Lower prices, higher taxes and fewer drugs paid for by the state could be the new regime for France's pharmaceutical industry when the government details plans in September for €2 billion ($2.5 billion) of healthcare savings next year.

However, the new Socialist government may sugar the pill with measures to encourage investment in the country's fledgling biotech sector, where its 36 listed companies barely reach a total market capitalisation of €2.3 billion.

Price cuts and tax increases imposed last year as part of the previous government's budget balancing measures have already cost pharmaceutical companies around €1 billion, according to LEEM, the industry association of drug makers in France.

Ministers have signalled they will try to spread the burden this time round by seeking savings from healthcare services with a push for a curb on doctors' extra-billing -- the practice where certain physicians are allowed to charge higher fees than the amount set by the healthcare system.

But while healthcare spending will rise slightly in 2013, more pain is on the way to meet the targeted savings.

"I am concerned. We have an economic situation where (drug) sales are decreasing, there is an increase in layoff plans (in the industry) and a lower drug trade surplus, which was down to €5 billion in 2011 from 8 billion in 2010," Christian Lajoux, head of LEEM, told Reuters.

"I would like the government to have a full understanding of the industrial dimension of the sector and that it looked at the drug and biotech industry as a tool to get out of the crisis," he said.

France is Europe's second-largest drug market after Germany and the pharmaceutical industry is the fourth-largest contributor to the country's trade balance, and one of the few sectors with a trade surplus.

It employs more than 100,000 people in France, and is a major investor in research and development.

Drugmaker's dream

At the beginning of the last decade, France was every drugmaker's dream: doctors prescribed more drugs than their counterparts elsewhere in Europe, patients distrusted generic drugs and the government was willing to reimburse obscure or ineffective medicines that other health systems had long refused to pay for.

But the harsh reality of the economic crisis and the austerity measures put an end to all that.

In a recent study, LIR - the body that represents 16 foreign drugmakers operating in France - found the pill-popping habits of the French, who in 2000 were Europe's champion medicine takers, are now in line with those of their European neighbours.

This year France's drugs market is set to shrink for the first time, in contrast with moderate growth expected in other European countries and North America, and double-digit growth in emerging countries, according to a study published by pharmaceutical intelligence firm IMS Health.

The tougher climate has already started taking its toll on the industry.

Sanofi, which is facing the loss of patents of key drugs and healthcare spending cuts in Europe, has now turned to France after axing research and manufacturing jobs in the United States, Britain and other European countries as part of a €2 billion cost-cutting plan announced in September 2011.

The Paris-based company is preparing to cut a yet-unspecified number of research and support jobs at two sites in southern France which trade unions have estimated could run up to 2,500, almost 9% of its total workforce in the country.

Further hurdles

In addition to austerity measures, drugmakers are set to face further hurdles for new treatments as the government mulls a tougher index to evaluate medicines filed for pricing and reimbursement under the state-run healthcare system.

If approved, the new guidelines would raise the bar for reimbursements because drugs would be compared with existing treatments. For example, a new drug which is as effective as an existing one but has more side effects would not be reimbursed.

"Such amendments would render the system less generous, with drugs bringing no improvement in terms of therapeutic value set to suffer the most," said Anne-Charlotte Honore, an analyst at market intelligence firm IHS Global Insight.

Sanofi and Ipsen, France's number-two drugmaker, have already seen a number of their medicines dropped from the government's reimbursement list because they were not deemed good value for money.

Last year France became the only country in Europe to stop reimbursing Sanofi's Multaq, a treatment for irregular heart beat once touted as a potential multi-billion dollar seller.

Ipsen's Tanakan, an anti-dementia drug derived from the gingko biloba plant, was one of the casualties in the latest round of de-reimbursements in March 2012.