PharmaSurvey Final Report

ROMANIAN PHARMACEUTICAL SECTOR SURVEY
Executed for: Raiffeisen Bank Prepared by: Pythia International
- November 2004 -
Pythia International
For: Raiffeisen Bank
TABLE OF CONTENTS
Introduction..............................................................................................................................................................2 1. Market definition..................................................................................................................................................4 1.1. Market size and environment .......................................................................................................................4 1.2. Market structure by product segments........................................................................................................12 1.3. Regional benchmarking...............................................................................................................................15 1.4. Distribution channels ..................................................................................................................................23 1.5. Main characteristics of the Romanian pharmaceutical sector.....................................................................27 2. Market structure.................................................................................................................................................29 2.1. Market share by main producers ................................................................................................................29 2.2. Company profiles of the main producers ...................................................................................................31 2.3. General profile of the main market players.................................................................................................50 2.4. List of main and secondary bank for the main players...............................................................................54 3. Distribution system in use by market players....................................................................................................56 3.1. Wholesale - analysis and trends..................................................................................................................56 3.2. General profile of the distributors...............................................................................................................56 3.3. Company profiles of the main distributors..................................................................................................60 3.4. List of main and secondary bank for the distributors..................................................................................76 3.5. Retail - analysis and trends..........................................................................................................................78 3.6. Company profiles of large pharmacy chains...............................................................................................79 3.7. General profile of small retail pharmacies..................................................................................................84 4. Government implication in the pharmaceutical sector.......................................................................................88 4.1. Legal and regulatory environment..............................................................................................................88 4.2. Analysis of current needs and future expected developments....................................................................91 5. Conclusions and recommendations....................................................................................................................92 ANNEX 1 Pharmaceutical imports and exports split by country ......................................................................94 ANNEX 2 Detailed Regional Overview ..........................................................................................................104 ANNEX 3 List of interviewed companies and information sources.................................................................124 ANNEX 4 Questionnaires used in the survey...................................................................................................126
Introduction
Pythia International is pleased to present this final version of the pharmaceutical sector survey report to Raiffeisen. The document reflects our understanding of the Romanian pharmaceutical sector based on the research and analysis performed within our pre-defined scope of work. Synopsis Pythia International developed a detailed assessment of the Romanian Pharmaceutical sector encompassing production, research & development, and distribution for all market subsectors. The Pythia survey assesses the size of the market, its segment structure and distribution channels. Analysis covers all major competitors and client groups, as well as long-term trends and developments, including government implication in the sector, by outlining the regulatory and legislative framework. Methodology
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The methodology for the Pharmaceutical Sector Survey consisted of a combination of secondary resources and primary research tools. For secondary resources, Pythia used the groups extensive in-house database as well as a compilation of publicly available sources. Secondary sources were completed with market data from Cegedim (an international company specialized in retail audit and market data on the pharmaceutical sector). For Primary research, Pythia utilized a stakeholder coverage approach. Our team held extensive interviews (minimum 1 hour) with:
main market players [Corporate segment companies or group of companies with a turnover equal or greater than EUR 5 million; SMEs less than EUR 5 million in turnover] in the pharmaceutical industry (producers, as well as importers and exporters) 25 interviews; distribution channels (hospitals; clinics and drugstores) and pharmaceutical distribution companies 35 interviews; governmental institutions involved in the sector and industry associations 5 interviews; small and medium sized pharmacies - 80 questionnaire-based telephone interviews.
(Annex 3 of the report contains a complete list of the companies and organizations contacted. Annex 4 includes the questionnaire formats used for the interviews. Specific in-depth questionnaires including multiple choice as well as open-ended questions were developed for each of the interviewed segment of companies in the pharmaceutical industry.) In many cases, several interviews in different departments and/or phone discussions were needed with the involved entities. Interviews and discussions were held at the decisionmaking level of the organizations. In addition to formal interviews described above, Pythia also held discussions with industry experts, press sources, government representatives, and service companies in order to validate information and place it into perspective.
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1. Market definition
1.1. Market size and environment

Health care system Romanias healthcare system is almost entirely owned by the state and is funded by a combination of employer and employee contributions to the National Healthcare Insurance Fund, along with direct allocations from the state budget. Private practice has been allowed since 1990, but has to be authorized by the Ministry of Health. Romania was one of the last accession countries to introduce an insurance-based health system in 1998, but in early 2003, the fund had a surplus of USD 470 million, equivalent to nearly 30% of annual health expenditures. The health system has suffered from chronic underfunding and gross mismanagement. Despite the fact that government expenditures on the health care rose from around USD 0.9 billion in 1999 to almost USD 3 billion in 2003, the health care system underwent a crisis in 2003. This followed attempts to reform the system and budget cuts that left many hospitals without the funding to buy medicine, food and heating. Although expenditures on healthcare reached almost USD 3 billion in 2003, this is still the equivalent of only USD 121 per head of the population, slightly higher than Bulgaria, but well beneath the EU average of USD 1,200. Although 96% of citizens are registered with a local doctor, outpatient care is poor and a large number of patients cannot afford to buy medicines, resulting in a high level of hospital care, where drugs are free. Hospitals and mental homes are also burdened with patients who have been abandoned by their families. As a result, the number of hospital beds per head of the population has been close to, or above, the EU average. Drug consumption per head of population, which rose by USD 7.6 to USD 33.6 in 2003, is still low by the standards of east-central Europe. Most of the supply and distribution network for pharmaceuticals is now in private hands. Both state and private pharmacists are affiliated to hospitals, which reimburse the pharmacist for issuing free or subsidized drugs. Employees and their families get 50% of the price reimbursed and pensioners and unemployed people get 90%, although only 1,200 items on Romanias list of essential drugs qualify. For a brief period during early 2003, a financial crisis, exacerbated by payment arrears from the National House for Health Care Insurance (CNAS), left many hospitals unable to pay for medicines and other basic supplies. During the same period, drug manufacturers and suppliers stopped providing medicines to hospitals because of non-payment for supplies by the health fund dating back to the beginning of 2002, and many pharmacists stopped offering subsidized drugs. The government took a touch stance towards these pharmacies, arguing that the existence of 5,000 pharmacies in the country indicated that they were profitable, and stating that it would only conclude contracts with pharmacies that agreed to honor prescriptions. Beginning in 2004, the payment mechanism has improved considerably with
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most hospitals processing payments in less than 120 days and steadily paying off debts from 2002 and 2003. Despite ongoing problems, the Romanian pharmaceutical market grew by 29% in 2003 to around USD 729 million, compared with USD 565 million in 2002. (It should be noted, however, that the high growth rate was heavily influenced by the weakening dollar. Volume growth actually declined by about 2% over this period.) In 2003, domestic production accounted for approximately 20% of the total market value. Direct sales to hospitals have been growing at the expense of sales to pharmacies, because of the low purchasing power of households. Consequently, the prospects for the industry in the short term will depend on the governments ability to resolve the hospitals current financial problems. The sectors growth prospects over the medium term will depend on a combination of improvements in purchasing power of the population, increased healthcare awareness and the ability of the state to fund the needs of an ageing population. Sales of over-the-counter (OTC) drugs, prescription medicines and hospital products are forecast to rise over the next five years. General economic indicators
General country data Population (m) GDP (US$ bn at market exchange rates) GDP per head (US$ at market exchange rates) GDP (US$ bn at PPP) GDP per head (US$ at PPP) Personal disposable income (US$ bn) Median household income (US$) Household consumption (US$ bn) Household consumption per head (US$) Exports of goods & services (% change) Imports of goods & services (% change) Source: EIU 2001 22.44 40.2 1,790 137.5 6,128 29.7 3,572 31.5 1,410 11.1 17.2 2002 21.75 45.8 2,104 146.5 6,735 32.9 3,946 34.8 1,600 16.9 12.1 2003 21.67 57 2,628 159.2 7,346 41.5 4,993 43.7 2,020 11.1 16.3 2004 21.63 69.6 3,219 171.1 7,912 49.2 5,909 51.8 2,390 12.7 10.86 2005 21.61 78.5 3,634 180.1 8,332 54.1 6,479 57.1 2,640 10.4 11.21 2006 21.57 82 3,805 188.8 8,756 55.1 6,585 58.7 2,720 10.1 10.76 2007 21.53 86.3 4,009 200 9,287 57 6,818 61 2,830 8.9 9.41 2008 21.51 91.7 4,265 209.8 9,754 59.5 7,139 63.9 2,970 7.9 8.84
Pharmaceutical market Romania spent 4.6% of GDP on healthcare in 2003, which is low by both international and regional standards. Although higher than in Bulgaria (4.1%), it compares poorly with Poland (6.2%), Hungary (6.9%), the Czech Republic (7.1%) and Slovakia (7.3%). Government spending accounted for 66% of total expenditure on health in 2002, according to the World Health Organization (WHO), which is on the low side for a European country, east or west. Romania has a poor life expectancy, even by the standards of the region, of 70.4 years in 2002 (66.6 years for males and 74.4 for females). Life expectancy fell in the early to mid1990s, but has since been improving. The infant mortality rate is high, at 18.9 per 1,000 live births in 2002, more than double that in Poland, Hungary and Slovakia, and over three times the rate in the Czech Republic. Although the main causes of death are similar to those in industrialized societies, including cardiovascular disease and cancer, communicable diseases
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such as tuberculosis remain common. Public satisfaction with the health system is low. The system is under-funded and plagued by long waiting times. It is also inequitable: treatment is more accessible to those with money and the right contacts. Health reforms began in the mid-1990s. They encouraged the development of primary care, introduced an insurance-based system of financing and separated the purchasing and provision of healthcare. However, much still needs to be done to improve health indicators and quality of care. The local pharmaceutical industry concentrates on the production of generics. These dominate the domestic market in volume terms, but not by value. Foreign companies have been entering the market via direct imports, licensing-in agreements and acquisitions of local producers, often through privatization. Romanian Pharmaceuticals Market
Pharmaceuticals market Domestic production, USDm Imports, USDm Exports, USDm Total value, USDm Total volume, million kg 2001 117 416 23 510 24.80 2002 165 430 30 565 22.1 25.6 2003 181 587 39 729 21.7 33.6 2004 216 766 43 939 26.9 34.9 2005 257 958 51 1,164 33.3 35.0 2006 326 1,093 61 1,358 39.70 34.2 2007 399 1,251 84 1,566 43.60 35.9 2008 468 1,428 95 1,801 50.10 35.9
Average price, USD/kg 20.6 Source: EIU, National Institute for Statistics (NIS)
Pharm aceutical market - evolution and forecast (2001-2008) 2000 1800 1600 1400 USD million 1200 1000 800 600 400 200 0 2001 2002 2003 2004 2005 2006 2007 2008 Imports Domestic production Exports Total market value
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In Romania, there is a substantial gap between average spending on pharmaceuticals and healthcare among urban and rural populations. According to data from NIS, average spending of Romanian households in 2001 was US$3.1 per month. During 2001, urban households were spending an average of US$4.0, while the rural population spent, on average, US$2.3 per month (42.5%, less than the urban households did). Pharmaceutical and Healthcare Indicators
Key pharmaceutical and healthcare indicators Healthcare spending (% of GDP) Healthcare spending (US$ bn) Healthcare spending (US$ per head) Physicians (per 1,000 population) Life expectancy, average (years) Life expectancy, male (years) Life expectancy, female (years) Infant mortality rate (per 1,000 live births) Source: EIU 2001 2002 2003 2004 2005 2006 2007 2008
4.6 2 82.3 1.8 70.2 66.4 74.2 19.4
4.6 2 96.8 1.9 70.4 66.6 74.4 18.9
4.6 3 120.9 1.8 70.6 66.9 74.6 18.4
4.7 3 151.3 1.8 70.9 67.1 74.8 17.9
4.8 4 174.4 1.8 71.1 67.4 75 17.4
4.9 4 186.4 1.8 71.4 67.7 75.3 16.9
5.1 4 204.5 1.8 71.6 68 75.5 16.4
5.3 5 226.1 1.8 71.9 68.2 75.8 15.9
Pharmaceutical market outlook Assuming that healthcare expenditure is given greater political priority and that foreign manufacturers can be induced to start, or expand, production in Romania, demand for pharmaceuticals is expected to rise by more than double its 2003 level to USD 1.8 billion by 2008. The domestic pharmaceutical industry currently consists of a large number of relatively small producers that supply the cheaper end of the market. Drugs that are more sophisticated are generally imported. Romania currently produces 1,500 types of drugs for domestic consumption and 690 for veterinary use. Imports of medicines were valued at USD 587 million in 2003, with domestic production meeting only about 20% of the market by value. Exports of pharmaceuticals, which amounted to just USD 39 million in 2003, have been hindered by the failure of domestic producers to meet international good manufacturing practice (GMP) standards and have been concentrated on the Commonwealth of Independent States (CIS). However, several leading Romanian producers have obtained GMP and ISO certifications during 2003 and 2004, are poised for stronger export growth. Foreign producers that have entered the pharmaceuticals market through direct imports and licensing-in agreements are turning to acquisitions and privatizations, and are gaining ground on the bestselling domestic drugs producers. Increasing foreign direct investment (FDI) in the sector is leading to quality improvements and export prospects look good. At the same time, improved living standards resulting from sustained economic growth projected over the next five years will steadily increase demand on the domestic pharmaceuticals market.
Pharmaceutical Imports and Exports

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Leading exports markets for Romanian pharmaceuticals have traditionally been Bulgaria, Moldova, Ukraine, and Russia. However, during the last three years Western European countries like Germany and France (becoming 2 of the first six most important destinations for exports) have become important trading partners for domestic producers. Estimated exports of over USD 43 million in 2004 represent an 87% increase compared to the export level of 2001. Imports of drugs have also increased by some 84% from USD 416 million in 2001 to an estimated level of USD 766 million in 2004. The biggest share in imports of pharmaceutical in Romania is represented by France, Germany, the United Kingdom, Italy, Switzerland, the United States, and Slovenia. Imports and exports of pharmaceuticals split by destination country and country of origin are presented below:
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Pharmaceuticals imports split by first 10 countries of origin during the period 2001-2004
2001 quantity (000kg) 1,183 4,289 429 273 362 331 128 643 101 372 4,819 12,930 value ($ '000) 67,916 57,868 43,456 29,982 24,294 20,528 20,373 16,903 16,770 15,359 102,551 416,000 value /total (%) 16.3 13.9 10.4 7.2 5.8 4.9 4.9 4.1 4.0 3.7 24.7 100.0 avg. price ($/kg) 57.4 13.5 101.3 109.8 67.2 62.0 158.7 26.3 166.2 41.3 21.3 32.2 2002 quantity (000kg) 1,463 3,752 555 310 435 327 224 119 139 406 5,819 13,550 value ($ '000) 71,304 57,205 53,033 34,550 24,933 23,131 20,727 19,593 18,059 14,401 93,063 430,000 value /total (%) 16.6 13.3 12.3 8.0 5.8 5.4 4.8 4.6 4.2 3.3 21.6 100.0 avg. price ($/kg) 48.7 15.2 95.5 111.5 57.4 70.7 92.3 164.8 129.7 35.4 16.0 31.7 2003 quantity (000kg) 1,655 3,686 555 528 217 411 348 117 186 401 5,826 13,930 value ($ '000) 107,557 87,115 65,635 49,155 34,461 28,812 25,701 24,897 22,753 19,703 121,211 587,000 value /total (%) 18.3 14.8 11.2 8.4 5.9 4.9 4.4 4.2 3.9 3.4 20.6 100.0 avg. price ($/kg) 65.0 23.6 118.3 93.0 158.9 70.1 74.0 213.2 122.0 49.1 20.8 42.1 2004* quantity (000kg) 1,535 3,891 644 281 516 574 431 113 173 487 5,415 14,060 value ($ '000) 146,606 111,592 78,559 59,816 57,361 37,130 35,965 29,719 25,885 23,418 159,948 766,001 value /total (%) 19.1 14.6 10.3 7.8 7.5 4.8 4.7 3.9 3.4 3.1 20.9 100.0 avg. price ($/kg) 95.5 28.7 121.9 213.1 111.3 64.7 83.4 263.5 149.5 48.1 29.5 54.5
Country France Germany UK Italy Slovenia Switzerland Belgium USA Netherlands Hungary Others Total Source: NIS
Country France Germany UK Italy Slovenia USA Switzerland Netherlands Belgium Hungary Others Total
Country France Germany UK Italy Switzerland Slovenia USA Netherlands Belgium Hungary Others Total
Country France Germany UK Switzerland Italy USA Slovenia Netherlands Belgium Hungary Others Total
* - forecasts, based on h1-2004 actual data
The leading ten countries of origin in terms of imports represent over 80% from total value of imported pharmaceuticals. (For a complete list of countries of origin for the imports of pharmaceuticals, please see Annex 1.)
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Pharmaceuticals exports split by first 10 destination countries during the period 2001-2004
2001 quantity (000kg) 139 217 241 37 149 14 6 3 2 124 133 1,066 value ($ '000) 5,431 4,939 3,134 2,704 2,567 710 595 452 344 322 1,801 23,000 value /total (%) 23.6 21.5 13.6 11.8 11.2 3.1 2.6 2.0 1.5 1.4 7.8 100.0 avg. price ($/kg) 39.0 22.7 13.0 72.2 17.2 50.2 93.6 174.3 168.0 2.6 13.6 21.6 2002 quantity (000kg) 127 103 202 164 24 11 169 252 5 9 28 1,094 value ($ '000) 7,464 5,149 4,599 3,266 2,258 1,898 1,158 681 501 415 2,611 30,000 value /total (%) 24.9 17.2 15.3 10.9 7.5 6.3 3.9 2.3 1.7 1.4 8.7 100.0 avg. price ($/kg) 59.0 50.0 22.7 19.9 93.9 178.4 6.9 2.7 109.2 44.3 92.3 27.4 2003 quantity (000kg) 186 78 279 182 33 112 10 400 5 2 114 1,402 value ($ '000) 10,523 6,802 5,389 3,589 2,587 2,131 969 934 720 625 4,735 39,005 value /total (%) 27.0 17.4 13.8 9.2 6.6 5.5 2.5 2.4 1.8 1.6 12.1 100.0 avg. price ($/kg) 56.7 86.9 19.3 19.7 77.8 19.0 94.2 2.3 139.7 346.1 41.6 27.8 2004* quantity (000kg) 175 77 234 199 30 93 2 0 6 179 110 1,105 value ($ '000) 8,908 7,435 4,972 4,771 3,728 3,330 2,144 1,136 881 813 4,948 43,066 value /total (%) 20.7 17.3 11.5 11.1 8.7 7.7 5.0 2.6 2.0 1.9 11.5 100.0 avg. price ($/kg) 51.0 96.0 21.2 24.0 125.0 35.9 1,364.6 4,967.6 147.9 4.5 44.8 39.0
Country Bulgaria Moldova Ukraine Russia Germany Hungary Poland Austria UK Albania Other Total Source: NIS
Country Bulgaria Russia Moldova Germany Ukraine Poland Macedonia Albania Lithuania Hungary Other Total
Country Bulgaria Russia Moldova Germany Ukraine France Poland Albania Kazakhstan Netherlands Other Total
Country Bulgaria Russia France Moldova Ukraine Germany Poland Slovakia Lithuania Albania Other Total
The leading ten export destinations for pharmaceuticals produced in Romania account for about 90% of the total value of exported pharmaceuticals. (For a complete list of destination countries for the exports of pharmaceuticals, please see Annex 1.)
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Import-Export regime Import duties are 0-10.5% for medical products. Drugs are exempted from import duties with EU countries. Importing and exporting licenses are required for the foreign trade with drugs. For both imports and exports, these are obtained from Licensing Direction of the Department for Foreign Trade and Economic Promotion from the Ministry of Foreign Affairs. In order to be able to commercialize drugs, either on the Romanian market or for exports, these have to be registered with the Romanian Drug Agency. The conditions for registration of drugs are identical with the ones set by the EU. New products are accepted for registration monthly by the Romanian Drug Agency. The registration takes 6 to 24 months for the products, which have no EU certificate. The products possessing an EU certificate (European Medicine Evaluation Agency EMEA) are approved within 3 to 6 months. Pharmaceutical market size by Romanias eight regions (2003)
Region Bucharest North-East South South-East North-West Center South-West West Total Source: NIS, EIU, in-house analysis USD million 111.8 106.5 103.9 96.5 82.5 80.7 80.1 67.1 729 USD per capita (within the region) 50.58 28.45 30.79 33.63 29.94 31.68 34.21 34.31 33.45
Spending on pharm aceuticals in Romanian regions (USD per capita) 60 50.58 50 40 USD 30 20 10 0 Bucharest West SouthWest SouthEast Center South NorthWest NorthEast
34.31
34.21
33.63
31.68
30.79
29.94
28.45
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1.2. Market structure by product segments

Below is presented the structure of the Romanian pharmaceutical market by type of pharmaceutical products.
Evolution of domestic production (2001-2004) Type of pharmaceutical products Quantity, tons 0.55 0.01 10.49 1.89 12.94 2001 Value, $ '000 31.08 1.03 65.12 19.77 117.00 Avg. price, $/kg 56.50 103.15 6.21 10.46 9.04 Quantity, tons 0.76 0.01 7.07 1.81 9.64 2002 Value, $ '000 42.53 2.32 72.36 47.78 165.00 Avg. price, $/kg 55.98 383.78 10.24 26.46 17.11 Quantity, tons 0.38 0.02 6.25 2.52 9.16 2003 Value, $ '000 35.07 4.19 70.53 71.21 181.00 Avg. price, $/kg 93.47 259.46 11.28 28.27 19.76 Quantity, tons 0.68 0.02 9.01 2.22 11.94 2004E Value, $ '000 43.28 2.30 91.91 78.52 216.00 Avg. price, $/kg 63.51 115.00 10.20 35.29 18.09
Medicines based on antibiotics Medicines based on hormones Medicines based on alkaloids, vitamins and other active principles Diverse pharmaceutical products* Total Source: NIS Evolution of exports (2001-2004) Type of pharmaceutical products
2001 Quantity, tons 0.16 0.00 0.02 0.89 1.07 Value, $ '000 3.73 0.54 1.45 17.28 23.00 Avg. price, $/kg 23.69 150.21 65.12 19.48 21.50 Quantity, tons 0.22 0.00 0.02 0.85 1.09
2002 Value, $ '000 5.51 0.44 1.17 22.88 30.00 Avg. price, $/kg 25.33 218.54 55.89 26.93 27.52 Quantity, tons 0.24 0.01 0.03 1.13 1.40
2003 Value, $ '000 6.49 0.40 1.31 30.80 39.00 Avg. price, $/kg 27.38 73.57 42.57 27.33 27.86 Quantity, tons 0.14 0.00 0.04 0.92 1.10
2004E Value, $ '000 3.58 0.02 1.47 37.93 43.00 Avg. price, $/kg 25.92 435.00 34.00 41.30 39.09
Medicines based on antibiotics Medicines based on hormones Medicines based on alkaloids, vitamins and other active principles Diverse pharmaceutical products* Total Source: NIS
* Including: serum and vaccines, chemical contraceptives, laboratory reactive substances, dressing and catgut.
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Evolution of imports (2001-2004) Type of pharmaceutical products Quantity, tons 1.02 0.10 0.68 11.13 12.93 2001 Value, $ '000 73.27 19.38 21.90 301.46 416.00 Avg. price, $/kg 71.63 192.04 32.18 27.10 32.17 Quantity, tons 1.11 0.13 0.60 11.72 13.55 2002 Value, $ '000 71.11 20.74 18.58 319.57 430.00 Avg. price, $/kg 64.19 161.94 31.12 27.27 31.73 Quantity, tons 1.10 0.15 0.52 12.17 13.94 2003 Value, $ '000 77.22 29.10 21.34 459.34 587.00 Avg. price, $/kg 69.98 190.26 41.24 37.76 42.11 Quantity, tons 1.24 0.19 0.40 12.22 14.06 2004E Value, $ '000 94.79 41.87 23.71 605.63 766.00 Avg. price, $/kg 76.49 215.78 58.62 49.55 54.48
Evolution total market (2001-2004) Type of pharmaceutical products Quantity, tons 1.42 0.11 11.15 12.13 24.80 2001 Value, $ '000 100.62 19.87 85.57 303.95 510.00 Avg. price, $/kg 71.08029 185.16747 7.6756517 25.059852 20.564576 Quantity, tons 1.65 0.13 7.65 12.67 22.10 2002 Value, $ '000 108.14 22.62 89.77 344.47 565.00 Avg. price, $/kg 65.527374 171.23973 11.741125 27.180624 25.563497 Quantity, tons 1.24 0.16 6.74 13.56 21.70 2003 Value, $ '000 105.80 32.89 90.56 499.75 729.00 Avg. price, $/kg 85.214802 200.91565 13.43964 36.859679 33.591512 Quantity, tons 1.78 0.21 9.37 13.53 24.90 2004E Value, $ '000 134.49 44.15 114.15 646.21 939.00 Avg. price, $/kg 75.449985 206.32224 12.178491 47.766699 37.713771
* Including: serum and vaccines, chemical contraceptives, laboratory reactive substances, dressing and catgut
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Pythia International .
Evolution of the market structure by product segment, USD million (2001-2008) Type of pharmaceutical products Medicines based on antibiotics Medicines based on hormones Medicines based on alkaloids, vitamins and other active principles Diverse pharmaceutical products Total Source: NIS, EIU 2001 101 20 86 304 510 2002 108 23 90 344 565 2003 106 33 91 500 729 2004 134 44 114 646 939 2005 169 54 142 800 1,164
2006 200 64 167 928 1,358
2007 230 72 194 1,070 1,566
2008 263 85 223 1,230 1,801
Below is presented the market, in terms of value, split by type of pharmaceuticals in 2003:
Market split by type of pharm aceuticals (2003)
14.54%
Medicines based on antibiotics 4.53% Medicines based on hormones 12.48%
Medicines based on alkaloids, vitamins and other active principles Diverse pharmaceutical products
68.59%
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1.3. Regional benchmarking

For purposes of comparison, and to be place Romanian healthcare and pharmaceutical market developments in perspective, we have selected five countries to benchmark against Romania. These are: Poland, Bulgaria, Czech Republic, Slovakia, and Hungary. The key areas that were examined per country were: healthcare spending, comparative healthcare systems, pharmaceutical market, and leading players. More details on each of the countries reviewed can be found in Annex 2 of the report. Healthcare Spending Poland spent an estimated 6.2% of GDP on healthcare in 2002, which is low for an OECD member and less than in other major central and east European countries, such as Hungary (7% of GDP) or the Czech Republic (7.1%). The government accounted for some 70% of total health spending in 2000, according to the World Health Organization (WHO). Bulgaria spends a relatively low amount on healthcare, both as a share of national income and in per-capita terms. Moreover, the share of GDP devoted to healthcare has fallen to just less than 3.8% in 2002, down from over 5% in the early 1990s. This compares with 2002 health spending of 4.6% of GDP in Romania. Spending per head in 2002 was an estimated USD 76, compared with USD 94 in Romania. The government accounted for nearly 78% of total health spending in 2000, according to the World Health Organization. The Czech Republic spends an estimated 7.1% of GDP on healthcare, which is about 1 percentage point below the OECD average. It is slightly less than the share of income spent by neighboring Slovakia (7.3%), but more than in Hungary (6.9%) and in Poland (6.2%). However, the Czech Republic spends more per head than any of these three countries, at an estimated USD 482 in 2002. Public spending on health accounted for more than 90% of total health expenditure in 2000, a high proportion by the standards of OECD members. Slovakia spends nearly 7.3% of GDP on healthcare, which is more than the Czech Republic (7.1%), Hungary (6.9%) and Poland (6.2%). In per-head terms, however, health spending, at USD 317.7 in 2002, is considerably less than in the Czech Republic (USD 479.8) and Hungary (USD 418.5), but ahead of Poland (USD 303.9). Public expenditure on health accounted for some 90% of all health spending in 2000, according to the OECD, a high proportion by the organizations standards. Hungary spends around 6.9% of GDP on healthcare. This is low for an OECD country, but roughly on a par with the Czech Republic (7.1%) and somewhat more than Poland (6.2%). Spending as a share of national income has been stable for the past five years, but is down from its peak of 8.3% in 1994. The government accounted for just over 75% of total health spending in 2000, according to the OECD, a share that had fallen from around 90% ten years earlier.
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Regional Healthcare Comparisons

Healthcare Price Comparison / Item Aspirins, 100 tablets (supermarket) Routine check-up at family doctor (av) One X-ray at doctor's office or hospital (av) Visit to dentist, one X-ray and one filling (av) Price, USD Romania 6.34 5.66 7.54 37.72 Poland 9.71 25.58 15.35 57.54 Czech R. 9.5 123 144 66.17 Slovakia 9.5 123 144 66.17 Hungary 7.72 24.33 22.78 26.54 % of monthly personal disposable income Romania 4.15 3.71 4.94 24.7 Poland 3.19 8.39 5.03 18.88 Czech R. 2.2 28.53 33.45 15.35 Slovakia 2.2 28.53 33.45 15.35 Hungary 2 6.3 5.9 6.88
Com parative healthcare spending as % of GDP 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Romania Slovakia Hungary Poland Bulgaria Czech % 2001 USD 2002 2003 2008 1200 1000 800 600 400 200 0
Com parative healthcare spending per capita
2001 2002 2003 2008
om an ia R
Po la nd
Sl ov ak ia
Hu ng ar y
ze ch
Source: EIU
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Bu lg
ar ia
Comparative Healthcare Systems The Polish health system has consistently suffered from financial problems. The 1999 health insurance law created a new system of healthcare financing. Sixteen regional healthcare funds were established to purchase health services on behalf of employees and their dependants from local service providers (public and private). The regional funds were financed through mandatory health insurance contributions of 7.5% of salary (raised to 8% in 2003 and 8.25% in 2004). However, the new system was poorly implemented and the new insurance funds and hospitals found it difficult to manage their budgets, and debts began to rise again. The SLD government has recentralised the system, setting up a single national health fund in 2003, but the new fund has found it difficult to agree contracts for 2004 with healthcare providers in many areas of the country, and the financial problems of the public healthcare system continue to worsen. Healthcare is theoretically free at the point of use in Poland, but under-the-counter payments to doctors and other healthcare workers are very common to help obtain speedier or better care. Co-payments are required for pharmaceuticals. Whereas medical and dental practices have been undergoing privatisation, with most dentists and general practitioners (GPs) now working privately, hospitals remain largely within the public sector. However, control of hospitals has been decentralised, and poor supervision has led to many public hospitals running up large debts. Despite increases in earmarked social insurance contributions, Polands healthcare system is in a poor state, with badly paid staff and recurring financial problems. Public-sector healthcare is funded through an earmarked income tax (currently 8.25%), with the national health fund (NFZ, which replaced separate regional funds in 2003) purchasing services from hospitals and doctors. Rapid growth of spending on imported drugs and pharmaceuticals has proved to be a major problem for the Polish public health system. The government is pushing drug companies to lower their prices and has proved reluctant to register new foreign-produced medicines. The Ministry of Health will continue to try to shift spending away from expensive imported medicines towards generic drugs, which will tend to benefit domestic pharmaceutical firms. Polands pharmaceutical industry has been undergoing privatisation. A number of leading local companies are now in foreign hands. Bulgaria has been moving towards a compulsory insurance-based system of healthcare funding, based on employer and employee contributions (each at 3% of gross salary), since 1999. There is a single health insurance fund, the National Health Insurance Fund (NHIF), a public non-profit-making organization, which contracts with providers, both public and private. Citizens are entitled to a basic package of services under the health insurance system. Patients also make co-payments, in the form of fixed fees, for visits to physicians and dentists, and for hospital stays. Certain groups are exempt from these fees. The state continues to bear any remaining healthcare costs not covered by these forms of financing. Within the public system, patients have a free choice among healthcare providers that have concluded contracts with the NHIF. One of the priorities of health reform has been to build a family doctor network, comprising general practitioners (GPs) operating in private practice. Since 2000, these general practitioners have been paid on a capitation basis by the NHIF. This change, which replaced a system of polyclinics established during the communist era, is now largely complete. It is likely that health insurance contributions in Bulgaria will have to rise in future, as the NHIF takes on more of the burden of funding the healthcare system and as demand pressures
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increase. The reforms to the healthcare system are intended to encourage the development of private health providers, although few currently exist outside primary care and dentistry. Private health insurance is permitted, but only as a supplement to the compulsory national health insurance scheme. Private health insurance providers are regulated by the State Insurance Supervision Agency, which also regulates the private pension funds. All the major Bulgarian pharmaceutical producers have been privatized. In the Czech Republic, a mandatory health-insurance system was introduced in 1992, involving competing non-profit insurers and providers. The number of insurance funds grew during the early 1990s, reaching 27 by 1995. However, many ran into financial difficulties and their number fell to nine by 2000. The General Health Insurance Company (VZP) covers the majority of the population. Employers carry the main burden of contributions for their employees. Contributions of the unemployed, the young and the old are funded out of taxation. The package of services covered by compulsory insurance is comprehensive. Copayments are required for pharmaceuticals, certain dental services and medical aids. Since 1992, doctors have been allowed to establish independent practices. The majority of family doctors now work in the private sector, contracting with insurance funds. Patients are free to choose their general practitioner (GP). Most hospitals remain under state ownership, although management has been decentralized. Private hospitals tend to be small, specialized facilities, for example, providing long-term care. Treatments in private facilities may be paid for by the social-insurance system. In 1991, the Czech Government introduced mandatory employment-based health insurance but the system suffered from severe funding problems owing to a fee-for-service arrangement in which providers set prices and consumers determine demand, with no disincentive to excessive consumption of free services, and a wide choice of both services and providers. Following the 1991 reforms, 27 insurance companies emerged, but by 1995, many began to go bankrupt, leaving behind USD 61 million in unpaid debts to providers. Healthcare financing was again reformed in 1997, moving away from a fee-for-service system and towards budgets for hospitals and a mixture of capitation and fee-for-service payments for GPs, in a bid to control healthcare costs. However, the public system is still plagued by funding problems. A private healthcare sector, not funded by compulsory insurance contributions, operates in parallel with the state system, catering to groups such as foreign residents. The domestic pharmaceutical industry was almost entirely privatized during the 1990s. Most of the leading companies are now foreign-owned. Slovakia has an insurance-based system of healthcare financing, involving mandatory employer and employee contributions. The state pays for the unemployed, including children and pensioners. Legislation in 1995 paved the way for multiple, non-profit-making insurance funds. Citizens have a free choice of insurer. There are currently five in operation, the largest of which is the General Health Insurance Company. All offer the same package of benefits, as laid down in legislation. This coverage is comprehensive, although modest user fees have recently been introduced for certain services. User charges for certain health services were introduced at the start of June 2003, following a revision to healthcare legislation approved in April. Patients now pay just over 50 US cents per visit to the doctor, per emergency visit and per prescription. Hospital patients pay a daily fee food and accommodation. Ambulance services are also subject to a charge, based on distance traveled. These relatively small copayments are meant to deter misuse of healthcare services and so help to contain costs. General practitioners (GPs) are mostly independent, but contract with the health insurance funds. Around half of all specialists are in private practice, working under contract for
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insurance funds; the remainder is state employees. The private healthcare sector remains largely confined to primary care (albeit funded by compulsory insurance). The private healthinsurance market is undeveloped. There has so far been little emphasis on preventive healthcare in Slovakia, which is reflected in the high incidence of cardiovascular disease and smoking-related cancers. The new government has launched a major healthcare reform, one aspect of which is intensively focused on preventive healthcare. One of the most difficult areas in healthcare reform has been that of the governments drug policy, as excessive drug consumption in the early 1990s which was encouraged by extensive marketing campaigns by pharmaceutical companies led to severe financing problems. Since 1989, drug marketing has changed substantially: whereas in 1989 domestic production accounted for 80% of total drug consumption, by the first quarter of 2003 this had fallen to just 14%, with the entry of foreign companies into the market. This share is to increase moderately in the coming years, as healthcare reform enhances the consumption of cheaper generic drugs. Local pharmaceutical production focuses on generic drugs and Slovakia has become heavily reliant on pharmaceutical imports. Health services in Hungary are mainly funded through compulsory insurance, paid by employer and employee. The National Health Insurance Fund (OEP) collects premiums and redistributes them to county-level branches, which contract with service providers. Capital spending is financed via general taxation. Services are free at the point of use, although unofficial payments to practitionersa legacy of the communist eraare quite common. Copayments are required for pharmaceuticals. Dental care is largely privately run and funded. A system of family practitioners was established in the early 1990s. Most such doctors now work in private practices, but contract with the public insurance system. Most hospitals are owned by local government authorities. Various reforms were introduced in the 1990s, including decentralization of management and ownership of state facilities, linking of funding to performance and placing more emphasis on primary care. Since 2002, the government has been attempting to privatize the health service in order to bring more funding to the sector; however, at present, private healthcare provision is largely confined to the primary care and dental sectors. The government faces the challenge of trying to raise health standards at the same time as reducing pressure on budgets. Hungarys healthcare system is underfunded and in urgent need of restructuring. Rising costs in the sector, especially of pharmaceuticals, continue to put severe pressure on government budgets. In recent years, the National Health Insurance Fund (OEP) has covered roughly three-quarters of the countrys drug expenses and cutting government subsidies has not been politically viable. The pharmaceutical industry is one of Hungarys most important manufacturing sectors. The local pharmaceutical industry was privatized during the 1990s and new companies have emerged, many in the form of joint ventures. Pharmaceuticals Market by Country With a population of around 38m, similar to that of Spain , Poland has considerable potential as a pharmaceuticals market. Pharmaceutical consumption is already high in volume terms. Pharmaceutical consumption per head at consumer prices was 63 in 1999, according to the Association of the European Self-Medication Industry (AESGP). This was less than one-fifth the amount in Germany (331) and about two-thirds that of Hungary (98), but four times more than in Russia (16). IMS Health valued the Polish pharmaceutical market (ex-factory prices) at 3.08bn in 2001, making it by far the largest in the EU accession countries.
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Medicine imports grew strongly during the 1990s. Around two-thirds of pharmaceuticals by value were imported in 2001. Polish companies focus on the production of generic drugs. Prices of reimbursable drugs are controlled. Prices of imported reimbursable drugs are negotiated with the Ministry of Health, for example. There is also a fixed wholesale mark-up of 11%. Patients make co-payments towards reimbursable drugs, which vary by type of medicine. Co-payments are reduced or waived for certain types of patients. Bulgarias pharmaceuticals market is smallvalued at 196m in 2001 (ex-factory prices; US$175m at 2001 average exchange rate) by IMS Healthbut growing. Imports account for around two-thirds of the market by value, according to the Bulgarian Drug Agency. In volume terms, however, local producers still dominate the home market. The over-thecounter (OTC) market is underdeveloped, mainly because of low purchasing power. OTC spending should accelerate in coming years. Prior to the collapse of the communist bloc, Bulgaria had a well-developed, export-oriented pharmaceuticals sector. Post-communist governments were slow to privatize the industry, but sold majority stakes in three of the four largest state-owned firms to Balkanpharma in 1999. The industry is now attracting more foreign investment, which it needs to bring it up to international manufacturing standards. Foreign companies have complained about the cumbersome and opaque nature of registration processes for pharmaceuticals, as well as pricing and reimbursement decisions. Patients pay for pharmaceuticals, but may reclaim up to 100% of the cost from the insurance system. However, refunds only apply to a limited number of drugs. The Czech pharmaceutical market was valued at 789m (USD 699 million) at ex-factory prices in 2001, according to IMS Health. The country spends a large proportion of its total health budget on drugs25.2% in 2000, according to the OECD. In part, this reflects a rapid rise in drug costs since the move to a free-market economy. Major US and European drug companies now dominate the Czech market. Local companies, many of them fully or partly foreign-owned following privatization, focus on generics. Drug prices and reimbursement levels are controlled with various bodies, including the Ministry of Health, the Ministry of Finance and the largest social-insurance fund (VZP), playing a part in the process. A reference pricing system is used, which tends to favor generic products, and establishes a maximum mark-up for wholesalers and pharmacies. Co-payments are required from patients. The pharmaceutical market in Slovakia was valued at 412m (at ex-factory prices) in 2001, according to IMS Health, a US-based pharmaceutical consultancy. Domestic production accounted for around 80% of drug consumption in 1989, according to the World Health Organization (WHO), but a decade later, this had dropped to under 20%. Slovakia operates a positive list of drugs reimbursable by the health insurance system. A maximum drug price is negotiated with the Ministry of Finance, based on such factors as prices in nine other European countries. Drug costs grew rapidly in the early and mid-1990s, in part because of a lack of incentives on the part of doctors or patients to moderate consumption. Drug costs accounted for around 30% of all health insurance spending in the late 1990s, according to the WHO, a high percentage by international standards. A Sk20 prescription charge has been in force since the start of June 2003, as part of a wider policy on user charges that is designed to curb excessive use of health services. The entire Slovakian pharmacy sector was privatized in the mid-1990s. IMS Health valued the Hungarian pharmaceutical market (ex-factory prices) at 1.02bn in 2001. In volume terms, Hungary is among the highest consumers of drugs in Europe. Medicines account for a large proportion of the countrys healthcare spending, at as much as
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30% of the total, reflecting Hungarians traditional predilection for medicines. Prices of drugs are controlled by the government, which subsidizes most prescription medicines. Patients pay co-payments on reimbursable drugs, on a scale that reflects therapeutic value. Certain groups are entitled to free medicines. Net revenue of the Hungarian pharmaceutical industry reached Ft260bn (USD 1.08 billion) in 2001, according to MAGYOSZ, of which one-third was earned in the home market, with the rest derived from exports. Local companies have been losing market share in the home market as imports have been liberalized. They accounted for around one-third of the market in 2000, down from three-quarters in 1990. The main foreign markets for Hungarian production are Russia and other central and east European countries. Hungarian companies mostly manufacture branded generics. Comparative pharmaceutical market data
Country Romania Bulgaria Poland Czech Republic Slovakia Hungary Source: EIU Pharmaceuticals Market, USD million 2001 510 162 2,630 696 343 902 2002 565 183 2,806 825 385 1,108 2003 729 230 3,085 1,016 495 1,429 2008 1,801 530 5,208 2,223 1,457 3,362 Per Capita Drug Consumption, USD 2001 82.3 65.9 296.8 397.0 282.7 353.4 2002 96.8 77.5 305.9 482.3 326.9 448.5 2003 120.9 104.6 340.1 588.7 433.4 579.8 2008 226.1 202.4 531.7 1,050.2 1,066.9 1,086.0
Leading Regional Players Leading private healthcare providers in Poland include Medicover, a Stockholm-listed managed care company with operations in five central and east European countries. The company has operated in Poland since 1995 and has its most extensive network there, mainly serving the corporate market. The number of Medicover-owned facilities in Poland increased from 18 to 21 in 2002. It also works with more than 200 affiliated clinics. Its revenue from the country amounted to 23.1m in 2002. GlaxoSmithKline (GSK) of the UK had the largest share of the Polish pharmaceutical market by value in 2002. It was followed by Servier (France), Polpharma (Poland) and Novartis (Switzerland). GSK acquired the Poznan unit of the former state-owned pharmaceutical holding (Polfa Poznan) when it was privatised in 1998, and has made significant investments in the firm. Polpharma was the leading domestic pharmaceutical company in Poland by sales volume in 2002. The company was privatised in 2000, when a 52.5% stake was sold to a domestic consortium. Three of the remaining stateowned drugs producersPolfa Warsaw, Polfa Tarchomin and Polfa Pabianicewere grouped together in 2004 in order to be privatized. The largest pharmaceutical manufacturer in Bulgaria is Balkanpharma, which in 1999 bought majority stakes in Pharmacia AD, Troyapharm AD and Antibiotic AD, three of the four largest local drug companies, from the government. Since December 2000, the firm has been wholly owned by Pharmaco of Iceland. As well as being a major supplier to the domestic market, Balkanpharma exports to over 30 countries. Key export destinations for finished pharmaceuticals include Russia and other parts of the former Soviet Union, and the firm also exports active ingredients to Western Europe and the US. Balkanpharmas new plant in Dupnitza, opened in 2002, was built according to EU Good Manufacturing Practice standards. Balkanpharma employs around 4,500 people. The leading pharmaceuticals distributor in Bulgaria is Commercial League, founded in 1991. It has a more than 50% share of the domestic market.
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In the Czech Republic, the private healthcare provision market is fragmented. Private providers that mainly cater to the corporate and expatriate market include Sweden-based Medicover with operations in several central and east European countries. It provides primary care and some specialist services via clinics in Prague and Brno. The company derived revenues of 1.8m from the Czech Republic in 2002, and had 8,000 prepaid members. The leading producer of pharmaceuticals sold in the home market is Leciva, with sales of around USD 183 million in 2002. Some 65% of the companys sales are to the home market. Leciva is also the market leader in Slovakia, which accounts for nearly 25% of total sales. Since 1998, Leciva has been owned by Warburg Pincus, a US investment fund. Warburg Pincus recently bought a majority stake in Slovakofarma, Slovakias largest drug producer, and has expressed a wish to combine its operations with those of Leciva. Slovakias largest pharmaceutical manufacturer is Slovakofarma, in which Warburg Pincus bought a majority stake in February 2003. The US private equity company also owns Leciva, a Czech pharmaceutical firm that is the market leader in both the Czech Republic and Slovakia, and has expressed a wish to combine the operations of the two, so creating one of the largest pharmaceutical concerns in central and Eastern Europe. Slovakofarmas sales amounted to Sk4.62bn in 2002, according to preliminary figures released by the company. Of this, sales worth Sk1.83bn were exported to the Czech Republic, the companys main market. Other exports totaled Sk1.3bn, and domestic sales were worth Sk1.56bn. The firm focuses on the development, production and sale of high-quality generics. Hungarian private healthcare companies largely serve the corporate and expatriate market. Examples include Medicover (Sweden), which provides primary care and some specialist services to corporate members via a clinic in Budapest. It had 4,100 prepaid members in Hungary at end-2002, and saw revenue from its Hungarian operations increase by 40% to 2m during the year. The three largest pharmaceutical manufacturers in Hungary are Gedeon Richter, Egis and Chinoin. Richter, the largest, is listed on the Budapest Stock Exchange and as of end-2002 was 63.6% owned by foreign investors. The company reported sales of USD 389.1m in 2002, up by 11.6% year on year, of which USD 271.6m were from exports. Top export markets by country were Russia and the US. Richter had around a 9% share of the local market in the first three months of 2003, according to IMS Health. The companys product portfolio includes original, generic and licensed preparations. It has a strong gynecological business, representing around 25% of total turnover. The company has manufacturing facilities at two locations in Hungary (Budapest and Dorog), as well as facilities abroad. Egis, which is 51% owned by Servier of France, reported net sales of approximately USD 214.3 million in the financial year to end-September 2002, of which 62% were exports. It is second to Richter in terms of local market share, with just under 7% of the market. Chinoin is 99% owned by Sanofi-Synthelabo of France. It recorded net sales of 239m (USD 225million) in 2002.
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1.4. Distribution channels

The table below shows a breakdown of the Romanian pharmaceutical market in 2001-2003. Sales to hospitals represented 22.1% of the total market in 2001, increasing to 30.2% in 2003. Sales to pharmacies stood at USD 509 million in 2003, up over 28% in USD terms. The weight of the OTC drugs has increased from 17.1% in 2001 to 17.9% in 2003.
Retail vs. Hospitals Channel Retail pharmacies Hospital pharmacies Total market Source: Cegedim 2001 USD million 397 113 510 Weight 77.90% 22.10% 100.00% 2002 USD million 396 170 565 Weight 70.00% 30.00% 100.00% 2003 USD million 509 220 729 Weight 69.80% 30.20% 100.00%
Prescription vs. OTC Drug status Prescriptions drugs OTC drugs Total market Source: Cegedim 2001 USD million 423 87 510 Weight 82.90% 17.10% 100.00% 2002 USD million 472 93 565 Weight 83.50% 16.50% 100.00% 2003 USD million 599 130 729 Weight 82.10% 17.90% 10.00%
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Retail vs. Hospitals, evolution forecast (2004-2008)

Channel 2004 USD million Retail pharmacies Hospital pharmacies Total market Source: EIU 653 286 939 Weight 69.50% 30.50% 100.00% 2005 USD million 811 353 1,164 Weight 69.70% 30.30% 100.00% 2006 USD million 938 420 1,358 Weight 69.10% 30.90% 100.00% 2007 USD million 1073 493 1,566 2008 USD million 1239 562 1,801
Weight 68.50% 31.50% 100.00%
Weight 68.80% 31.20% 100.00%
Prescription vs. OTC, evolution forecast (2004-2008)

Drug status 2004 USD million Prescriptions drugs OTC drugs Total market Source: EIU 774 165 939 Weight 82.40% 17.60% 100.00% 2005 USD million 956 208 1,164 Weight 82.10% 17.90% 100.00% 2006 USD million 1,108 250 1,358 Weight 81.60% 18.40% 100.00% 2007 USD million 1,265 301 1,566 2008 USD million 1,441 360 1,801
Weight 80.80% 19.20% 100.00%
Weight 80.00% 20.00% 100.00%
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Number of hospitals and expenditures with drugs, split by county (2001-2003)

County Hospitals number Alba Arad Arges Bacau Bihor Bistrita-Nasaud Botosani Brasov Braila Buzau Caras-Severin Calarasi Cluj Constanta Covasna Dambovita Dolj Galati Giurgiu Gorj Harghita Hunedoara Ialomita Iasi Ilfov Maramures Mehedinti Mures 10 11 17 9 17 3 10 15 7 8 8 7 19 11 7 8 13 12 5 7 7 13 5 21 5 9 6 7 2001 Hospitals expenditures on drugs, USD m 2.27 1.99 3.76 4.08 5.71 1.04 3.39 5.97 2.55 2.25 1.59 0.97 13.49 9.08 1.12 2.46 4.96 3.23 1.28 2.02 3.35 3.74 0.76 10.63 0.68 3.15 1.32 14.05 Drug expenditures per hospital, USD m 0.23 0.18 0.22 0.45 0.34 0.35 0.34 0.40 0.36 0.28 0.20 0.14 0.71 0.83 0.16 0.31 0.38 0.27 0.26 0.29 0.48 0.29 0.15 0.51 0.14 0.35 0.22 2.01 Hospitals number 10 11 17 9 17 3 11 15 6 7 8 7 19 13 7 9 13 12 5 8 7 13 5 20 6 9 6 7 2002 Hospitals expenditures on drugs, USD m 3.21 1.53 5.04 3.83 8.35 1.78 3.74 7.91 2.65 2.53 1.67 1.29 12.52 9.61 1.21 2.14 6.31 4.23 1.36 2.30 3.19 5.26 0.85 16.91 1.52 3.83 1.37 16.98 Drug expenditures per hospital, USD m 0.32 0.14 0.30 0.43 0.49 0.59 0.34 0.53 0.44 0.36 0.21 0.18 0.66 0.74 0.17 0.24 0.49 0.35 0.27 0.29 0.46 0.40 0.17 0.85 0.25 0.43 0.23 2.43 Hospitals number 9 11 17 9 15 3 11 14 5 6 8 6 19 13 6 7 13 11 5 8 5 11 4 20 5 9 6 6 2003 Hospitals expenditures on drugs, USD m 2.48 1.75 5.04 4.53 4.54 1.16 3.12 5.43 1.91 1.91 2.70 1.31 17.61 14.27 3.26 1.12 6.12 4.03 0.88 1.89 3.56 5.29 0.70 13.19 1.05 3.69 1.00 9.22 Drug expenditures per hospital, USD m 0.28 0.16 0.30 0.50 0.30 0.39 0.28 0.39 0.38 0.32 0.34 0.22 0.93 1.10 0.54 0.16 0.47 0.37 0.18 0.24 0.71 0.48 0.18 0.66 0.21 0.41 0.17 1.54
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Neamt Olt Prahova Satu-Mare Salaj Sibiu Suceava Teleorman Timis Tulcea Vaslui Valcea Vrancea Bucharest
5 7 17 6 4 10 9 9 16 4 9 8 8 53
2.18 1.15 6.81 1.73 1.78 3.36 3.09 1.26 10.04 1.22 1.82 3.15 2.52 68.21
0.44 0.16 0.40 0.29 0.45 0.34 0.34 0.14 0.63 0.30 0.20 0.39 0.32 1.29 0.50
5 7 17 6 4 10 9 8 16 4 9 8 8 51 442
2.70 1.56 8.45 2.19 2.03 4.24 3.25 2.14 10.22 1.74 1.91 3.54 2.00 76.34 255.44
0.54 0.22 0.50 0.36 0.51 0.42 0.36 0.27 0.64 0.44 0.21 0.44 0.25 1.50 0.58
5 6 16 6 5 10 10 8 16 4 9 8 8 49 422
2.24 1.79 7.27 1.62 1.68 3.66 2.82 1.47 11.18 2.03 2.33 2.65 1.82 76.76 242.08
0.45 0.30 0.45 0.27 0.34 0.37 0.28 0.18 0.70 0.51 0.26 0.33 0.23 1.57 0.57
Total 442 219.20 Source: Sanitary Statistics and Medical Documentation Center
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1.5. Main characteristics of the Romanian pharmaceutical sector

The Romanian pharmaceutical sector is characterized by the following:
A very high percentage of private companies, from production to point of sale (manufacturers, importers, warehouses, distributors, pharmacies) A rapid transition from monopolistic to market economy driven practices An increasing level of expenditures (relative to GDP and personal earnings) dedicated to heath care, both on the personal and state levels; increasing awareness and concern for health care in Romanian society. o The Romanian Government is expected to significantly increase its allocation for the health care budget over the next 5 years; at the same time, reform of the sector will continue An increasing decentralization of decision making in the hospital market Rapidly increasing advertising and promotion expenditures for pharmaceutical products Consolidation in the manufacturing sector The leading Romanian manufactures have met international standards (GMP and ISO) and are poised for growth on both domestic and export markets
Market Dynamics Buyers

Close to 90% of hospitals are still state-owned The number of private clinics for outpatient surgeries and laboratory testing is increasing rapidly The number of pharmacies is increasing moderately; several pharmaceutical chains have emerged on the market
Distribution The Romanian pharmaceutical distribution market is highly fragmented with the top five distributors accounting for less than 50% of sales and the remainder going through more than 25 different distributors. However, over the next five years, there will be substantial consolidation in the distribution sector driven by M&A activity, price pressure, and supplier agreements. Price Sensitivity The Romanian pharmaceutical market is extremely price sensitive due to low disposable income among Romanian as well as to the Governments lowest cost reimbursement policy
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o (Despite price sensitivity, most Romanian consumers prefer name brand products, but are often unable to afford them.) Competition Driven by privatization (all Romanian producers except for Antibiotice are now privately owned) and foreign investment, the Romanian pharmaceutical manufacturing sector is rapidly increasing production capacity and efficiency
Many of the leading Romanian manufacturers are either wholly or partially owned by foreign producers (e.g. GSK-Europharm, Gedeon Richter-Armedica, LekPharmatech) There is an increasing number of licensing agreements between foreign and local pharmaceutical producers The Romanian market has a large number of generics, most of which are produced in Asia (primarily India) and exported to Romania as they are significantly cheaper than European-produced generics
Market Growth The Romanian pharmaceuticals market is expected to grow rapidly over the next five years, reaching USD 1.8 billion by end-2008. Among the key factors influencing market growth are the following:

Increase in economic growth and per capita income as economic reforms take hold and competitiveness improves Increase in the state budget allocation for the health care sector Continued health care reforms and more effective implementation of health care insurance, both national and private Increased sales of international products, driven by imports and licensing agreements A gradual increase in the price of locally produced products as manufacturers continue investing in technology and quality standards A rapid increase in the number of private hospitals and clinics
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2. Market structure
2.1. Market share by main producers

The table below presents the structure of the Romanian pharmaceutical market by main producers. The first 50 companies are covering about 90% of the market value. While Glaxosmithkline is the clear leader in terms of value (11.8%), Sicomed is the uncontested leader in terms of volume (24.8%).
Market shares of main corporations 2003
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 Corporation GLAXOSMITHKLINE NOVARTIS SICOMED PFIZER HOFFMANN LA ROCHE TERAPIA ANTIBIOTICE SERVIER AVENTIS SINDAN ELI LILLY SANOFI SYNTHELABO SCHERING PLOUGH GEDEON RICHTER KRKA D.D. MENARINI NOVO NORDISK MERCK & CO BRISTOL MYERS SQUIBB ABBOTT BIOFARM BEAUFOUR IPSEN LABORMED SCHERING AG JOHNSON & JOHNSON ASTRAZENECA BOEHRINGER INGELHEIM WYETH BOOTS CO PLC MEDOCHEMIE NESTLE WALMARK LAB. FOURNIER E.I.P.I.CO. LAB. OZONE AKZO NOBEL SOLVAY PHARMA MERCK AG WORWAG PHARMA HELVETICA PROFARM Units* 2003 44,260,855 18,862,160 100,742,856 6,026,654 2,224,717 34,531,399 37,157,331 6,281,081 2,296,963 1,194,573 754,527 2,851,493 1,711,463 13,948,089 5,007,745 2,746,661 496,358 879,365 2,907,513 762,891 14,523,221 2,237,754 10,288,973 1,487,516 679,664 677,593 1,566,011 771,640 3,464,795 728,709 806,850 1,220,856 808,179 2,607,256 4,230,858 612,496 582,374 1,170,639 315,645 6,057,983 Values MSP 2003 USD 85,724,924 49,322,127 40,699,319 38,397,766 28,309,357 28,119,771 27,408,651 23,027,080 22,687,019 18,746,953 18,733,404 17,407,966 17,139,244 16,275,279 15,968,012 14,027,603 13,674,856 12,905,744 11,766,740 11,190,716 9,879,280 9,427,617 9,167,246 9,003,127 8,912,226 7,957,900 6,461,424 5,543,228 5,438,025 4,449,006 4,029,105 3,779,570 3,739,073 3,642,969 3,642,095 3,520,168 3,324,795 3,302,235 3,285,065 3,113,497 MS 2003 (%) 11.8 6.8 5.6 5.3 3.9 3.9 3.8 3.2 3.1 2.6 2.6 2.4 2.4 2.2 2.2 1.9 1.9 1.8 1.6 1.5 1.4 1.3 1.3 1.2 1.2 1.1 0.9 0.8 0.7 0.6 0.6 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.4
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FRESENIUS-KABI HOFIGAL HELCOR ARENA GROUP YAMANOUCHI LANNACHER PHARCO PHARM. HEXAL PHARMA BAYER Others Total Source: Cegedim * - physical units of medicine
41 42 43 44 45 46 47 48 49 50
863,517 2,542,668 1,888,615 2,154,084 461,390 633,581 1,984,795 976,742 429,445 52,320,901 404,739,444
2,946,352 2,805,742 2,696,883 2,638,993 2,379,554 2,167,015 2,155,742 1,982,407 1,924,803 82,712,170 727,559,845
0.4 0.4 0.4 0.4 0.3 0.3 0.3 0.3 0.3 11.04 100
The corporate segment dominates the Romanian pharmaceutical market. The corporate segment covers 85.1% of the market value, while the SME sector accounts for only 14.9%. There are approximately 60 manufacturers and 50 distributors of drugs on the Romanian market. The Romanian pharmaceutical market is dominated by imported products in terms of value. The imported products have an average price of USD 2.60/unit while domestic products are much cheaper USD 0.55 USD/unit. Main importers are Glaxosmithkline and Relad International. These companies specialize in imports, owning distribution companies Europharm and Relad Pharma, respectively. The leading domestic producers are Sicomed, Terapia, and Antibiotice. These three players cover together over a third of the market demand in terms of volume.
Pricing policy The Ministry of Health is the entity responsible for setting up the norms regulating the pricing mechanism of both imported and domestically produced drugs. According to the existing regulations, the producer may adjust the prices of domestic drugs periodically, based on the inflation index and the local currency depreciation. The Ministry of Health must be notified about any price adjustments. New drugs are priced based on the traditional costprofit analysis, justifying the proposed costs. The necessary documentation must be submitted to the Ministry of Health at least 15 days before the products are released to the market. The mechanism is more responsive than the previous ones, reducing the time lags in adjusting prices in line with inflation/devaluation. Thus, the change is beneficial for the local producers, allowing them better profit margins. The total margins that wholesalers and retailers together may charge the end-users vary between 14% and 33%, depending on the price of the drug (the more expensive the drug is, the lower the mark-up). Thus, depending on the price of the drug the mark-up for the wholesaler can vary between 4% and 9%, while the pharmacies margin can vary between 10% and 24%. The mark-up for domestic drugs is stated as a percentage of the producer price and it is split between distributors and pharmacies. Regarding imported drugs, the mark-up is stated as a percentage of the value obtained by summing the drug's ROL price (the invoice price multiplied by the exchange rate prevailing
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on the date customs documents are issued), customs duties, VAT (which was reduced from 19% to 9% starting with beginning of 2004), importer's margin (15%) and the devaluation risk margin (5%). The combination of these taxes makes imported drugs significantly more expensive than domestically produced drugs. The split between wholesalers and pharmacies' margin is also applicable for imported drugs (i.e. the mark-up follows the above description and cannot exceed 33%). For the OTC drugs, margins are not restricted. In pharmacies, the OTC margin is generally between 20-40%, while for distributors the OTC margin is 25-30%. In addition, margins for reimbursed drugs sold to hospitals are usually lower than the maximum allowed value, as hospitals usually organize auctions to buy drugs.
Main market players The table below presents the span of activities undertaken across the pharmaceutical industry by the main players of the Romanian pharmaceutical market.
Company AD Pharma (Mediplus + Sensiblu) Antibiotice Armedica (Gedeon Richter) Biofarm Dita Import Export Farmexim Farmexpert Fildas Trading Glaxosmithkline-Europharm Lek Pharmatech Montero Polisano Relad Group Sicomed Sindan Terapia x x x x x x x x x x x x x x x x x x x x x x Production Distribution x Retail x
2.2. Company profiles of the main producers

SICOMED Ownership Social capital USD 12.68 million Shareholders: SIF Muntenia 11.9943%
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SIF Oltenia Venoma Holdings* List of natural persons List of legal persons Total
9.9900% 58.4156% 19.3077% 0.2923% 100%
* Venoma Holdings is structured as follows: - European Bank for Reconstruction and Development, GED Eastern Fund, Romanian Post Privatization Fund their investment being managed by Ged Capital Development - Euromerchant Balkan Fund and Black Sea Fund their investment being managed by Global Finance - Galenica North East Key financial data
Indicators, USD Turnover Gross Profit Net profit Total capital Net Assets Total Assets Debts towards credit institutions under 1 year Debts towards credit institutions over 1 year Expenditures with interest rates Total debts under 1 year Total debts over 1 year Total investments - R&D - Terrains - Buildings - Production equipment - Other installations, tools and furniture - Advances and tangible fixed assets in progress - Financial investments Number of employees Average monthly gross salary Source: CCIR 16,091 1,307,945 29,694 9,055,006 16,304 1,237 355.2 2,145,673 4,642,269 101,482 0 0 1,750 256.1 107,210 3,093,807 891,040 9,497,778 30,525 1,938 209.9 2003 45,974,221 5,825,730 3,960,080 38,471,490 42,631,135 60,209,329 6,677,762 3,017,814 441,041 17,578,194 3,092,867 10,638,517 213,477 2002 38,558,072 4,831,872 3,951,951 34,661,813 36,082,185 49,476,864 4,592,286 948,420 221,777 13,394,678 1,217,031 7,302,513 413,089 2001 36,331,263 5,891,953 4,565,519 34,612,384 35,952,819 44,391,640 2,792,989 682,535 182,470 8,438,821 1,009,196 14,209,225 588,865
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Productivity analysis
Indicators Capital productivity (turnover/own capital) Assets productivity (turnover/total assets) Labour productivity (turnover/no. of employees), USD/employee Source: CCIR 2003 1.20 0.76 37,166 2002 1.11 0.78 22,033 2001 1.05 0.82 18,747
Structure of operations In 1962, the Bucharest Dugs Plant was established as a coordination centre for the pharmaceutical sector. In 1990, it changed its name into Sicomed, which is now the largest Romanian human drugs producer with an estimated market share for 2004 of 26.8% (2% more than in 2003) by volume, and 5.2% by value. In 1999, after a succession of transactions consisting of enlarging the social capital and private investments, the process of privatization came to end. Sicomed currently operates on the Romanian market through a drugs factory placed in Bucharest. The main activity of Sicomed is production and sales of human pharmaceutical products and drugs. As a secondary activity, the company produces veterinary drugs. Production is organized into three main divisions: 1. Dry Formulation Division that includes tablets. 2. Wet Formulation Division that includes ampoules. 3. Parenterals Division, that includes infusions. Sicomed currently produces a wide range of human drugs in all major therapeutic classes. Most of the drugs are generics, but the company also produces some patented products. The weight of patented products in total sales is only about 2%. Sicomed is the sole producer of nitrous oxide (used as an anesthetic), surgical catgut and dextran (plasma substitute). Prescription drugs account for around 55% of sales, while OTC drugs represent 45%. Because the OTC drugs prices are not state regulated, these products have higher margins and represent an important source of cash flow. Human drugs account for more than 98% of sales, while lower margin veterinary drugs represent the remainder. With a large and inefficient portfolio of over 400 formulations in 1990, the company started trimming its product range, eliminating small scale, unprofitable drugs. Sicomed has decided to place major emphasis on consumer care products, which currently represent some 4% of sales. Prices in this segment are not regulated and thus the products can offer higher margins. In the third quarter of 2004 Sicomed announced that it would sell its Parenterals Division to Swiss ACS Dobfar Info, represented in Romania by Infomed Fluids SRL, in a EUR 3 million deal. Sicomed took this decision to make the company more efficient as the Parenterals Division (accounting for 14% of Sicomeds overall sales and having 38% share of the Romanian infusions market) did not make much profit and the investment in this division was small. All the three divisions are GMP certified. To obtain GMP certification for the remaining production facilities Sicomed has already assigned for this purpose USD 10 million in 2004. Sicomed invested USD 34 million in the period 2001-2003 to modernize production facilities
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for obtaining GMP and ISO compliance certificates, raising product quality, and developing human resources. An additional USD 10 million of investments were allocated in 2004 for continuing the modernization of the production facilities and intensifying the marketing and sales activities. In 2004, Sicomed became the first Romanian pharmaceutical company to obtain the ISO 9000:2001 certificate for its Quality Management System. This is an important step in the implementation of an integrated quality-environment-security system. (Sicomed was also the first Romanian pharmaceutical company that received from Lloyds Register Romania the quality system management certificate, ISO 9001:2000.) The next steps will be ISO 14001 (environment management system) and ISO OHSAS (labor security management system). Sicomed has received GMP (good manufacturing practice) status for all its production facilities. Sicomed has around 900 employees (of which 19% perform administrative functions and 81% are involved in production) and produces about 120 products for human use, consisting of 300 formulations that cover more than 25 per cent of the Romanian demand. The company exports products all over the world, and maintains a network of local distributors in Russia, Belarus, Azerbaijan, and Hungary. Research & Development Sicomed spends annually around USD 0.4 million on R&D activities. The R&D department focuses on improving the conditioning technologies for existing drugs as well as introducing new products. Line extensions and drugs produced under licensing agreements are seen as potential sources of portfolio upgrade. Sicomed launched 8 new drugs during the first 9 months of 2004, and currently has over 20 products under registration. Sicomed has recently dedicated substantial R&D resources towards the development of new consumer care products. Market strategy Sicomed has a new corporate identity after spending USD 1 million on re-branding, new packaging of drugs, design of the new logo, and staff training. As part of this effort, Sicomed has developed a new motto, respect for life, which appears on all of its corporate advertising. One of the main expected outcomes of the re-branding is a 22% growth in market share for Algocalmin sales and a 28% increase for Antinevralgic. In the first half of 2004, Sicomed launched 2 new products (Nizotin and Mivastin) and a further 31 products are waiting to be authorized by the ANM (National Agency for Drugs). By year-end, another 14 will be sent for authorizing. The company wishes to reach a stage where it will deliver 10-12 new products to the market yearly. Sicomeds long-term strategy consists in modernizing and enlarging its product range aiming to increase its market share. Therefore, the company has a very strong promotion campaign for Osteovit and Aflen in Romania and for Extraveral in Moldova. While Sicomed is primarily focused on the domestic market, as there are still substantial growth opportunities, the company has a new aggressive export strategy. In addition to the 56 products already registered in 12 countries, a further 30 products are under registration
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procedure in 15 countries. The company plans to submit registration document for an additional 15 products in the near future. During the first quarter of 2004 Sicomed realized a turnover of USD 25.7 million and a net profit of USD 3 million, representing a growth of 40% over the same period in 2003. The companys main exported products are generic drugs (to Russia, Belarus, Moldavia, Hungary, Armenia and Azerbaijan), but it also exports original drugs, such as Gerovital H3 and Aslavital (mainly to Hong Kong, Mexico, Ecuador, Chile, Uruguay). Sicomed is counting on dynamic exports in the coming years. Thus, it ambitiously plans exports to rise from around USD 1.5 million in 2003 to USD 2.5 million in 2004 and USD 10 million in 2007. Sicomed is targeting markets such as Moldova, Russia, Belarus, Armenia, Azerbaijan, and Hungary, but also looks towards South America, keeping an eye on Western Europe as well. Most of the important infrastructure related investments have now been made; over the coming five years, the investment level will be just above depreciation to maintain quality. Sicomed reported a nine-month net profit of USD 5.01 million, recording a 15 per cent decline from the same period last year. Over the same period, company revenues increased by 15 per cent to USD 40.3 million and are estimated to reach USD 54 million at the end of 2004. The decline in profit was triggered by an increase in production costs, due to the implementation of the GMP system. The company intends to reach a turnover of USD 64 million in 2005, representing a ten million increase from the 2004 forecast. The entire Romanian pharmaceuticals market is estimated by Sicomed at USD 945 million for 2004, forecasted to double its value in 2007, reaching the amount of USD 2.2 billion.
Main distributors and clients Sicomed has 31 area sales representatives based in 11 big cities and Moldavia, as follows: Bucharest, Bacau, Braila, Brasov, Cluj-Napoca, Constanta, Craiova, Iasi, Oradea, Targu Mures, Timisoara and for Moldova in Chisinau. Sicomed sells to pharmacies mainly through 20 partners, which are companies specialized in pharmaceuticals distribution. These companies can offer to the market all of Sicomeds products. Generally, these distributors cover the entire national territory, having a network of warehouses and branches all over Romania. Sicomeds main distributors are: - ADM Farm - Arochim - A&G - Dita (accounts on its own 18%) - Farmexpert - Fildas - Mediplus - Montero - Pharmafarm - Relad On the pharmaceutical market, these companies are Sicomeds most important partners. They distribute almost 80% of the companys products.
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For the 358 hospitals, the greatest part of the distribution is made by Sicomed itself. The split between distributors and hospitals is constantly modifying in the favor of distributors. During the first half of 2002, Sicomed distributed to hospitals 28% of the total value of the products; in the same period of 2003, the value of the products distributed to hospitals decreased to 18%.
ANTIBIOTICE Ownership Social capital USD 12.30 million Shareholders: Health and Family Ministry 53.0200% SIF Oltenia 9.9900% Broadhurst Investment LTD 7.2000% Others 29.7900% Total 100%
Key financial data

Indicators, USD Turnover Gross Profit Net profit Total capital Net Assets Total Assets Debts towards credit institutions under 1 year Debts towards credit institutions over 1 year Expenditures with interest rates Total debts under 1 year Total debts over 1 year Total investments - R&D - Terrains - Buildings - Production equipment - Other installations, tools and furniture - Advances and tangible fixed assets in progress - Financial investments 2003 36,594,818 4,842,626 3,573,428 31,198,643 35,565,172 51,312,049 5,638,734 814,126 266,275 15,746,877 4,369,569 2,762,491 165,213 1,451,453 0 0 16,335 1,129,492 0 2002 32,743,680 4,365,773 3,426,910 26,264,998 31,830,289 43,421,459 462,946 4,947,874 363,034 11,591,170 5,576,599 4,088,826 175,568 2,083,816 0 1,829,442 0 0 0 2001 31,350,300 2,772,425 2,055,991 25,613,493 30,523,389 37,982,984 4,312,995 4,312,995 280,396 7,459,594 5,117,855 n/a n/a n/a n/a n/a n/a n/a n/a
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Number of employees Average monthly gross salary Source: CCIR
1,797 284.0
1,788 236.3
1,764 203.2
Indicators Capital productivity (turnover/own capital) Assets productivity (turnover/total assets) Labor productivity (turnover/no. of employees), USD/employee Source: CCIR 2003 1.17 0.71 20,364 2002 1.25 0.75 18,313 2001 1.22 0.83 17,772
Structure of operations Antibiotice is the second largest Romanian pharmaceutical producer, with over 9% market share expressed in physical units. The company has an extensive human and veterinary drugs portfolio. Antibiotices activity is structured in two major sectors: - one for obtaining active substances in bulk by biosynthesis and semi synthesis - one for obtaining finished products under the following pharmaceutical forms: sterile powders for injectable solutions, operculated capsules, tablets, ointments and suppositories. The production activity is structured as follows: Biotechnologies and Sterile Powders Division and Pharmaceutical Division. Antibiotices investments in the quality field have resulted in it obtaining GMP (Good Manufacturing Practice) certification for all of its production lines, as well as the FDA (Food and Drug Administration - the American regulatory authority in the pharmaceutical field) certification for Nystatin and Vitamin B12. These international certifications for the quality of the products manufactured by Antibiotice S.A. have created the basis for increasing exports, which currently account for about 25% of the companys turnover. Antibiotice is well known on the world market for active pharmaceutical substances produced by biosynthesis (Nystatin, Vitamin B12). The company has concluded contracts with partners from 30 countries all over the world: Europe, North America, South America, Asia, Africa, Australia (Germany, USA, Canada, England, Russia, Belgium, Great Britain, Switzerland, China, and Vietnam etc.) Currently, Antibiotice is the leading domestic producer of ointments and suppositories, having a 90 % share market. The products manufactured on these production lines are meant for dermatological, anti-rheumatic, ophthalmologic and vascular diseases in varied concentrations and doses, suppositories for babies, children and adults: Nidoflor, Fluocinolon, Clotrimazol, Neopreol, Diclofenac, Indometacin, Hemorzon etc. The annual production capacity is 18 million tubes of ointments and creams, and 15 million folders of suppositories respectively. Antibiotice has an overall market share of close to 3.8% (in value terms) and is a leader on the domestic market for parenteral products from the beta-lactam antibiotics group (75% market share): Ampicillin, Oxacillin, Benzathin Benzyl Penicillin, Benzylpenicillin, third generation cephalosporins (Cefotaxim and Ceftriaxon) and combinations (Ampicillin Plus - 37 -
ampicillin + sulbactam). The parenteral products represent over 40 % out of the company's production. The annual production capacity is 60 million vials with injectable sterile powders manufactured in Class A aseptic areas on modern, completely automated production lines. Antibiotice is the sole Romanian company, which produces the entire range of first line essential antituberculous products (Rifampin, Rifampicin and Isoniazide, Ethambutole, Pirazinamide and Streptomycine). The company identifies itself as the main partner of the Ministry of Health within the framework of the National Programme for Combating Tuberculosis as well as on the National Program for the Survey and Control of AIDS infection. As result of over USD 17 million in investments made over the last 10 years, Antibiotice was the first company on the Romanian market to obtain GMP for all of its production technologies, and is the only Romanian producer to have obtained the FDA (Food and Drug Administration-the American regulatory authority in the pharmaceutical field) certification for Nystatin and Vitamin B12. At present, these two products ensure 25% of the company turnover and 80% of the export value. Antibiotice has a 25% market share of the world market for Nystatin (being the second European producer of Nystatin), and a 10% market share of the world market for Vitamin B12. Due to these international certifications for good quality products, Antibiotice has developed the base to increase its exports and to consolidate its position on the international market. The company concluded contracts with 30 countries all over the world: Europe, North and South America, Asia, Africa and Australia (Germany, Netherlands, Great Britain, Russia, Belgium, Switzerland, USA, Canada, China, etc.). Antibiotice is also a supplier authorized by UNICEF as a subcontractor for drug distribution within the framework of the programs initiated by this authority on various markets. In the first half of 2004, 20% of Antibiotices sales came from exports, and 80% from the domestic market. For 2004, Antibiotice expects an USD 8.3 million income as a result of exports, split as follows: UE countries USD 4 million, USA and Canada USD 2 million, China (a new market opened in 2003) USD 1 million, others USD 1.3 million. Research & Development Six years ago, Antibiotice established its own R&D department dedicated to improving existing technologies and introducing new products. Antibiotice spends annually around USD 0.2 million on R&D activities. The research activity develops programs in two major areas: finished products and active substances, both generics and trademarks. The company concentrates its R&D efforts in the following therapeutic classes: anti-infectious, cardiovascular, central nervous system, digestive system, muscular-skeletal system and dermatology. The companys R&D activities have materialized in the introduction of new therapeutic forms for pediatric use. Market strategy Over the next three years, Antibiotice plans to invest over USD 10 million in new technology, environment and research, from which USD 3 million are to be invested in 2005. For 2005, Antibiotice estimated turnover would reach USD 50 million, 10 million more than expected for this year. Managements main objectives are to enlarge the external markets (some drugs are under registration process in Kenya, Philippines, Tunisia, Kazakhstan,
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Vietnam, Brasilia, Armenia and Moldavia) and to increase exports, to enlarge the product portfolio, and to apply an aggressive marketing policy on the domestic market. Medium term objectives of Antibiotice include: An increase in exports of more than USD 2 million over the next two years; Assimilation of 15 new drugs from various therapeutical classes (cephalosporins, beta-lactam antibiotics, cord therapy, therapy of the central nervous system , dermatological use products etc.), and optimizing the production capacities for these new drugs; An aggressive marketing and promotion policy on the domestic market accomplished by the companys team of medical representatives (20 doctors). Identification of new external markets through the completion of the registration process of some drugs conditioned under various pharmaceutical forms on such markets as Kenya, Philippines, Tunisia, Armenia and Moldova. Applying the export policy objectives of developing new long-term contractual relationships, Antibiotice opened its first abroad representative office in Russia. In 2004, an increase of the social capital from USD 10.47 million to USD 12.30 million, by using the dividends of 2003, took place. Antibiotice plans to increase company efficiency by restructuring, which includes laying off 300 employees. Main distributors and clients Antibiotice is actively promoting its products on both the domestic market and foreign markets. During the last three years, the main destination for export was the European Union. Export distribution is realized mostly by direct exports (87% of total exports), the remaining 13% being made through commissioners (Arena Group SRL based in Bucharest, Dava Company SRL based in Iasi and CHPM based in Bucharest). Within the last three years, Germany was the main destination for exports, followed by the Netherlands and Great Britain. The exports towards North America (USA and Canada) doubled their value of 2003 reaching USD 2 million (expectations for 2005 are for USD 4 million). Regarding the distribution on the domestic market, most sales in 2003 were made through the distribution company Pharma Iasi and other pharmaceutical warehouses that commercialized the entire portfolio of Antibiotice products. In February 2004, Antibiotice decided to sell its 30% stake of Pharma Iasi based on a report of the National Authority for Control, which investigated Pharma Iasi. The report showed that of the total turnover of Pharma Iasi, 91% is covered by Antibiotice, but, while the other Pharma suppliers were entirely paid, Antibiotice received only a small amount of the money owed. Pharma took advantage of the fact that Antibiotice is a shareholder and cannot sue itself for not paying the debts. Furthermore, the same control report presented the fact that in July 2003 Antibiotice violated the law by selling its products through a distribution company where Antibiotice was a shareholder. This law was modified after only 20 days from its entrance in force, and the Parliament gave the producers the possibility to sell their own products. Therefore, the Ministry of Health and Family, which is the main shareholder of Antibiotice decided to sell the shares Antibiotice has in Pharma Iasi and to organize its own distribution network.
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For the domestic market, Antibiotices clients are the entities of Romanian sanitary system. For the foreign markets Antibiotices main clients are: Sanavita, and Lohmann LTH Germany, Tocelo Chemicals BV Netherlands, S&D Chemicals Great Britain, Impextraco NV Belgium, Selectchemie Switzerland, ACIC FINE Chemicals Canada, Farmalena Russia, Hubei Kangle China, Agro Earmachem - Malaysia.
TERAPIA Ownership Social capital USD 30.47 million Shareholders: Terapia Holding B.V. (Netherlands) 96.3300% List of natural persons 3.6700% Total 100% Key financial data
Indicators, USD Turnover Gross Profit Net profit Total capital Net Assets Total Assets Debts towards credit institutions under 1 year Debts towards credit institutions over 1 year Expenditures with interest rates Total debts under 1 year Total debts over 1 year Total investments - R&D - Terrains - Buildings - Production equipment - Other installations, tools and furniture - Advances and tangible fixed assets in progress - Financial investments Number of employees Average monthly gross salary Source: CCIR 2003 35,056,455 10,490,928 7,622,610 38,483,836 45,251,300 51,482,530 0 0 1 6,231,230 0 8,469,285 133,633 248,031 1,564,239 3,845,835 33,545 1,947,201 696,801 721 517.2 2002 31,757,903 9,376,881 7,257,291 34,273,262 34,273,262 38,137,957 0 0 239 3,864,696 0 7,416,504 152,578 555,434 1,274,508 3,171,876 62,131 2,190,327 9,649 726 439.2 2001 30,369,142 9,229,373 7,528,304 31,780,951 31,780,951 35,873,798 0 0 547 4,092,847 0 7,265,147 164,307 106,317 1,370,235 2,553,339 1,138,511 1,924,037 8,401 1,371 327.5
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Structure of operations Established in 1921 in Cluj Napoca in a private laboratory, Terapia is one of the most developed Romanian pharmaceutical companies from the point of view of the manufacturing technologies it uses. Investments over the last four years, amounting to over USD 15.4 million, have been mainly oriented towards the modernization of production facilities, as well as towards reaching European quality standards. Terapia accounts for 8.5% of the market in terms of volume and 3.9% in terms of value. The manufacturing of generic pharmaceutical products for the treatment and prevention of chronic diseases is the focus of Terapia's activities. The companys production is organized into two divisions: - Chemical Division producing a wide range of chemical substances that belong to the category of active pharmaceutical ingredients used mainly in the production of human usage drugs - Pharmaceutical Division producing generic pharmaceutical products Terapia produces a wide range of chemical substances that belong to the category of active pharmaceutical ingredients (API). Most of them are used to produce human usage drugs, but some are used to produce veterinary usage drugs. While most of the API synthesized within the Chemical Division is used as a raw material for the Pharmaceutical Division and is destined for pharmaceutical formulations, a small part of API is sold to various trading partners on both the domestic and external markets. The strategy of the Chemical Division is focused on the production of new and more efficient API, as a result of the efforts of its own R&D department as well as on cooperation with other pharmaceutical companies. Through an investment plan focused on the updating of the technology applied in its synthesis plants, Terapia aims to obtain complete GMP certification of its Chemical Division by mid-2005. All of the companys products (raw materials, semi-finished, and finished) are strictly tested according to international pharmaceutical standards. Terapia produces over 90 products of various pharmaceutical forms: compressed tablets, film coated compressed tablets, capsules, sugar coated tablets, ampoules. Of all the companys total product portfolio, the solid forms represent 80%, and the injectable forms represent 20%. The main therapeutic areas covered are the respiratory, cardiovascular, nervous and muscular-skeletal system (for the present Terapia is focusing on developing the last three therapeutic areas). The large majority of Terapias production is designated to the domestic market; about 16% is designated to exports (estimated for 2004), mainly in Russia and Ukraine (were Terapia has recently established its own representative offices), but also to Poland, Baltic Countries and countries of Asia.
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Terapia Cluj was the first domestic manufacturer to achieve GMP certification for pharmaceutical production in Romania (1999) as a result of an intensive upgrading process, which consisted of a complete re-engineering of the plant and the implementation of a modern Quality Assurance System. As a result of an intensive upgrading process of the companys injectable products unit, this section has now been certified GMP also; the total investment of the process completed at the beginning of 2004 amounted to USD 4 million. In 2003, Terapia Cluj also achieved GLP (Good Laboratory Practice) certification for the analytical unit of its clinical and bioequivalence manufacturing center. In 2004, Terapia obtained the renewal of the GMP certification for the pharmaceutical production of solid tablets. The company manufactures a wide range of solid form drugs (tablets, sugar coated tablets, filmed tablets, capsules) using modern equipment. All the raw materials, semi- finished and finished products are strictly tested according to international pharmacopoeias. Audits by international license partners confirm the achieved progress and help in identifying the areas that need further improvement. The quality system is audited by Terapias international partners in the production of licensed drugs Ethypharm, Janssen-Cilag and Hoffmann-La Roche. In the first 9 months of 2004, Terapia sold products of USD 35 million, 2 million more than the same period last year. Of the total Terapia staff, 63% are production workers and 37% are technical, economic and administrative personnel. Research & Development Terapia spends annually around USD 0.2 million on R&D activities. Terapia has launched 8 new products since 2001 on the market, which are the direct result of the work carried out by the company's R&D team. Using unique technologies in Romania, Terapia Cluj obtains modern slow release and gastro-resistant products. The pharmaceutical R&D unit of Terapia Cluj is continuously looking to ameliorate the technological processes in order to ensure quality improvements of the current range of products, but it also seeks to develop new generic products. Terapias chemical R&D unit is focused on improving the technologies of chemical synthesis with the aim of improving production efficiency. Market strategy Terapia was acquired last year by Terapia Holding BV (Netherlands) owned by the financial American group Advent International in a deal valued at over USD 40 million. This delisted Terapia from the Bucharest Stock Exchange. It also brought to Terapia deep and significant changes, starting with the management board and ending with marketing strategies. A few months after taking over, the major shareholder began a new program for reducing the number of personnel by about 20%, from over 700 in 2003 to 550 employees in 2004. The personnel was previously reduced by one-half in 2002, when the Calcium Panthotenate (a chemical synthesis product for veterinary usage) section was closed. Starting with 2004, Terapia will concentrate its efforts more on the pharmaceutical division and limit some activities in the chemical division. The new managerial team has very ambitious plans, aiming at doubling turnover within the next 2 years. For 2005, Terapia estimates an increase in sales of about 45%, while estimated sales for 2004 are of USD 50 million. Therefore, significant investments will be made especially for launching new products, and improving
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commercial efficiency by strengthening the marketing and distribution departments. This year Terapia started an environmental protection investment program that will take three years and will reach a total investment of USD 10 million consisting of modernizing the entire production platform. For the near future, investment will be made for enlarging the bioequivalence laboratory and for the expansion of warehouses and offices. Other plans are to enlarge the existing distribution network in order to cover all the national territory. After launching four new products this year, Terapia will launch three new products in the near future: Fosinopril, Indapamide, and Diltiazem Bupivacaine. For any new pharmaceutical product launched the expenditures are over USD 0.1 million. In November 2004, Terapia received from HVB Bank Romania together with Bank Austria Creditanstalt a long-term loan of USD 25 million. The money will be used for the companys ongoing investment projects, and to finance commercial operations. Main distributors and clients Terapia main clients are the entities of the Romanian sanitary system for the domestic market, while exports are made mainly to Russia, Ukraine, Kazakhstan, and Poland. On the domestic market Terapia delivers its products through national distribution companies (such as Mediplus, Fildas, etc.) that amounts to 38.8% of volume, and through its own distribution network (61.2%) represented by Terapia Distribution SRL entirely owned by Terapia. Terapia Distribution SRL is based in Cluj Napoca and accomplishes its distribution activities through its 6 warehouses based in: Cluj, Bucharest, Craiova, Galati, Timisoara and Iasi.
BIOFARM Ownership Social capital USD 8.43 million Shareholders: Robert William Ferran (USA) Shapiro Bancorp LLC (USA) Health Sciences Group INC (USA) List of natural persons Total
49.9890% 10.0260% 24.3380% 15.6470% 100%
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Key financial data

Indicators, USD Turnover Gross Profit Net profit Total capital Net Assets Total Assets Debts towards credit institutions under 1 year Debts towards credit institutions over 1 year Expenditures with interest rates Total debts under 1 year Total debts over 1 year Total investments - R&D - Terrains - Buildings - Production equipment - Other installations, tools and furniture - Advances and tangible fixed assets in progress - Financial investments Number of employees Average monthly gross salary Source: CCIR 2003 35,056,455 10,490,928 7,622,610 38,483,836 11,169,202 12,978,698 392,501 0 14,060 1,809,495 37,892 5,917,302 24,114 0 224,883 1,182,209 11,262 4,474,834 0 721 175.8 2002 31,757,903 9,376,881 7,257,291 34,273,262 8,637,216 9,461,129 0 0 4,050 823,913 8,434 3,304,874 19,006 0 1,362,134 819,337 24,099 1,080,298 0 1,048 102.6 2001 30,369,142 9,229,373 7,528,304 31,780,951 6,059,549 7,134,230 0 0 505 1,074,681 0 1,157,872 8,513 0 57,965 202,630 73,822 235,675 579,266 1,371 65.6
Structure of operations Biofarm has the following yearly production capacities: Soft gel capsules: 300 million Syrups: 2.1 million liters Solutions: 571,000 liters Tablets: 420 million tablets
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Biofarm produces the following pharmaceutical forms: Solid dosage Soft gel capsules Solutions for internal and external use Syrups Suspensions The production areas are designed and installed in compliance with ISO 14644-1: 1999 (E) and EU GMP. Biofarm develops products internally, and uses licenses with foreign producers as well. Market strategy Biofarm is the Romanian market leader on the segment of syrups and solutions with about 15% of the total market (including foreign imports) by volume, and it is the only producer of pharmaceutical soft gelatin capsules, and one of the largest producers of tablets. Biofarm currently exports to Russia, Moldova and Belarus. About 85% of the revenue is sourced from OTC and nutritional supplements, the remainder being hold by prescription drugs. Biofarm has GMP certified production lines for all its pharmaceutical forms, starting July 2004. Main distributors and clients Biofarms most important distributors are Farmexpert, Relad, Farmexim, Dita Import-Export and Polisano. 15% of Biofarms production is going to hospitals and 85% to pharmacies.
GLAXOSMITHKLINE ROMANIA Ownership Social capital USD 47.07 million Shareholders: Glaxosmithkline International SA (Luxembourg) Total Key financial data
Indicators, USD Turnover Gross Profit Net profit Total capital 2003 66,958,283 2,445,786 696,273 6,396,288 2002 52,116,269 5,553,346 5,553,346 5,724,951 2001 13,990,322 861,990 861,990 1,721,068
100.0000% 100%
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Net Assets Total Assets Debts towards credit institutions under 1 year Debts towards credit institutions over 1 year Expenditures with interest rates Total debts under 1 year Total debts over 1 year Total investments - Terrains - Buildings - Production equipment - Other installations, tools and furniture - Advances and tangible fixed assets in progress - Financial investments Number of employees Average monthly gross salary Source: CCIR
7,418,707 93,545,843 0 0 0 86,127,136 0 1,797,539 0 0 1,587,762 203,479 0 6,298 297 1,500
5,724,951 51,849,688 0 0 0 46,124,737 0 146,807,216 0 0 909,768 244,994 0 145,652,454 262 908
n/a n/a 0 0 285 16,527,664 0 797,096 n/a n/a n/a n/a n/a n/a 78 n/a
Indicators Capital productivity (turnover/own capital) Assets productivity (turnover/total assets) Labour productivity (turnover/no. of employees), USD/employee Source: CCIR 2003 10.47 0.72 225,449 2002 9.10 1.01 198,917 n/a 179,363 2001 8.13
Structure of operations GlaxoSmithKline Romania is the leading pharmaceutical company in Romania with 11.8% market share in 2003. GlaxoSmithKline holds all the Europharm Group shares, consequent to the acquisitions made in 1998 and 2003. GlaxoSmithKline is the most important investor on the Romanian pharmaceutical market. From 1998 to 2002, GlaxoSmithKline invested in Romania over USD 70 million. Of these, USD 12.9 million were invested in the construction of the new Europharm factory in Brasov whose technology levels meets GMP (Good Manufacturing Practice) international standards. After the factory opening, the company continued to make additional investments exceeding USD 2.5 million for the acquisition of new equipment and new production lines, for improving the quality control departments and for building new offices. Glaxosmithkline maintains 30 pharmaceutical warehouses spread throughout the country: Bucharest, Timisoara, Craiova, Arad, Constanta, Cluj, Suceava, Baia Mare, Braila, BistritaNasaud, Bacau, Brasov, Buzau, Deva, Focsani, Galati, Iasi, Oradea, Ploiesti, Pitesti, Ramnicu Valcea, Sibiu, Satu Mare, Targoviste, Targu Jiu, Targu Mures, Slobozia, Alexandria, Slatina and Pascani.
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Market strategy Glaxosmithkilne expects a turnover of USD 140 million in 2004. Europharm has recently started manufacturing GSK medicine and the antibiotics are the first to be packaged under this trademark. Glaxosmithkline intends to maintain its current number of suppliers and increase the number of commercialized products. In 2003, Glaxosmithkline spent USD 2.09 million on TV advertising. Main distributors Glaxosmithklines most important distributors are Europharm, Relad, Polisano, Farmexim, and Farmexpert.
EUROPHARM Ownership Social capital USD 0.06 million Shareholders: Glaxosmithkline SRL 100.0000% Total 100% Key financial data
Indicators, USD Turnover Gross Profit Net profit Total capital Net Assets Total Assets Debts towards credit institutions under 1 year Debts towards credit institutions over 1 year Expenditures with interest rates Total debts under 1 year Total debts over 1 year Total investments - R&D 2003 107,793,019 521,890 -109,862 -5,069,107 -5,069,107 96,160,941 0 0 177,161 101,230,048 0 3,361,342 152,240 2002 87,044,308 -1,620,009 -2,199,996 -4,980,941 -4,980,941 66,923,345 0 0 9,977 71,904,285 0 3,117,845 158,276 2001 71,631,323 1,280,289 899,760 -939,210 -294,152 43,931,676 0 0 5,614 44,225,828 0 1,128,243 16,964
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- Terrains - Buildings - Production equipment - Other installations, tools and furniture - Advances and tangible fixed assets in progress - Financial investments Number of employees Average monthly gross salary Source: CCIR
0 127,975 951,172 77,123 752,206 1,300,626 600 629.5
136,261 193,107 1,344,549 49,268 514,490 721,893 632 427.6 n/a
0 364,178 37,697 53,761 425,095 230,548 634
Indicators Capital productivity (turnover/own capital) Assets productivity (turnover/total assets) Labour productivity (turnover/no. of employees), USD/employee Source: CCIR 2003 -21.26 1.12 179,655 2002 -17.48 1.30 137,728 2001 -76.27 1.63 112,983
Structure of operations GloaxosmithklineEuropharm group has four different specialized production facilities distributed as follows: - Brasov (pharmaceutical forms, ointments, cosmetic products, herbal teas) - Ploiesti (pharmaceutical forms - tablets) - Bacau (surgical soft supplies) - Chisinau (syrups, medicine products). The distribution activity of Glaxosmithkline covers the entire country and is achieved through Europharms 17 branches managing 30 warehouses throughout the country: Bucharest, Timisoara, Craiova, Arad, Constanta, Cluj, Suceava, Baia Mare, Braila, Bistrita-Nasaud, Bacau, Brasov, Buzau, Deva, Focsani, Galati, Iasi, Oradea, Ploiesti, Pitesti, Ramnicu Valcea, Sibiu, Satu Mare, Targoviste, Targu Jiu, Targu Mures, Slobozia, Alexandria, Slatina and Pascani. These are used to distribute drugs to both local hospitals and public drugstores. The retail distribution is based on Europharms own drugstore network (32 POS) located in all the important cities of Romania.
Market strategy Europharm will increase business due to the medication ordered by Glaxosmithkline. Europharm has recently started manufacturing GSK medicine and the antibiotics will be the first to be packaged under this trademark. The Europharm plant, which entered the GSK portfolio in two successive takeover stages, puts out 55 medicine trademarks of a total of 140 ones the British group sells in Romania. Europharms strategic development hinges on aligning and closely coordinating the activities of its production, distribution and pharmacy departments.
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During the last 2 years, Europharm has invested over 4 million USD for the acquisition of software, the implementation of an integrated business system, the expansion of the distribution system and commercial fleet. The investment budget for 2004 accounts for about USD 4 million, which is used for developing the distribution infrastructure. A new warehouse was inaugurated, adding to the companys warehousing surface 5,000 square meters. In 2003, Europharm spent over USD 2.1 million on advertising. Main clients 75% of Europharm products are distributed to Pharmacies and 25% to hospitals.
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2.3. General profile of the main market players

The sources of revenues for the main market players are split as follows: Production for the domestic market 44.18% Import 52.68% Export 3.14% Producers have only one production location. The number of own deposits/warehouses that the main players have is 75. These are spread across the country as follows in the table below:
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No. of deposits
Company name Aminocen24 Antibiotice Iasi Armedica Biofarm Ceva Sante Animale Romania Cospha Romania Florilex Pharma Gelcap GlaxoSmithKline Romania Health Company Labor Med Pharma Larix Lek Pharmatech Mark International Meduman Ozone Laboratories Romania Plantavorel Prisum International Relad International Sicomed Sindan Terapia Cluj Veteco Romania Walmark Total number of deposits Weight in total, %
1 1 1 1 1 1 1 1 30 2 8 1 2 1 2 1 1 6 1 1 1 6 3 1 75 100
1 1 1 1 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 18 24.0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
1 1
1 1
6 8.0
5 6.7
4 5.3
4 5.3
4 5.3
3 4.0
3 4.0
3 4.0
2 2.7
1 1.3
1 1.3
1 1.3
1 1.3
1 1.3
1 1.3
1 1.3
1 1.3
1 1.3
1 1.3
1 1.3
1 1.3
1 1.3
1 1.3
1 1.3
1 1.3
1 1.3
1 1.3
1 1.3
1 1.3
1 1.3
1 1.3
1.3
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Piatra Neamt 1
Rm. Valcea
Alexandria
Targoviste
Constanta
Bucharest
Satu Mare
Timisoara
Tg. Mures
Baia Mare
Targu Jiu
Slobozia
Suceava
Focsani
Pascani
Pascani
Craiova
Ploiesti
Bistrita
Oradea
Brasov
Slatina
Sovata
Pitesti
Buzau
Bacau
Braila
Galati
Sibiu
Deva
Arad
Cluj
Iasi
The average turnover of the main players has increased from USD 11.59 million in 2001 to 13.88 USD million in 2002, and USD 16.21 million in 2003. For the period 2004-2008, an average turnover growth rate of 19.9% per year in USD terms is expected. The average number of employees for the main market payers is 253. The gross profitability rate has decreased from 10.8% in 2001 to 7.6% in 2002, and 9.4% in 2003. It is expected that in the following 5 years it will range within the same limits. The main players are distributing on average 37.6% on their own, 62.4% being realized through distributors. Of the total sales, 70.2 % are to pharmacies and 29.8% to hospitals. All producers have in place in-house development of drugs, and only 35.5% of them use licensing for the production of drugs. The table below presents the cumulated scores of distributors rated on a scale of 1 to 5 (in order of importance) by the main market players.
Distributor Europharm Relad Mediplus Fildas Dita Montero Farmexim Farmexpert Polisano ADM Score - out of max 125 30 30 25 24 23 18 17 14 10 7
The majority of the main players (61.5%) have launched their own brands, only 38.4% failing to do so. Over 60% of the companies that did not launch their own brands intend to do so over the next two years. At the same time, over 69.2 % of the main players have developed loyalty programs. Of the remaining 30.8%, which do not have a loyalty program in place, 37.5% intend to develop one within one year. In terms of the legislative environment, companies have cited the following laws to have the highest impact on their activity: 1) Fiscal code 2) Regulation controlling prices on drugs 3) Procedures for registering the medicines 45.5% 36.4% 18.2%
In terms of development plans, the situation is as follows: 76.9% of the main players intend to increase the number of suppliers, while the rest say that they will maintain the current number; 84.6% intend to increase the number of commercialized products, while 15.4% will maintain its current number
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73.3% intend to increase the number of distributors, while 13.5% will decrease its number, the rest of 13.5% maintaining the current situation.
Regarding the financial support for development, companies intend to use the following resources: Own sources 95.2% Attracted resources 57.1% In the case of attracted resources, 75.0% will use loans from banks, 41.6% will go for partnerships, and 8.3% will sell assets. The average investments of the main players were USD 1.59 million in 2001, USD 1.21 million in 2002, and USD 1.86 million in 2003. Future yearly investments over the 20042008 period are expected to increase by about 10% compared with 2003. Yearly investment covering the needs of all suppliers (producers and importers) are estimated at USD 74 million per year in the in the period 2004-2008. The main players have rated their satisfaction level (on a scale of 1 to 5; 1 poor, 5 excellent) with their main and secondary banks as follows:
Bank BCR BRD Raiffeisen Banca Tiriac ABN Amro ING Bank Banca Transilvania Eurombank Cititbank Finansbank HVB Total Principal bank 22.2% 14.8% 14.8% 14.8% 11.1% 7.4% 3.7% 3.7% 3.7% 3.7% 0.0% 100.0% n/a 3.98 Satisfaction level on a 1 to 5 scale 4.2 3.5 4 4 3.6 4.5 4 4 4 4 n/a n/a 7.7% 7.70% 100.0% n/a 15.4% n/a n/a 5 4 4.34 7.7% 38.5% 7.7% 7.7% 7.7% n/a 3.5 Secondary bank Satisfaction level on a 1 to 5 scale 4 4.2 5 5 4
The motivation of the decision to work (on a scale of 1 to 5; 1 not important, 5 very important) with the principal bank and the secondary banks was as follows:
Motivation criteria Offered services Prices Vicinity to own locations Brand awareness Score for choosing main bank 3.9 3.6 3.7 3.9 Score for choosing Secondary bank 3.9 4.1 4.1 3.7
The bank services used by the main players and their penetration are presented in the chart below:
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Usage of bank services by producers of pharmaceuticals 100.0 100.0 90.0 80.0 % of compnanies using 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 investment credits export/import financing discounting facilities letters of guarantee credit lines current account operations overnight deposits electronic banking (multicash) cards for employees term deposits 11.5 11.5 19.2 57.7 42.3 30.8 15.4 61.5 73.1
% of companies using
2.4. List of main and secondary bank for the main players
Below is presented the list of banks that interviewed companies work with:
Company Aminocen24 Antibiotice Iasi Armedica Biofarm Ceva Sante Animale Romania Cospha Romania Dita Import Export Florilex Pharma Gelcap GlaxoSmithKline Romania Health Company Labor Med Pharma Larix Lek Pharmatech Mark International Medical Saer Ass. Meduman Ozone Laboratories Romania Main Bank Banca Tiriac BRD, Banca Tiriac BRD ABN Amro Finansbank Eurombank BCR BCR BCR ABN Amro Raiffeisen BRD Raiffeisen Banca Transilvania BRD Banca Tiriac BCR BRD Secondary Bank BRD Raiffeisen ABN Amro BCR, BRD n/a Finansbank HVB n/a n/a n/a BRD n/a n/a n/a n/a n/a n/a n/a
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Plantavorel Prisum International Relad International Sicomed Sindan Terapia Veteco Romania Walmark Romania
BCR Banca Tiriac ABN Amro Raiffeisen ING Bank Raiffeisen ING Bank Citibank
BRD, Banca Tiriac, Banca Transilvania n/a n/a n/a Banca Transilvania n/a BRD n/a
Range of banking products that are used by the interviewed companies:

Company Aminocen24 Antibiotice Iasi Armedica Biofarm Ceva Sante Animale Romania Cospha Romania Dita Import Export Florilex Pharma Gelcap GlaxoSmithKline Romania Health Company Labor Med Pharma Larix Lek Pharmatech Mark International Medical Saer Ass. Meduman Ozone Laboratories Romania Plantavorel Prisum International Relad International Sicomed Sindan Terapia Veteco Romania Walmark Romania x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x 1 x x 2 x x x x x x x x 3 4 x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x 7 x x x x x x x x x x x x x x x x x x x x x x x x 5 6 7 8 9 10
1- credit lines 2- investment credits 3 - discounting facilities 4 - letters of guarantee 5 -current account operations (payments, incomes) 6 - export/import financing 7 - term deposits 8 - overnight deposits 9 - cards for employees 10 electronic banking (multicash)
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3. Distribution system in use by market players
3.1. Wholesale - analysis and trends

The distribution market is currently highly fragmented with the top five distributors sharing slightly above 50% of the market in terms of value, and close to 30 other companies competing for the reminder. It is likely that a consolidation will take place in the following years under various pressures including suppliers, competition or legal. Europharm ranked first among distribution companies in 2003 with a market share of 14%. Relad and Mediplus trail with market shares in excess of 11% each. Market participants distinguish between sales to the hospitals and to pharmacies. Considering only the sales to pharmacies, Mediplus is the market leader with a market share of around 19%. Mediplus is the owner of the largest retail chain of pharmacies known as Sensiblu. Currently, there are a total number of 490 pharmaceutical warehouses in Romania. The number of pharmaceutical warehouses has been continuously declining from 523 in 2000 to 515 in 2001, and 490 in 2003. Of the total number of deposits, approximately 200 are located in Bucharest. The decline in the number of pharmaceutical deposits is due to existing consolidation on the market, as well replacement of existing facilities with EU compliant, larger and more efficient units. Yearly, 4-5 new pharmaceuticals deposits are open. The declining trend in the number of deposits is not expected to continue, unless consolidation on the market accentuates. And even in that case, the critical number of pharmaceutical warehouses that are needed to cover the whole country is 450, and it is unlikely it could go lower than that in the future.
3.2. General profile of the distributors

Interviewed distributors have an average of 233 employees. They have 191 own pharmaceutical warehouses. These are spread across the country as follows:
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Bistrita-Nasaud
No. of deposits
Targu Mures
Rm. Valcea
Alexandria
Targoviste
Constanta
Bucharest
Satu Mare
Timisoara
Baia Mare
Company name ADM Farm Bbraun Medical Timisoara Datacom Int'l Dita Import Export Europharm Farmacom Farmavet Farmexim Farmexpert Fildas Trading Imeco SA Imedica SA Medical Saer Ass.SRL Mediplus Exim SA Montero S.A. Pharma Iasi Phoenixmed 2000 Polisano Sibiu Relad Pharma Rombiomedica S&D Farma Seder Imp-Exp. Terapia Distributie Ultramed Valmedica Veterin Impex Total number of deposits Weight in total, %
7 6 1 8 30 1 16 14 6 17 1 1 1 12 10 1 11 10 16 2 3 1 6 2 7 1
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 1 1 1 1 1
1 3
1 1 1
1 1 1 1 1 1
1 1 1 1 1 1
1 1 1 1 1
1 1 1 1 1
1 1 1 1 1
1 1 1 1 1
1 1 1 1
1 1 1 1 1
1 1 1 1
1 1 1 1
1 1 1 1
1 1 1
1 1
1 1
1 1
1 1
1 1
1 1
1 1 1 1 1 1
1 1 1 1 1 1
1 1 1 1 1 1
1 1 1 1 1
1 1 1 1 1 1
1 1 1 1 1
1 1 1 1 1
1 1
1 1 1
1 1 1 1 1 1 1 1 1 1
1 1 1
2 1
1 1 1 1
1 1
1 1 1
1 1 1
191 100
25 13.1
16 8.4
15 7.9
14 7.3
14 7.3
13 6.8
12 6.3
9 4.7
8 4.2
7 3.7
7 3.7
7 3.7
6 3.1
5 2.6
5 2.6
3 1.6
3 1.6
3 1.6
3 1.6
2 1.0
2 1.0
2 1.0
1 0.5
1 0.5
1 0.5
1 0.5
1 0.5
1 0.5
1 0.5
1 0.5
1 0.5
0.5
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Alba Iulia 1
Botosani
Slobozia
Suceava
Focsani
Pascani
Craiova
Ploiesti
Oradea
Brasov
Slatina
Tg. Jiu
Pitesti
Buzau
Bacau
Braila
Galati
Sibiu
Deva
Arad
Cluj
Iasi
The average turnover of the distributors has increased from USD 13.93 million in 2001 to 19.58 USD million in 2002, and USD 23.92 million in 2003. For the period 2004-2008 an average turnover growth rate of 19.9% per year in USD terms is expected. The gross profitability rate has decreased from 2.6% in 2001 to 1.7% in 2002, and 1.8% in 2003. It is expected that in the following 5 years it will increase to maximum 3%. The distributors have an average mark-up of 6.9%. Of the total sales, 70.1 % go towards the pharmacies and 29.9% towards hospitals. The most important suppliers (rated on a scale of 1 to 5, in order of importance for the distributor) with which interviewed distributors work are as follows:
Supplier Sicomed Pfizer Novartis Glaxosmithkline Antibiotice Aventis Hoffman la Roche Biofarm Servier Abbott Score - out of max 150 41 35 27 24 19 19 12 9 7 6
In terms of the legislative environment, distributors have cited the following laws to have the highest impact on the activity: 1) Regulations regarding compensated and reimbursed drug system 2) Fiscal code 3) Norms regarding the distribution of drugs 50% 30% 20%
Regarding the development plans of distributors, the situation is as follows: 70.8% of distributors intend to increase their number of suppliers, while 12.5% intend to decrease their number, and the remaining 16.7% will maintain the current level; 96.2% intend to increase the number of commercialized products, and only 3.8% will maintain the current number; 92.0% intend to extend the distribution network, while 8.0% will maintain it at the current level. Regarding the financial resources for development, the interviewed distributors intend to use the following sources: Own sources 93.3% Attracted resources 50.0% In the case of attracted resources, 84.6% will use loans from banks, 69.2% will go for partnerships, and 38.5% would sell assets.
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The average investments of the distributors were USD 0.44 million in 2001, USD 1.43 million in 2002, and USD 0.77 million in 2003. Future yearly investments over the 20042008 period are expected to increase by about 10% compared with 2003. Yearly investment covering the needs of distribution chain are estimated at USD 33 million per year during the period 2004-2008. The table below presents the pentration of banks in the pharmaceutical distribution chain. The distributors have rated their satisfaction level (on a scale of 1 to 5; 1 poor, 5 excellent) with their main and secondary banks as follows:
Bank BCR BRD BancPost Banca Titiac HVB ABN Amro Raiffeisen Alpha Bank ING Bank Misrbank Banca Italoromena Piraeus Bank Citibank Robank Total
Principal bank 30.0% 10.0% 10.0% 10.0% 10.0% 6.7% 6.7% 6.7% 3.3% 3.3% 3.3% n/a n/a n/a 100.0%
Satisfaction level on a 1 to 5 scale 3.8 4.3 4.7 4 4 4 3.5 4 4 4 4 n/a n/a n/a 4.03
Secondary bank 17.4% 13.1% n/a 13.1% 4.3% 8.7% 4.3% 4.3% 8.7% n/a 4.30% 4.30% 4.30% 13.10% 100.0%
Satisfaction level on a 1 to 5 scale 4.5 3.7 n/a 4 4 3.5 3 3 3 n/a 5 3 3 2 4.34
The distributors motivation of the decision to work (on a scale of 1 to 5; 1 not important, 5 very important) with the principal bank and the secondary banks were as follows:
Motivation criteria Offered services Prices Vicinity to own locations Brand awareness Score for choosing main bank 4.1 3.6 3.8 3.9 Score for choosing secondary bank 3.8 3.3 3.4 3.3
The bank services used by the main players are presented in the chart below:
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Usage of bank services by distributors of pharm aceuticals 100.0 100.0 90.0 80.0 % of companies using 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 investment credits export/import financing discounting facilities letters of guarantee credit lines current account operations overnight deposits electronic banking (multicash) 2002 73,132,122 497,443 184,904 1,033,825 1,754,687 55,046,298 n/a n/a 44,536,417 cards for employees term deposits 20.0 13.3 20.0 23.3 26.7 36.7 60.0 50.0 % of companies using 60.0
3.3. Company profiles of the main distributors

RELAD INTERNATIONAL Ownership Social capital USD 7.51 million Shareholders: Zigu Stere West Management International LTD (Virgin Islands) Expert Finance International LTD (Virgin Islands) Total Key financial data
Indicators, USD Turnover Gross Profit Net profit Total capital Net Assets Total Assets 2003 77,115,876 544,341 69,427 1,038,508 2,652,335 59,044,646 2001 53,567,832 134,227 45,527
20.0000% 40.0000% 40.0000% 100%
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Debts towards credit institutions under 1 year Debts towards credit institutions over 1 year Expenditures with interest rates Total debts under 1 year Total debts over 1 year Total investments - Terrains - Buildings - Production equipment - Other installations, tools and furniture - Advances and tangible fixed assets in progress - Financial investments Number of employees Average monthly gross salary Source: CCIR
4,858,472 349,182 1,160,610 56,392,311 1,553,586 988,850 0 159,486 594,492 87,488 142,244 5,140 29 416
3,601,491 720,862 389,083 53,291,611 720,862 1,826,643 545,984 536,702 601,547 131,460 6,162 4,788 120 747
n/a n/a 280,250 39,465,576 1,377,493 2,229,235 18,679 1,359,207 15,475 151,942 683,931 0 183 n/a
Indicators Capital productivity (turnover/own capital) Assets productivity (turnover/total assets) Labour productivity (turnover/no. of employees), USD/employee Source: CCIR 2003 74.3 1.3 2,659,168 2002 70.7 1.3 609,434 n/a 1.2 292,720 2001
Structure of operations Relad International is the importing arm of the Relad Group. Relad International owns the distribution arm of the group Relad Pharma. Relad International has a central warehouse in Bucharest, which supplies 15 regional warehouse that Relad Pharma maintains throughout the country. Market strategy Relad International revenues are coming 100% from importing activities. 80% of the drugs are distributed through its own distribution company, Relad Pharma, and 20% through other distributors. Relad International plans to expand its number of suppliers as well as its number of commercialized products. Main distributors and clients The main distributors of Relad International are Relad Pharma and Fildas. 70% of the products go to pharmacies and 30% towards hospitals.
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RELAD PHARMA Ownership Social capital USD 3.59 million Shareholders: Relad International SRL Expert Finance International LTD (Virgin Islands) West Management International LTD (Virgin Islands) Zigu Sterie Roncea Adrian Total
99.6937% 0.1225% 0.1163% 0.0613% 0.0062% 100%
Key financial data

Indicators, USD Turnover Gross Profit Net profit Total capital Net Assets Total Assets Debts towards credit institutions under 1 year Debts towards credit institutions over 1 year Expenditures with interest rates Total debts under 1 year Total debts over 1 year Total investments - Terrains - Buildings - Production equipment - Other installations, tools and furniture - Advances and tangible fixed assets in progress - Financial investments Number of employees Average monthly gross salary Source: CCIR 2003 80,625,312 840,536 414,942 3,871,246 3,871,246 45,519,697 0 0 644 41,648,450 0 205,341 0 0 81,087 85,584 4,306 34,365 104 203.7 2002 67,961,196 253,602 112,819 3,470,937 3,470,937 44,535,217 0 0 13,411 41,064,281 0 1,232,828 0 186,397 948,170 80,215 4,279 13,768 293 284.5 n/a 2001 15,118,867 499,810 499,810 3,931,615 4,252,568 11,644,448 0 0 37,999 7,391,880 0 26,214 0 4,613 5,835 803 2,400 12,564 290
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Structure of operations Relad Pharma has 15 regional deposits, which are supplied from the main warehouse in Bucharest, managed by Relad International. Relad Pharma deposits are located in the following cities: Bucharest, Constanta, Galati, Buzau, Iasi, Suceava, Bacau, Ploiesti, Brasov, Targu Mures, Baia Mare, Cluj-Napoca, Sibiu, Craiova and Timisoara. Relad Pharma has 69 sales agents, 36 phone sale operators and 52 distributing agents and it manages a commercial fleet of 130 vehicles. Market strategy Relad Pharma handles 80% of the imported products by Relad International. Relad Pharma has the following plans and objectives:

Relad Pharma expects sales of USD 120 million in 2004. The objectives of Relad are to reach overall market leadership (also in the pharmacy distribution channel) Leadership in e-trade through its electronic market place ePharmUP (developed as an EU program) - The e-marketplace project will provide a necessary competitive advantage for the distribution service mainly by delivering comfort to the customers during the purchasing process. The main objectives of the project are: 1) to shorten time in the order-gathering process, by allowing the customer to insert orders directly using e-commerce suite 2) to improve the quality of the relationship with the customer - through general information given via WEB; - through specific information about customer stock level; - allowing customers to interact with Relad using complaint module or mail. Strengthening of the generic portfolio Implementation of a strategic decision support system Implementation of new CRM
Main clients Pharmacies account for 70% of Relad Pharma sales, the remaining 30% being hospitals. Relad Pharma distributes its products to 3,000 pharmacies and 400 hospitals.
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MEDIPLUS EXIM Ownership Social capital USD 7.13 million Shareholders: Sograno BV (Netherlands) Ludovic Robert Charles Simon Michel Charles Eid Walid Abboud Roger Fawzi El Akouri Total Key financial data
Indicators, USD Turnover Gross Profit Net profit Total capital Net Assets Total Assets Debts towards credit institutions under 1 year Debts towards credit institutions over 1 year Expenditures with interest rates Total debts under 1 year Total debts over 1 year Total investments - Terrains - Buildings - Production equipment - Other installations, tools and furniture - Advances and tangible fixed assets in progress - Financial investments Number of employees Average monthly gross salary Source: CCIR 2003 94,073,384 1,365,088 717,396 8,355,563 29,311,818 87,273,373 0 0 1,972,332 57,961,555 20,956,255 5,162,341 66,289 678,872 2,813,784 46,466 1,546,690 10,239 547 318.5 2002 61,133,376 406,823 95,287 23,349,083 45,636,172 77,764,259 0 0 1,205,475 32,128,087 18,757,631 4,466,838 265,417 1,809,672 1,591,575 147,800 372,519 279,855 447 83.3 n/a 2001 39,391,153 973,445 790,718 1,056,804 4,788,429 24,135,126 0 0 189,735 19,346,696 2,376,412 4,552,370 874,794 1,129,807 84,434 328,292 2,135,042 0 284
99.9992% 0.0002% 0.0002% 0.0002% 0.0002% 100%
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Structure of operations Mediplus Exim is the importing and distribution company of the AD Pharma group, which also holds Romanias largest pharmacy chain Sensiblu. Mediplus Exim currently has 5 regional offices and 12 deposits throughout the country: Bucharest, Timisoara, Craiova, Constanta, Cluj, Bacau, Oradea, Ploiesti, Iasi, Galati, Brasov and Sibiu. Market strategy Mediplus uses over 100 domestic and external suppliers, having in its portfolio over 3,000 products. Mediplus expects a turnover of USD 150 million in 2004. Mediplus is actively developing its distribution infrastructure. In 2004, Mediplus opened a new warehouse in Sibiu with a surface of 2,500 square meters through an investment of Euro 470,000. This warehouse is covering the needs of 130 pharmacies from the Sibiu, Alba and Hunedoara counties. Another deposit was opened in Galati, with a surface of 900 square meters, through an investment of over Euro 450,000. The Galati deposit will cover the needs of pharmacies from the Galati, Braila, Tulcea, Buzau and Vrancea counties. Mediplus was the leader on the pharmacies distribution segment (holding 19%) in 2003. The objective of the Mediplus is to increase market share on the hospitals segment. Main clients Among the main suppliers for Mediplus are Hoffmann la Roche, GSK, Pfizer, Sicomed, Eli Lilly. The distribution is realized through the Sensiblu chain of pharmacies and independent pharmacies (2,800 in total).
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FILDAS TRADING Ownership Social capital 0.12 USD million Shareholders: Fildas SRL (Anca Vlad 97% + Idea Med SRL 3%) 100.00% Total 100% Key financial data
Indicators, USD Turnover Gross Profit Net profit Total capital Net Assets Total Assets Debts towards credit institutions under 1 year Debts towards credit institutions over 1 year Expenditures with interest rates Total debts under 1 year Total debts over 1 year Total investments - Terrains - Buildings - Production equipment - Other installations, tools and furniture - Advances and tangible fixed assets in progress - Financial investments Number of employees Average monthly gross salary Source: CCIR 2003 57,898,419 384,226 300,655 816,985 7,564,402 45,426,246 521,915 0 1,101,481 37,861,844 6,747,417 2,812,163 0 1,431,833 503,018 143,433 430,260 303,619 395 139.4 2002 44,601,420 1,939,568 1,868,914 127,304 1,464,431 32,774,330 7,077,339 1,337,126 645,564 31,309,900 1,337,126 1,523,660 6,013 158,458 393,883 145,447 298,377 521,481 384 111.4 n/a 2001 35,917,936 105,710 48,184 69,027 1,671,434 20,923,857 n/a n/a 462,367 19,252,423 1,588,321 719,477 0 262,515 20,583 12,118 303,608 120,654 249
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Structure of operations Fildas Trading owns two main pharmaceutical warehouses, located in Bucharest and Pitesti. The facility in Bucharest has a total surface of 1,800 square meters. The facility in Pitesti has a total surface of 3,000 square meters. The national sales coverage by Fildas sales & marketing force include: 14 branches, 60 sales representatives, 11 medical representatives. Apart from the two principal warehouses, Fildas has another 14 deposits spread throughout the country: Arad, Bacau, Galati, Brasov, Craiova, Constanta, Cluj, Ialomita, Iasi, Ploiesti, Satu Mare, Sibiu, Targu Mures and Timisoara. Fildas has a commercial fleet of 250 vehicles. Market strategy Fildas is preoccupied to constantly improve its activity by continuing to update its logistics, develop its informational structure, enlarge its distribution network, and search for new suppliers. Fildas reached a revenue balance that it intents to keep in the future. Its turnover is split as follows: - 75% through pharmacies - 25% through hospitals Main distributors and clients Fildas has 3,200 customers (pharmacies, hospitals, governmental institutions, corporate customers). Fildas main suppliers are all domestic producers and over 60 foreign producers (Novartis, Pfizer, Eli Lilly, Boehringer Ingelheim, etc.).
FARMEXPERT D.C.I. Ownership Social capital 0.61 USD million Shareholders: Eugen Marcel Banciu 98.0000% Tatiana Serban 2.0000% Total 100%
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Key financial data
Indicators, USD Turnover Gross Profit Net profit Total capital Net Assets Total Assets Debts towards credit institutions under 1 year Debts towards credit institutions over 1 year Expenditures with interest rates Total debts under 1 year Total debts over 1 year Total investments - Terrains - Buildings - Production equipment - Other installations, tools and furniture - Advances and tangible fixed assets in progress - Financial investments Number of employees Average monthly gross salary Source: CCIR
2003 45,757,148 2,502,393 1,795,644 2,441,261 2,441,261 24,586,425 626,960 0 223,444 22,145,164 0 1,065,427 210,484 0 184,955 10,018 659,021 949 149 247.8
2002 36,615,676 1,070,044 750,287 1,341,861 1,359,423 19,002,970 644,642 0 90,395 17,643,547 0 466,768 31,642 0 372,748 62,377 0 0 122 189.4 n/a n/a n/a
2001 22,448,261 797,522 548,073
269,496 11,570,363 n/a 0 25,331 11,300,867 0 731,150 416,299 0 48,151 8,745 257,955
88
Indicators Capital productivity (turnover/own capital) Assets productivity (turnover/total assets) Labour productivity (turnover/no. of employees), USD/employee Source: CCIR 2003 18.74 1.86 307,095 2002 27.29 1.93 300,128 n/a 1.94 255,094 2001
Structure of operations Farmexpert has six branches with own deposits in the following cities: Bucharest, Ploiesti, Brasov, Timisoara, Cluj and Iasi. Apart from that, Farmexpert has representative offices in the following cities: Craiova, Constanta, Pitesti, Targu Mures, Bacau, Galati, Suceava and Oradea.
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Market strategy Farmexpert has 60 suppliers, of which 14 are domestic producers, and has a portfolio of 1,447 products. Farmexpert expects to reach a turnover of USD 60 million in 2004. 70% of the revenues are made from imported products and the remaining 30% are from domestic producers. Farmexpert works with an average mark-up of 11%. 70% of sales are made to pharmacies and 30% to hospitals. The company considers that one of its main tasks in terms of the market approach is to balance the products portfolio according to the structure of the Romanian pharmaceuticals market. Main clients Farmexpert has a customer base of 2,100 pharmacies and 200 hospitals. The main suppliers of Farmexpert are Pfizer, Aventis, Sicomed and Novartis.
POLISANO Ownership Social capital 0.09 USD million Shareholders: Ilie N. Vonica 100.0000% Total 100% Key financial data
Indicators, USD Turnover Gross Profit Net profit Total capital Net Assets Total Assets Debts towards credit institutions under 1 year Debts towards credit institutions over 1 year Expenditures with interest rates 2003 49,440,766 3,173,660 2,307,540 4,427,667 4,438,451 40,307,552 5,378,387 0 332,108 2002 51,092,440 4,686,070 3,438,980 5,010,945 5,010,945 46,317,892 5,557,147 0 144,162 2001 37,461,491 3,224,891 2,380,136 2,081,979 3,428,937 31,135,862 0 0 89,443
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Total debts under 1 year Total debts over 1 year Total investments - Terrains - Buildings - Production equipment - Other installations, tools and furniture - Advances and tangible fixed assets in progress - Financial investments Number of employees Average monthly gross salary Source: CCIR
35,869,101 10,784 2,246,338 47,844 1,214,258 325,809 15,762 534,020 108,644 181 392.7
41,306,947 0 1,173,230 97,327 1,251 343,985 38,410 539,090 153,167 161 312.0
27,706,925 0 365,999 0 0 26,832 4,314 231,292 103,561 131 n/a
Structure of operations Polisano owns a main warehouse in Sibiu, and 9 storehouses located in Bucharest, Bacau, Cluj-Napoca, Craiova, Constanta, Iasi, Galati, Timisoara and Sibiu. Polisano also employs 60 representatives and over 30 distribution agents. Market strategy Polisano works with 40 suppliers, the most important ones being Novartis, Pfizer, Hoffman la Roche, Aventis and Novo Nordisk. The revenue sources are 70% imports and 30% distribution, while 85% of the sales are realized with pharmacies and 15% with hospitals. The main goal of Polisano is to increase the number of distributed products and to expand the distribution infrastructure by investing in new deposits over the next 3 years. Main clients Polisano has tight collaborations with all clinical hospitals, county and city hospitals, with 95% of town hospitals and over 65% of the most important drugstores, developing a portfolio of more than 3,100 clients.
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FARMEXIM Ownership Social capital USD 0.91 million Shareholders: List of natural persons 100.0000% Total 100% Key financial data
Indicators, USD 2003 41,522,57 8 1,295,219 603,299 1,436,725 1,583,350 25,918,03 1 123,999 0 42,794 24,334,68 2 146,625 1,861,685 0 715,077 407,178 78,589 660,841 0 220 557.8 2002 30,283,17 2 987,986 516,306 874,387 958,774 16,426,03 0 613,378 0 25,744 15,467,25 6 84,387 539,578 0 0 302,309 108,665 128,605 0 206 420.4 2001
Turnover Gross Profit Net profit Total capital Net Assets Total Assets Debts towards credit institutions under 1 year Debts towards credit institutions over 1 year Expenditures with interest rates
26,012,910 500,591 264,350 543,522 899,022 10,447,099 n/a n/a 2,185
9,548,077 0 757,874 0 6,191 495 76,207 674,980 0 267 392.4
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Structure of operations Farmexim has a network of 14 deposits situated in Bucharest, Arad, Cluj, Oradea, Iasi, Galati, Constanta, Timisoara, Craiova, Brasov, Sibiu, Bacau, Ploiesti, and Targu Mures. The central deposit from Bucharest is one of the most modern pharmaceutical warehousing facilities in Romania. It has a capacity of 13,000 m 3, being certified with GDP Good Distribution Practice. Farmexim runs a commercial fleet of over 150 vehicles. All Farmexim deposits are connected online to the centralized IT system, which ensures realtime communication and coordination of the activities. Market strategy Farmexim expects a turnover of 55 USD million at the end of 2004. Farmexim operates through 3 divisions: import and export of pharmaceutical products, own pharmaceutical retail network Helpnet, and import and export of dertmato-cosmetic products GreenNet. Farmexim had run in 2004 an USD 1.5 million investment program to expand its deposits coverage by adding new warehousing facilities in Cluj, Iasi, Timisoara and extending the deposit from Bucharest. At the same time, Farmexim is planning to continue the modernization of existing deposits. To this end, investments of USD 4-5 million are budgeted for the next 3 years. Farmexim hold in 2003 a market share of 8-9% of the pharmacies segment, and expects to increase it to 12% at the end of 2004. Farmexim is part of the Sara Mercur (Romanian-Austrian insurance company) loyalty program. Holders of Sara Mercur Club cards get a discount of 5% for acquisitions within the Farmexims distribution network, if they are natural persons, and a discount of 3% when contracting through Farmexim Online, if they are legal persons. Main distributors and clients Farmexim works with over 70 suppliers, including Romanian and foreign. Helpnet (Farmexim retail arm) is the most important Farmexim client. Farmexim offers over 1,500 pharmaceutical products to its portfolio of 2,500 clients. Pharmacies account for 87% of Famrexim sales, whereas hospitals account for 13%. Farmexims most important suppliers are: Pfizer, Bristol Myers Squibb, Schering AG, Antibiotice and Sicomed. Farmexim is the exclusive distributor of Octapharma AG in Romania.
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MONTERO Ownership Social capital USD 0.44 million Shareholders: Monteko Doo (Yugoslavia) 50.0000% Tudorache Radu 23.3400% Tudorache Elena 20.0000% Tudorache R. Radu 3.3300% Tudorache R. Rares 3.3300% Total 100% Key financial data
Indicators, USD 2003 36,684,05 7 827,531 636,506 2,769,351 3,435,780 23,358,02 7 2,595,115 666,430 197,235 19,922,24 6 666,430 2,329,942 57,533 634,387 111,318 21,066 522,379 983,260 175 120.5 2002 35,276,96 9 1,991,197 1,494,927 1,862,005 2,116,940 18,156,35 6 881,760 254,936 112,350 16,039,41 6 254,936 1,103,671 0 280,891 170,405 31,654 442,678 178,043 156 112.1 2001
27,344,118 404,143 294,997 1,252,291 1,399,478 11,738,056 n/a n/a 274,343
10,338,578 0 150,837 0 14,452 5,700 17,738 77,189 35,758 140 0.0
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Structure of operations Montero holds a network of 10 deposits situated in Buchurest (the coordination center for the whole distribution activity), Brasov, Braila, Cluj, Constanta, Craiova, Iasi, Oradea, Sibiu and Timisoara. Montero runs a commercial fleet of over 80 vehicles. Market strategy Montero intends to develop its activities by increasing the number of its suppliers and the range of commercialized products. Investments in 2005 and 2006 will be directed towards the expansion of the distribution network, by increasing the number of deposits in the region. In year 2007, Montero intends to diversify its activity by investing in a pharmaceuticals production facility. Main distributors and clients Montero is supplying about 5,000 pharmaceutical products to 3,100 de pharmacies and 470 hospitals throughout the country. The pharmaceutical segment accounts for 85% of Monteros sales, the hospitals accounting for the rest of 15%. Montero works with over 60 foreign suppliers and with the majority domestic ones. The most important ones are Aventis, Elli Lilly, Merck Sharp & Dohme, Novartis, Pfizer, Schering Plough, Sicomed and Antibiotice.
DITA IMPORT-EXPORT Ownership Social capital USD 0.02 million Shareholders: Tarus Adrian 100.0000% Total 100%
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Key financial data

Indicators, USD 2003 2002 26,873,78 3 870,926 651,246 756,220 772,053 11,864,45 5 295,117 0 29,270 11,092,40 2 15,833 232,782 0 86,753 54,427 15,828 71,465 4,309 125 370.0 n/a 2001
27,919,721 702,915 514,400 619,869 934,957 12,748,883 359,420 0 40,882
23,785,787 974,279 738,708 119,404 246,538 9,135,850 n/a n/a 23,430
11,813,926 10,916 292,304 0 97,234 46,132 22,515 126,423 0 182 277.9
8,889,313 4,886 44,525 0 2,822 0 10,377 31,326 0 129
Structure of operations Dita Import-Export is covering Romania through it own deposits or through local partners facilities. Dita has 8 own deposits in Bucharest, Craiova, Arad, Constanta, Cluj, Baia Mare, Bistrita and Braila. Dita partners 12 deposits are located in Brasov, Ploiesti, Targoviste,
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Drobet Turnu Severin, Deva, Pitesti, Timisoara, Sibiu, Targu Mures, Oradea, Piatra Neamt and Iasi. Market strategy Dita Import-Export is specialized in the import and export of pharmaceutical products and raw materials for the pharmaceutical industry, as well as warehousing and distribution of pharmaceutical products. Dita expects a turnover of USD 35 million at the end of 2004. Its revenue sources are: - imports: 35% - exports: 2% - distribution: 63% In the future, Dita intends to expand the range of distributed products as well as increasing the number of suppliers. Main distributors and clients Dita is distributing 90% of its products through its own distribution network and the rest of 10% through distributors. Of the total Ditas sales, 65% go to pharmacies and 35% to hospitals. Dita is accounting for 18% of the Sicomeds distribution system.
3.4. List of main and secondary bank for the distributors

The table below presents the list of main and secondary banks that distributors work with:
Company ADM Farm SRL Bbraun Medical Timisoara Datacom Int'l S.A. Dita Import Export SRL Europharm Farmacom Brasov Farmavet S.A. Farmexim SA Farmexpert D.C.I. SRL Bucuresti Fildas Trading SRL Heliofarm Constanta Iassyfarm Iasi Imeco SA Imedica SA Main Bank BCR Alpha Bank Banc Post BCR ABN Amro BCR Raiffeisen BRD BCR Banca Tiriac Banca Tiriac Banc Post BCR BCR Secondary Bank Piraeus HVB Italoromena n/a n/a ABN Amro BRD Citibank ABN Amro BCR n/a n/a n/a Alpha Bank
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Medical Saer Ass.SRL Mediplus Exim SA Montero S.A. Pharma Iasi Phoenixmed 2000 Polisano Sibiu Relad Pharma Rombiomedica (Jh&Jh) S&D Farma SRL Seder Imp-Exp. SRL Sensiblue SRL SIEPCOFAR SRL Terapia Distributie Ultramed SRL Valmedica S.A. Veterin Impex SRL
Banca Tiriac HVB ING Bank Banc Post Italoromena BRD ABN Amro BCR HVB Misrbank HVB BRD Raiffeisen BCR BCR Alpha Bank
n/a ING Bank, Robank BRD BCR Banca Tiriac BCR n/a n/a Raiffeisen, Robank BCR ING Bank, Robank BRD, Banca Tiriac, Banca Transilvania ABN Amro BRD Banca Trirac Banca Tiriac
Range of banking products that are used by the distributors:

Company ADM Farm SRL Bbraun Medical Timisoara Datacom Int'l S.A. Dita Import Export SRL Europharm Farmacom Brasov Farmavet S.A. Farmexim SA Farmexpert D.C.I. SRL Bucuresti Fildas Trading SRL Heliofarm Constanta Iassyfarm Iasi Imeco SA Imedica SA Medical Saer Ass.SRL Mediplus Exim SA Montero S.A. Pharma Iasi Phoenixmed 2000 Polisano Sibiu Relad Pharma Rombiomedica (Jh&Jh) S&D Farma SRL Seder Imp-Exp. SRL Sensiblue SRL SIEPCOFAR SRL Terapia Distributie Ultramed SRL Valmedica S.A. Veterin Impex SRL x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x 1 2 3 x x x x x x 4 x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x 5 6 7 8 9 x x x 10
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1- credit lines 2- investment credits 3 - discounting facilities 4 - letters of guarantee 5 -current account operations (payments, incomes) 6 - export/import financing 7 - term deposits 8 - overnight deposits 9 - cards for employees 10 electronic banking (multicash)
3.5. Retail - analysis and trends

The number of pharmacies is continuously increasing reaching 4,428 at the end of 2003, compared to 4,268 in 2001. Bucharest alone holds almost 12% of its total number. Over the period 2004-2008, it is expected that the number of pharmacies will increase by about 10%, reaching a number of 4,900 in total. The pharmacies are relatively well spread across the country. Regional coverage of pharmaceutical retail stores can be seen in the table below:
Number of pharmacies, split by county (2001-2003)
County Alba Arad Arges Bacau Bihor Bistrita-Nasaud Botosani Brasov Braila Buzau Caras-Severin Calarasi Cluj Constanta Covasna Dambovita Dolj Galati Giurgiu Gorj Harghita Hunedoara Ialomita Iasi Ilfov Maramures 2001 80 118 150 97 183 52 64 120 60 101 59 35 154 170 37 108 151 115 32 64 59 100 41 186 44 82 2002 84 82 161 114 198 55 71 134 62 92 50 36 150 169 38 87 146 116 30 63 56 111 41 210 52 76 2003 85 121 165 110 183 60 71 131 84 94 59 36 165 169 38 88 149 106 38 60 66 96 39 211 56 81
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Mehedinti Mures Neamt Olt Prahova Satu-Mare Salaj Sibiu Suceava Teleorman Timis Tulcea Vaslui Valcea Vrancea Bucharest
61 145 79 60 176 58 40 95 137 62 183 25 49 73 74 489
58 143 83 66 151 56 40 97 148 62 165 35 52 82 75 488 4285
64 144 81 67 149 65 41 96 163 69 159 38 55 80 75 521 4428
Total 4268 Source: Sanitary Statistics and Medical Documentation Center
The vast majority of the pharmacies are small family owned retail units. However, large pharmacy chains with regional coverage have developed as well. The most widely recognized brand is Sensiblu, a pharmacy chain covering the entire Romanian territory. Sensiblu is part A&D Holding, also owning top ranking distributor Mediplus. Another well-recognized brand is HelpNet, a pharmacy chain with 50 outlets (of which 33 are located in Bucharest), which is part of the same group with Farmexim, also one of the top-five distributors. Due to the high fragmentation in the industry, the number of pharmacy chains is currently small. Some of them are state-owned, while some formerly state-owned have been taken over by the management. As an example, Centrofarm, has disintegrated in small chains or individual pharmacies.
3.6. Company profiles of large pharmacy chains
SENSIBLU Ownership Social capital USD 6,821 Shareholders: Sograno BV Mediplus Exim Total Key financial data
Indicators, USD 2003 2002 2001
84.2786% 15.7214% 100%
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Turnover Gross Profit Net profit Total capital Net Assets Total Assets Debts towards credit institutions under 1 year Debts towards credit institutions over 1 year Expenditures with interest rates Total debts under 1 year Total debts over 1 year Total investments - Terrains - Buildings - Production equipment - Other installations, tools and furniture - Advances and tangible fixed assets in progress - Financial investments Number of employees Average monthly gross salary Source: CCIR
31,808,295 212,911 46,907 109,581 8,394,713 20,832,378 0 0 863,945 12,437,665 0 1,415,834 0 493,246 345,293 49,609 517,386 10,299 590 295.5
20,971,719 250,505 107,989 63,866 8,643,694 17,169,497 0 0 413,459 8,525,804 0 893,376 0 70,951 308,754 104,635 40,215 368,821 465 100.8
13,847,716 140,317 55,662 336,777 370,128 5,820,892 0 0 862 5,450,764 0 281,561 0 38,677 0 98,605 144,279 n/a 316 n/a
Structure of operations Sensiblu is part of the AD Pharma group, Mediplus being one of its shareholders. Sensiblu runs a chain of 100 pharmacies from which 45 are located in Bucharest and the remaining 55 in the most important Romanian cities (Arad, Bacau, Baia Mare, Barlad, Braila, Brasov, Buchurest, Campina, Cluj-Napoca, Constanta, Craiova, Drobeta Turnu Severin, Galati, Giurgiu, Hunedoara, Iasi, Mangalia, Neptun, Oradea, Pitesti, Ploiesti, Ramnicu Valcea, Sibiu, Sinaia, Suceava, Timisoara, Targoviste, Targu Jiu, Vaslui). Apart from that, Sensiblu also holds a chain of 13 optical stores. Market strategy
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Sensiblu expects a turnover of USD 52 million in 2004. The development of the Sensiblu network had an average growth of the market share of 30% a year. Sensiblu expects to reach over 100 POS in 2005. Sensiblu has developed a successful loyalty program through its Sensiblu cards in 2003. In 2003 Sensiblu issued 138,600 cards. In 2004, while still developing its POS network in Bucharest, Sensiblu has higher POS growth in the regions. The expansion of the POS network in the regions will accelerate over the next 2-3 years. Main clients Sensiblu works with 120 suppliers, the main partner being Mediplus. Sensiblu serves daily a number of 20,000 customers in the whole country.
HELP NET Ownership Social capital USD 0.02 million Shareholders: Buluc Ovidiu 35.0000% Nastase Isabelle 25.0000% Buluc Alinia Maria 5.0000% Avram Iancu 5.0000% Anton Vasile Liviu 2.5000% Grigorescu Iulia 2.5000% Ionescu Irina Petruta 2.5000% Gheorghiu Andrea 2.5000% Biclineru Dana 2.0000% Caunii Angelica Rodica 2.0000% Stanciucu Daniela 2.0000% Pisa Carmen Tatiana 2.0000% Isfan Mariana 2.0000% Radulescu Mariana 2.0000% Leonte Nicoleta 2.0000% Antohe Carmen Ana 2.0000% Ghita Mihaela 2.0000% Popa Luminita 2.0000% Total 100%
Key financial data

Indicators, USD 2003 2002 2001
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Turnover Gross Profit Net profit Total capital Net Assets Total Assets Debts towards credit institutions under 1 year Debts towards credit institutions over 1 year Expenditures with interest rates Total debts under 1 year Total debts over 1 year Total investments - Buildings - Production equipment - Other installations, tools and furniture - Advances and tangible fixed assets in progress - Financial investments Number of employees Average monthly gross salary Source: CCIR
8,550,361 173,509 90,780 96,160 2,098,678 5,208,094 n/a n/a 169,401 3,109,416 0 607,916 214,585 132,546 25,642 235,143 0 215 220.4
6,610,918 18,831 -5,415 5,403 1,728,739 3,468,699 n/a n/a 98,443 1,739,960 0 313,174 165,422 95,643 21,546 30,563 0 150 155.6
n/a -4,900 -4,900 12,305 n/a n/a n/a n/a 454 272,538 0 n/a n/a n/a n/a n/a n/a 4 180.9
Indicators Capital productivity (turnover/own capital) Assets productivity (turnover/total assets) Labour productivity (turnover/no. of employees), USD/employee Source: CCIR 2003 88.92 1.64 39,769 2002 1,223.46 1.91 44,073 n/a n/a n/a 2001
Structure of operations As the retail unit of Farmexim, Helpnet runs a chain of 50 pharmacies throughout the country. Of these 33 stores are located in Bucharest. Market strategy Helpnet expects to increase its turnover to USD 19 million in 2004. Helpnet has almost tripled the number of its stores during this year (from 18 in 2003 to 50 in 2004).
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Helpnet has the objective of becoming the largest chain of pharmacies in Romania in terms of number of stores. An important component of the marketing strategy is to become the network with the largest number of loyal customers. Helpnet has put in place a loyalty program, through which holders of Helpnet Cards get a 5% discount for purchases in the Helpnet pharmacies chain. Helpnet is also part of the Sara Mercur (Romanian-Austrian insurance company) loyalty program. Holders of Sara Mercur Club cards get a discount of 5% in Helpnet stores. Main clients Helpnet works with over 100 suppliers and serves a number of over 10,000 customers daily.
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3.7. General profile of small retail pharmacies

The retail family owned pharmacies have and average number of 1.33 POS. The retail pharmacies located in county centers have 10.5% of their POS located in other cities within the same county. The retail pharmacies have 7.1 employees in average. The POS average surface is 96.4 square meters. The average turnover of the retail pharmacies has increased from USD 174,000 in 2001 to USD 194,000 in 2002, and USD 240,000 in 2003. For the period 2004-2008 an average turnover growth rate of 19.4% per year in USD terms is expected. The gross profitability rate has decreased from 2.7% in 2001 to 3.9% in 2002, and 3.7% in 2003. It is expected that in the following 5 years it will increase to maximum an average of 4.0%. The retail pharmacies have in average 2,277 products on the shelf for sale, and have an average mark-up of 20.16%. The most important suppliers (rated on a scale of 1 to 5, in order of importance for the distributor) with which interviewed pharmacies work are as follows:
Supplier Fildas Mediplus Farmexpert Relad Montero Farmexim Dita Eurofarm Tamisa trading Farmafarm Farmacom Terapia distribution Score - out of max 240 73 71 54 45 40 29 28 16 16 15 11 8
Pharmacies named the following factors as determining success in their activity:

Factors staff professionalism communication with customers large service area of the shop range of products rapidity of service price Score - out of max. 240 115 83 34 30 25 10
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The following ratings (on a scale of 1 to 5; 1 low importance, 5 high importance) were given by pharmacies to factors influencing sales:
Factors Relationship with suppliers Pricing policy Client fidelity Relationship with bank/s Score 3.67 3.68 4.19 1.75
No pharmacy has launched its own brand, and only 2.5% of them intend to launch one within the next 5 years. Only 8.5% of the pharmacies have developed a loyalty program, and 26.5% intend to develop one during the next 5 years. In terms of the legislative environment, pharmacies have cited the following laws to have the highest impact on the activity: 1) The contractual system with the National Healthcare Insurance House 2) Regulations regarding compensated and reimbursed drug system 3) Fiscal code 4) The pharmacies law 16.3% 16.2% 15.0% 7.5%
In terms of development plans, the situation is as follows: 15.0% of pharmacies intend to increase the number of suppliers, and the remaining 41.2% will leave the number as it currently is; 76.3% intend to increase the number of commercialized products, and 17.4% will maintain the current number; 31.3% intend to extend the number of POS, while 2.1% intend to decrease the number of POS, while 66.2% will maintain it at the current situation. Regarding the financial resources for development, the pharmacies interviewed intend to use the following sources: Own sources 83.3% Attracted resources 22.5% In the case of attracted resources, 88.9% will use loans from banks, 11.1% will go for partnerships. The average investment per pharmacy was USD 1,430 in 2001, USD 3,002 in 2002, and USD 4,719 in 2003. Future yearly investments over the 2004-2008 period are expected to increase by about 16% compared with 2003. Yearly investment covering the needs of the retail pharmacies are estimated at over USD 24 million per year in the in the period 2004-2008. The table below presents the penetration of banks in the retail pharmacies. The pharmacies have rated their satisfaction level (on a scale of 1 to 5; 1 poor, 5 excellent) with their main and secondary banks as follows:
Bank
Principal bank
Satisfaction level
Secondary bank
Satisfaction level
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on a 1 to 5 scale BCR BRD Raiffeisen Banc Post Finansbank Banca Tiriac Banca Transilvania HVB Banca Romaneasca Romexterra Alpha Bank Italoromena Total n/a n/a 100.0% 46.7% 26.0% 10.4% 3.9% 3.9% 2.6% 2.6% 1.3% 1.3% 1.3% n/a n/a 4.51 4.4 4.5 4.4 4.3 5 4 5 5 4.5 4 n/a n/a n/a 8.30% 8.30% 100.0% n/a 16.7% 8.3% 8.3% 25.0% 16.7% 8.3%
on a 1 to 5 scale 5 4.7 4 2 n/a 4 5 n/a n/a n/a 3 4 4.34
The motivation of the decision to work (on a scale of 1 to 5; 1 not important, 5 very important) with the principal bank and the secondary banks was as follows:
Motivation criteria Offered services Prices Vicinity to own locations Brand awareness Score for choosing main bank 4.3 3.1 3.9 4.6 Score for choosing Secondary bank 3.8 3.5 3.1 3.7
Only 11.2% of the pharmacies accept payment cards, while 13.8% intend to install a card reader in one year, and 33.8% within the next 5 years. The penetration of bank services used by the pharmacies is presented in the chart below:
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% of companies using 10.0 11.5 7.7 0.0 0.0 98.7 0.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0 0.0 credit lines investment credits discounting facilities letters of guarantee current account operations export/import financing term deposits 0.0 overnight deposits cards for employees electronic banking (multicash)
Usage of bank services by family pharmacies
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6.4 1.3 0.0 % of companies using
4. Government implication in the pharmaceutical sector
4.1. Legal and regulatory environment

Regulation and controlling Since 2001 the Romanian legislation in the healthcare domain is aligned to the EU norms. The implementation of GMP (Good Manufacturing Practice) requirements for producers has imposed producers an a priori control system on the drugs, compared to the posteriori control approach that was used before. With this view, producers must have a standardized laboratory that verifies and controls drugs during the production process, and every drug series is approved by the responsible person from the producer. This way, a personal responsibility of the producer for the produced drugs has been established. The GMP as well as GLB (Good Laboratory Practice) certification is the responsibility of the National Drug Agency, which was set-up in 1999, and whose activity is regulated through Emergency Ordinance 66 from 2003 approved by Law 96 from 2004. The National Drug Agency (a public institution subordinated to the Ministry of Health) is also responsible for the authorization of, and the introduction onto the market, of all drugs, either produced locally or imported. The National Drug Agency (NDA) is the body responsible for the authorization of drug production, import, registration and distribution. The registration process takes on average 12-18 months, being much shorter (circa 3 months) for drugs having the EMEA (European Medicine Evaluation Agency) registration certificate. Drugs have to be registered every 5 years and the process can take up to 10 months. The procedure for drug registration is now in line with the EU standards. The Control Department within the NDA is responsible for monitoring drug quality, inspecting production facilities and issuing the Certificate of Good Manufacturing Practice. The GMP certificate must be renewed every other year. The Ministry of Health is responsible for the authorization of pharmaceutical deposits and pharmacies. The Ministry of Health is also responsible for the issuing official certificates to companies for the import and export of narcotic drugs, as well as for the import of drugs that are dangerous for the population health according Governmental Decision 1618 from 2003. The Ministry of Health is responsible for the pricing policy for drugs. Currently prices on drugs are regulated through the Order 612 /2002 of the Minister of Health. OTC drugs have a free market price, while the prescription drugs have controlled prices through the dictated mark-up for the distribution chain. Every year the Ministry of Health is issuing a list of prices for prescription medicines. Adjustments to this list can be made quarterly as well. There are about 1,500 prescription drugs, out of which 700 are Romanian and 800 are imported. The Ministry decision basis for prices on imported drugs is the comparison with other neighboring and/or EU markets. The offered price by the importer should not be higher than the best price in the comparison markets. In 80% of the cases, the suppliers accept the price
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requested by the Ministry of Health. In about 5-10% of the cases, the supplier has solid arguments (which the ministry accepts) that the lower price from a comparison country is due to country specific conditions and, therefore, cannot be applied to the Romanian market. In the remaining 10-15% of cases, the suppliers choose not to enter the market with the specific drug. Prescription drugs are distributed through pharmacies, which have a contract with the National Health Insurance House (CNAS), through the county houses. Hospitals procure the drugs through the electronic acquisition system www.e-licitatie.ro. Starting with 2004, a national centralized tender for the most solicited drugs was organized. This way an economy of about USD 350,000 was made. The national tender covers about 80% of the hospitals needs. The remaining 20% is distributed through the budgets in the administration of the hospitals.
Health insurance and financing system A number of laws have sought to create a more pluralistic and decentralized healthcare system in Romania. Health Insurance Law 145 /1997 attempted to introduce a contractual relationship between health insurance funds as purchasers and health care providers. Prior to 1998, health care was mainly financed by government revenues received from direct and indirect taxes, but also from local government budgets, from the National Health Insurance Fund and from external sources. The Health Insurance Scheme, introduced in 1998, is based on a social health insurance fund. The employers contribution to the health-care fund is 7% of the gross salary, while employees contribution is 6.5% of the gross salary, down from a previous 7%. This is not expected to cover all health care in the short run, and the State will still provide for fundamental needs of the system. The political objectives of healthcare reform have been to decentralize the system and create competition among providers. Emergency Ordinance 150 /2002 has replaced Law 145 /1997. The new ordinance has created the institution of the unique National Social and Health Insurance Fund (CNAS). It defines with higher precision the institutions, the obligations and tasks, as well as the management of the CNAS budgets. In a proportion of 96%, the CNAS budgets are utilized for the payment of medical services, drugs, sanitary materials and medical tools, of which benefit the insured persons. The Health Insurance Law provides, among other, access to reimbursed drugs to the patients. Every year, the Ministry of Health and the CNAS compile a list that determines which prescription drugs are covered by health insurance funds. The list is based on recommendations from the College of Physicians and the College of Pharmacists and includes drugs listed as generic compounds. If a doctor indicates the generic name of a prescription, pharmacists must dispense the cheapest drug. The reimbursement list applies to outpatients. The reimbursing mechanism works in three ways:

100% reimbursement on generic substances for people suffering from one or more of 26 diseases (cancer, TB, diabetes, etc.); 90% reimbursement for pensioners;
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65% reimbursement (or 50%, depending whether it is the physicians first or second option) on generic substances for which the reference price system is applied.
The reference prices are based on the lowest-priced product within a cluster of medicines. In addition, patients themselves have to pay 35% (or 10% for the 90% compensated drugs to pensioners) of the reference price (i.e. of the lowest-priced product in a cluster); if patients want a more expensive product, they will also have to pay the difference between the price of the lowest-priced product and the actually dispensed drug. The clusters are formed based on the generic substance, the pharmaceutical form and strength. From the total list of about 1,580 prescription drugs, 214 are fully reimbursed drugs and 248 are compensated drugs. Due to scarcity of resources, the drug reimbursement remains a major problem for the health system. Despite the introduction of the new system aimed at streamlining the entire process, reimbursement remains characterized by massive delays that severely affect all participants (manufacturers, distributors and pharmacies being state creditors) and create liquidity constraints within the industry. To solve this problem the CNAS is implementing a payment management information system (the contractor being HP Romania). This budget of the CNAS has the following structural coverage:

45% - family doctors, clinical and special ambulatory (out of hospital treatment) 45% - hospitals (including medical services and hospital treatment, medical equipment) 10% - national health programs
National health programs The Emergency Ordinance 150 /2002 set the national health programs. In 2004, the budget of the national health programs was 7,070 billion ROL, and most probably, an adjustment has been made to increase it to ROL 7,770 billion ROL. There are a total of 9 national health programs including:

the cardiovascular program, psychiatric program, oncological program, transmissible AIDS/HIV program, diabetic nutrition program, dialysis, tuberculosis program, poliarthritis/ rheumatoid program prosthesis program
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State owned sector in the industry Antibiotice is the only state owned producer of drugs, majority owned by the Ministry of Health. The majority share of the state in Antibiotice will be kept, as it is considered a company with strategic importance for the state. The state has an important role in the Romanian healthcare system. It holds majority ownership in 416 hospitals (5 being private), 44 polyclinics (161 being private), 442 medical clinics and 503 pharmacies. Private health insurance funds At this moment there are no private health insurance funds in Romania. Law 212 /2004 regarding private health insurance has set the legal framework for the private health insurance funds. Starting with 1st of January 2005, private health insurance funds will be able to operate. The methodological norms for this law are being currently finalized by CNAS and will be adopted by the end of the year. Insurance companies have already expressed interest in creation of private health insurance funds (Interamerican, Unita, Asirom, Astra, etc.).
4.2. Analysis of current needs and future expected developments

The objective of the healthcare system is to reduce the number of hospitals by transferring a part of the patient care to ambulatory treatment. This way the more expensive hospital treatment would be replaced (in cases where it is possible only) by less expensive out patients clinic treatment. Modernization of the healthcare system is urgently needed in the view that the Romanian healthcare system should be prepared to meet EU requirements by 2007 (when Romania could join EU countries). At that stage, the Romanian healthcare system should be able to offer comparable service from the point of view of the quality. To this end, CNAS tries to secure financing for developing an IT system for the family doctors (endowment of family doctors with laptops and connection to databases with the information on patients stored). Another need would be to develop an IT system for the hospitals (one of the many benefits would be to avoid the costly manual registry keeping and storing physical registers for 15 years). Regarding the private health insurance funds, it is very likely that Law 212 /2004 will be amended in the near future as it is considered to have rather vague language, and is not clear enough from the CNAS point of view. It is estimated that during the first year of operation, the private health insurance funds will be able to cover maximum 10% of the healthcare system, and will not exceed 20% by the end of 2008.
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5. Conclusions and recommendations
Despite continuing management problems, poor out-patient care, and a recent financial crisis, the Romanian pharmaceutical sector is set for rapid growth over the coming five years, more than doubling from its 2003 level of USD 729 million to over USD 1.8 billion by 2008. While Romanian pharmaceutical production will continue to be dominated by generics, current R&D efforts and licensing agreements with foreign players will create an increasingly sophisticated local market. At the same time, the leading Romanian producers are poised for rapid export-led growth. In comparison to the Central European countries, Romanias per capita drug consumption remains low. However, Romanias rapidly increasing living standards, driven by sustained economic growth, combined with ongoing reforms in the health sector are expected to substantially narrow this gap over the coming years. Growth in the turnover of the Romanian pharmaceutical sector will average 20% per year over the next five years, while the industrys consolidated gross profits are expected to stabilize at around 10%. The countrys leading manufacturers will continue making important investments over the coming years aimed at the introduction of modern equipment and technologies, and the improvement of production processes. Overall growth in the Romanian pharmaceutical distribution sector will also be close to 20% per year through 2008. The sector remains fragmented with five distributors accounting for about half of total sales and the remainder covered by close to 30 companies. While the total number of pharmaceutical warehouses in Romania will continue to decrease slightly, substantial investments will be made to refurbish and automate many of the existing facilities. By end-2008, the total number of pharmacies is expected to have increased by about 10%. A growing number of pharmacies have introduced loyalty cards or are planning to do so in the near future. Over the coming three to five years, a number of new pharmacy chains and/or franchises are expected to emerge. At the same time, the number of private hospitals and diagnostic centers is to set to grow rapidly. The leading Romanian pharmaceutical manufacturers have all made substantial investments in technology and quality standards. Generally, these companies enjoy strong balance sheets and positive cash flow. This sector represents an excellent prospect for Raiffeisen for a wide range of financial products including working capital
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lines of credit, long-term debt financing, letters of credit, and payment cards for employees. The total yearly investment required by the Romanian pharmaceutical industry over the period 2004-2008 is estimated at USD 131 million, out of which 56.5% would be directed towards market suppliers (importers and producers), 25.2% towards distribution companies, and 18.3% towards retail pharmacies. BCR has the highest client penetration in all segments of the pharmaceutical sector (main market players, distribution companies, and retail pharmacies), retail pharmacies being the highest one. BRD follows second and Raiffeisen third. While BRD is relatively balanced in all sectors, Raiffeisen appears weaker in the distribution segment of companies. As the use of debit and credit cards is set to increase substantially in the pharmaceutical retail sector, Raiffeisen should seek to develop co-branded finance cards with pharmacies and pharmacy chains, and to proactively encourage this trend. Sensiblu and HelpNet, having already launched their own loyalty cards, would be prime candidates for Raiffeisen to approach with co-branded finance cards; opportunities could exist with other emerging chains, as well as possibly with individual stores or via an agreement with the College of Pharmacists; Raiffeisen could also consider co-financing point-of-sale card readers in selected pharmacies to encourage usage. Anticipated consolidation on the Romanian pharmaceutical distribution sector means that the leading 5 to 10 players will require an increasing array of financial products to finance both organic growth and M&A activities. This represents a prime target group for Raiffeisen. Private clinics and outpatient facilities would also be an attractive client base for Raiffeisen. The overall number of private clinics is increasing rapidly and several of these organizations are developing into chains. This is a highly profitable sector, which would be a prime candidate for a mid to long-term debt to finance expansion, short-term financing for equipment purchases, as well as products tailored to current account operations.
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ANNEX 1 Pharmaceutical imports and exports split by country

Pharmaceuticals exports split by destination country 2001
Country Bulgaria Moldova Ukraine Russia Germany Hungary Poland Austria United Kingdom Albania Macedonia Kazakhstan Philippines Lithuania Switzerland Hong-Kong Saudi Arabia Andorra Indonesia Georgia Azerbaijan Armenia United States Czech Republic Jordan Ecuador Uruguay Italy Chile Colombia Kenya Belgium Greece Israel Mauritius Syria Brazil Turkey Honduras Bahamas Canada Slovenia Qatar France Quantity, 000 kg 139.36 217.27 240.77 37.47 149.22 14.16 6.36 2.59 2.05 123.97 108.66 1.41 2.49 1.46 0.72 0.35 9.05 0.36 0.40 0.64 0.61 0.24 0.27 1.80 0.16 0.11 0.06 3.21 0.08 0.05 0.20 0.04 0.11 0.01 0.03 0.24 0.01 0.02 0.07 0.00 0.00 0.00 0.00 0.00 Value, $ '000 5,431.17 4,939.30 3,133.53 2,704.11 2,567.23 710.41 594.90 451.83 344.22 322.22 253.69 188.01 186.23 177.13 110.29 100.56 93.49 90.76 82.78 74.95 61.03 54.06 48.76 39.49 36.14 32.27 26.30 22.26 20.89 18.45 18.13 13.92 13.85 9.44 6.68 6.17 5.37 3.86 2.25 1.23 1.06 0.68 0.62 0.27 Avg. price, $/Kg 38.97 22.73 13.01 72.17 17.20 50.17 93.57 174.27 168.04 2.60 2.14 126.40 74.72 121.25 152.47 286.52 10.33 251.55 204.94 117.20 99.30 221.94 183.33 21.93 224.52 281.97 468.84 6.94 272.27 390.81 92.97 328.42 127.62 1,703.11 245.55 25.63 426.97 163.55 31.61 360.77 695.99 1,266.63 462.54 993.43
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Total
1,066.09
23,000.00
21.57
Pharmaceuticals imports split by country of origin 2001

Country France Germany United Kingdom Italy Slovenia Switzerland Belgium United States Netherlands Hungary Austria Ireland Denmark Egypt Turkey Sweden Greece Puerto Rico Spain Cyprus India Czech Republic Serbia & Montenegro Japan Israel China Finland Croatia Australia Moldova Bulgaria Jordan South Korea Canada Portugal Russia United Arab Emirates South Africa Poland Mexico Liechtenstein Dominican Republic Brazil Norway Quantity, 000 kg 1,183.34 4,288.54 429.18 273.16 361.74 330.96 128.37 642.77 100.90 372.18 438.04 937.21 43.09 251.44 294.75 134.52 120.22 3.58 80.50 60.97 69.74 150.84 1,559.12 6.56 27.99 217.15 2.35 2.50 2.93 105.17 71.06 33.76 3.11 41.74 6.04 119.34 11.07 1.09 4.99 1.04 0.35 0.12 2.24 6.57 Value, $ '000 67,916.01 57,867.86 43,456.01 29,982.43 24,294.02 20,528.14 20,373.05 16,902.99 16,769.99 15,358.72 13,471.43 12,853.44 12,622.80 8,867.08 8,637.67 6,353.21 4,578.34 4,232.45 3,922.43 3,738.55 3,151.12 3,134.64 2,061.73 1,956.09 1,847.04 1,532.77 1,391.20 968.17 946.04 809.84 803.62 713.22 711.13 643.42 574.75 432.15 302.84 286.64 284.74 142.43 115.66 110.47 92.43 72.39 Avg. price, $/Kg 57.39 13.49 101.25 109.76 67.16 62.03 158.70 26.30 166.20 41.27 30.75 13.71 292.95 35.27 29.30 47.23 38.08 1,181.79 48.73 61.32 45.18 20.78 1.32 298.09 65.99 7.06 592.68 386.74 323.14 7.70 11.31 21.13 228.83 15.42 95.12 3.62 27.35 262.33 57.01 137.35 330.98 980.83 41.19 11.02
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Slovakia Singapore Colombia Taiwan Thailand New Zealand Luxembourg Polynesia Undet. Countries & Territ. Malaysia Syria Total
0.90 2.76 1.06 1.42 1.23 0.08 0.09 0.05 0.01 0.00 0.06 12,930.00
54.84 47.40 44.93 17.94 14.62 3.99 2.63 1.51 0.85 0.06 0.05 416,000.00
60.82 17.17 42.31 12.63 11.87 47.50 28.80 28.98 154.29 42.10 0.89 32.17

Country Bulgaria Russia Moldova Germany Ukraine Poland Macedonia Albania Lithuania Hungary Kazakhstan Austria United Kingdom Georgia Afghanistan Uzbekistan Azerbaijan Indonesia Armenia Bosnia & Herzegovina Greece France Swaziland Hong-Kong Andorra United States Italy Slovenia Czech Republic Mongolia Uruguay Syria Belgium Quantity, 000 kg 126.60 103.19 202.36 164.07 24.05 10.64 168.82 252.04 4.58 9.36 2.67 3.50 1.19 2.07 4.35 1.50 1.62 0.50 0.53 1.12 0.22 0.15 0.50 0.24 0.21 0.13 6.23 0.26 0.34 0.14 0.03 0.51 0.09 Value, $ '000 7,464.29 5,149.03 4,598.98 3,266.47 2,258.16 1,898.07 1,157.91 680.76 500.74 414.59 385.25 376.28 272.04 205.15 202.18 149.06 110.14 104.27 101.83 92.09 91.67 87.47 83.48 72.35 63.80 33.07 31.90 26.59 26.50 22.01 13.87 11.56 11.56 Avg. price, $/Kg 58.96 49.99 22.73 19.91 93.89 178.41 6.86 2.70 109.25 44.31 144.04 107.36 228.55 98.99 46.52 99.39 68.07 208.10 193.29 82.32 421.69 579.66 165.75 298.65 305.25 247.16 5.12 104.22 77.98 158.18 400.19 22.74 134.93
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Colombia Spain Switzerland Nigeria Panama Honduras Uganda Turkey China Cyprus Portugal Philippines Canada Barbados Total
0.02 0.02 0.01 0.02 0.01 0.09 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1,093.99
6.90 6.50 4.67 4.14 3.67 2.77 1.66 1.52 1.50 0.89 0.74 0.71 0.64 0.54 30,000.00
420.10 348.54 345.01 197.37 383.14 30.84 530.75 798.55 50,519.30 495.22 782.36 1,252.33 671.59 412.65 27.42

Country France Germany United Kingdom Italy Slovenia United States Switzerland Netherlands Belgium Hungary Denmark Ireland Turkey Sweden Austria Austria Spain Egypt India Greece Cyprus Czech Republic Serbia & Montenegro Japan Israel China Undet. Countries & Territ. Finland Australia Jordan Quantity, 000 kg 1,462.86 3,752.27 555.16 309.83 434.75 327.08 224.48 118.90 139.21 406.41 54.71 1,118.90 127.86 150.93 181.41 321.91 357.30 187.19 81.13 130.97 89.18 160.14 2,084.24 5.64 30.25 293.07 13.21 2.79 1.35 50.22 Value, $ '000 71,303.55 57,205.26 53,032.66 34,549.54 24,933.29 23,131.40 20,727.03 19,593.28 18,059.35 14,401.35 12,800.95 12,528.43 9,526.37 5,864.37 5,711.45 5,427.36 5,188.10 5,031.55 3,976.08 3,941.24 3,110.90 2,657.57 2,494.15 2,267.86 1,732.89 1,666.76 1,665.85 1,110.41 895.18 760.89 Avg. price, $/Kg 48.74 15.25 95.53 111.51 57.35 70.72 92.33 164.79 129.73 35.44 234.00 11.20 74.51 38.85 31.48 16.86 14.52 26.88 49.01 30.09 34.88 16.60 1.20 402.32 57.29 5.69 126.13 397.74 665.52 15.15
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Croatia Bulgaria South Africa Russia Portugal Canada Moldova Dominican Republic Norway United Arab Emirates South Korea Poland Brazil Slovakia Mexico Singapore Tunisia Colombia Liechtenstein New Zealand Taiwan Thailand Syria Georgia Pakistan Iran Total
2.19 45.23 1.62 185.10 6.57 8.78 53.72 0.43 26.31 7.79 7.04 3.78 6.76 2.49 0.87 8.07 6.47 0.81 0.20 0.27 0.04 1.20 0.91 0.00 0.01 0.01 13,550.00
743.19 497.61 482.88 471.03 466.30 333.34 285.61 264.65 208.04 203.77 190.20 172.92 80.63 63.28 57.09 53.74 38.75 27.63 20.48 12.49 10.00 8.55 7.23 4.78 0.68 0.05 430,000.00
339.57 11.00 298.15 2.54 70.96 37.95 5.32 599.05 7.91 26.15 27.03 45.76 11.94 25.37 65.67 6.66 5.99 34.09 103.70 46.21 235.99 7.14 7.93 1,614.08 107.58 5.62 31.73

Country Bulgaria Russia Moldova Germany Ukraine France Poland Albania Kazakhstan Netherlands Hungary Austria China Azerbaijan Uzbekistan Ireland Japan Serbia & Montenegro Quantity 000 kg 185.70 78.26 279.04 181.99 33.27 112.27 10.28 400.44 5.15 1.81 11.26 2.58 1.22 9.92 2.93 0.01 0.29 47.49 Value, $ '000 10,522.58 6,802.39 5,389.42 3,589.11 2,587.10 2,131.32 968.78 934.09 719.87 625.49 479.13 472.88 439.55 408.63 320.01 307.84 261.19 258.52 Avg. price, $/Kg 56.66 86.92 19.31 19.72 77.75 18.98 94.24 2.33 139.73 346.06 42.54 183.56 361.05 41.21 112.50 43,808.08 905.95 5.44
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Georgia Undet. Countries & Territ. United Kingdom Philippines New Zealand Italy Hong-Kong Mongolia Turkey Malaysia Armenia Brazil Czech Republic United States Andorra Croatia Slovenia Ecuador Greece Singapore Belarus Switzerland Indonesia Uruguay Belgium Antilles (Neth.) Mauritius Costa Rica Colombia Chile Swaziland Syria Panama Slovakia Mexico Thailand Bahamas Canada Guatemala Nepal Total
1.84 6.85 1.34 2.45 0.08 18.49 0.38 0.68 2.15 1.05 0.73 0.12 0.43 0.20 0.12 0.02 0.03 0.13 0.11 0.13 0.22 0.04 0.06 0.03 0.01 0.03 0.04 0.01 0.01 0.03 0.08 0.05 0.00 0.05 0.00 0.00 0.00 0.00 0.00 0.04 1,401.91
199.72 171.60 162.05 135.97 128.35 119.72 104.26 96.70 88.17 85.26 58.96 44.39 42.31 40.38 39.65 38.12 34.27 34.05 29.51 27.34 16.50 16.28 13.74 13.23 9.01 8.25 5.66 4.35 3.83 3.56 2.62 2.30 1.64 1.31 0.84 0.73 0.61 0.60 0.49 0.40 39,004.65
108.79 25.05 120.92 55.52 1,604.23 6.48 272.09 142.29 41.01 81.43 81.21 361.03 98.47 200.88 330.52 1,997.74 1,185.47 267.31 273.40 207.27 76.25 365.20 215.53 488.23 1,470.99 298.89 153.24 416.89 471.42 118.29 31.63 43.74 655.46 28.37 833.42 725.65 508.82 596.49 700.71 10.45 27.82

Country France Germany United Kingdom Italy Switzerland Quantity, 000 kg 1,654.73 3,686.45 554.70 528.47 216.92 Value, $ '000 107,556.91 87,114.64 65,634.88 49,154.67 34,460.79 Avg. price, $/Kg 65.00 23.63 118.32 93.01 158.86
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Slovenia USA Netherlands Belgium Hungary Ireland Denmark Turkey Egypt Austria India Spain Austria Sweden Greece Cyprus Czech Republic Serbia & Montenegro Japan Israel Poland China Canada Croatia Bulgaria Jordan Norway Finland Undet. Countries & Territ. South Africa Australia Moldova Portugal Russia South Korea United Arab Emirates Slovakia Dominican Republic Brazil Mexico Colombia New Zealand Thailand Liechtenstein Taiwan Singapore Tunisia Uruguay Pakistan Malaysia Total
411.28 347.53 116.78 186.47 400.95 1,249.08 56.97 128.63 330.17 352.23 106.14 179.14 214.12 129.82 146.11 57.51 178.20 2,083.29 5.98 48.37 24.05 176.17 8.84 2.09 104.47 42.69 48.80 2.11 0.20 0.80 15.15 47.35 1.91 56.91 1.31 7.55 5.42 0.27 5.28 0.97 1.42 1.31 3.94 0.25 0.07 0.00 0.50 0.02 0.00 0.14 13,930.00
28,811.98 25,700.93 24,897.16 22,753.28 19,703.44 15,452.60 15,130.59 11,268.78 10,236.46 7,904.05 7,860.08 7,552.34 7,509.70 6,346.57 4,200.32 4,153.07 3,594.89 3,263.52 2,860.18 2,321.39 2,150.30 1,260.75 1,138.21 1,015.96 967.55 843.57 718.98 611.91 562.66 426.05 254.50 230.12 224.82 187.27 158.31 156.12 154.86 136.41 122.95 90.14 40.37 31.68 28.65 20.84 9.70 7.43 3.75 1.78 0.62 0.61 587,000.10
70.06 73.95 213.20 122.02 49.14 12.37 265.60 87.61 31.00 22.44 74.06 42.16 35.07 48.89 28.75 72.22 20.17 1.57 478.27 48.00 89.40 7.16 128.76 485.11 9.26 19.76 14.73 290.33 2,803.14 531.70 16.80 4.86 117.84 3.29 120.59 20.69 28.57 547.66 23.29 92.83 28.46 24.19 7.28 82.04 147.98 2,986.12 7.47 93.90 137.84 4.38 42.14
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Pythia International Pharmaceuticals exports split by destination country 2004 estimates

Country Bulgaria Russia France Moldova Ukraine Germany Poland Slovakia Lithuania Albania Hungary Kazakhstan Azerbaijan Singapore Belarus Austria Uzbekistan Belgium Georgia Italy Armenia Mongolia Switzerland Andorra Philippines United Kingdom Japan Vietnam Hong-Kong United States Uruguay Mauritius Chile United Arab Emirates Macao Cyprus Antigua Slovenia Panama Thailand Mexico China Egypt Canada Bahamas Iran Quantity, 000 kg 174.55 77.41 234.35 198.95 29.82 92.70 1.57 0.23 5.95 179.27 14.71 3.86 26.16 2.23 3.60 2.32 1.89 0.43 2.00 36.71 4.58 0.85 0.35 0.23 1.81 2.51 0.15 1.22 0.18 0.03 0.03 0.02 0.05 0.04 0.02 0.01 1.19 0.00 0.01 0.01 0.00 0.00 0.00 0.00 0.00 0.00 Value, $ '000 8,908.05 7,434.54 4,971.70 4,771.43 3,728.41 3,329.75 2,144.43 1,135.94 880.54 813.09 710.33 565.85 546.75 421.77 385.55 288.40 273.12 259.80 233.45 170.32 158.46 158.07 118.26 108.83 105.61 88.87 59.51 56.90 44.85 19.49 16.90 12.34 12.33 10.27 7.18 6.81 6.43 5.87 5.61 4.72 3.88 3.50 2.82 1.93 1.72 1.28 Avg. price, $/Kg 51.03 96.04 21.21 23.98 125.01 35.92 1,364.58 4,967.63 147.90 4.54 48.30 146.71 20.90 189.24 107.00 124.54 144.77 610.11 116.69 4.64 34.61 186.09 336.22 474.46 58.40 35.34 401.99 46.79 249.09 681.31 487.03 803.20 247.44 230.24 418.47 459.84 5.38 1,892.66 560.46 589.92 970.31 1,633.53 618.79 1,208.57 1,072.05 638.06
Total
1,105.28
43,066.33
39.01
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Pharmaceuticals imports split by country of origin 2004 estimates

Country France Germany United Kingdom Switzerland Italy United States Slovenia Netherlands Belgium Hungary Ireland Austria Denmark Turkey India Spain Egypt Canada Sweden Cyprus Israel Greece Czech Republic Poland China Japan Serbia & Montenegro South Korea Norway Jordan Bulgaria Finland Croatia Portugal Moldova South Africa Slovakia United Arab Emirates Brazil Dominican Republic Thailand Mexico Liechtenstein Australia Tunisia Colombia Taiwan New Zealand Quantity, 000 kg 1,535.36 3,890.89 644.38 280.73 515.55 573.85 431.03 112.77 173.18 487.12 1,362.56 580.50 45.49 145.39 177.24 100.95 391.63 19.29 115.45 73.39 70.93 162.29 163.77 36.56 431.33 5.98 1,201.63 6.42 9.83 67.14 106.83 2.17 2.82 6.48 88.45 0.81 11.95 7.67 4.68 0.13 10.70 0.95 0.16 0.31 2.37 0.21 0.05 0.14 Value, $ '000 146,606.17 111,592.49 78,558.58 59,816.21 57,361.39 37,130.12 35,965.45 29,719.23 25,884.88 23,417.81 22,038.59 19,709.34 15,553.54 15,278.36 12,448.61 10,458.24 8,826.84 7,909.74 7,158.27 5,450.63 4,914.44 4,328.18 3,937.96 3,818.46 2,917.18 2,753.99 2,709.55 1,444.97 1,351.10 1,237.78 1,157.15 982.10 944.46 757.44 534.43 451.78 284.50 144.67 129.82 81.23 64.29 49.78 28.17 25.95 21.54 15.09 13.17 7.13 Avg. price, $/Kg 95.49 28.68 121.91 213.07 111.26 64.70 83.44 263.54 149.47 48.07 16.17 33.95 341.89 105.08 70.24 103.60 22.54 409.97 62.00 74.27 69.28 26.67 24.05 104.44 6.76 460.42 2.25 225.06 137.49 18.44 10.83 452.78 335.13 116.80 6.04 557.75 23.82 18.86 27.73 635.61 6.01 52.40 176.32 83.71 9.08 71.19 285.40 50.70
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Singapore Uruguay Pakistan Malaysia Iran Total Source: NIS
0.00 0.03 0.23 0.18 0.00 14,059.96
5.34 1.65 1.53 1.24 0.01 766,000.56
6,042.30 48.99 6.73 6.87 687.95 54.48
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ANNEX 2 Detailed Regional Overview

Poland Poland spent an estimated 6.2% of GDP on healthcare in 2002, which is low for an OECD member and less than in other major central and east European countries, such as Hungary (7% of GDP) or the Czech Republic (7.1%). The government accounted for some 70% of total health spending in 2000, according to the World Health Organisation (WHO). Life expectancy improved during the 1990s and stood at 74.6 years in 2002 (70.4 for males and 78.5 for females). This compares poorly with neighbouring Germany (78.3), but is similar to the Czech Republic (75.0), and Slovakia (74.2), and well ahead of Hungary (71.9) and Russia (67.5). The infant mortality rate fell markedly during the 1990s, from 19.3 per 1,000 live births in 1990 to 7.5 per 1,000 in 2002. Healthcare has been reformed more slowly than other sectors of the Polish economy. A decentralised system of regional health funds was set up in 1999 by the previous government, led by Solidarity Electoral Action (AWS), but the current administration, led by the Democratic Left Alliance (SLD), has recentralised the system, creating a single national health fund. Despite increases in earmarked social insurance contributions to fund the health system, it continues to face serious financial problems, and public satisfaction with the health system is low. Polands pharmaceutical industry has been undergoing privatisation. A number of leading local companies are now in foreign hands. Bulgaria Bulgaria spends a relatively low amount on healthcare, both as a share of national income and in per-capita terms. Moreover, the share of GDP devoted to healthcare has fallen to just under 3.8% in 2002, down from over 5% in the early 1990s. This compares with 2002 health spending of 4.6% of GDP in Romania, 4.9% of GDP in Turkey and 8.3% of GDP in Greece. Spending per head in 2002 was an estimated USD 76, compared with USD 94 in Romania, USD 132 in Turkey and USD 1,059 in Greece. The government accounted for nearly 78% of total health spending in 2000, according to the World Health Organization. Life expectancy fell for much of the 1990s as the economy deteriorated. However, average life expectancy has been rising since 1998 and it stood at 71.9 years (68.5 for men and 75.4 for women) in 2002. This is higher than in Romania (70.4 years) and Turkey (71.5), about the same as in Hungary (71.9), but lower than in Slovakia (74.2), Poland (74.6) and the Czech Republic (75.0). The infant mortality rate has dropped from 17 per 1,000 live births in 1990 to 13.3 in 2002, but remains quite high by regional standardsfor example, the infant mortality rate is just 5.5 per 1,000 live births in the Czech Republic and 7.5 per 1,000 live births in Poland. Bulgaria embarked relatively late on healthcare reform. The main change in recent years has been the phasing in of a system of mandatory health insurance, following passage of the Health Insurance Law in 1998 and the Law on Health Establishments of 1999.
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The local pharmaceutical industry was adversely affected by the collapse of communism, and imports now dominate the market by value. The major domestic pharmaceutical concerns have been privatized. Bulgarias population has been falling in recent years because of emigration, a declining birth rate and rising death rate. Even so, the country has an older age profile than many of its east European counterparts, with nearly 17% of the population aged 65 or over in 2002, up from 13% at the start of the 1990s. This will put pressure on the healthcare system in years to come. Czech Republic The Czech Republic spends an estimated 7.1% of GDP on healthcare, which is about 1 percentage point below the OECD average. It is slightly less than the share of income spent by neighboring Slovakia (7.3%), but more than in Hungary (6.9%) and in Poland (6.2%). However, the Czech Republic spends more per head than any of these three countries, at an estimated USD 482 in 2002. Public spending on health accounted for more than 90% of total health expenditure in 2000, a high proportion by the standards of OECD members. Health indicators are better than in other central and east European economies. Life expectancy stood at 75 years in 2002 (71.5 for males and 78.7 for females), compared with 74.6 years in Poland, 74.2 in Slovakia and 71.9 in Hungary. The infant mortality rate, at 5.5 per 1,000 live births, is better than in some countries that spend much more on healthcare, such as Italy (6.3) and the US (6.9). Reforms of the health system began in the early 1990s with the introduction of a Germanstyle social-insurance system and the privatization of primary care services. Funding methods were reviewed in the mid-1990s, but many shortcomings associated with the former communist system remain. The domestic pharmaceutical industry was almost entirely privatized during the 1990s. Most of the leading companies are now foreign-owned. Demand pressures are increasing because of an ageing population and rising public expectations. However, the health system suffers from a shortage of funds, a problem that is unlikely to diminish in the near term, given a lack of political will to tackle it. Slovakia Slovakia spends nearly 7.3% of GDP on healthcare, which is more than the Czech Republic (7.1%), Hungary (6.9%) and Poland (6.2%). In per-head terms, however, health spending, at USD 317.7 in 2002, is considerably less than in the Czech Republic (USD 479.8) and Hungary (USD 418.5), but ahead of Poland (USD 303.9). Public expenditure on health accounted for some 90% of all health spending in 2000, according to the OECD, a high proportion by the organizations standards. Life expectancy, although several years behind the west European average, compares quite well with other central and east European countries, at 74.2 years (70.2 for males and 78.4 for females). The infant mortality rate has been slower to improve over the past decade than
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some others in the region, and at 8.8 per 1,000 live births in 2002 is the same as in Hungary, slightly worse than in Poland (7.5), and well behind the Czech Republic (5.5). An insurance-based healthcare funding system was developed in the early 1990s, replacing one based on general taxation. Recent reforms have included the introduction of modest user charges. However, insufficient funding and indebtedness remain serious problems, pointing to the need for further changes. Local pharmaceutical production focuses on generic drugs. The country has become heavily reliant on pharmaceutical imports. Slovakia faces the issue of population ageing less acutely than many European countries, with around 11.6% of the population aged 65 and over in 2002. Hungary Hungary spends around 6.9% of GDP on healthcare. This is low for an OECD country, but roughly on a par with the Czech Republic (7.1%) and somewhat more than Poland (6.2%). Spending as a share of national income has been stable for the past five years, but is down from its peak of 8.3% in 1994. The government accounted for just over 75% of total health spending in 2000, according to the OECD, a share that had fallen from around 90% ten years earlier. Life expectancy is low not only by OECD standards, but also when compared with other central European countries. It was 71.9 years in 2002 (67.5 for men and 76.5 for women), compared with 75 years in the Czech Republic, 74.6 in Poland and 74.2 in Slovakia. Male life expectancy fell between 1970 and the mid-1990s, but has since been improving. Factors contributing to poor health include dietary habits and high levels of smoking and alcohol consumption. The death rate from cardiovascular disease is one of the worlds highest, according to the World Health Organization (WHO). More encouraging is the countrys infant mortality rate, which has fallen from around 15 per 1,000 live births in 1990 to 8.8 in 2002. Governments have undertaken some limited restructuring of the health system in the postcommunist years, but more needs to be done to re-orient the system from institutional to primary care. The current administration faces the task of improving health standards against a background of budgetary constraints. It appears to favor greater privatization of healthcare provision, in part to bring more funding to the sector. The pharmaceutical industry is one of Hungarys most important manufacturing sectors. The number of people employed by the industry stood at around 12,500 in 2001, according to the Hungarian Manufacturers Association (MAGYOSZ). The local pharmaceutical industry was privatized during the 1990s and new companies have emerged, many in the form of joint ventures.
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Demographics and income
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Bulgaria
Slovakia
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Comparative Health Care Systems Poland The Polish health system has consistently suffered from financial problems. The 1999 health insurance law created a new system of healthcare financing. Sixteen regional healthcare funds were established to purchase health services on behalf of employees and their dependants from local service providers (public and private). The regional funds were financed through mandatory health insurance contributions of 7.5% of salary (raised to 8% in 2003 and 8.25% in 2004). However, the new system was poorly implemented and the new insurance funds and hospitals found it difficult to manage their budgets, and debts began to rise again. The SLD government has recentralised the system, setting up a single national health fund in 2003, but the new fund has found it difficult to agree contracts for 2004 with healthcare providers in many areas of the country, and the financial problems of the public healthcare system continue to worsen. The constitutional court ruled in January 2004 that several provisions of the new national health fund were unconstitutional, and a revised legal framework for the fund will have to be approved in 2004. Healthcare is theoretically free at the point of use in Poland, but under-the-counter payments to doctors and other healthcare workers are very common to help obtain speedier or better care. Co-payments are required for pharmaceuticals. Whereas medical and dental practices have been undergoing privatisation, with most dentists and general practitioners (GPs) now working privately, hospitals remain largely within the public sector. However, control of hospitals has been decentralised, and poor supervision has led to many public hospitals running up large debts. A few hospitals are run by voluntary organisations, and some profit-making private hospitals exist. Doctors are poorly paid, which may help to account for a relatively low doctor/patient ratio of 2.3 per 1,000. Hospital bed provision, at 5.1 per 1,000 population in 1999 (latest available figure), is also quite modest by central and east European standards.
Healthcare and pharmaceuticals - Poland
Life expectancy, average (years) Life expectancy, male (years) Life expectancy, female (years) Infant mortality rate (per 1,000 live births) Healthcare spending (% of GDP) Healthcare spending (US$ bn) Healthcare spending (US$ per head) Physicians (per 1,000 population) Pharmaceutical sales (US$ m) 2001 74.4 70.2 78.4 7.7 6.1 11.0 296. 8 2.3 2,63 0 2002 74.7 70.4 78.8 7.0 6.1 12.0 305. 9 2.3 2,80 6 2003 75.0 70.8 79.0 6.9 6.2 13.0 340. 1 2.3 3,08 5 2004 75.3 71.1 79.2 6.8 6.3 15.0 386. 1 2.3 3,47 5 2005 75.5 71.4 79.4 6.7 6.3 17.0 432. 9 2.3 3,95 9 2006 75.8 71.8 79.6 6.6 6.4 18.0 470. 7 2.3 4,39 1 2007 76.1 72.2 79.8 6.6 6.4 19.0 493. 4 2.3 4,77 9 2008 76.4 72.6 80.0 6.5 6.5 20.0 531.7 2.3 5,208
Source: EIU
Polands healthcare indicators have gradually improved since 1990, a trend that is expected to continue during the forecast period. Average life expectancy at birth is forecast to be 76.4 years in 2008higher than in both Hungary (forecast at 73.5 years in 2008) and the Czech Republic (76.2 years).
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However, Polands healthcare system is in a poor state, with badly paid staff and recurring financial problems. Although treatment is supposed to be free, patients often have to make extra unofficial payments to medical staff. Public-sector healthcare is funded through an earmarked income tax (currently 8.25%), with the national health fund (NFZ, which replaced separate regional funds in 2003) purchasing services from hospitals and doctors. However, the law setting up the NFZ has been ruled unconstitutional and an entirely new law will have to be in place by January 2005. With the system subject to continuous reorganisationthere are likely to be further changes after the next parliamentary electionand fiscal constraints making a large increase in public funding unlikely, the functioning of the healthcare system is not expected to improve significantly over the forecast period. This may lead to an increase in demand for private health insurance services for individuals, in addition to the corporate-level schemes that currently dominate the market. Rapid growth of spending on imported drugs and pharmaceuticals has proved to be a major problem for the public health system. The government is pushing drug companies to lower their prices and has proved reluctant to register new foreign-produced medicinesleading to widely publicised allegations from some firms that senior officials were demanding bribes for registering new drugs. The Economist Intelligence Unit expects the Ministry of Health to continue to try to shift spending away from expensive imported medicines towards generic drugs. This will tend to benefit domestic pharmaceutical firms, some of which are still in the process of being privatised. However, progress is likely to be slow, and overall spending on drugs and medicines is expected to continue to rise, although more slowly than has been the case over the past few years. Bulgaria Bulgaria has been moving towards a compulsory insurance-based system of healthcare funding, based on employer and employee contributions (each at 3% of gross salary), since 1999. There is a single health insurance fund, the National Health Insurance Fund (NHIF), a public non-profit-making organization, which contracts with providers, both public and private. Citizens are entitled to a basic package of services under the health insurance system. Patients also make co-payments, in the form of fixed fees, for visits to physicians and dentists, and for hospital stays. Certain groups are exempt from these fees. The state continues to bear any remaining healthcare costs not covered by these forms of financing. Within the public system, patients have a free choice among healthcare providers that have concluded contracts with the NHIF. One of the priorities of health reform has been to build a family doctor network, comprising general practitioners (GPs) operating in private practice. Since 2000, these general practitioners have been paid on a capitation basis by the NHIF. This change, which replaced a system of polyclinics established during the communist era, is now largely complete. There are just under 3.5 doctors per 1,000 population in Bulgaria, a relatively generous ratio, and one that has risen slightly since the early 1990s. Insurance funding of the hospital system began in 2001 and is still in a difficult process of transition. Like many other east European countries, Bulgaria has a large number of hospital beds relative to population7.3 per 1,000 population in 2001, a decline from the 1990 figure of around 10 per 1,000which imposes extra costs on the health system. It is likely that health insurance contributions will have to rise in future, as the NHIF takes on more of the burden of funding the healthcare system and as demand pressures increase. The reforms to the healthcare system are intended to encourage the development of private health providers, although few currently exist outside primary care and dentistry. Private health
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insurance is permitted, but only as a supplement to the compulsory national health insurance scheme. Private health insurance providers are regulated by the State Insurance Supervision Agency, which also regulates the private pension funds.
Healthcare and pharmaceuticals - Bulgaria
Life expectancy, average (years) Life expectancy, male (years) Life expectancy, female (years) Infant mortality rate (per 1,000 live births) Healthcare spending (% of GDP) Healthcare spending (US$ bn) Healthcare spending (US$ per head) Physicians (per 1,000 population) Pharmaceutical sales (US$ m) 2001 71.8 68.5 75.2 14.4 3.8 1 65.9 3.5 162 2002 71.9 68.5 75.4 13.3 3.9 1 77.5 3.5 182. 6 2003 72.2 68.8 75.7 12.8 4.1 1 104. 6 3.5 230. 4 2004 72.5 69.1 76.1 12.4 4.2 1 137 3.5 298. 1 2005 72.8 69.3 76.4 11.9 4.3 1 164. 4 3.5 370. 1 2006 73.1 69.6 76.7 11.5 4.3 1 171 3.5 418. 7 2007 73.7 70 77.5 11.2 4.4 1 187. 4 3.5 471. 2 2008 73.9 70.2 77.7 11.1 4.4 2 202.4 3.5 529.8
Czech Republic A mandatory health-insurance system was introduced in 1992, involving competing nonprofit insurers and providers. The number of insurance funds grew during the early 1990s, reaching 27 by 1995. However, many ran into financial difficulties and their number fell to nine by 2000. The General Health Insurance Company (VZP) covers the majority of the population. Employers carry the main burden of contributions for their employees. Contributions of the unemployed, the young and the old are funded out of taxation. The package of services covered by compulsory insurance is comprehensive. Co-payments are required for pharmaceuticals, certain dental services and medical aids. Since 1992, doctors have been allowed to establish independent practices. The majority of family doctors now work in the private sector, contracting with insurance funds. Patients are free to choose their general practitioner (GP). The Czech Republic has around three doctors per 1,000 population, which is not a large figure. However, as in many former communist countries, there are far too many specialists relative to generalists. Most hospitals remain under state ownership, although management has been decentralized. Private hospitals tend to be small, specialized facilities, for example, providing long-term care. A few institutions are run on a non-profit basis by charitable organizations. Treatments in private facilities may be paid for by the social-insurance system. The Czech Republic is oversupplied with hospital beds, although numbers have been falling. There were 8.7 beds per 1,000 population in 1999, down from 11.3 in 1990. Most dentists operate within private practices. Healthcare financing was reformed in 1997, moving away from a fee-for-service system and towards budgets for hospitals and a mixture of capitation and fee-for-service payments for GPs, in a bid to control healthcare costs. However, the public system is still plagued by funding problems. A private healthcare sector, not funded by compulsory insurance contributions, operates in parallel with the state system, catering to groups such as foreign residents. The Czech Republics life expectancy rates are higher than in many other central and east European countries, but are still some four or five years lower than the average in the EU.
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This reflects a poor diet, an inadequate healthcare system, high levels of pollution, and excessive alcohol and tobacco consumption. Average life expectancy rose from 71.7 years in 1990 to an estimated 75 years in 2002. This compares with 71.9 years in Hungary and 78 years in Austria. Life expectancy is likely to continue to improve over the forecast period, reaching 76.2 years by 2008. Infant mortality is quite low in the Czech Republic (5.5 per 1,000 live births in 2002) relative to other countries in the region, although it is not as low as in neighboring Austria (4.4 per 1,000 live births in 2002). Infant mortality is expected to decline to 5 per 1,000 live births by 2008. Spending on healthcare per head rose sharply over the 1990s, increasing from USD 243 in 1993 to USD 572 in 2003. This reflects the fact that healthcare spending has maintained its position within growing consumer spending. However, given a lower level of GDP, this spending is far below the spending level in the EU, which averaged USD 1,757 per head. The healthcare system still reflects the legacy of the planned economy, in that it is based on overstaffed hospitals and extensive specialist care. Although there has been considerable contraction of infrastructure, in 2000 there were 3.8 doctors and 6.4 hospital beds per 1,000 population (compared with an EU average of 2.5 and 7.2, respectively). Specialists still account for a disproportionate share of doctors, with programs for primary care and preventive care remaining underdeveloped. The Czech Government introduced mandatory employment-based health insurance in 1991, but the system has continued to suffer from severe funding problems owing to a fee-forservice arrangement in which providers set prices and consumers determine demand, with no disincentive to excessive consumption of free services, and a wide choice of both services and providers. Following the 1991 reforms, 27 insurance companies emerged, but by 1995 many began to go bankrupt, leaving behind Kc2bn (USD 61 million) in unpaid debts to providers. Only nine insurers remained by 1998, but payment arrears continued, as hospitals which for the most part are run by doctors with no management knowledgefailed to impose cost accountability and thereby ensure efficiency. The government responded by abolishing the fee-for-service system in primary healthcare (but not for specialist healthcare), introducing budgets for hospitals and implementing a number of other piecemeal reforms. Nevertheless, financing remains in disarray and the government, led by the Czech Social Democratic Party (CSSD), has focused on improving oversight rather than overhauling the system. A total of Kc150bn went into the health sector in 2001, of which Kc122bn was covered by health insurers and the rest by private spending and by state and local expenditure. Nevertheless, some observers have warned that the system is grossly underfunded and may be near bankruptcy. Also cited was a lack of qualified doctors, with many Czech hospitals known to poach staff from Slovakia. Many hospitals are preparing for the problem of additional foreign patients when the Czech Republic enters the EU next year. With the increase in general healthcare spending, spending on pharmaceutical sales rose from USD 524 million in 1994 to USD 1,004 million in 2003, a rate of increase noticeably more rapid than in other areas of healthcare. Over the forecast period, healthcare product spending is expected to rise to USD 2 billion, reflecting the increased purchasing power of consumers, greater health education and increased product availability. Leading pharmaceutical manufacturers from the US and Europe dominate the Czech pharmaceutical market. Although the two major Czech pharmaceutical firms (Leciva and Galena) have been sold to foreign partners, several small and medium-sized Czech pharmaceutical firms retain minor shares of the market.
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Healthcare and pharmaceuticals Czech Republic

2001 Life expectancy, average (years) Life expectancy, male (years) Life expectancy, female (years) Infant mortality rate (per 1,000 live births) Healthcare spending (% of GDP) Healthcare spending (US$ bn) Healthcare spending (US$ per head) Physicians (per 1,000 population) Pharmaceutical sales (US$ m) 74.7 71.2 78.4 5.5 7.1 4 397 3 695. 9 2002 75 71.5 78.7 5.5 7.1 5 482. 3 3 824. 6 2003 75.2 71.7 78.9 5.4 7.1 6 588.7 3 1,016. 2 2004 75.4 71.9 79.1 5.3 7 7 728.1 3 1,294. 3 2005 75.6 72.2 79.3 5.2 7.1 9 877.2 3 1,620. 9 2006 75.8 72.4 79.5 5.1 7.2 9 924.3 3 1,839. 2 2007 76 72.6 79.7 5.1 7.4 10 992.6 3 2,038. 1 2008 76.2 72.8 79.9 5 7.5 11 1,050.2 3 2,223.0
Source: EIU
Slovakia Slovakia has an insurance-based system of healthcare financing, involving mandatory employer and employee contributions. The state pays for those not in employment, such as children and pensioners. Legislation in 1995 paved the way for multiple, non-profit-making insurance funds. Citizens have a free choice of insurer. There are currently five in operation, the largest of which is the General Health Insurance Company. All offer the same package of benefits, as laid down in legislation. This coverage is comprehensive, although modest user fees have recently been introduced for certain services. User charges for certain health services were introduced at the start of June 2003, following a revision to healthcare legislation approved in April. Patients now pay Sk20 (just over 50 US cents) per visit to the doctor, per emergency visit and per prescription. Hospital patients pay a daily fee of Sk50 for food and accommodation. Ambulance services are also subject to a charge, based on distance traveled. Various exemptions apply. The Ministry of Health hopes that these relatively small co-payments will deter misuse of healthcare services and so help to contain costs. However, opposition politicians are challenging the fees in the Constitutional Court, arguing that they may be against the Slovak constitution, which guarantees free healthcare to all citizens. General practitioners (GPs) are mostly independent, but contract with the health insurance funds. Around half of all specialists are in private practice, working under contract for insurance funds; the remainder is state employees. The doctor/patient ratio has been raising in recent years, to stand at 3.53 per 1,000 population in 2002, a relatively generous figure. Hospitals are generally state-owned. Slovakia had just under 7.5 beds per 1,000 population in 1996 (latest available data), which was less than in many other central and east European countries. The private healthcare sector remains largely confined to primary care (albeit funded by compulsory insurance). The private health-insurance market is undeveloped.
Healthcare and pharmaceuticals - Slovakia
2001 Life expectancy, average (years) Life expectancy, male (years) Life expectancy, female (years) 74 70 78.2 2002 74.2 70.2 78.4 2003 74.4 70.4 78.6 2004 74.7 70.7 78.9 2005 74.9 71 79.1 2006 75.1 71.2 79.3 2007 75.3 71.4 79.5 2008 75.6 71.6 79.7
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Infant mortality rate (per 1,000 live births) Healthcare spending (% of GDP) Healthcare spending (US$ bn) Healthcare spending (US$ per head) Physicians (per 1,000 population) Pharmaceutical sales (US$ m) 9 7.3 2 282. 7 3.5 342. 8 8.8 7.3 2 326. 9 3.5 385. 3 8.6 7.2 2 433. 4 3.5 494. 6 8.3 7.2 3 605. 5 3.5 687. 9 8.1 7.3 4 665. 2 3.5 830. 6 8 7.5 4 764.6 3.5 1002. 9

7.8 7.8 5 893.3 3.6 1197. 7 7.6 8 6 1066.9 3.5 1456.6
In 2003 average life expectancy was an estimated at 74 years in Slovakiaup from 70 years in 1990compared with 71.9 years in Hungary and 78 years in Austria. The infant mortality rate also compares favorably with other transition countries, at an estimated 8.6 per 1,000 live births in 2003, the same as Hungary, but it is substantially higher than in the Czech Republic (5.5) and in the EU (for example, the rate in Austria was an estimated 4.4 in 2001). These ratios are negatively influenced by the Slovak Roma minority, numbering some 500,000, which traditionally has a lower standard of living when compared to the remaining population. Slovakias health indicators are forecast to remain on a positive trend over the next five years: average life expectancy is expected to rise to around 75.6 years by 2008 (compared with 76 years in the Czech Republic and around 79 years in Austria), and the infant mortality rate is forecast to fall to just under 7.6 per 1,000 live births (5.1 in the Czech Republic; 4.1 in Austria). There has so far been little emphasis on preventive healthcare in Slovakia, which is reflected in the high incidence of cardiovascular disease and smoking-related cancersthe major causes of death. In the 1970s, emphasis on developing acute-care services came at the expense of effective public health intervention, primary care and community health services, which created a supply-dominated system that provided virtually no incentives for patients to maintain good health, nor for healthcare workers and institutions to provide cost-effective, high-quality services. The new government has launched a major healthcare reform, one aspect of which is intensively focused on preventive healthcare. General practitioners (GPs) are mostly independent, but have contracts with the health insurance funds. Around half of all specialists are in private practice, working under contract for insurance funds, with the remainder employed by the state. The doctor/patient ratio has been raising in recent years, to stand at 3.53 per 1,000 population in 2002, a relatively high figure. Hospitals are generally state-owned. Slovakia had just under 7.5 beds per 1,000 population in 1996 (the latest year for which data are available), which was less than in many other central and east European countries. Slovakia spent nearly 7.2% of GDP on healthcare in 2003, which is more than the Czech Republic (7.1%), Hungary (6.9%) and Poland (6.2%). In per-head terms, however, health spending, at USD 317.7 in 2002, is considerably less than in the Czech Republic (USD 479.8) and Hungary (USD 418.5), but ahead of Poland (USD 303.8). Public expenditure on health accounted for some 90% of all health spending in 2000, according to the OECD, a high proportion by the organizations standards. The cost of medical treatment is covered by compulsory employer and employee contributions to a health insurance fund. The fund has suffered from a build-up of payment arrears as a result of the increase in enterprise insolvencies. The new governments healthcare reform includes measures to repay all old debts, and stop creating new ones. Financial contribution from patients has been increased, limiting demand for healthcare services and reducing, it is hoped, excessive use of the healthcare services. Improved economic performance, reflected in lower unemployment and higher wages, should improve financial flows into the system. Nevertheless, the Slovak
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healthcare system is expected to continue to face a lack of proper equipment and low investment. Should the reform succeed, mandatory health insurance premiums could be cut in 2005-06, improving business conditions in the country. The pharmaceutical market was valued at 412 million (USD 453 million; at ex-factory prices) in 2001, and is expected to continue to increase, owing to the ageing of the population and high incidence of diseases related to alcohol and tobacco. Spending on pharmaceutical products is far lower than in other countries in central and Eastern Europe, but is expected to rise substantially over the next five years. In 2003, an estimated USD 506 million was spent on pharmaceutical products, compared with USD 1.46 billion in Hungary and USD 1billion in the Czech Republic. Spending in Slovakia is forecast to rise to USD 1.2 billion by 2007 just one-fifth of the level in Austria. One of the most difficult areas in healthcare reform has been that of the governments drug policy, as excessive drug consumption in the early 1990swhich was encouraged by extensive marketing campaigns by pharmaceutical companiesled to severe financing problems. Since 1989, drug marketing has changed substantially: whereas in 1989 domestic production accounted for 80% of total drug consumption, by the first quarter of 2003 this had fallen to just 14.1%, with the entry of foreign companies into the market. This share is to increase moderately in the coming years, as healthcare reform enhances the consumption of cheaper generic drugs. The manufacture of pharmaceuticals is the second largest sub-sector of the chemicals sector, representing 19% of the sectors sales. The pharmaceutical company, Slovakofarma, recently merged with the major Czech pharmaceutical firm into an entity named Zentiva by their joint owner, the US investment fund, Warburg Pincus. This company dominates the sector, and is one of just three companies that account for the majority of transactions on the Bratislava Stock Exchange. The next major player, Hoechst-Biotika Martin, is majority owned by a French/German-based company, Aventis. The sector produces, for the most part, cheap generic drugs, with the state-run healthcare system being the principal market. The financial difficulties of the domestic healthcare system have therefore placed pharmaceutical producers in a difficult position with delays in payment, and have encouraged them to develop export markets in neighboring countries and Russia. Hungary Health services are mainly funded through compulsory insurance, paid by employer and employee. The National Health Insurance Fund (OEP) collects premiums and redistributes them to county-level branches, which contract with service providers. Capital spending is financed via general taxation. Services are free at the point of use, although unofficial payments to practitionersa legacy of the communist eraare quite common. Co-payments are required for pharmaceuticals. Dental care is largely privately run and funded. A system of family practitioners was established in the early 1990s. Most such doctors now work in private practices, but contract with the public insurance system. Hungarians are frequent visitors to their doctormaking around 20 visits per year on average in the late 1990s, according to figures compiled by the OECD. This compared with 6.5 in Germany and 5.4 in Poland. As in many central and east European countries, the health system was traditionally oversupplied with doctors, although at 3.2 doctors per 1,000 population, provision is now at a similar level to many west European countries. Most hospitals are owned by local government authorities. The system has also been oversupplied with hospital beds, with many used to accommodate the elderly. Hungary has been reducing bed numbers
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slowly, from around 10 per 1,000 population at the start of the 1990s to 8.3 per 1,000 in 1999 still a generous ratio. Various reforms were introduced in the 1990s, including decentralization of management and ownership of state facilities, linking of funding to performance and placing more emphasis on primary care. However, progress was hampered by deteriorating economic conditions. The centre-left government elected in April 2002 favors greater privatization of the health service in order to bring more funding to the sector, although it remains unclear what forms this private involvement might take. At present, private healthcare provision is largely confined to the primary care and dental sectors. The government faces the challenge of trying to raise health standards at the same time as reducing pressure on budgets. The size of the population has been in decline for over ten years, birth rates have fallen to under 10 per 1,000 population, and life expectancy has merely stabilized. Mortality rates remain higher than those of Western Europe and the death rate from cardiovascular diseases is one of the highest in the world, according to the World Health Organization (WHO). The WHO has also singled out Hungarians poor diets and high intake of alcohol and tobacco as impediments to improving health. As the population agesthe ratio of people older than 64 to those aged 15-64 is expected to reach 22% in 2007the governments task will become more difficult. Hungarys healthcare system is underfunded and in urgent need of restructuring. Rising costs in the sector, especially of pharmaceuticals, continue to put severe pressure on government budgets. In recent years, the National Health Insurance Fund (OEP) has covered roughly three-quarters of the countrys drug expenses. Hungarians grew accustomed to cheap medication during the communist era, and cutting government subsidies has not been politically viable. As Hungary tackles healthcare financing, especially in preparation for EU membership, improvements in health will only be slight. Pharmaceuticals has traditionally been one of Hungarys most important manufacturing sectors, and the over-the-counter (OTC) market in particular is expected to benefit from further liberalization. The introduction of Western competition in the early 1990s wreaked havoc on Hungarys pharmaceutical sector, but a slimmer industry, based on the production of higher-quality products and low wage costs, has emerged. The sector now accounts for more than 5% of Hungarys exports and holds a 2% share in world pharmaceutical production. The retail value of OTC sales, in US dollar terms, has more than tripled since the mid-1990s. Given the fiscal pressures it faces, the OEP continues to reclassify prescription medicines as OTC and will speed up the process in coming years. The value of the OTC market is thus anticipated to rise by nearly two-thirds during the forecast period, to USD 285 million. Hungary has long been one of the highest consumers of medicines among European countries. As a result of a rise in consumption volumes, prices and the proportion of more expensive imports in total consumption, the state drugs bill has also has risen considerably since the early 1990s. The Economist Intelligence Unit estimates that drugs account for nearly 30% of healthcare expenditure, compared with a rate of 10-15% that is typical in most EU countries. By the end of 2008, however, this figure should edge down to closer to 20% Attracted by this market in the early 1990s, foreign pharmaceutical companies have made significant inroads, driving down the market share of Hungarian firms. This has forced many
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Hungarian pharmaceutical firms to try to reclaim former markets in Russia and other countries of the former Soviet Union. The government has tried to aid domestic firms by its decision to favor generic drugs. Price caps also help, making it more difficult for Western manufacturers to compete with low-cost domestic enterprises. The sales prospects for one of the most attractive remaining state assetsa 25% stake in pharmaceutical company Richter Gedeonare uncertain. Richter is central Europes secondlargest pharmaceutical firm after Slovenias Lek, which was recently taken over by Novartis of Switzerland at a cost of more than USD 900 million. The governments stake in Richter is also likely to attract considerable interest, given the potential for market growth in central Europe. Although the plan is to offer the states holding in 2004, the government will first have to devise safeguards to ensure that the firms independent identity is preserved. There is particular concern that under full private ownership Richters independent research capability regarded as something of a national treasurewill be lost.
Healthcare and pharmaceuticals - Hungary

Life expectancy, average (years) Life expectancy, male (years) Life expectancy, female (years) Infant mortality rate (per 1,000 live births) Healthcare spending (% of GDP) Healthcare spending (US$ bn) Healthcare spending (US$ per head) Physicians (per 1,000 population) Pharmaceutical sales (US$ m)
2001 71.6 67.3 76.3 9 6.9 4 353. 4 3.2 902. 4
2002 71.9 67.5 76.5 8.8 7 5 448.5 3.2 1,107.9 0
2003 72.2 67.8 76.8 8.6 7 6 579.8 3.2 1429. 2
2004 72.5 68.1 77.1 8.4 7.1 8 751.1 3.2 1875. 4
2005 72.7 68.4 77.3 8.2 7.2 9 858.0 3.2 2289. 7
2006 73 68.7 77.6 8 7.3 9 921.3 3.2 2629. 8
2007 73.2 68.9 77.8 7.9 7.3 10 1003. 1 3.2 2995. 4
2008 73.5 69.2 78 7.7 7.4 11 1086.0 3.2 3361.8
Source: EIU
Pharmaceuticals Market by Country Poland With a population of around 38m, similar to that of Spain, Poland has considerable potential as a pharmaceuticals market. Pharmaceutical consumption is already high in volume terms. Pharmaceutical consumption per head at consumer prices was 63 in 1999, according to the Association of the European Self-Medication Industry (AESGP). This was less than one-fifth the amount in Germany (331) and about two-thirds that of Hungary (98), but four times more than in Russia (16). IMS Health valued the Polish pharmaceutical market (ex-factory prices) at 3.08bn in 2001, making it by far the largest in the EU accession countries. Medicine imports grew strongly during the 1990s. Around two-thirds of pharmaceuticals by value were imported in 2001. Polish companies focus on the production of generic drugs. Prices of reimbursable drugs are controlled. Prices of imported reimbursable drugs are negotiated with the Ministry of Health, for example. There is also a fixed wholesale mark-up of 11%. Patients make co-payments towards reimbursable drugs, which vary by type of medicine. Co-payments are reduced or waived for certain types of patients.
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The Polish authorities have been harmonising drugs legislation with that of the EU, in preparation for accession in 2004. A new pharmaceutical law came into being in October 2002. It covers areas such as registration, marketing authorisation, manufacture, advertising and distribution. The pharmacy market is relatively unregulated. However, moves to create commercial networks of pharmacies have led to calls for greater regulation, with some even demanding that the government intervene to block all commercial pharmacy chains. Bulgaria Bulgarias pharmaceuticals market is smallvalued at 196m in 2001 (ex-factory prices; US$175m at 2001 average exchange rate) by IMS Healthbut growing. Imports account for around two-thirds of the market by value, according to the Bulgarian Drug Agency. In volume terms, however, local producers still dominate the home market. The over-thecounter (OTC) market is underdeveloped, mainly because of low purchasing power. OTC spending should accelerate in coming years. Prior to the collapse of the communist bloc, Bulgaria had a well-developed, export-oriented pharmaceuticals sector. Post-communist governments were slow to privatize the industry, but sold majority stakes in three of the four largest state-owned firms to Balkanpharma in 1999 (see Key players). The industry is now attracting more foreign investment, which it needs to bring it up to international manufacturing standards. Foreign companies have complained about the cumbersome and opaque nature of registration processes for pharmaceuticals, as well as pricing and reimbursement decisions. Patients pay for pharmaceuticals, but may reclaim up to 100% of the cost from the insurance system. However, refunds only apply to a limited number of drugs. Czech Republic The Czech pharmaceutical market was valued at 789m (USD 699 million) at ex-factory prices in 2001, according to IMS Health. The country spends a large proportion of its total health budget on drugs25.2% in 2000, according to the OECD. In part, this reflects a rapid rise in drug costs since the move to a free-market economy. Major US and European drug companies now dominate the Czech market. Local companies, many of them fully or partly foreign-owned following privatization, focus on generics. Drug prices and reimbursement levels are controlled with various bodies, including the Ministry of Health, the Ministry of Finance and the largest social-insurance fund (VZP), playing a part in the process. A reference pricing system is used, which tends to favor generic products, and establishes a maximum mark-up for wholesalers and pharmacies. Co-payments are required from patients. The drug-distribution and pharmacy sectors are relatively unrestricted. Slovakia The pharmaceutical market was valued at 412m (at ex-factory prices) in 2001, according to IMS Health, a US-based pharmaceutical consultancy. Domestic production accounted for
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around 80% of drug consumption in 1989, according to the World Health Organization (WHO), but a decade later, this had dropped to under 20%. Slovakia operates a positive list of drugs reimbursable by the health insurance system. A maximum drug price is negotiated with the Ministry of Finance, based on such factors as prices in nine other European countries. Drug costs grew rapidly in the early and mid-1990s, in part because of a lack of incentives on the part of doctors or patients to moderate consumption. Drug costs accounted for around 30% of all health insurance spending in the late 1990s, according to the WHO, a high percentage by international standards. A Sk20 prescription charge has been in force since the start of June 2003, as part of a wider policy on user charges that is designed to curb excessive use of health services. The entire Slovakian pharmacy sector was privatized in the mid-1990s. Hungary Per-capita drug consumption, at consumer prices, stood at 98 (USD 105 at 1999 average exchange rate) in 1999 according to the Association of the European Self-Medication Industry (AESGP). This was less than one-third the amount spent in France (343) or Germany (331), but considerably more than in Poland (63) or Russia (16). IMS Health valued the Hungarian pharmaceutical market (ex-factory prices) at 1.02bn in 2001. In volume terms, Hungary is among the highest consumers of drugs in Europe. Medicines account for a large proportion of the countrys healthcare spending, at as much as 30% of the total, reflecting Hungarians traditional predilection for medicines. Net revenue of the Hungarian pharmaceutical industry reached Ft260bn (USD 1.08 billion) in 2001, according to MAGYOSZ, of which one-third was earned in the home market, with the rest derived from exports. Local companies have been losing market share in the home market as imports have been liberalized. They accounted for around one-third of the market in 2000, down from three-quarters in 1990. The main foreign markets for Hungarian production are Russia and other central and east European countries. Hungarian companies mostly manufacture branded generics. Prices of drugs are controlled by the government, which subsidizes most prescription medicines. The new government elected in April 2002 postponed price increases for reimbursable products, which were due to take place in July 2002, until February 2003. The postponement also held up the approval of various new drugs for subsidies. Patients pay copayments on reimbursable drugs, on a scale that reflects therapeutic value. Certain groups are entitled to free medicines. Comparative pharmaceutical market data
Country Romania Bulgaria Poland Czech Republic Slovakia Hungary Pharmaceuticals Market, USD million 2001 510 162 2,630 696 343 902 2002 565 183 2,806 825 385 1,108 2003 729 230 3,085 1,016 495 1,429 2008 1,801 530 5,208 2,223 1,457 3,362 Per Capita Drug Consumption, USD 2001 82.3 65.9 296.8 397.0 282.7 353.4 2002 96.8 77.5 305.9 482.3 326.9 448.5 2003 120.9 104.6 340.1 588.7 433.4 579.8 2008 226.1 202.4 531.7 1,050.2 1,066.9 1,086.0
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Leading Regional Players Poland Leading private healthcare providers include Medicover, a Stockholm-listed managed care company with operations in five central and east European countries. The company has operated in Poland since 1995 and has its most extensive network there, mainly serving the corporate market. The number of Medicover-owned facilities in Poland increased from 18 to 21 in 2002. It also works with more than 200 affiliated clinics. Its revenue from the country amounted to 23.1m in 2002. Medicover had 77,600 prepaid members in Poland at end-2002. GlaxoSmithKline (GSK) of the UK had the largest share of the Polish pharmaceutical market by value in 2002. It was followed by Servier (France), Polpharma (Poland) and Novartis (Switzerland). GSK acquired the Poznan unit of the former state-owned pharmaceutical holding (Polfa Poznan) when it was privatised in 1998, and has made significant investments in the firm. Polpharma was the leading domestic pharmaceutical company in Poland by sales volume in 2002. The company was privatised in 2000, when a 52.5% stake was sold to a domestic consortium. Three of the remaining state-owned drugs producersPolfa Warsaw, Polfa Tarchomin and Polfa Pabianiceare to be grouped together in a holding company in early 2004. The holding will then be privatised, initially by selling a stake on the stock market in late 2004 or early 2005. Bulgaria The largest pharmaceutical manufacturer in Bulgaria is Balkanpharma, which in 1999 bought majority stakes in Pharmacia AD, Troyapharm AD and Antibiotic AD, three of the four largest local drug companies, from the government. Since December 2000, the firm has been wholly owned by Pharmaco of Iceland. As well as being a major supplier to the domestic market, Balkanpharma exports to over 30 countries. Key export destinations for finished pharmaceuticals include Russia and other parts of the former Soviet Union, and the firm also exports active ingredients to Western Europe and the US. Balkanpharmas new plant in Dupnitza, opened in 2002, was built according to EU Good Manufacturing Practice standards. Balkanpharma employs around 4,500 people. The leading pharmaceuticals distributor in Bulgaria is Commercial League, founded in 1991. It has a more than 50% share of the domestic market. Czech Republic The leading private health-insurance provider in the Czech Republic is the locally based Ceska pojistovna zdravi. Private health insurance is also available from international companies, including Allianz (Germany), Generali (Italy) and ING (Netherlands). The private healthcare provision market is fragmented. Private providers that mainly cater to the corporate and expatriate market include Medicover, a Stockholm-listed company with operations in several central and east European countries. It provides primary care and some specialist services via clinics in Prague and Brno. The company derived revenues of 1.8m from the Czech Republic in 2002, and had 8,000 prepaid members in the country by yearend.
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The leading producer of pharmaceuticals sold in the home market is Leciva, with sales of around Kc6bn (USD 183 million) in 2002. Some 65% of the companys sales are to the home market. Leciva is also the market leader in Slovakia, which accounts for nearly 25% of total sales. Since 1998, Leciva has been owned by Warburg Pincus, a US investment fund. Warburg Pincus recently bought a majority stake in Slovakofarma, Slovakias largest drug producer, and has expressed a wish to combine its operations with those of Leciva. Slovakia Slovakias largest pharmaceutical manufacturer is Slovakofarma, in which Warburg Pincus bought a majority stake in February 2003. The US private equity company also owns Leciva, a Czech pharmaceutical firm that is the market leader in both the Czech Republic and Slovakia, and has expressed a wish to combine the operations of the two, so creating one of the largest pharmaceutical concerns in central and Eastern Europe. Slovakofarmas sales amounted to Sk4.62bn in 2002, according to preliminary figures released by the company. Of this, sales worth Sk1.83bn were exported to the Czech Republic, the companys main market. Other exports totaled Sk1.3bn, and domestic sales were worth Sk1.56bn. The firm focuses on the development, production and sale of high-quality generics. Hungary Private healthcare companies largely serve the corporate and expatriate market. Examples include Medicover, a Stockholm-listed company with operations in several central and east European countries, which provides primary care and some specialist services to corporate members via a clinic in Budapest. It had 4,100 prepaid members in Hungary at end-2002, and saw revenue from its Hungarian operations increase by 40% to 2m during the year. The three largest pharmaceutical manufacturers in Hungary are Gedeon Richter, Egis and Chinoin. Richter, the largest, is listed on the Budapest Stock Exchange and as of end-2002 was 63.6% owned by foreign investors, 25.2% by the state and 11.2% by other domestic investors. The company reported sales of USD 389.1m in 2002, up by 11.6% year on year, of which USD 271.6m were from exports. Top export markets by country were Russia and the US. Richter had around a 9% share of the local market in the first three months of 2003, according to IMS Health. The companys product portfolio includes original, generic and licensed preparations. It has a strong gynecological business, representing around 25% of total turnover. The company has manufacturing facilities at two locations in Hungary (Budapest and Dorog), as well as facilities abroad in Russia, Romania, Ukraine, Poland and India. It employed some 5,300 people as of March 2003, of which 4,600 were in Hungary. Egis, which is 51% owned by Servier of France, reported net sales of Ft55,257m (USD 214.3 million) in the financial year to end-September 2002, of which 62% were exports. It is second to Richter in terms of local market share, with just under 7% of the market. Chinoin is 99% owned by Sanofi-Synthelabo of France. It recorded net sales of 239m (USD 225million) in 2002.
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HealthCare Pricing Comparison
Item Aspirins, 100 tablets (supermarket) Routine check-up at family doctor (av) One X-ray at doctor's office or hospital (av) Visit to dentist, one X-ray and one filling (av) Source: EIU
Price, USD Romania 6.34 5.66 7.54 37.72 Poland 9.71 25.58 15.35 57.54 Czech R. 9.5 123 144 66.17 Slovakia 9.5 123 144 66.17 Hungary 7.72 24.33 22.78 26.54
% of monthly personal disposable income Romania 4.15 3.71 4.94 24.7 Poland 3.19 8.39 5.03 18.88 Czech R. 2.2 28.53 33.45 15.35 Slovakia 2.2 28.53 33.45 15.35 Hungary 2 6.3 5.9 6.88
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ANNEX 3 List of interviewed companies and information sources

Interviewed companies Producers and Distributors
List of companies interviewed ADM Farm Aminocen24 Antibiotice Iasi Armedica Bbraun Medical Timisoara Biofarm Ceva Sante Animale Romania Cospha Romania Datacom Int'l Dita Import Export Europharm Farmacom Brasov Farmavet Farmexim Farmexpert Fildas Trading Florilex Pharma Gelcap GlaxoSmithKline Romania Health Company Heliofarm Constanta Iassyfarm Iasi Imeco Imedica Labor Med Pharma Larix Lek Pharmatech Mark International Medical Saer Ass. Mediplus Exim Meduman Montero Ozone Laboratories Romania Pharma Iasi Phoenixmed 2000 Plantavorel Polisano Sibiu Prisum International Relad International Relad Pharma Rombiomedica S&D Farma Seder Imp-Exp. Sensiblu Sicomed SIEPCOFAR Sindan Terapia Terapia Distributie Ultramed Valmedica Veteco Romania Veterin Impex Walmark Romania Total - 54
Family owned Pharmacies

Bucharest Amipharm Athena Med Betafarm Brandusa Farm Ceahlau Chirmis Brasov Alpharom Asterfarm Dhaliafarm Ecofarm Hyron Marifarm Cluj Clematis Cristiana Ephedra Galenus Iedera Kamill Timisoara Arcana Farm Boscu Christian Colefarm Farmacia Nova Farmacia Traian Craiova 3F Davilla Farm Elma Farm Farm. Universitatii Ipeca Sielta Ploiesti Bratu Cydonia Diafarm Egina Elixir Farm Pro Sana Constanta Apoteca Begonia Farm Donna Farm Duofarm Ercon Farmares Iasi Aloe Pharma Brandusa Depofarm Dosis Farm Farmil Gabriela Farm
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Ro Ma Farm Tri Farm

Komm Her Farm Star Farm
Cleofarm Colvimed Cordial Delmi Farm Ela Farm Elfo Trade Farmacia Domenii Farmacia Iancului Farmacia Radu Farmacia Rahova Igifarm Marineti MCM Delphi Royal Blue Royal Mar Sanatatea Stef Farm Sura Mare 24
Myosotis Verofarm
Mercur Ursa
Farmanami Galanthus
Tevifarm Tillia
Optatum Pro Bios
Information sources - Cegedim - Economist Intelligence Unit - National Institute for Statistics - Romanian Chambers of Industry and Trade - Romanian Foreign Trade Center - Sanitary Statistics and Medical Documentation Center - Ministry of Healthcare - National Healthcare Insurance House
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ANNEX 4 Questionnaires used in the survey a) Questionnaire for big producers and importers
INFORMATII GENERALE
1. Denumirea companiei: . 2. Care sunt activitatile din industria farmaceutica in care sunteti implicati si care este ponderea lor in cifra de afaceri: Pondere, %
Productie pentru piata interna Export Import
3. Care este numarul unitatilor de productie si/sau al puncetlor de lucru? .............................................................................................................................................. .............................................................................................................................................. Cum sunt ele organizate la nivel regional (puncte de prezenta regionala)? .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. 4. Care este numarul de angajati ai companiei? . 5. Care este cifra de afaceri si rata profitabilitatii realizate in anii 2001-2003 si nivelul proiectat al acestor indicatori in perioada 2004-2008? Anul 2001 2002 2003 2004 2005 2006 2007 2008 Cifra de afaceri Rata profitabilitate, %
SEGMENTE DE PRODUSE 6. In dependenta de raspunsul la intrebarea nr. 2, enumerati care sunt categoriile de produse ce reprezinta obiectul activitatii dvs. si ponderea lor in totalul vanzarilor: Pentru productie:
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Pythia International Categorie produs 1) . 2) . 3) . 4) . Pentru export: Categorie produs 1) . 2) . 3) . 4) . Pentru import: Categorie produs 1) . 2) . 3) . 4) . Pondere, %
Pondere, %
Pondere, %
7. Care este cota de piata pe care o detineti pentru categoriile de produse si activitatile mentionte? Pentru productie: Categorie produs 1) . 2) . 3) . 4) . Pentru export: Categorie produs 1) . 2) . 3) . 4) . Pentru import: Categorie produs 1) . 2) . 3) . 4) .
Pondere, %
Pondere, %
Pondere, %
CANALE DE DISTRIBUTIE 8. Care este structura canalelor de distributie pe care le folositi si care este ponderea lor in vanzarile dvs.?
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............................................................................................................................................................................ ............................................................................................................................................................................ ............................................................................................................................................................................ ............................................................................................................................................................................ ............................................................................................................................................................................ .................................................................................................................................................... .............................................................................................................................................. 9. Numiti 5 dintre distribuitorii dvs. principali in ordinea importantei lor? 1) . 2) . 3) . 4) . 5) .
CERCETARE & DEZVOLTARE (pentru producatori) 10. Care este budgetul alocat pentru activitatile de cercetare & dezvoltare din totalul cifrei de afaceri? . 11. In ce masura productia companiei se bazeaza pe:
Dezvoltare interna Licente de productie

Comentati............................................................................................................................................................ ............................................................................................................................................................................ ............................................................................................................................................................................ ...........................................................
STRATEGIA DE PIATA 12. Care este structura veniturilor din punct de vedere a activitatilor de baza ale companiei (productie, import, export; categoriile de produse)? ............................................................................................................................................................................ ............................................................................................................................................................................ ............................................................................................................................................................................ ............................................................ 13. Care este pozitia pe piata a produselor companiei dvs. si care sunt avantajele competitive pe care le are compania dvs.? ............................................................................................................................................................................ ............................................................................................................................................................................ ........................................................................................ 14. Cum puteti caracteriza politica de preturi pe care o aplica compania dvs.? ............................................................................................................................................................................ .................................................................................................................... - 128 -
15. Ati lansat pe piata marci proprii?
Da Nu
Cand intentionati sa o faceti?......................................................................... 16. Ati pus la punct un program de loializare a clientilor?
Da Nu
Cand intentionati sa o faceti?......................................................................... 17. Care sunt principalele legi care va afecteaza activitatea? ............................................................................................................................................................................ ....................................................................................................................
PLANURI DE DEZVOLTARE 18. Care sunt tendintele de dezvoltare ale activitatii dvs.:
Largirea gamei de produse fabricate (importate, dupa caz) Restrangerea gamei de produse fabricate (importate, dupa caz) Crestrea volumului de productie a gamei curente de productie Micsorarea volumului de productie a gamei curente de productie Marirea numarului de parteneri distribuitori Micsorarea numarului de parteneri distribuitori Alte planuri (va rugam sa specificati) .
Comentati............................................................................................................................................................ ................................................................................................................... 19. Din punct de vedere financiar, planurile de dezvoltare vor fi sustinute de:
Resurse proprii Resurse atrase

20. In cazul resurselor atrase este vorba de:
Parteneriate Imprumururi bancare Vanzari de active Altele (va rugam sa speceficati) .
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Comentati............................................................................................................................................................ ................................................................................................................... 21. Care a fost marimea investitiilor si continutul acestora in perioada 2001-2003 si cum vedeti evolutia acestora pentru perioada 2004-2008? Anul 2001 2002 2003 2004 2005 2006 2007 2008 Valoare investitii Tipul investitiei
INSTITUTII BANCARE PARTENERE 22. Care este banca principala cu care lucreaza compania dvs. si nivelul de satisfactie al relatiei cu aceasta pe o scara de la 1 la 5 (1 nesatisfacator, 5 excelent)?
Banc Post BCR BRD Raiffeisen Alpha Bank Banca Tiriac Banca Transilvania Alta banca (va rugam sa specificati)......................................................
Va rugam sa apreciati pe o scara de la 1 la 5 (1 putin important, 5 foarte important) motivarea deciziei in alegerea acestei banci:
Servicii oferite Preturi Acoperirea Notorietate

23. Care este banca secundara cu care lucreaza compania dvs. si nivelul de satisfactie al relatiei cu aceasta pe o scara de la 1 la 5 (1 nesatisfacator, 5 excelent)?
Banc Post BCR BRD Raiffeisen Alpha Bank Banca Tiriac

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Banca Transilvania Alta banca (va rugam sa specificati)......................................................

Servicii oferite Preturi Acoperirea Notorietate

24. Enumerati produsele bancare pe care le folositi in mod curent:
linie de credit credit de investitii scontari scrisori de garantie operatiuni de cont curent (plati, incasari) finantare export/ import depozite la termen depozite overnight carduri pentru salariati electronic banking (multicash)
b) Questionnaire for the distribution system
INFORMATII GENERALE
1. Denumirea companiei: . 2. Care este numarul de angajati ai companiei? . 3. Care este cifra de afaceri si rata profitabilitatii realizate in anii 2001-2003 si nivelul proiectat al acestor indicatori in perioada 2004-2008? Anul 2001 2002 2003 2004 2005 2006 Cifra de afaceri Rata profitabilitate, %
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2007 2008
VOLUMUL VANZARILOR 4. Care sunt categoriile de produse pe care le distribuiti si ponderea lor in totalul vanzarilor: Categorie produs Pondere, % 1) . 2) . 3) . 4) . 5. Care sunt marjele si/sau comisioanele aplicate in procesul de distributie al produselor? ............................................................................................................................................................................ ............................................................................................................................................................................ ............................................................................................................................................................................ ............................................................ 6. Cum va asteptati sa evolueze indicatorii discutati mai sus in viitorii 3-5 ani? ............................................................................................................................................................................ ............................................................................................................................................................................ ........................................................................................ 7. Care sunt principalele legi care va afecteaza activitatea? ............................................................................................................................................................................ ....................................................................................................................
STRUCTURA OPERATIUNILOR 8. Cum este organizata reteau de distributie? Care este numarul puncetlor de lucru? .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. ................................................................................................................................................ Cum sunt ele organizate la nivel regional (puncte de prezenta regionala)? ............................................................................................................................................................................ ............................................................................................................................................................................ ............................................................................................................................................................................ ............................................................................................................................................................................ ................................ 9. Numiti 5 dintre furnizorii dvs. principali in ordinea importantei lor? 1) . 2) . 3) . 4) .
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Pythia International 5) .
10. Care sunt consumatorii pe care ii aprovizionati si care este ponderea lor in totalul vanzarilor companiei dvs.? Pondere, %
Farmacii Policlinici Spitale
11. Care sunt elementele cheie ale sitemului de distributie din punct de vedere logistic? .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. ..............................................................................................................................................
STRATEGIA DE PIATA 12. Care este structura veniturilor din punct de vedere a activitatilor de baza ale companiei (categoriile de produse distribuite; categorii de consumatori, etc.)? ............................................................................................................................................................................ ............................................................................................................................................................................ ........................................................................................ 13. Care sunt avantajele competitive pe care le are compania dvs. pe piata si cum puteti caracteriza politica de preturi pe care o aplica? ............................................................................................................................................................................ ............................................................................................................................................................................ ........................................................................................ ............................................................................................................................................................................ .................................................................................................................... 14. Care sunt tendintele de dezvoltare ale activitatii dvs.:
Cresterea numarului de furnizori Miscorarea numarului de furnizori Largirea gamei de produse distribuite Restrangerea gamei de produse distribuite Etxinderea relei de distributie Restrangerea retei de distributie Alte planuri (va rugam sa specificati) .
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Comentati............................................................................................................................................................ ................................................................................................................... 15. Din punct de vedere financiar, planurile de dezvoltare vor fi sustinute de:

16. In cazul resurselor atrase este vorba de:
Parteneriate Imprumururi bancare Vanzari de active Altele (va rugam sa speceficati) .

Comentati............................................................................................................................................................ ................................................................................................................... 17. Care a fost marimea investitiilor si continutul acestora in perioada 2001-2003 si cum vedeti evolutia acestora pentru perioada 2004-2008? Anul 2001 2002 2003 2004 2005 2006 2007 2008 Valoare investitii Tipul investitiei
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Servicii oferite Preturi Acoperire Notorietate

Servicii oferite Preturi Acoperire Notorietate

20. Enumerati produsele bancare pe care compania dvs. le foloseste in mod curent:
c) Questionnaire for small retail pharmacies
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INFORMATII GENERALE
1. Denumirea companiei: . 2. Care este numarul punctelor de vanzare (farmacii) detinute de companie? .............................................................................................................................................. 3. In cazul in care este vorba de o retea de mai multe farmacii, in ce orase sunt amplasate acestea? Oras 1) . 2) . 3) . 4) . Numar POS
4. Care este numarul de angajati ai companiei? . 5. Care este suprafata medie a unui punct de vanzare? . 6. Care este cifra de afaceri si rata profitabilitatii realizate in anii 2001-2003 si nivelul proiectat al acestor indicatori in perioada 2004-2008? Anul 2001 2002 2003 2004 2005 2006 2007 2008 Cifra de afaceri Rata profitabilitate, %
SEGMENTE DE PRODUSE 7. Enumerati care sunt categoriile de produse pe care le commercializati si ponderea lor in totalul vanzarilor: Categorie produs 1) . 2) . 3) . 4) . Pondere, %
8. Care este numarul total de produse pe care farmacia dvs. le detine in stocul de vanzare? ..............................................................................................................................................
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10. Care este in medie adaosul comercial practicat de catre farmacia/farmaciile dvs? .............................................................................................................................................. 11. Numiti trei dintre furnizorii dvs. principali in ordinea importantei lor? 1) . 2) . 3) .
FACTORI CHEIE DE SUCCESS 12. Enumerati in ordinea importantei 3 dintre factorii determinanti pentru succesul activitatii dumneavoastra? 1) . 2) . 3) . 13. Notati pe o scara de la 1 la 5 (1 foarte putin, 5 foarte mult) felul in care vanzarile farmaciei/farmaciilor dvs. sunt afectate de:
Relatiile cu furnizorii Politica de preturi pe care o practicati Fidelitatea clientilor Relatiile cu banca/bancile partenere
14. Ati lansat pe piata marci proprii?
Da Nu
Cand intentionati sa o faceti?......................................................................... 15. Ati pus la punct un program de loializare a clientilor?
Da Nu
Cand intentionati sa o faceti?......................................................................... 16. Care este, pe o scara de la 1 la 5 (1 nesatisfacator, 5 excelent) gradul de satisfactie in legatura cu succesul farmaciei/farmaciilor dvs.? |___|___|___|___|___| 1 2 3 4 5 17. Care sunt principalele legi care va afecteaza activitatea? ............................................................................................................................................................................ ....................................................................................................................
PLANURI DE DEZVOLTARE
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Pythia International 18. Care sunt tendintele de dezvoltare ale activitatii dvs.:
Cresterea numarului de furnizori Miscorarea numarului de furnizori Largirea gamei de produse comercializate Restrangerea gamei de produse comercializate Marirea numarului de puncte de vanzare Micsorarea numarului de puncte de vanzare Alte planuri (va rugam sa specificati) .
19. Din punct de vedere financiar, planurile de dezvoltare vor fi sustinute de:

20. In cazul resurselor atrase este vorba despre:
Ascosiati noi Imprumururi bancare Vanzari de active Altele (va rugam sa speceficati) .
21. Care a fost marimea investitiilor si continutul acestora in perioada 2001-2003 si cum vedeti evolutia acestora pentru perioada 2004-2008? Anul 2001 2002 2003 2004 2005 2006 2007 2008 Valoare investitii Tipul investitiei
Banc Post BCR BRD
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Raiffeisen Alpha Bank Banca Tiriac Banca Transilvania Alta banca (va rugam sa specificati)......................................................
Servicii oferite Preturi Apropierea fata de farmacia/farmaciile dvs. Notorietate

Servicii oferite Preturi Apropierea fata de farmacia/farmaciile dvs. Notorietate

24. Farmacia dvs. accepta cardurile la plata?
Da
Va rugam sa mentionati banca cu care lucrati
Banc Post BCR BRD Raiffeisen Alpha Bank Banca Tiriac
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Banca Transilvania Alta banca (va rugam sa specificati)............................................

si care este nivelul comisioanelor practicate?................................................
Nu
Cand intentionati sa instalati aparate pentru acceptarea platilor cu card? .............................................................................................................................. 25. Enumerati produsele bancare pe care le folositi in mod curent:
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ROMANIAN PHARMACEUTICAL SECTOR SURVEY

Executed for: Raiffeisen Bank Prepared by: Pythia International

For: Raiffeisen Bank

For: Raiffeisen Bank

For: Raiffeisen Bank

1.1. Market size and environment

For: Raiffeisen Bank

For: Raiffeisen Bank

For: Raiffeisen Bank

4.6 2 82.3 1.8 70.2 66.4 74.2 19.4

4.6 2 96.8 1.9 70.4 66.6 74.4 18.9

4.6 3 120.9 1.8 70.6 66.9 74.6 18.4

4.7 3 151.3 1.8 70.9 67.1 74.8 17.9

4.8 4 174.4 1.8 71.1 67.4 75 17.4

4.9 4 186.4 1.8 71.4 67.7 75.3 16.9

5.1 4 204.5 1.8 71.6 68 75.5 16.4

5.3 5 226.1 1.8 71.9 68.2 75.8 15.9

Pharmaceutical Imports and Exports

For: Raiffeisen Bank

For: Raiffeisen Bank

* - forecasts, based on h1-2004 actual data

For: Raiffeisen Bank

For: Raiffeisen Bank

For: Raiffeisen Bank

1.2. Market structure by product segments

For: Raiffeisen Bank

For: Raiffeisen Bank

2006 200 64 167 928 1,358

2007 230 72 194 1,070 1,566

2008 263 85 223 1,230 1,801

Medicines based on antibiotics 4.53% Medicines based on hormones 12.48%

For: Raiffeisen Bank

1.3. Regional benchmarking

For: Raiffeisen Bank

Regional Healthcare Comparisons

Com parative healthcare spending per capita

2001 2002 2003 2008

For: Raiffeisen Bank

For: Raiffeisen Bank

For: Raiffeisen Bank

For: Raiffeisen Bank

For: Raiffeisen Bank

For: Raiffeisen Bank

For: Raiffeisen Bank

1.4. Distribution channels

For: Raiffeisen Bank

Retail vs. Hospitals, evolution forecast (2004-2008)

Weight 68.50% 31.50% 100.00%

Weight 68.80% 31.20% 100.00%

Prescription vs. OTC, evolution forecast (2004-2008)

Weight 80.80% 19.20% 100.00%

Weight 80.00% 20.00% 100.00%

For: Raiffeisen Bank

Number of hospitals and expenditures with drugs, split by county (2001-2003)

For: Raiffeisen Bank

For: Raiffeisen Bank

1.5. Main characteristics of the Romanian pharmaceutical sector

Market Dynamics Buyers

For: Raiffeisen Bank

For: Raiffeisen Bank

2.1. Market share by main producers

For: Raiffeisen Bank

For: Raiffeisen Bank

2.2. Company profiles of the main producers