ZURICH: Switzerland, home to the world’s two biggest drugmakers, might be expected to give them an easy ride. But Roche and Novartis are finding no immunity in their home market from a European-wide price squeeze.

Governments and healthcare authorities around the world are questioning whether they are getting the best value for money as they struggle to find space in their budgets to care for an ever older and sicker population. Their demands that medicine prices be cut is a growing challenge for drugmakers.

But Switzerland’s spat with its pharmaceuticals firms risks alienating some of its largest exporters and employers. Roche and Novartis are the world’s biggest drugmakers by market capitalisation and the Swiss pharmaceutical industry makes 6 per cent of the country’s economic output. It is responsible for 40,000 jobs and had sales abroad worth more than 66 billion Swiss francs ($70.5bn) in 2013.

Drugmakers have long argued they need to charge high prices for successful drugs to recoup development costs, including for those that fail to make it to market. But those paying for the drugs now want more for their money’s worth — greater innovation and efficiency — before they foot the bill.

Swiss per capita spending on pharmaceuticals is already significantly lower than that in other countries: at $562 it is almost half of the $1,010 spent in the United States and behind other European countries including Belgium, Germany, Ireland, France and Greece, according to data from the Organisation of Economic Cooperation and Development.

This reflects, in part, measures by the government to reduce the price of patent-protected medicines in recent years. Switzerland’s healthcare system is privatised so consumers must pay for it out of their own pocket and claim insurance, but the government is anxious to stop costs from spiralling.

However drugs still cost on average 5pc more in Switzerland than the comparative benchmark of six other European countries — Denmark, Austria, Germany, the United Kingdom, France and the Netherlands — at the end of 2013, according to Santesuisse, an umbrella organisation for Swiss health insurers.

So in a bid to further push down prices, the Swiss health ministry recently announced plans to amend the pricing system again from 2015 — proposals that infuriated its drugmakers.

“The consequence of this would be a significant weakening of the pharmaceutical companies that are active in Switzerland, which would inevitably have a negative impact on their future contribution to the Swiss economy and employment,” industry lobby group Vips warned, adding it was likely that additional jobs would be moved abroad.

It said the measures did not take into account Switzerland’s high wage and cost structure and risked burdening firms already battling a strong Swiss franc.

Switzerland’s export economy is closely tied to the fortunes of the euro zone, its biggest export market, and sluggish growth there has taken a toll in recent years.

The economy stalled in the second quarter, hit by stagnation in its main export market Europe and weaker private consumption growth that had propped up demand. The strong Swiss franc has been a further burden, making goods more expensive abroad. To stave off the risk of recession and deflation, the Swiss National Bank capped the franc at 1.20 to the euro in 2011 but prices growth remains largely absent.

Published in Dawn, September 17th, 2014