Datamonitor analyst Nick Wong believes that one of the main risks for companies is the time lag between accession and the reform of regulatory and intellectual property laws, which could leave companies open to issues such as product copying and parallel imports.
Datamonitor's new analysis notes that the population of the EU will expand to 450 million with the addition of the 10 accession countries (Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia, Malta and Cyprus), although the average government healthcare expenditure per capita is about 2.5 times lower than in the EU at present.
These economic disparities will affect the choice and availability of new drugs entering the accession markets because of their national government's ability to pay for them.
Several acceding states are already moving towards a regulated pricing system in order to control healthcare spending, and these are geared towards lower priced generic medicines, presenting opportunities for companies that manufacture generic active pharmaceutical ingredients (APIs) and finished products.
11 of the 15 current EU member states already encourage generic substitution of medicines, and the generics industry is benefiting as a result, particularly in those countries where penetration of these drugs is low (such as France, Italy and Spain).
The inclusion of the Central and Eastern European pharmaceutical industry will boost the growth of the European generics market, since generics traditionally form a major part of their business models.
These companies are currently undergoing re-organisation and re-positioning strategies get ready for accession and the opening up of the EU market, notes Dr Wong. He believes that importing generic drugs from accession countries, which can be cheaper due to their manufacturers' lower operating costs, will only increase moves by EU governments to promote generic substitution. And this will have a knock-on effect on the prices that companies can charge for their branded products.
Parallel trade will escalate
Lower operating costs in the accession countries will escalate price differentials between the EU's new and current members, and encourage parallel trade, in which lower priced medicines are bought in one country and then resold in another where prices are higher, undercutting the local brand.
This phenomenon is already taking hold in Europe. For example, Germany introduced a quota for pharmacists in 2002 requiring them to dispense at least 5.5 per cent of drugs as parallel imports. This was raised to 7 per cent in January 2003.
Dr Wong maintains that the European Commission has done little to address the impact of accession on parallel trade and the research-based pharmaceutical industry. While it has said it recognises the need to block increased parallel trade post-accession, there is no political motivation to restrict these imports.
As a result, the industry is expected to keep prices in accession countries as high as possible, but they are unlikely to be able to keep prices within 10 per cent of those elsewhere - the smallest price differential that it exploitable by parallel importers.
With countries in the EU fixated on reducing healthcare costs, and a number set their budgets based on lowest average prices of medicines. If the low prices likely to be seen in the accession companies are also factored into the equation, there will be increased downward pressure on prices across the EU.
This could affect companies' decisions to launch innovative drugs, according to Dr Wong, since there is no incentive to maximise drug revenues.
Acceding countries such as the Czech Republic and Slovakia have already started healthcare system reforms to bring them into line with the EU, by setting up a model based on government and privately-run insurance systems. But the high start-up costs remain an obstacle to rapid implementation.
In addition, accession countries also need to align their drug regulatory and intellectual property laws, and only two (Estonia and Lithuania) are EU-compliant at present.
"Companies must be cautious in launching new products in accession markets without complete harmonisation," says Dr Wong.