According to estimates by research institute Cegedim, the value of the Romanian pharmaceutical market reached EUR 722 million, ($862 million) between July 2003 and June 2004. “Our estimates indicate that by the end of the year the market value will reach $1 billion,” says Roberto Musneci, president of Europharm and vice president and area director of GlaxoSmithKline Eastern Europe South. There is still plenty of room for improvement as drug consumption per capita is among the lowest in Eastern Europe. “The Romanian market will surely continue to develop, as did other markets within the region. Drug consumption in Romania is three times smaller than the consumption value in countries like Hungary,” Musneci explains. Stephen Stead, general manger of Cluj-based Terapia, shares this opinion: “Drug consumption per capita is still low compared with Eastern European countries. For example, in 2002, drug consumption per capita was about $20 in Romania, $93 in Poland, Hungary and Slovakia, $80 in Croatia and $102 in the Czech Republic.”

“The domestic pharmaceutical market is segmented. This market is now supplied by 350 manufacturers, of which 300 are foreign and 50 are internal. Of this, only 10 manufacturers cover 50% of total consumption, expressed as physical units,” says the head of marketing with Antibiotice Iasi Delia Racoveanu.

Xeni-Camelia Dicu, general manager of LaborMed Pharma, said that, “during the following three to five years, the Romanian market will continue to grow at a high rate, over 15 percent per year. M&A activity will increase before and after accession, at both ends of the value chain. Local manufacturers will specialize according to their core capabilities and some will probably be forced to exit. The winners will be those able to articulate and execute strategies at an international level, rather than those self contained to the Romanian market.” According to Dicu, the market will see new entrants in distribution and retail, while insurers and private health care providers will increase their role. “Price pressures as well as consumer power will increase. Financing the healthcare sector will challenge both future governments and industry players. We will continue to strive, in partnership with other Romanian manufacturers to promote the role and usage of generic medicines in the best interest of doctors, patients and healthcare system at large,” Dicu added.

Regis Lhomme, general manager of Pfizer Romania, says: “Everywhere in the world, the pharmaceutical industry is probably the most regulated, with the highest ethical standards. There are specific standards that are common to the Romanian pharmaceutical market, too. What makes the difference between European countries is definitely the level of commitment to quality healthcare. Meaning the GDP allocation for the healthcare sector, which is at an average 8 percent for older EU members and over 6 percent for newly joined states. In Romania the allocation for healthcare is still less than 4% of GDP. It is a key point from which any comparison has to start.”

Klaas Postema, CEO of Sicomed, argues that EU accession will also mean international companies will focus more on Romania. “International companies want to see results so for local companies competition will be more and more difficult,” Postema says.

Cash injections

Most manufacturers plan investments in upgrading. According to Dicu of LaborMed Pharma, the company has achieved $13.5 million in sales and a market share of 1.3 percent in 2004 and estimates sales of over $20 million in 2005 and a market share of 1.8 percent “Investment in manufacturing will continue, either to upgrade existing units, or in greenfield projects,” Dicu says.

In its turn, Europharm posted in 2003 $27.5 million in sales for Europharm products. “This year we expect a turnover increase to match the pace of market evolution, which is over 10 percent. Our generics within the GSK portfolio are critical to our strategy of combining innovation and affordability. Europharm Distribution had a turnover of $97 million in 2003 with a market share of 14% the same year. We expect a turnover of approximately $120 million this year,” says Musneci.

EU accession means tougher competition for everyone

“We think that the forthcoming EU accession in 2007 will play an important role and will help the market grow by this date, on condition that the industry is able to combine innovation and affordability, to provide innovative care at sustainable costs for the system,” Musneci says. “EU accession will stimulate development and transparency, but will also generate tougher competition with other European producers. In this respect, quality standards are very important, and we are convinced that producing our Europharm generics at GSK standards is a significant competitive advantage for us. GSK products are already in competition with international producers on over 190 markets.”

He added: “We will consolidate the big investment made between 1998 and 2004. This year was in relation to our distribution and our generic portfolio. From 1998 to 2004 GlaxoSmithKline invested in Romania over $70 million. We had invested about $13 million in the Europharm production facility by the launch of the new Europharm factory. Since then, we have invested more than $4 million in new equipment and technology, new production lines, upgrading quality control departments, training for our team of 320 people and new and modern office spaces. As for Europharm Distribution, we invested over $4 million over the last two years and $4 million more will be invested by the end of this year.”

Stead of Terapia said his company expected at the end of 2004 a turnover of $50 million and a profit rate of 15 percent. Some 16 percent of the company’s turnover is generated by exports to Russia, Ukraine, Poland, Baltic states and Central Asia. “We have had a representative office in Russia since 2002, with marketing, promotion and registration responsibilities; its role is to promote the image of the company and its products on the Russian market and to be our close contact for our partners. We started similar activities in Ukraine through our representative office there, in June 2003,” Stead said, adding that the current portfolio includes 90 products – Terapia’s own products and products made in cooperation with other pharmaceutical companies. “We have traditional collaborations with Hoffmann la Roche, Janssen Pharmacutica and more recently with Ethypharm France,” he noted.

Talking about the consequences of EU accession, Stead said: “In the EU there will be more transparency, but increasing regulatory requirements. We are running a special project to look at exactly what we need to put in place and by when for EU accession. Our near future investments are related to increasing the facilities, new equipment, improving our bioequivalence lab, a major clean up and site development project and a new GMP warehouse. Our business strategy is to introduce more new products, supported by a stronger commercial department. This will increase access to high quality medicines at reasonable prices for Romanian patients. We will also be investing in more bioequivalence facilities (we already have GPL certificate) and major facilities upgrading, including warehouses and equipment. We expect to invest $9 million during the course of next year.”

In its turn, Sindan, the only Romanian pharmaceutical company specializing in the production and distribution of pharmaceuticals used in the complex treatment of cancer, exports mainly to countries such as Poland, Hungary, Bulgaria, Czech Republic and Slovakia. “The visit we received from the commission of the Medicines and Healthcare Products Regulatory Agency MHRA (UK) would give us permission to register and market our own products in the UK and in other Western countries,” explains Aurel Tudose, general director of Sindan. “Our portfolio includes 19 of our own products. To this, we have added other six products that are manufactured in cooperation with some of our partners: Baxter, Pfizer and Sanofi – Aventis. Looking to the future we could say that our priorities are consolidating the international partnerships that we are part of, with the clear aim of expanding the presence of our products on markets worldwide. For the next year we will keep our focus on oncology while developing export activity and increasing our sales in Western European markets,” Tudose said.

Elsewhere, over the past three years, Antibiotice Iasi effected major investments amounting to over $7 million within an extensive program for modernization and revamping.

The investments focused both on the functional reorganization aimed at increasing company competitiveness not only on the domestic market but also on the external one, and on harmonization with the requirements of the Good Manufacturing Practice (GMP) and Food and Drug Administration (FDA) quality norms.

“After assimilating the GMP quality norms, most Romanian manufacturers of generic products will have to invest in bioequivalence studies. In this sense, Antibiotice will actively involve itself in the implementing of a center for bioequivalence studies of its own.

The center is intended, on one hand, to assure drug product conformity with the European quality standards, and, on the other hand, to provide the patient with a more affordable alternative and products which are therapeutically identical to the similar, but more expensive, foreign ones,” Delia Racoveanu of Antibiotice Iasi says.

“While the hospital segment is a monopoly market in which the buyer is the National Insurance House, the pharmacy segment, which represents approximately 68.5 percent of the total market, is an atomized market at the level of the buyers and an oligarchy at the level of the distributors. Under the circumstances in which the number of pharmacies in Romania is estimated at approximately 4,000, only 25 distributors (9.3 percent of the 270 existing distributors) have assured around 84 percent of the pharmacy market segment,” Racoveanu explains.

She added: “The next steps are directed towards assuring a high therapeutic efficiency similar to that of the original products. In this sense, an important investment amounting to approximately EUR 500,000 is in progress, aimed at setting up a modern bioequivalence unit.”

Talking about the GMP standards, Klaas Postema, CEO of Sicomed, noted: “For Sicomed, the focus was set for the years before 2004. The Good Manufacturing Practice standards, that guarantee a high level and a standard of quality for medicines, have become compulsory for the Romanian pharmaceutical sector from January, 1 2004.

In conclusion, all the local medicine production facilities had to implement these standards before this date. Besides GMP, which was legally imposed, pharmaceutical companies must have quality systems, which guarantee the level of GMP. This year, for example, Sicomed received the ISO 9001:2000 certification for production and distribution of pharmaceutical products. Next year Sicomed aims to implement ISO 14001 for environment and ISO 18001 – OHSAS for occupational health and safety. In this way, we will have a total integrated quality management system which will control all activities.”

Postema added: “We had good quality products before GMP too. The changes that GMP brought to Sicomed are international recognition of the constant quality level of our medicines and efficient production process that enable us to be more competitive. An important aspect is the fact that GMP certification allows us to export. It is also important to know that GMP represents a minimum level and you cannot even exist in the pharmaceutical business without it. Sicomed wants to do a lot more in order to constantly improve its quality and services.”

He went on to say that: “We work with a selected group of distributors, because there is no one in Romania that can handle our large volume on its own. The major problem, at the moment, is late payments, especially in a growing stage like the one Sicomed is crossing right now. Further on, we have a difficult competitive position, due to our lower prices (our average price per unit is approximately 60% of the next local producer).

This is a difficult situation because, faced with the increasing competition of imported products, our low prices give us less profit to invest in the company.”

Meanwhile, Ozone Laboratories started this year a EUR 14 million investment program, which began with a EUR 2 million investment in the production lines of its partners Mark International and Fabiol Bucharest.

“We estimate a 20 percent growth of the pharmaceutical market. The Romanian drugs market is growing rapidly, and has a large growth potential. That’s its main characteristic,” says Dan Schiopu, Ozone’s executive manager. “Over 60 percent of Ozone’s portfolio is generic drugs and their number is to grow significantly in 2005. The next step Ozone wants to make is to invest in its own bioequivalence center. Furthermore, Ozone wants to expand its portfolio by acquiring a local producer outside of Bucharest, an investment which we believe will reach EUR 5 million. We’re already in talks with three such producers.”

Ozone also wants to export to Ukraine, Macedonia, Bulgaria, Poland and the Czech Republic.

Distribution segment consolidates

Investments in developing logistics proved a sure bet for most players on the distribution segment. The most important players on the market are Mediplus, Relad, Farmexim, Montero, Polisano and Fildas.

Mediplus, the distribution arm of A& D Pharma, began at the beginning of this year a EUR 5.5 million investment program to build modern warehouses. The company now has 12 warehouses and four local branches, as well as a car park of 500 cars. Mediplus has a portfolio of approximately 3,500 clients and is working with over 120 domestic and foreign producers. According to CEGEDIM data, Mediplus Exim is a leader on the distribution market, with a market share of approximately 15 percent. Mediplus’s turnovers reached EUR 78 million in 2003 and estimates for 2004 show EUR 133 million turnover.

In its turn, Farmexim has 14 warehouses in large cities around the country. Farmexim has a nation-wide distribution network covering more than 2,500 customers.

Ovidiu Buluc, CEO of Farmexim, said “For 2004 we are estimating a turnover of over $60 million. Farmexim retail sales in the first 10 months of 2004 rose by more than 57 percent as compared with 2003, with a share of the retail sales market in September 2004 of 7.54 percent. Our company is fourth among the top drugs distributors.

“The budgeted turnover for 2005 is about $80 million and our proposed goal is to reach a retail sales market share of 10%.” Farmexim has 14 warehouses and a fleet of over 150 vans.

“The pharmaceutical market is continuously growing, and this is a growth opportunity for Mediplus. Of course there are difficulties as the health insurance system is still not developed enough to cover the necessary heath services and drugs. But these difficulties will be overcome, once the GDP and the health related expenses grow,” says Dragos Dinu, general director of A & D Pharma.

Buluc added: “Farmexim customers are open-circuit pharmacies, hospitals and warehouses. Pharmacy-chains are now gaining an even greater share of the pharmacy market. The pharmacies have begun to offer increasingly diversified services, necessary to the patients, leading to a close competition between them, which results in multiple benefits for the patient.”

Buluc added: “Next year we will convert three Farmexim branches into regional centers by building their own local warehouses; this action will result in a more efficient coverage and shorter delivery times in these areas. In 2005 Farmexim S.A. will aim its efforts at the improvement of the quality of services offered to the customers.”

Pharmacies chains expand

This year major pharmacies chains expanded and repositioned themselves. Europharm, which owns a network of 33 pharmacies in 18 cities across the country, continued this year the modernization process that began in 2003. This included the change in the visual identity of all the pharmacies, introduction of new and personalized services as well as significant investment in personnel training. “At the beginning of next year, we will end the modernization and the repositioning process for all the Europharm pharmacies in the country. In 2005 we will concentrate our investments on developing the team in our pharmacies and the quality of our services. We expect a turnover of $18 million for 2004, up 15 percent from last year,” says Gabriel Matei, commercial director of Europharm Holding

In its turn, Help Net expects to increase the number of already existing 33 functional locations in Bucharest and 14 more throughout the country to 50 by the end of 2004.

“This year we have doubled the number of locations compared to last year. For 2005 we plan to have the same growth rate,” says Isabelle Iacob, Help Net general manager.

Following a EUR 1.5 million investment, A & D Pharma-owned Sensiblu has increased the number of its pharmacies in the first half of the year from 66 to 87. Sensiblu is present in 34 cities, and this month, Sensiblu is to open its 100th pharmacy, and this figure will grow by the end of the year. Sensiblu posted first-half turnover of EUR 22 million, a 73 percent increase on the same period last year. By the end of the year the company estimates a EUR 45 million turnover, compared with EUR 28 million in 2008. “The pharmaceutical retail market underwent dramatic changes during the last years, judging by consumer expectations, changes that significantly influenced the industry behavior,” Iacob explains.

“Our development strategy is aimed at doubling the number of pharmacies in 2005. The expansion will take place in Bucharest and throughout the country, where the market indicated the demand of pharmaceutical products and services. Unlike the off-shore companies that invested in local pharmacies chains, we are a Romania-based autonomous company: we grew in Romania and we will continue to extend in Romania.” Iacob says Help Net plans EUR 1.5 million investments for 2005 and estimates $19 million turnover for 2004, compared with $8.5 million last year.

Meanwhile, the first TV campaign for a pharmaceutical retail chain was launched this fall by Sensiblu. “2004 was an important year for Sensiblu in terms of media exposure, as we made quite important investments in the first TV campaign from the pharmaceutical retail sector,” says Dragos Dinu, general director of A& D Pharma.

“It was proven that women are those who go to pharmacies to supply medicines for the entire family. It is women as well that have lately become more aware of the importance of acquiring products that have been recommended by a specialist. We have seen this clearly in Sensiblu pharmacies with the 20 percent of the total sales of the pharmacy coming from cosmetics,” Dinu adds. Help Net put EUR 150,000 into advertising and wants to focus on marketing strategies such as medical counseling programs, loyalty cards and community involvement programs.

Still, drug sales remain the main activity of all pharmaceutical retailers. “We can estimate that in our pharmacies some 10 – 15 percent of total sales come from cosmetics,” says Gebriel Matei from Europharm Holding. “Sensiblu’s main activity is drug sales, which brings in around 80 percent of the turnover,” says Dinu.