RomaniaPharma reportOctober 2011

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Romania ReportSpecial SpOnSORed SectiOnSpecial SpOnSORed SectiOn

October 2011 FOCUS REPORTS S2

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Increasing integration with the world economy and accession to the European Union (EU) in 2007 have been key pillars in taking the growth potential of Romania’s pharmaceutical market to greater heights. Valued at $3.3 billion, Romania

was recently labeled an IMS Tier 3 category of “Fast Followers” among the world’s 17 pharmerging nations. “One of the larger EU members, Romania stands for an incredible market opportunity in terms of size and population—9th and 27th in the EU, respectively—offering investors a strong market potential as the second-largest country in Central and Eastern Europe (CEE) after Poland,” explains Sorin Vasilescu, director of the Foreign Investment Department under Romania’s Ministry of Economy, Commerce and Business Environment.

ROMANIA: STAKING ITS CLAIM

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Regrettably, a European Commission (EC) and Organization for Economic Cooperation and Development (OECD) joint study from 2010 showed that Ro-mania still has the lowest life expectan-cy in the entire EU. Historical analyses show how chronic underfunding of the healthcare system has taken its toll on the Romanian patients. According to a June presentation of the Romanian Asso-ciation of International Medicines Man-ufacturers (ARPIM), current healthcare expenditures amount to only 3.6% of the country’s GDP. In comparison, the 2009 averages in the EU and Africa stood at 8.6% and 5.9%, respectively, putting Romania in the same line with Madagas-car and Burundi.

GoinG Dutch?“We have a major dysfunction. Under-funding is recognized, there are prob-

lems regarding transparency in the allocation of funds and the inef-ficient use of these funds, and inequi-ties exist in access to health servic-es—especially in rural areas. Thus, patient satisfac-

tion is quite low,” states Romania’s new Minister of Health, Ladislau Ritli. And while institutions such as the Roma-nian National Health Insurance House (CNAS) have been lobbying for rectifi-cation of the insurance budget, President

Traian Basescu has denied ad-ditional financial resources before the Ministry of Health (MOH) demonstrates ad-equate control of its spending.

Is there a way out of this vi-

2010 funds allotted for medical products, equipments and services

52,73%

Hospital services

Medicines, speci�c medical equipment and devices*

Ambulatory services

Emergency pre-hospital services and transportation

At-home hospitalization services

Reimbursements of medical services provided in other countries

*(of this percentage, refunding of medicines with or without personal contribution represents 58.33% and refunding for the medicines included in the national health programs for chronic diseases represents 26.42%)

Source: National Health Insurance House of Romania (CNAS), August 2011

31,57%

11,41%

4,06%

0,17%

0,06%

Nicolae Lucian Duta, President of CNAS

Laurentiu Mihai, Executive Director of APMGR

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cious circle? Ac-cording to Nico-lae Lucian Duta, CNAS’s president, increased involve-ment from the pri-vate sector could help. While a number of differ-ent routes can be considered, Duta presents two pos-

sible scenarios. “The first one is that CNAS remains the main public insur-ance fund that will finance a basic ben-efit package, while the private health in-surance market fulfils a complementary or supplementary role. The other one is to move towards a healthcare system based on the Dutch model, where CNAS will become a regulatory body in charge of distributing the funds between several private insurance funds, which will offer variants of a basic benefit package.”

“With regard to public expenditure on medical treatment, Romania regret-tably holds the last place in the EU. Cur-rent expenditures are roughly €70 ($97) per person per year, which is a very low figure. At the same time, the public sys-tem is using most of the budget to pur-chase very expensive drugs. Therefore, a lot of people from the industry have come to believe that an important shift in Romanian public health policy is imminent,” explains Laurentiu Mihai, executive director of the Romanian As-

sociation of Generic Medicines Producers (APMGR).

As the MOH has been urged to free up government funds through greater use of generic medicines, Romania has started viewing its drug spending differently. This eagerness has sparked the interest of the world’s leading generic play-ers. India’s Dr. Reddy’s Laborato-ries, for example, appointed Cristi-

na Garlasu as early as 1995 to build a plat-form for growth in Romania.

Set to cross the $20 million turn-over milestone this year, the country general manager reflects on the im-portance of Ro-mania. “Within

Dr. Reddy’s global operations,” Garlasu posits, “Romania forms part of the so-called G8 of countries that the company focuses on worldwide.” Ascribing the at-tractiveness of Romania to the market’s growth potential and the overall prof-itability of the business, Garlasu now looks at a compound annual growth rate (CAGR) of 30% through 2015, which will potentially include inorganic growth opportunities. “There is big po-tential in the Romanian market, which

still has to grow in value and structure. This means that we also expect growth in the new therapeutic areas of success. For instance, Dr. Reddy’s is successful with various biologic products in India, and I hope to be able to provide such products to patients in Romania one day. As a market, I feel we are now at the bottom and can only move up from here,” concludes Garlasu.

The challenge for Romania’s generic players is to ensure that the proper generic medicines reach patients with the support of the country’s re-tail sector. At pres-ent, government has increasingly delayed its pay-ments to the retail sector, which in

Cristina Garlasu, General Manager of Dr. Reddy’s Romania

million USD

$290,23$290,03$208,89$198,34$191,20$162,26$149,12$128,64$115,43$91,19

%

9,19,16,56,26,05,14,74,03,62,8

Total top 10 $1.826,07 57,1

Rank

123456789

10

2010 market share

Sano�RocheP�zerNovartisGSKServierMerckAstraZenecaDaiichi-SankyoAbbott

Based on 2010 Cegedim data

Petru Craciun, General Manager of Cegedim Romania

Franz Zinsberger, General Manager, BI and President, ARPIM

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turn creates delays with the wholesalers and eventually the manufacturers. “At the end of the day, the pharmaceutical industry in Romania has supported the healthcare system by financing it with a record €1.15 billion ($1.59 billion) in 2010,” explains Makis Papataxiarchis, managing director at Johnson & John-son Romania. Lacking liquidity has driven a high number of pharmacies into insolvency or bankruptcy, whereas surviving pharmacists consequently prefer selling innovative drugs to gener-ate better cash flow. And all this when only 11 million out of the 21 million people in the country have proper ac-cess to medicines.

Apart from retailers, the long pay-ment terms have pushed smaller, cash-hungry wholesalers and distributors to tap into parallel trade opportunities (ac-counting for an estimated 15% to 25% of the market). Now at a record 330

days, the industry remains hopeful that a recent EU Directive will take payment terms down to EU standards of 60 days by 2013. If successful, this will ensure better availability of cheaper medicines to the Romanian population.

RiDinG the RolleRcoasteRApart from national insurance and health infrastructure reforms, the gov-ernment has also tightened the belt on the pharmaceutical industry. In mid-2009, former Health Minister Ion Ba-zac imposed a crisis tax of 5% to 15% on the total sales of prescription drugs, known as the “clawback-mechanism.” While government failed to collect taxes due to the vague outline of the measure, current Minister Ladislau Ritli has announced that a revised law is under way.

Far from ignorant to such measures, the industry is grasping for more air.

Franz Zinsberger, ARPIM’s president and country general manager of Boeh-ringer Ingelheim, describes the current situation as a “decisive crossroads.” “How far can the Romanian govern-ment go with cost containment mea-sures, late payments, and delayed reim-bursements until companies decide to downgrade Romania in the interest of their business?” Zinsberger warns.

Others may ask themselves whether a 20-year-old market can be expected to have the same level of stability as the more developed pharmaceutical mar-kets. “When we started the first pro-fessional evaluation of the Romanian market in 1996 it was $300 million, and today it is over $3 billion. There has been a huge development in such a short period of time,” says Petru Craciun, general manager of the Romanian arm of Cegedim.

Renowned as a world leader in cus-tomer relationship management (CRM) and a trusted supplier of strategic health-care industry data, Cegedim has lever-

aged its early pres-ence in Romania. Craciun recalls how a strong customer base combined with in-depth local market knowledge reassured Cegedim during the coun-try’s more turbulent times. “The market obviously has ups and downs, and

by the time the last ‘up’ occurred be-tween 2004 and 2008, we were very well prepared and positioned in the market. This enabled us to reap the rewards of our efforts. On top of our customer base, there is also the local knowledge that Cegedim has been able to build upon. Local implementation accounts for at least half of the suc-cess,” Craciun explains.

Never too worried about the roller-coaster pattern in his company’s local revenues, Cegedim’s Craciun recalls

Doina Ionescu, Managing Director of Merck Romania

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how variations of +70% and -50% must have seemed strange for new-comers in the market. “Romania was not a mature market and the dynamics were not too predictable. After a period of double-digit growth the market is now significantly challenged by the regulatory aspects and public spending containment.”

In spite of the historical underfund-ing of its healthcare system, as a phar-merging nation, Romania has fared better than other countries in certain metrics. J&J’s Papataxiarchis points out that “it is important to look at Ro-mania’s macroeconomic environment. Government debt as a percentage of GDP, for example, is the most attrac-tive in Europe at only 34%. In countries like Hungary, Germany, and Greece, these figures run up to 72,%, 76% and 134%, respectively”, Papataxiarchis says. “Romania has successfully man-

aged to keep a stable exchange rate with the euro, which is extremely im-portant … The Romanian pharmaceu-tical market has experienced double-digit growth over the past few years, which IMS expects to continue through 2016. This is three or four times more than the average growth rate of other European countries,” he explains.

“Romania has all the key ingredi-ents in terms of growth, demand, and talent. That is why it is now time to find, together with all stakeholders, the necessary resources so that the Roma-nian people can receive the treatment they deserve,” Papataxiarchis contin-ues. “This is why we, as well as many other innovative companies, are pres-ent here in this market. It is why we invest significantly, and why we try to reshape healthcare in Romania togeth-er with the country’s policymakers,” declares Papataxiarchis.

the “Fact” oF Romanian manuFactuRinGAccording to 2010 Cegedim data, the top 10 pharma companies in Romania are solely innovators, holding over 57% mar-ket share. However, a look back in time re-veals surprising strengths about Romania’s homegrown pharma companies. Before being acquired by Sanofi and Ranbaxy, re-spectively, local generics companies Zenti-va and Terapia already ranked among the top 10 largest players in the country, while Antibiotice and Labormed still rank 13th and 17th today. These players have pio-neered Romanian generics manufacturing and are proof that the country has gath-ered a set of production capabilities. This, in combination with low-cost and high-skilled labor, has attracted investment from the pharma world.

Describing locally acquired Sindan Pharma as a real piece of jewelry, Alina Culcea, as managing director of Acta-

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vis Romania, emphasizes how the local state-of-the-art production facility has not experienced a single quality issue in its 20 year history. Representing the sixth-largest market for the Icelandic parent today, Actavis’ Romanian opera-tions have now come to export quality oncology generics to nearly 60 countries.

Still today, nearly one-third of the value of the country’s pharmaceutical market comes from locally produced medicines. The fact that these drugs may now be produced by foreign-owned enti-ties seems of no concern to the Roma-nians. On the contrary, “when foreign investors came to Romania, investments in local facilities increased significantly, which brought huge changes into the management levels, and the way these businesses were run,” argues ARPIM’s executive director Dan Zaharescu.

GSK’s acquisition of Europharm is a prime example of what multination-als can bring for quality upgrades. “The Brasov site started as a generics site and has now evolved into one of the most recognized GMP certified facilities within GSK,” concurs Pascal Prigent, general manager of GlaxoSmithKline Romania. “We have a long-term com-mitment to this market when you look at the size of our local operations … this

includes produc-tion and distribu-tion operations, as well as a consumer healthcare busi-ness. In our facto-ry in Brasov alone, we have invested about $100 mil-lion since 1998,” Prigent says.

Ioanica Geor- getta, director

general of local player Fabiol, adds, “Many of the international investors that came here have seized the oppor-tunity to invest heavily in modernizing local Romanian facilities. Now, they are all capable of producing innovative drugs in Romania, while the cost of

doing so is still relatively low. Even for Fabiol, reaching out to international in-vestors is considered to be a significant opportunity going forward.”

While GSK’s setup may be rather exceptional in terms of diversity, it has not been the only multinational to recog-nize the strengths of in-house distribution. “The business model we have put in place is based on having the core com-petences in-house,” explains Doina Ionescu, country man-aging director of Germany-based Merck. “Merck is such a strong and sustainable brand, that we want to replicate this offer of sustainability in the Romanian market,” she adds. “This relates to safeguarding the key marketing and key promotion skills, while we also improve availability of our products to better serve patient needs. For the latter, we have rented a warehouse and engaged in a managed services agreement with a logistics service provider. This model applies to both our pharmaceutical and chemicals businesses. We believe that di-rect customer contact and direct service to customers are the most sustainable solu-tions we can offer,” she asserts.

Following the 2010 acquisition of

Millipore, Ionescu saw the opportunity to generate synergies from tightening control over its distribution channel. “Among the countries where there is one subsidiary and one distributor, which is neither an emerging nor a major Western market,” she recalls, “Romania was first to receive approval for the go-to-market approach. As of December 1, 2010, we therefore integrated the core competenc-es in-house. Having a similar customer base has been the main synergy that we have achieved here.”

siGns oF stabilityTo prevent dialogues from becoming monologues with a witness, strengthen-ing public/private sector relations should be key priority for pharmaceutical exec-utives when deploying their investment strategies in Romania today. This is not an easy task in a nation which has seen a new federal health minister nearly every

year for the past 20 years. Referring to any kind of

interaction at the level of the industry and the institutions as “contaminations,” coun-try general manager Luca Visini of US giant Eli Lilly shares his view on success-ful cooperation strategies with authorities in Roma-nia. “I dedicate a lot of time to the partnership with the

Ministries of Health and Education,” he notes, “for example on awareness programs for Attention Deficit Hyper-activity Disorder (ADHD). Essentially, it all comes down to allowing the afore-mentioned ‘contamination.’ From day to day, you may have converging interests with many different parties, including distributors and technology suppliers. If this contamination leads to an increase in the standard of care or the usability of the products you make available to the patients, this should be welcomed.”

Walking the talk, Visini is justifiably proud of leveraging its stakeholder rela-tions in Romania, holding 20% of the clinical studies in the country today.

Luca Visini, General Manager of Eli Lilly Romania

GSK — Europharm facilities in Brasov

Dan Zaharescu, Executive Director of ARPIM

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“In 2009, out of the 288 re-quests for clinical trials, the national agency approved 233 studies,” Visini states. “However, getting an ap-proval mainly depends on what exactly the company is planning to do, the way it wants to do it and what it is capable of putting on the ta-ble,” he continues. “As long as we are able and successful at keep-ing our level of standards high, there are generally no barriers to engage in clinical research. At the end of the day, clinical trials are a sign of stability for a country. In our case, the investments in Romania imply that we are here and plan to stay here. Maybe the govern-ment does not provide clear incentives to do clinical trials in Romania but I firmly believe that approvals can be obtained if you do things the way they should be done,” Visini concludes.

“I believe that you need to control what you can control. Regardless of what is going on externally, we can control our attitudes, our discipline, our focus, and our interaction with our customers,” argues Steve Warner, MSD’s managing director for Romania. When asked for the No. 1 driver for the American company to con-

duct clinical trials in the country, Warner instantly points to the access to patients driven by a high level of unmet needs. “For instance,” he explains, “we have started a Named Patient Program for one of our new products, VICTRELIS, for the treatment of hepatitis C. On a global basis, around 300 patients have been al-located to this program. Romania alone accounted for 200 of them. Everyone was very impressed that we could get 200 pa-tients so quickly, which to a large extent is related to the huge unmet needs driven by

the extremely high prevalence rate of hepa-titis C in Romania. There is a very large pool of patients that need this medicine, which outside of the Named Patient Pro-gram could not have had access.”

Budget constraints have restricted medicines access for Romanian pa-tients, as the government became un-able to update its reimbursement list since 2008. “I understand that such revision is a challenge, but at the same time Romanian patients are being put at a disadvantage because they do not have access to the same medications as many patients in other EU countries have,” adds Warner.

While the unpredictability in the Romanian pharma landscape may be a challenge to the sector’s strategic minds, the high level of unmet needs and the sizeable patient base should be suffi-ciently convincing to justify investment for the long term. The greatest oak was once a little nut who held its ground.

Steve Warner, Managing Director of MSD Romania

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