Bloomberg News

Faes Farma Sees Risks as Spanish Pharmacies Go Out of Business

June 26, 2012

Faes Farma SA (FAE), the Spanish maker of allergy treatment bilastine, said payment delays by regional governments are forcing pharmacies out of business, threatening the company’s earnings.

Pharmacies have started asking Faes for billing extensions after traditionally being “excellent payers,” General Manager Gonzalo Lopez said in an interview. The Vizcaya-based drugmaker gets almost all its revenue from pharmacies rather than hospitals, which has left it less affected by previous government hospital drug debts than other companies including Roche Holding AG (ROG) and Zeltia SA (ZEL), Lopez said.

Not all pharmacies were included in the pool of health-care suppliers to be repaid from a 35 billion-euro ($44 billion) fund the Spanish government set up for its regions and town halls, said Kaushal Shah, a London-based analyst for Business Monitor International. As much as 30 percent of Spanish medicine spending is through pharmacies, leaving drugmakers at “significant risk,” Shah said in an interview.

“Pharmacies are having a tough time,” Lopez said in the interview last week. “We have more closures of pharmacies than ever. This is a strong symptom showing something new is happening. As government delays payments, more pharmacists are going to face problems because margins in the sector are narrower.”

Regional Spending

Spanish pharmacies are paid by health-care funds run by Spain’s 17 regional governments. The governments ran up 6.4 billion euros in unpaid drug bills for public hospitals through the end of 2011, according to drug industry association Farmaindustria. The bills for the hospitals fall under a different part of the budget and will be covered by the government repayment fund.

Pharmacies and drug companies in Spain face declining profitability as the government moves to cut health-care costs to trim the budget deficit.

Spain’s tax-funded health-care system plans to cut spending by 7 billion euros by using more generics, reducing purchase prices and centralizing buying, Health Minister Ana Mato said in April. Patients will be charged a greater share of the cost of medicines depending on their income.

Those measures, along with about 2 billion euros of debt owed by the regions, are putting at risk the viability of many of the 22,000 pharmacies in Spain as well as many jobs, Fernando Redondo, head of the pharmacists’ lobby group Fefe, said in an interview yesterday.

At Risk

Operating profit at an average pharmacy has dropped by about 30 percent, and 10 percent of pharmacies could consider going out of business, Redondo said. Those pharmacies operating 24 hours a day will probably disappear as the situation is “unsustainable,” he said.

“There are pharmacies that have no profit at all and have to put their own savings at risk to keep the business running,” Redondo said. “Some may not even be able to foot the electricity bills if the situation persists.”

Spanish pharmacists have “financial and profitability problems,” Lopez said. “If things don’t improve at least on the financial side, many will go out of business, that’s clear.”

Faes Farma’s first-quarter profit declined 24 percent to 6.2 million euros as sales dropped 18 percent because of the “very tough measures approved by the administration to contain the budget deficit,” the company said in May.

The current landscape for public spending on pharmaceuticals will continue “for the next couple years,” Lopez said.

To contact the reporters on this story: Manuel Baigorri in Madrid at mbaigorri@bloomberg.net; Naomi Kresge in Berlin at nkresge@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Phil Serafino at pserafino@bloomberg.net


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