|  09.11.2012

The Medicine Woman

Simona Cocos, general manager of drug producer Zentiva, part of the Sanofi group, explains how the clawback tax should be changed to limit its negative effects in the market, and shows her interest in partnerships with local companies that want to produce their medicines in Zentiva's factory in Bucharest

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Q: Data released by research company Cegedim indicate drug producers’ tendency to focus more on increasing profitability rather than market share. What do you think is the cause of this strategic shift in their strategies?

Simona Cocos: The main cause of this shift is the clawback tax. As the tax is structured today, the amount a company will have to pay does not depend only on its own business evolution. It depends on the market evolution. Even if the company has a loss, it will still pay the clawback tax.

I think companies will be extremely careful with their profitability and will calculate their profits on each individual product.

Q: How should the clawback be structured, in your view, to be accepted both by authorities and by market players?

Simona Cocos: The clawback tax is a quarterly contribution that drug producers and importers have to pay in order to cover the entire consumption of compensated medicines that exceeds the budget approved by the Health Ministry at the beginning of the year.

We’ve had several discussions with the authorities on this subject and the Government has made some steps into the right direction. It decided to eliminate the VAT from the clawback formula and to increase the basis of calculation.

But I think that a suitable and correct formula should take into account several other aspects as well. First of all, it should not include drugs whose prices at a producer level are lower than RON 30. Such a measure would limit the tax’s negative effects on generic drug producers, which are the main suppliers of less expensive drugs. At the same time, it will not put barriers to patients’ access to basic medicines.

Secondly, all drug producers currently pay the same tax ratio, no matter if they had a loss or a profit. This is not correct, because they could end up paying for the growth of another company. The previous formula was much more correct from this perspective. It had been agreed with the International Monetary Fund and with the players in the market. I really don’t understand why it was changed and I think we should come back to the previous version.

Then, the tax should be calculated based on the producer’s selling prices, not on the price in pharmacies. Its current form is not correct. It is as if you would be asked to pay a tax for the revenues of your neighbor.

And last, but not least, payment terms should be correlated with settlement terms, which are currently of 300 days in pharmacies. Such delays don’t happen anywhere in Europe. Even more, there is an EU directive which states that all payments should be made within 60 days. I think authorities should have a two-three year strategy, to gradually reduce these delays. Unfortunately, perspectives are gloomy as there is no such strategy.

Q: If the clawback tax remains in its current form, which will be its effects in the market on short and medium terms?

Simona Cocos: On short term, companies will reevaluate their local portfolios. The first affected will be the less expensive products, with prices lower than RON 30. In the end, this will limit the patients’ access to such drugs.

Less expensive drugs, with prices lower than RON 30, count for 30% of the market in terms of value and 70% in terms of volume.

On medium term, the clawback tax, combined with long payment terms and the RON depreciation will make companies invest less in production and in expanding their portfolios. It will make them focus more on exports and consider making layoffs. In the longer run, it may force companies to reduce their business activity in Romania or, in the case of smaller firms, to even exit the market.

 

Q: How would Zentiva adapt if the clawback tax remains unchanged?

Simona Cocos: If the tax remains as it is now, the percentage we have to pay is very high, which is not correct.  We would analyze very carefully the profitability of each of our products.

We’ve made our business plan for the coming years taking into account the long payment terms and the clawback tax, although it is very difficult to forecast the value of the tax. This is a major issue we discussed with the authorities, because we would like to have a tax that can be correctly forecasted.

I think authorities should decide on a maximum cap for this tax of 10%. In this case, we could budget the 10% tax and build our strategy around it. We would know for sure we will not have to deal with a 30% tax. The problem is that at this moment we don’t know what level of the tax to budget.

 

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