On 14 February 2023, the German Federal Ministry of Health (BMG) has presented the new draft “Act to Combat Supply Shortages of Off-Patent Medicines and to Improve the Supply of Paediatric Medicines” (Arzneimittel-Lieferengpassbekämpfungs- und Versorgungsverbesserungsgesetz or “ALBVVG”). Some commentators also refer to the new law as the “Generics Act” but this term appears too narrow given the broader scope of the ALBVVG.

The German government recognizes that the number of supply shortages for critical medicinal products has significantly increased over the past few years. This is especially true for off-patent medicines (generics), such as medicinal products for cancer treatment (Tamoxifen, Folinate) and antibiotics and medicinal products for children. The German government also stresses that additional financial incentives are necessary in the area of patent-protected drugs, especially to promote the development of reserve antibiotics, which are urgently needed for the treatment of infections caused by multi-resistant bacterial pathogens. It is a known challenge that due to their narrow indications, these reserve antibiotics can only generate low sales figures and thus insufficient revenues.

The draft act is envisaged to amend a number of German laws and regulations and will likely have broad implications for the pharmaceutical industry as well as for other stakeholders in the healthcare sector. Some of the key amendments that the new law proposes are summarized as follows:

• Main amendments to the Medicines Act (AMG) include the establishment of an early warning system to identify potential supply shortages. The federal regulator BfArM will be charged with this task and shall publish supply shortages on its website.  Pharmaceutical companies, wholesalers and, in the future, also mere contract manufacturers have to inform BfArM about available stocks, source of supply, sales volumes and impending shortages.

• The German Social Code (SGB V) will be amended to incentivize the development and supply of certain medicines, in particular critical paediatric medicines and reserve antibiotics. The rigid reference pricing system will be lifted for these medicines. The reference price is a reimbursement cap and companies are practically forced to reduce their prices to the level of the reference prices. The prices for these products can be raised by 50% of the latest reference price. Similar mechanisms are envisaged for the so-called “supply-critical active pharmaceutical ingredients”. The list of these active ingredients is prepared and published by the German agency BfArM on its website. It is quite a long list.

• Reserve antibiotics with new active pharmaceutical ingredients against multi-resistant bacterial pathogens will also be significantly privileged under the revised pricing and reimbursement laws. The pharmaceutical company’s freely set sales price at market launch shall continue to be reimbursed.

• The possibility to substitute medicinal products by the pharmacies will be extended in case of supply shortages.

• The current reimbursement laws that govern patient surcharges for medicines will also be slightly amended to reduce the price pressure on pharmaceutical companies (in the future, exemption from surcharge if the product price is 20% lower than the reference price while currently this price threshold is still 30% below the reference price).  

• In the widely used rebate agreements, health insurers and pharmaceutical companies shall agree to a minimum available supply-stock of medicines of the average 3 months’ quantity. The rebate agreements, and subsequently the dispensing pharmacists, shall take into account whether a medicine was produced in the EU/EEA so that manufacturing in the EU/EEA is incentivized.

• The draft act shall also change several other laws like the German Pharmacy Act, the Drug Pricing Ordinance and the Healthcare Products Advertising Act (Heilmittelwerbegesetz or “HWG”) which we do not discuss in detail in here.

Overall, the ALBVVG will be highly relevant for the distribution of medicines and it will also create new obligations for all stakeholders. Pharmaceutical companies should carefully monitor the legislative process and analyse its implications for their businesses and products.

The Covington & Burling LLP Life Sciences team in Frankfurt, Germany, is following these developments and will provide updates as the legislation process moves forward.