Pfizer's Ian Read: Europe Is Undermining Drug Innovation

LONDON (Reuters) - Europe is undermining drug innovation by cutting prices, raising barriers to new medicines and freeloading off others in Asia and the United States who are more willing to pay, the boss of Pfizer, the world's largest drugmaker, said.

European governments are sacrificing the long-term future of science in their countries for the sake of short-term budget cuts, chief executive Ian Read told Reuters on Monday.

There is a disconnect in Europe between the marketplace for pharmaceuticals and the desire of European governments to have innovation and research, he said in an interview.

Europe is not paying its fair share of innovation.

Tensions between large drug companies and European governments have been rising for several years as administrations across the region face the challenge of curbing the rising costs of healthcare in tough economic times. Governments are by far the biggest buyers of medicines in Europe, allowing them to dictate prices.

The common European practice of cross-referencing to medicine prices in other countries means that exceptional price cuts in Spain or Greece will trigger knock-on cuts elsewhere.

Modern medicines for complex diseases like cancer can be hugely expensive and many governments in Europe have also put other mechanisms in place, such as Britain's cost-effectiveness watchdog the National Institute for Health and Clinical Excellence (NICE).

Read hit out at governments who have slashed drug prices and racked up close to $20 billion in unpaid bills for medicines, largely in southern Europe, saying their increasing reluctance to pay up for innovative therapies would come back to haunt them.

The pharmaceutical industry requires a vibrant marketplace. It's a high-risk business ... and a high-risk business needs the potential for high returns. So in the end, European leaders are sacrificing the long term for the short term, Read said.

GlaxoSmithKline Plc Chief Executive Andrew Witty said last month he now ranked Europe behind the United States and Japan as a market where he would want to launch new products.

Bayer AG CEO Marijn Dekkers has also expressed concern about Europe's direction, noting in a recent results presentation that the money earned from today's drugs was needed to pay for developing the medicines of tomorrow.

POLISH PRICES FOR GERMANY?

Pfizer's Read singled out Germany for particular criticism, pointing to Berlin's recent decisions to extend drug price freezes from 2010, which were initially designed as an emergency measure, and to use a basket of countries including Poland and Greece as a benchmark for how much it will pay for drugs.

What is the fundamental message there? They are saying ... investment in innovation is at a level that Greek prices can support, Read said.

That's not a recipe to create an innovative industry that can compete on the world stage.

Read, who took over as Pfizer chief executive in December 2010 after the abrupt departure of his predecessor Jeff Kindler, said he'd like to see governments taking a longer-term view and engaging on the issue of who should pay for the research and development costs of cutting-edge medicines.

Since Germany is one of Europe's wealthiest countries, Read questioned whether referencing its prices to Greek or Polish levels would offer drugmakers a fair return.

These are the questions I'd like politicians to look at in a fundamental way, he said.

Asked whether such discussions should take place as part of World Trade Organization talks, he said they were not on the agenda at the moment, but probably should be.

Eventually I think it will have to be. The risk of freeloading is so great in an industry with sunk costs, he said.