the same active agent, only the cheapest medicine—the "preferred product"—is
reimbursed, as decided by the insurance companies rather than physicians or pharmacists. This has created deflationary pressures
with prices being pushed to their lowest. The policy has realized noticeable returns, with generics prices dropping over 53
percent from May 2003 to April 2010, according to Roland Berger. But the industry has reached a dangerous point in which cheaper
prices are doing more harm than good.
Some manufacturers have stopped making certain economically unviable products, moving the picture away from healthy competition
to uncertainty of supply. When a manufacturer has cornered the lowest price of a medicine, within one to two months they find
themselves having to supply far greater quantities, regardless of production capacity. Petro recalls "one company that reduced
the price of a product below the 5 percent bandwidth. Suddenly a small preferred company with less than 1 percent market share
was responsible for supplying 80 to 90 percent of the total market. Companies are not going to order products if they are
not preferred, which makes things very dangerous. The customer—the patient—is suffering."
The Merck Netherlands team
Offering his view of the preference policy, Dr. P.F. Bongers, chairman of Bogin, the Dutch generics association assesses that
"for the generics industry, if only the lowest price possible is the guiding principle next to long periods of preference,
then you are endangering the continuity and quality of supply. Our aim is for fair market competition, but the preference
system is not stimulating normal market competition within generics."