On PIGS on Drugs

Bruce Krasting's picture

An interesting article in the Swiss press this morning regarding the big Swiss drug companies, Roche and Novartis.



Apparently the PIGS are not paying their drug bills. The numbers are big. The bills have been unpaid for years. Some excerpts from the article:

Hospitals in Portugal, Italy, Greece and Spain are delaying paying for drugs by up to three years.

Three years??

According to the European Federation of Pharmaceutical Industries and Associations (EFPIA), European states owe €12-15 billion (SFr14.4-18 billion) to the pharma industry, which includes groups like Roche and Novartis.

$20 billion of unpaid drug bills??

A number of public hospitals and state insurance schemes are close to bankruptcy. But before being unable to pay staff salaries they stop paying suppliers,” Ignazio Cassis, vice-president of the Swiss Medical Association.

Hospitals and state managed health insurers are bankrupt?? This came as a bit of a shocker to me:

The number of unpaid bills from Spain, Portugal and Italy increased last year, while those from Greece fell as a result of ‘zero coupon bonds’ issued by Athens, Roche spokeswoman Claudia Schmitt said.

WHAT?? Greece is issuing zero coupon bonds? Bonds, not trade payable debt? To pay for drugs? How many zero coupon bonds has Greece issued? What are the terms for these bonds?

This whole story blows me away. I’m not surprised that the bankrupt PIGS are late payers. But three-years? That's ridiculous. If the PIGS are stiffing drug companies, who else are they stiffing? Are they paying for the oil they use? Food? How big are these trade IOUs?


Nearly every day we get some story about the progress being made to address the financial ills of the weak European countries. Last week it was the phony Greek restructuring deal (it won’t happen). This weekend the talk is for Trillions of dollars from the IMF. Complete rubbish. The USA has said it will not put up a dime, so there is no IMF option.

You have guys like Tim Geithner saying silly stuff like this over the weekend:


 "I hope that we're going to see, and I expect we will see  continued efforts by the Europeans ... to put in place a stronger, more credible firewall."

"Firewalls" indeed. Tim boy is worried about the sovereign bonds issued by the PIGS. He knows that if the Sov. bonds go tapioca, the lights will go off in the USA. But the reality is that the problem has extended far beyond bonds; the PIGS are not paying trade creditors. Timmy is just making noise about ring fencing debt.

Where does this go? Can the drug companies keep up the charade? If one of the big pharmas breaks, and says, “No more IOUs, we want cash”, then they all will. At that point, things come apart very quickly. From the article:

Swiss pharmaceutical giants Roche and Novartis are examining whether to limit supplies.


This is a very sensitive issue. If the drug companies cut supplies, there will be hell to pay. These companies do not want to take a public position on this issue, they could become a target by demonstrators in the PIGS. The Swiss druggies avoid the publicity problem by having their trade group SMA, do the talking for them. I thought there was a very blunt tone to these words:

Pharma companies are private. In a liberal, democratic society respect for private property is a fundamental value. Private firms are the only ones able to weigh the pros and cons of stopping the supply of certain medicines.

Really? The drug companies are the only ones with a vote? Wanna bet?

If the drug companies do limit supplies, there will be consequences. The question of whether or not the PIGS are, in fact, liberal democratic societies, will be put to the test. In the process, I wouldn’t be surprised if the issue of whether the drug makers are public or private is also tested.


Note #1

I was part of the problem (and part of the solution) for the Latin American debt crisis of the 80’s. I had a front row seat with each central bank as they went bust. Every effort was made to kick the financial can down the road. In the end, it all blew up.

For every country, the death march was the same. When big trade creditors finally balked, and said, “No mas IOU”, debt default followed within weeks.


Note #2

Novartis and Roche have the PIG “trade receivables” and those Greek “Zeros” on the books at 100% of par. The other global drug companies who are sitting on the rest of the $20b of IOUs have it booked the same. These debts are not worth par. One day these drug companies will have to write them off. I do wonder what other big EU companies are sitting on chunky IOU’s from PIGS. None of this is “money good”. Novartis had this to say:

Deteriorating credit and economic conditions and other factors in these countries may require us to re-evaluate the collectability of these receivables in future periods.


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bags's picture

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Bob Sacamano's picture

But I thought healthcare was free in Europe.....nobody owes anybody anything. 

witok's picture

Big chance to the poor: They will truely become healed though pharma delivering just placebo - at affordable price.

Phantastic - no more pharma-collateral.

John_Coltrane's picture

Great article Bruce.  This supply question is of course, the reason the Greek politicians always acquiesce to any and all demands.  Its either that or get productive and do real work.  There's no free lunch.  They don't produce enough  of anything of critical value and have to import it.  iIt is highly unlikely that food or energy suppliers/producers will take zero coupon bonds in payment and they know it.

But there's a simple solution that the Greeks can implement while they develop their own drug industry:  make sugar pills in various shapes and substitute these "generics" for the normal drugs.  Because of the strong placebo effect in most cases they will be just as effective and in many cases (e.g. depression drugs) the patients will improve on sugar pills.

Self-sufficiency:  the only solid asset (counterparty-free by definition)

Piranhanoia's picture

 I see a different angle in that drug company markups are so extreme that they can continue to make a profit even when a huge percentage of their cliens don't pay for the drugs.  They get government benefits and tax breaks and force pricing through a fixing scheme that would make the bankers proud.

drug companies in command of drugs?  You are correct,  something must be done about that immediately. We need our military to step up and be sure there is production at cost plus price in time of national disaster.   There have been few drugs added to the WHO list of functional medication for some time.  Give you a real glimpse into the placebo effect.

StychoKiller's picture

I see a different angle in that the costs associated with non-paying Govts are passed on to everyone else in the form of excorbitant drug prices.

kaiserhoff's picture

Not paying the drug pushers?  Lordy, this is getting serious.

But like Steve says, this ain't rocket science.  No tickey, No laundey.  Tough Titties:)

steve from virginia's picture


Hmmm ... I sense many points with The Force:

 - Get what you (over)pay for point: Novartis? What are their drugs worth? Ten euros or ten billion? Boy, that's a tough question to answer ...

 - Countries' default point: well ... when you're broke, you're broke. Everyone has spent all their 'wealth/value/brilliance/cashola/whatever' on the 'latest model'. What is THAT worth? Nothing ... just like Novartis.

 - Countries' financing point: I still can't believe after all this time it hasn't sunken into the (empty) skulls of the Europeans that their absent Europe-wide fiscal structure IS THE BIG PROBLEM. Illinois and Greece will have problems paying but the UK doesn't. Because it issues its own currency without limits on its own account it can pay money-good for imports, including over-priced fuel from Saudi Arabia and over-priced useless drugs ... from Novartis.

 - Didn't the 'one-armed man' work for Novartis?


woolly mammoth's picture

Good piece Bruce. Pyramids build on pyramids interlaced with pyramids constructed on a mound of sand. Even as they are trying to keep that first block from being  pulled out to stop them from crumbling, the sand is washing out from under.

Dermasolarapaterraphatrima's picture


How vulgar!


BRICS call for open selection of next World Bank chief (Reuters)




MEXICO CITY (Reuters) - A meeting of BRICS major emerging countries discussed the selection process of the next head of the World Bank and emphasized it should be open to all countries, rejecting the tradition that the job automatically goes to an American, a senior BRIC official said on Saturday.

The official, speaking after a meeting of the BRICS - Russia, South Africa, Brazil, India and China - said the United States had not circulated the name of its proposed candidate for the World Bank.

Asked whether emerging economies could field their own candidate for the post, the official said: "That is certainly a discussion we will have."




How vulgar! Who do these BRICS think they are?!

bugs_'s picture

thats how you know tobacco isn't a drug they aren't getting their cigs for free

Sutton's picture

Italy, Greece, Spain and Portugal can always  use the Mediterrean Diet.

The Irish, tough luck.

witok's picture

They''ll remember haggis

User 3461's picture

I think it's possible that the state of Illinois is doing this as well. And, since everyone (present company excluded) hates big pharma, all the better. It's just another transfer program.

monopoly's picture

And yet another piece of my puzzle fits into place. This is starting to look like something very cool. Just a few more pieces and I will have the entire picture. May still be a while but the pieces fit nicely.

Well done Bruce, had no idea on "this part of non-payment" of bills from insolvent countries.

swani's picture

Below is a great, and most importantly, well researched, article, as it goes through the trouble of proving all of the charges made against one Big Pharma player with detailed footnotes from reliable sources, describing exactly how Big Pharma's relationship with government regulators and lawmakers works, not only to defraud tax payers, but to endanger our lives with no consequence or liability for malfeasance.

This article is about Baxter, but it's pretty clear that if one company operates like this with no consequence, they probably all do. How could they compete with each other otherwise?   




Jena's picture

That is indeed a great article, swani.  It could be made into a couple of suspense thrillers because the truth is far more outrageious than fiction ever could be:

Per the article regarding Factor VIII, the blood product that hemophiliacs get when they sustain an injury, to help them stop bleeding.  It was meant to help preserve their joint function and ultimately their overall health but as one can see per this paragraph, it most certainly dooms them to Hepatitis C, HIV and a host of other blood-borne viruses:

"In August 1983, Continental Pharma-Cryosan was exposed as having bought suspect plasma collected from prisoners at the Cummins Unit in The Federal Penitentiary at Grady, Arkansas (72,76). It had also been nabbed after importing blood taken from Russian cadavers and relabeling it as from Swedish volunteers (72,76). The company also peddled blood taken from Haitian slums (72). What was also emerging at that time was knowledge that a new, deadlier form of Hepatitis, later to be known as Hepatitis C, was slowly making its way through the commercial donor population and into the blood supply. It also emerged that the US Bureau of Biologics had issued 13 warnings to Travenol about contravention of regulations at its blood centres and that one centre had been temporarily closed down (76). Ten years later, the World in Action crew which had documented Baxter-Travenol‘s dubious collection methods returned to the US and to the booming blood business. By now, British and Irish haemophiliacs were not just suffering from Hep C but were also dying from HIV and full-blown Aids.:

skistroni's picture

Bruce, as far as Greece is concerned, the big pharmas have no problem, they have been paid in full by their Greek distributors. It's the distributors that are holding the bag right now (zero coupon bonds), and it has been confirmed as of last week, that these bonds will also receive their "haircut". 

In short, a few more companies will go bankrupt in this bankrupt country. 

Indeed, they might find it hard to sell as much as they used to in Greece at least, and I guess in the other debt-burdened countries. 

Finally, these debts (which even went up to 5 years unpaid) were part of the reason that Greece managed to keep the budget deficit below 15%. At a certain point there was about 12bn EUR of liabilities to hospital suppliers, and it was never included in the balance sheet. Of course, paying that with zero coupon bonds, removes it from the "official" deficit as well, until the bonds will mature. They probably won't last that long though. 

ISEEIT's picture

March 20th is ?

A lie within a lie. Way over telegraphed. These shits don't explain themselves. If they did the entire ponzi would be over in a 'POOF'. Gone, vanished, we would all suddenly be free and with most of us having never known freedom, we would, most of us, begin looking for a new master.

Most people don't actually want to be free. They would prefer to live in a cage, be fed, watered, and never live at all.

goforgin's picture

So tell me that the Swiss are not posturing to receive bailout money? If one could bother to read the whole original story, you'll note that that Greek portion of the delayed pharma receivables amounts to 2 billion euros. As the Swiss pharma spokesman suggests, the simple solution is to lower prices.

Without government subsidized medicine, giant pharma would be little pharma.  This is non-story.

The original intent behind this story was to illustrate the downside to austerity measures being implemented.


masterinchancery's picture

Wrong.  Without big government medicine, people would have a lot more money to buy drugs with out of their own pockets, and vastly more ability to choose without interference from bureaucrats.  Or did you think the "subsidies" were "free", like the Obamanistas.

swani's picture


Most of the lawmakers on the Right and the Left are in bed with Big Pharma. These interests have very deep pockets and deep pockets buy politicians. No one, Left or Right, is immune from this kind of corruption. Anyone who thinks differently has been drinking too much Sheeple Kool-Aid. 

Government mandated vaccines to prevent venereal disease for 12 year old girls at 300 dollars a shot for parents in Texas, is a perfect example of the way that government mandated market share for Big Pharma operates, under the guise of 'public health'. Bullshit. ObamaCare and Romney Care, same thing. Big profit for Big Pharma, Big Shaft for everyone else. This kind of thing is going on EVERYWHERE. 

Kids are getting an average of 63 vaccinations these days. Is that really necessary? Is it even safe? Can anyone in the FDA prove that these vaccines are safe? Or do they allow the Drug Manufacturers to prove it and then help cover up the illnesses and deaths reported, so they don't have to take any responsibility for allowing unsafe drugs on to the market?

And what do we think happens 5-10 years later, when after there are so many deaths or illnesses that it can't be covered up anymore and these drugs or vaccines, are finally, 'proven' not to be safe and taken off the market?

Well, we know that these drug manufacturers just end up paying a fine, a fine, much smaller than the profits made from selling the dangerous drugs or vaccines into the market for 5 years or longer. We know that even when it has been proven that both the government regulators and the drug companies knew that these drugs or vaccines were dangerous, before, they were released in the first place, a fine smaller than the profits made from the sales of the drug, is still, the preferred manner in which these matters are handled.  

Isn't this the worst kind of Moral Hazard imaginable?  

Where are the politicians on this? Democrats? Republicans? Where are you???? 

When Vioxx killed people, everyone knew about the dangers of cardiac arrest from the most popular arthritis medication on the market, the drug companies fired and intimidated scientists who worked on the studies to keep them quiet, honest scientists warned the FDA, but the whistleblowers at the FDA got the same treatment; illegal termination or intimidation. 

So who is responsible for this? Who allows these companies to get away with what is essentially government sanctioned endangerment of the lives of people's loved ones for profit?

This was an arthritis drug that was NOT saving lives of terminally ill people that had no other choice but to try this drug or die. No. There were other arthritis drugs on the market that were much safer. Vioxx was just a 'new' drug, a 'patented' drug, a monopoly drug. That's why this drug was pushed. Why should people's lives be endangered because these companies want monopolies on drug formulations?

How could paying fines that amount to a fraction of the profits from the sales of dangerous drugs, like Vioxx, be the way to deal with this kind of public endangerment?

Where is the deterrent?  

There is none. It's called Moral Hazard and until people wake up and stop allowing the corrupted politicians to tell us that it's always the other side's fault, using this as an excuse for every kind of abuse caused by their cozy relationship with industry, there will never be political will to fight these abuses. 








LawsofPhysics's picture

So everyone thinks it is okay to ignore the real cost of discovering, developing, and bringing drugs to market?  Okay, fine by me.  The earth could stand to let evolution work more oftern.

swani's picture


What do you mean 'real' cost? Yes, drugs cost an enormous amount of money to develop and bring to market. The early start up costs of the clinical studies required to find, and then prove, the safety and efficacy of these drugs are where most of the early costs are sunk. These costs can sometimes be in the hundreds of millions, however, these early costs are often subsidised by the government through tax credits for R & D  or financed through tax exempt grants made to universities from non-profit 'foundations' that are supposed to be 'philanthropic', but are often controlled and financed by the drug companies themselves, or the private equity groups that own preferred shares and voting rights in the bigger pharmaceutical companies.  

Now, when most of the 'new' drugs being 'discovered' and brought to market are just new patented versions of old drugs with proven safety, already in the market and being sold as generics, subsidising this kind of cost, in any way, is too costly.



CrazyCooter's picture

I think the real answer is simply (1) eating foods that people ate 100s of years ago and (2) being basically active in life. From a food perspective, I see modern diets/eating habits as simply toxic.

Here is one such educational youtube ...


If you watch enough the presenter will compare/contrast sugar and alcohol which metabolize in amazingly similar ways.

I think a very interesting influence on drug markets is the notion that people expect doctors to fix everything and that they have no personal responsibility for their health. I work with a young lady who is very overweight and "can't wait to get her back surgery done ... I'm so miserable". She doesn't have a back problem, she has a front problem.

It is precisely this line of thinking/behavior that creates a huge array of problems for people ... and the drug companies step in to enable the behavior ... at a price.

Now, for basic health care (broken arms, physical wounds - a.k.a. knife/gun/bite, etc) and all that sort of stuff, it doesn't require fancy drugs so I think this thread doesn't apply.

In fact, given the obesity rates and aging demographics in the US, I think there should be a multi-tiered health care system ... basic care is subsidized/free, but this just covers the very basics. All the back surgery, diabetes, psych meds, lupis, chrohns, and so on is in another tier and isn't subsidized at all.

At least we would have a system in 10 years, because if you can't figure out the vector with are on with demographics and obesity ...



goforgin's picture

So you agree with me that austerity merely shuffles the money from the people to the bankers. The people end up paying for it either way. In this sense the bankers do indeed are on the receiving end of FREE subsidies.


Cult_of_Reason's picture

Does it mean part of US pharma (as DJIA members, PFE and MRK) earnings is based on PIIGS IOUs?

Will US pharma be forced to restate the earnings?

kalum's picture

Hey Bruce, why don't those companies demand payment in Gold? Some if the PIGS have a fair amount of it

swani's picture

Very good post, thanks Bruce. I remember that article a while back where Pfiser and others were loaning the European banks money, and thinking, great move, since these loans are coming right back to them and swelling their paper profits anyway, no risk there. 

As long as no member of the Too Big Too Fail club has to ever declare a loss with the tax payers of the world being forced to make up these losses with higher taxes and budget cuts, every TBTF is happy.

The controlling shareholders of these pharmaceutical companies are a small group of interests, sharing ownership and control at the top. These different drug companies may have different names, corporate structures and common shareholders, but the people that own the Preferred Shares, and with these, voting rights, are really the people driving their respective agendas, and make no mistake, these people work together, exactly like the board members of Visa/Mastercard work together to; price fix, create government policy, block alternatives and competition, ext, ext. These various drug companies, like the Oil Companies, behave exactly like a monopolies. 

If anyone knows their history, they know that these companies came together under common ownership, before and after WW II with various partnerships and M & A between IG Farben & Standard Oil, now Exxon/ BP/Roche, Avantis, Elly Lilly, ext, ext. 

Maybe these PIGS could just buy cheaper generic drugs instead of paying premiums to monopolistic interests. I'm sure Sun Pharma out of India would give them a better price than they are getting from Roche and the others. You can rest assured these countries are paying for brand name drugs that they could get for a quarter of the price, if, of course, they were free to choose providers.

Of course this will never be allowed to happen because, let's face it, that's not how the world has ever worked. 'Globalisation' only seems to be encouraged when it benefits the profit margins of the monopolists. 

I think this latest move by Big Pharma is a way to help their Central Bank partners force the hands of governments to rip up the Constitutions of European nations to create a European Super State, complete with it's very own Eurobond peddling, debt-creating Central Bank. The idea of a mass 'default' of sovereigns is dangled for all to fear, maybe one country, Greece, will be 'sacrificed' like Lehman's, in order to usher in the funnelling of trillions to the rest of the TBTF. Maybe just the fear of default will be enough. 

Then, the new European Central Bank will move in to save the day, creating more unsustainable debt to pay for things like overpriced brand name antibiotics, and the tax paying and productive members of European society will be forced to service this ever growing debt with ever increasing taxes and budget cuts. The 'people' will get less for more while the banks and pharmaceutical companies will post record profits, as usual. This sounds like it will stimulate growth and create prosperity for Europe! Hurray! Can't wait to watch it unfold.   




end-of-daze's picture

Here's an idea.

Why don't the peripheral areas of Europe default en masse!

Call the bluff of the powerful nations and demand retrospective payment for having supported them for years by allowing the rich to avoid taxes in order to afford the latest apple device, BMW, (substitute whatever).

and drugs - killers.

piceridu's picture

BK, thanks again for valuable information we would otherwise not find on our own. You keep hitting doubles, triples and frequent homeruns. 

sangell's picture

Very interesting and disturbing. If Swiss pharma is holding these IOUs so must big American drug outfits.


Off topic ( maybe?) was the odd story in Tampa this weekend of how two USAF C-130's 'returned' some $500 million in old spanish coins recovered by the US salvors Marine Odyssey after the Supreme Court refused to hear the case.

Ordinarily one might expect the US government to resist the efforts of a foreign government to seize the property of a US corporation but that doesn't seem to be the case here. Instead the US government took the trouble and expense of having the USAF fly the treasure back to Spain. The Spanish ambassador said something about the coins will be displayed in Spanish Museums but you don't need 500,000 plus silver coins for museum displays so my guess is these coins will be displayed more in coin auctions than in museums with the money going to bail out Spanish banks.

Ar-Pharazôn's picture

my god........... re-read the article.... NOT ONLY SWISS PHARMA

Vlad Tepid's picture

My understanding was they were Spanish C-130s.

StychoKiller's picture

Until Boeing sends some Repo-men...

DoChenRollingBearing's picture

Spain stole the PMs from Peru.  Thye ship goes down on the way to Spain.  Americans find the hoard.  And Spain steals it again!


PERU has a better case than Spain.

CrazyCooter's picture

Someone correct me if I am wrong, but I believe the dispute was settled under Admiralty Law. While folks may agree/disagree with the outcome, I believe this was very cut and dried per the black letter.

Besides, Spain is inline behind Greece, so you know damn well they will lever those coins up (trade to collectors for X times the raw bullion) and hand it over to the Comex LOL!



LowProfile's picture

So, under "Admiralty Law", stealing is OK?

Shit, we should just outright take Iraq's oil then.

Ar-Pharazôn's picture

LOL what do you think you're gone in Iraq for?

Vlad Tepid's picture

"Next time I go down in my submersible, remind me to tell the Admiralty 'I didn't find anything, sir.'"

PlausibleDenial's picture

Read the article. I just want to know if the US govt (McDill AFB) are being reimbursed for the aggregate costs for the whole ordeal.

misterc's picture

To me, Bruce is one of the best financial bloggers around.

I'm glad I didn't buy into the pharma stock hype last year. It was advertised big time in print & TV to buy Novartis, Roche etc. to get rid of € currency. I just couldn't get how these companies will make money in case of a cluster of sovereign defaults.
I'd guess GE, Siemens, ABB and the like are all sitting on phoney IOUs issued by PIIGs, too.

It's really tough not to become bigheaded or lean too far towards risk when one seems to make the right bets & to avoid the bad ones a couple of times in a row. 

non_anon's picture

drugs are a right /sarc

ISEEIT's picture

Thanks Bruce. Helps me feel better about my heavily covered short @ 129.80.

I'll cover to someplace in the 1.40's maybe even past 1.45.

The shit ain't gunna work.

NervousRex's picture


It really does seem like you see at different frequencies, you are always finding interesting points of view on things I didn't know about.

Great work, and the pictures are boss.