LONDON (Reuters) – The head of Europe’s drug industry has written to EU leaders ahead of their summit this week seeking major concessions to help keep supplies of medicines flowing to crisis-hit countries like Greece and Spain.

Faced with deep price cuts and billions of euros in unpaid bills, companies want two special measures to prevent discounts offered in southern Europe from being exported to rich states in the north, where governments can afford to pay for innovation.

In a forthright letter, GlaxoSmithKline Chief Executive Andrew Witty, who heads Europe’s pharmaceuticals association, says failure to ring-fence austerity cuts will undermine a sector that provides 660,000 European jobs.

“In these extraordinary times for Europe, its economies and its citizens, business as usual – cost-containment policies that create market distortions – will drive investment elsewhere,” Witty said.

Reuters reviewed a copy of his letter sent to European Union leaders, Commission President Jose Manuel Barroso and Council President Herman Van Rompuy ahead of the June 28-29 summit.

The euro crisis has caught drugmakers between a rock and a hard place: they are under moral pressure to maintain supply to avert a health catastrophe, yet face financial losses.

The strain is starting to tell. Germany’s Biotest, a small supplier of blood products, became the first drugmaker to pull out of Greece a week ago due to unpaid debts.

Greece’s healthcare system is floundering under a tangle of unpaid bills. Industry figures show less than 1 percent of drug sales to the Greek state for the first quarter of 2012 have been paid off and the total is only 34 percent for the whole of 2011.

$8.8 BILLION PRICE TAG

Big international drug companies have so far stuck with difficult markets such as Greece, although some like Roche and Novo Nordisk are demanding cash on delivery in certain cases. But Witty says they need support.

In Greece, Ireland, Italy, Portugal and Spain alone, drug companies have contributed more than 7 billion euros ($8.8 billion) to balancing health budgets through exceptional price cuts and discounts in 2010 and 2011, Witty wrote in his letter.

The overall impact is still greater because governments across Europe – and, indeed, across the world – refer to prices in southern Europe when setting their own drug prices.

Low prices in southern Europe have also helped suck medicines out of the region as wholesalers re-export drugs to countries, like Germany, where prices are higher.

To counter the problem, EU member states should agree to exclude from their reference pricing baskets any countries undergoing fiscal restructuring programs, according to the European Federation of Pharmaceutical Industries and Associations (Efpia), of which Witty is president.

Efpia also wants the EU to accept a temporary ban on the re-export of medicines from states that are fighting to rebalance public finances. This could help prevent supply shortages but it is a big ask, since the Commission closely guards the right to such free movement of goods under EU laws.

“We’re asking the heads of state to help us, but by helping us they are also helping themselves,” Richard Bergstrom, the Brussels-based director general of Efpia, said in a telephone interview.

“That would unlock the potential for us to be more creative with governments in meeting their needs, particularly for those countries undergoing structural programs.”

WHAT PRICE INNOVATION?

Witty’s letter said Efpia firms had “worked very hard in the member states that have had the biggest challenges to try and ensure continuity of supply”.

This includes weighing emergency plans to keep drugs flowing into Greece if it should crash out of the euro, industry sources said last month.

In return for such cooperation, drugmakers want a better return in richer countries. Executives from Pfizer, Bayer and GSK have all complained in recent months that Europe is undermining drug research by not paying its fair share relative to the United States and Japan.

There is particular frustration at drug vetting systems in countries like Germany and Britain, which often stop pricey medicines from being offered on state health systems.

Supporters of such cost-effectiveness regimes, however, say they are a counterbalance to profit-driven drug companies, which too often slap high prices on new products with few clinical advantages.

(Editing by Anna Willard)