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Investing in Central Europe 2011

Investing in Central Europe 2011

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The key drivers for investors making cross-border direct investments are usually either to gain access to new and growing
markets, or to reduce costs. The countries of Central Europe score highly on both. The countries of the CE region
comprised in this publication include Bulgaria, Czech Republic, Hungary, Poland, Romania and Slovakia.
The key drivers for investors making cross-border direct investments are usually either to gain access to new and growing
markets, or to reduce costs. The countries of Central Europe score highly on both. The countries of the CE region
comprised in this publication include Bulgaria, Czech Republic, Hungary, Poland, Romania and Slovakia.

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Published by: Deloitte Central Europe on Feb 02, 2011
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01/11/2013

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In the Business Environment Ratings for 2009, Romania has

moved up two places on the rankings table to reach fourth

position among the 20 Central and Eastern European (CEE) key

markets surveyed as a part of the Pharmaceuticals & Healthcare

Business Environment Rankings. Romania’s current position

refects the robust nature of the country’s pharmaceutical

industry and the strong growth it has made in recent months. We

envisage that sales of pharmaceutical products are set to increase

over the next fve years, with sales of prescription drugs and over-

the-counter (OTC) medications expected to grow from US$3bn to

US$5.46bn, thus representing a compound annual growth rate

(CAGR) of 12.74%.

86

Romanian pharmaceutical production has benefted from infows

of FDI for modernisation of what remains a relatively back-

ward industry by European standards. Foreign pharmaceutical

frms entered the market through direct imports, licensing-in

agreements, acquisitions-for example, GlaxoSmithKline (UK/

US) bought a 65% stake in Europharm, and Lek (Slovenia)

bought a 90% stake in PharmaTech-and privatisations (Gedeon

Richter of Hungary bought a majority stake in Armedica). FDI in

the sector is leading to quality improvements, and, with more

factories meeting good manufacturing practice (GMP) standards,

improving export prospects.

Imported drugs are growing rapidly, from 45% of the market by

value in 1996 to about 80% currently. However, imports account

for only about 20% of the market by volume, with domestic

producers largely concentrating on the production of low-value

generic drugs whose patent has expired, while imports are

concentrated on more sophisticated drugs.

Romania’s pharmaceuticals market is characterised by high

growth and increasing levels of foreign direct investment ahead

of planned EU accession. Generics represent around 30%

of the market by value, although their share is likely to slip

as the operating conditions in the country improve for foreign

players. The over-the-counter (OTC) market is underdeveloped,

accounting for a 20% share of the total, mirroring the historical

reliance on public healthcare system for medicines.

Domestic manufacturers produced about 1,500 types of drugs

for domestic consumption and 690 for veterinary use in 2005.

Domestic producers are generally small and have struggled to

raise the investment required to meet GMP standards, which

have been a requirement for operation since the end of 2003.

Drug market in Romania in the frst quarter of 2010 increased by

21.4% to EUR 602.1 million,sustained evolution of prescription

products.

On the production side, there are only a few signifcant domestic

players left, and during the next few years these are expected

to be acquired by foreign companies-attracted by Roma-

nia’s relatively large market, fast growth and low cost base.

The government is attempting to consolidate smaller domestic

producers into the expanding majority state-owned pharmaceu-

tical company, Antibiotice

Recent data suggests that the Romanian pharmaceutical market

has shown strong resilience to the economic downturn in

2009. Data released by market research frm IMS Health shows

that pharmaceutical sales grew 20% year-on-year (y-o-y) to

reach RON3.5bn (US$1.2bn) in the frst fve months of 2009,

reinforcing data released by the Cegedim Consultancy Group

which measured Q109 growth at 22.5% y-o-y. It is believed that

full-year growth rates will be less impressive, although we project

that outside the Commonwealth of Independent States (CIS)

countries, Romania should be the fastest-growing market in local

currency terms during 2009.

In other developments, some of Romania’s leading private

healthcare providers have announced plans to invest EUR80mn

(US$113mn) over the next three years in an attempt to expand

their networks in the country. These include healthcare providers

such as the Unirea Medical Centre, Romar Medical and MedLife.

Latest fgures suggest that the market for medical equipment

in Romania could reach a value of more than EUR200mn

(US$282mn) by 2012, up 50% from the EUR139mn (US$196mn)

estimated for 2009.

Growth in this area will be supported by the private sector, which

has gained considerable momentum in recent years, as well

as by the public sector, where efforts towards de-centralisation,

(expected to begin next year), will open the pathway for tenders

being made for hospital equipment. Firms most likely to compete

in the medical equipment market that supplies big hospitals are

leading US manufacturer GE Healthcare (currently with 40% of

the total market), the German conglomerate Siemens, also with

40% of market share, and leading Dutch multinational Philips,

with the remaining market share of 20%.

Meanwhile, GSK Europharm announced that it will produce

a drug used to treat HIV-AIDS in Brasov, north-west of Bucharest

by the end of the year. The drug will be scheduled for export

as of the frst quarter of 2011 after the conclusion of all registra-

tion procedures. The medicine is the second product to have its

production transferred from other GSK manufacturing plants to

the facilities based in Romania.

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