Global Insight Perspective | |
Significance | Farmexim's losses so far from late 2007 have been estimated at 5.5 million euro. |
Implications | Approximately 3.5 million euro of debt came from 2007, with an additional 2 million euro resulting from governmental drug-pricing policies. |
Outlook | Consolidation in the distribution segment of the market seems inevitable, with drug distributors trying different strategies to stay afloat. |
Farmexim Loses US$ 8.5 million on New Leu Exchange Rate
Romanian drug distributor Farmexim has reported loses of up to 5.5 million euro (US$8.5 million) on the adverse effects of the new-leu exchange rate, reports Romanian daily Ziarul Financiar. Farmexim's General Manager Ovidiu Buluc said that the recalculation of the foreign currency debts to third parties the company registered in late 2007 yielded financial losses of around 3.5 million euro, notes the source. Buluc told Ziarul Financiar that the Health Ministry's refusal to observe legislation on the adjustment of drug prices to new-leu exchange rate has already produced losses estimated at about 2 million euro. Drug pricing has been criticised by drug distributors, who claim that Romanian drug prices are lower compared to many countries in the European Union (EU; see Romania: 6 May 2008: Romanian Health Ministry Stays Firm in Dispute Over Medicine Prices).
Farmexim's strategy was to expand in the market of pharmaceutical and para-pharmaceutical products by the creation of a separate unit dealing with the promotion and sale of over-the-counter drugs (OTC) and dermocosmetics. Buluc says that the weight of these products in Farmexim's portfolio and turnover doubled in 2007 against 2006, and the company expects a similar growth in 2008. The share of Farmexim's OTC products in the total retail turnover was 19%. The company's turnover in the first quarter of 2008 stood at 163.5million new lei (US$68.9 million).
Swiss Roche Sells Distributors in New Lei
Swiss pharmaceutical company Roche sells its products to distributors in Romania in local currency, namely in new lei. Roche's General Manager in Romania, Dan Zamonea, told Ziarul Financiar, "Our distributors were happy because Roche sells to them in RON [new lei]. We have our own warehouse and in case we want to work with private hospitals we can deliver directly from this warehouse."
Roche has also a distribution partnership agreement with, Terapia Ranbaxy, the Romanian subsidiary of Indian generics company Ranbaxy. According to Roche representatives, the market in Romania posted 12.3% year-on-year (y/y) growth in the first quarter of 2008, but "at any rate, against last year, a slowdown has been felt right from the first quarter," notes the Romanian daily. In the first quarter of 2008, Roche posted sales of US$47.2 million (see Romania: 28 May 2008: Roche Garners US$47.2 mil. in Romanian Sales during Q1).
Outlook and Implications
An adverse drug-pricing environment, and rising fuel and utilities prices will do little to improve operating conditions for drug distributors in Romania. Global Insight expects tighter competition and consolidation in the pharmaceutical distribution and retail sectors. Companies struggling financially may opt for merger deals in order to improve their standing; otherwise, they may be attractive acquisition targets for bigger players on the market. Only a handful of drug wholesalers and distributors will escape these adverse conditions. A case in point is Romania's wholesaler A&D Pharma—the company's distribution unit was one of the best performing during the first quarter of 2008. In this case, however, the company's performance has been influenced by the strategic partnership with leading U.S. biotech company Amgen in the distribution and marketing of Amgen's oncology products, as well as its restructuring efforts and geographic expansion to markets outside Romania (see Romania: 1 May 2008: A&D Pharma Posts 32% Jump in Turnover in Q1).
Given the possibility of drug shortages in event of another strike by drug distributors over "low" drug prices, the Ministry of Health is preparing even tougher rules for this sector. In order to guarantee continuous supply of medicines, the Health Ministry may change the law to enforce such a responsibility upon drug distributors (see Romania: 18 April 2008: Drug Prices Will Not Go Up, Says Romanian Health Minister). There is growing speculation that the authorities may also modify the way drug prices are assessed, with the possible introduction of further annual readjustments as opposed to the current quarterly system.