Romanian Pharmaceutical Market

Septembrie 2008

IOANA FILIPESCU - Managing Director RAIFFEISEN INVESTMENT ROMANIA

 

Romanian pharmaceutical market - key market drivers

At the beginning of 2007 the local pharmaceutical market was perceived as one of the most promising in the region in terms of growth perspectives.

Yet, an unexpected stagnation hit the sector – in the last twelve months ending in June 2008, the Romanian pharmaceutical market environment is estimated to have reached EUR 1,780 mn, posting only a 2% y/y increase. The market has been impacted by the depreciation of the local currency in a importer dominated environment, and the measures taken by the authorities to ensure extended affordability for the population translating into price freeze for the most popular medicine classes.

Some might see this evolution as a normal trend towards maturity, but the Romanian market lags behind Europe in terms of expenditure per capita. With a mere EUR 83/capita in 2007, Romania’s per capita spending is insignificant when compared to the 2006 (not 2007!) average of the Western European countries (i.e., EUR 423) and still below the average of the CEE countries which was around EUR 100 per capita for the same period.

The stagnation is even more surprising as the Romanian market attractiveness has increased following EU accession. The simplifications of drug registration procedures, a rising GDP per capita doubled by an increasing healthcare budget and a rapid expansion over the previous years constitute the premises of a continuing double digits growth.

The Ministry of Health refusal to adjust prices in order to reflect the exchange rate evolution triggered a slowdown in the market growth. Although the current legislation stipulates that the drugs’ prices should be adjusted with the exchange rate on a quarterly basis, the Ministry hasn’t changed prices since May 2007 when the local currency was particularly strong. Moreover, the previous two adjustments were done in the sense of reducing the existent prices at that time.

Following the depreciation of the local currency, the prices should have been adjusted upward by at least 10%, a decision which was never taken possibly due to the coming elections in 2008. The importers were most impacted. The result was either less imported drugs delivered to pharmacies or deliveries done below the acquisition price. In April 2008, the wholesalers refused for several days to deliver drugs to the pharmacies, in an effort to bend the authorities’ decision.

The blockage created a chain reaction resulting into a scarcity of drugs available to the patients, as the Romanian market is dominated by imported drugs which generate around 70% of the total market value. The remaining 30% is locally produced, comprising mainly low cost generics. Disregarding the rather adverse conditions in 2008, the multinationals present on the market launched an important number of new drugs, while retail chains continued their aggressive expansion and battle for market share.

In terms of mergers and acquisitions, we noticed several movements on the distribution and retail side. Pushed by the current market situation and the reduction in profitability, four companies gathered their forces with the aim of gaining a stronger position in the ever increasing competition environment: Ropharma, a company controlled by Mihai Miron, a local business man, merged with Farmaceutica Aesculap, Medica Bacau and Global Pharmaceuticals Brasov. After merger, the retail chain will operate under Ropharma brand and will operate 94 pharmacies.

Gedeon Richter continued the strategy of developing its recently created retail chain, Farmacia Richter, through acquisitions of new licenses, which positioned the Hungarian producer in the Top10 retail chains on the market with 177 outlets.

The distribution and retail company Farmaceutica Remedia announced the acquisition of two smaller distributors: Sibmedica and Sinfarm. In spite of the current market conditions, the company has ambitious plans and targets to become one of the top 10 pharmaceutical wholesalers.

On the producers’ side, an important transaction took place. Labormed Pharma, the largest private Romanian independent generics producer, owned by five Romanian entrepreneurs, has been acquired by Advent International private equity fund, in a deal worth approximately EUR 123 mn. On the other hand, the expected privatization of Antibiotice was once more postponed after a tentative start of the process in March 2008. The suspension comes following a court ruling in favor of the company’s workers’ union, which denies the open bidding method for the privatization proposed by the government.

The Romanian pharmaceutical market value is expected to exceed EUR 2 bn by the end of 2008, posting up to 10% increase as compared to 2007. The market development is subject to further Ministry of Health decisions regarding the list of reimbursed drugs, the change in the regulated mark-ups (especially for the imported drugs) and in the price computation method, as well as the expected quarterly price adjustments.

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