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Merck KGaA reconsidering Portuguese investment on unpaid debts

Could halt R&D spend unless hospital bills are paid

German chemical and pharmaceutical company Merck KGaA has said it may put a block on R&D investments in Portugal of up to tens of millions of euros if the problem of unpaid drug bills is not addressed.

State-run hospitals in Portugal are running on average 550 days behind on payments for medicines, according to a Financial Times Deutscheland report, which suggests Portugal's health service has around €1.5bn in unpaid bills.

The situation in Portugal is mirroring that in fellow Eurozone struggler Greece, which has already seen some companies limit medicine deliveries and others - notably generic drugmaker Biotest - threaten to pull out of the market altogether.

Last month, Portugal passed a fourth review of its spending cuts and economic reforms allowing it to receive bailout money from the EU, European Central Bank and International Monetary Fund (IMF), and stands to receive €78bn under terms agreed in May 2011.

The country has introduced stringent measures to try to reduce its level of debt, with tax hikes and spending cuts on public services, in order to keep meeting the bailout requirements, and pharma companies are being caught up in this austerity drive.

One stipulation of the bailout is that new drugs bills are to be paid within 90 days, but the Portuguese government has sought to extend this time limit in return for paying off older debts.

Merck Portugal's manager Fritz Sacher said the R&D investment programme - which is thought to focus on clinical research - is dependent on a level of trust between the company and the Portuguese government.

Failure to pay its bills is, however, “undermining this trust," he told the newspaper, adding that although "the conditions for certain research and human studies are as good as in the US...it's significantly more cost-effective in Portugal."

Merck is not the first pharma company to take action about delayed payments, and the threat of reduced investment is a different approached to those adopted by other drugmakers.

Earlier this year, for example, Roche suspended sales of some drugs to Spain and Portugal after hospitals fell behind on payments, having already taken a similar decision in Greece last year where the Swiss company has also refused to restock some hospitals unless debts are paid.

10th July 2012

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