Going global

Polish pharmaceutical companies are at last finding new export markets, after being pushed out of their home turf by the multinationals. Following the collapse of communism, and the onset of severe competition from multinational pharmaceutical companies, domestic drug manufacturers saw their local market share plummet to 35% from a near monopoly in 1989. And after the Russian crisis of 1998, their eastbound exports almost halved, from $260 million in 1997 to $134 million in 1999. Before the Russian crisis, 87% of Polish drug companies' exports went to Eastern Europe. Last year, this share had fallen to 60%, according to a report by CASE Doradcy, the Polish consultancy firm. With the multinationals breathing down their necks, the domestic drug companies have been looking for new markets. And it would seem that they have found them as more and more Polish drug manufacturers are looking to the East - the Far East. Former Soviet republics in Asia and nations such as Vietnam and China figure high on the list of countries attracting the marketing skills of Polish drug companies. The companies, however, are reluctant to give details about their Asian strategies as they try to establish footholds in the East before their competitors. "You must be very careful," said Andrzej Kleszczewski, the president of Warsaw-based Polfa Tarchomin. "Every move puts the competitors on alert, and they become interested themselves." Vietnam and China are Polfa Tarchomin's key targets in East Asia. The company has 11 drugs registered in Vietnam and registered its first product in China earlier this year. "The first delivery should leave Poland in September," Kleszczewski said.

Historic partners China and Vietnam have long records of commercial contacts with Polish pharmaceutical producers, and their products are recognized by local consumers. "Polish drugs are already well known and popular in Vietnam," said Nguyen Van Thiem, the trade counselor at the Vietnamese Embassy in Warsaw. Although Polish drug sales in Vietnam constituted a mere 1.44% of all Polish pharmaceutical exports last year, they have been on the increase for several years. Vietnamese patients bought Polish drugs worth some $2.3 million in 2001, a 53% rise from $1.5 million in 1999, and Van Thiem expects this year to set a new record. "Drug imports amounted to $1.3 million in the first half of this year, and the second half is always stronger than the first," he said. Both the Chinese and Vietnamese economies have boomed during the past decade, with gross domestic product (GDP) growth figures of 5-10% annually. Vietnam's economy expanded by 7.3% in 2000 and 6.8% in 2001, with this year's growth expected to be about 7.2%. The current boom, according to Kleszczewski, makes the two markets even more interesting than Russia and Eastern Europe in the long term.

Eastern allure Kleszewski's company is not the only one with plans for Vietnam. Publicly listed Jelfa also has plans for that country. It is already present in the market, but Ryszarda Wolska, the company's spokeswoman, wouldn't disclose the company's sales there for competition reasons. "We want to further expand our current position in Vietnam," she said. "We're also analyzing ways to enter other markets in the Far East." Polpharma, Poland's second-largest drugmaker, sells some 6.5% of its exports to Asia - the bulk of them to former Soviet Union countries, according to Stefan Lubawski, Polpharma's vice president. The company is now looking to possibly expand to Vietnam, China, Hong Kong, India, Indonesia, Japan, Kazakhstan, Malaysia, Thailand and Uzbekistan, according to Lubawski. Only two of these countries - Kazakhstan and Uzbekistan - are former Soviet Union members. Poland's largest drug manufacturer, GSK Pharmaceuticals, a Poznań-based GlaxoSmithKline subsidiary, sells some 85% of its exports in the former Soviet Union countries with the remainder going mainly to Central European markets, according to the company's export department manager, Janusz Osadziński. GSK Pharmaceuticals' exports climbed to $9 million last year from $6.5 million in 1999, and Osadziński expects a further rise to $20 million this year and to $40 million in 2003, as the parent company shifts more and more of its export-oriented production to the Poznań plant. But the new products will target not only post-Soviet markets, but also South America and Southeast Asia with the main focus on China, he said. "The Chinese market has very strong growth potential," Osadziński said. "It's still small in terms of value, but it's growing." Despite his optimism about the Chinese market, he does not expect GSK Pharmaceuticals to start selling its products in China before 2005. "Registering a product in a new market takes two years on average, so you can sell your first pack of drugs some two years after filing the registration application," he said. Drug industry sources agreed that getting the administrative approval for a drug is the key obstacle to entering new markets. "We must get approvals for our drugs in each of these markets, and it takes several years to wait for them," Polpharma's Lubawski said.

Closer to home While Polish drugmakers'expansions into the Asian drug markets have yet to blossom due to lengthy approval procedures, they are already beginning to reap the benefits of a recovery of exports to their main market - Eastern Europe. Eastern European pharmaceutical markets have shrugged off the slump of the 1998 crisis, with Russia's GDP showing a healthy annualized increase of 3.7% after the first quarter of 2002. "We expect our sales in Russia to exceed 1998 levels by the end of this year," Polpharma's Lubawski said. Having learned from the Russian crisis - they suffered substantial losses in 1998 when trade agents failed to pay for deliveries - Poland's pharmaceutical makers are now building up their own distribution networks in the East. Last year, Polpharma opened outlets in Kaunas (Lithuania), Kiev and Moscow; Polfa Warszawa and Polfa Tarchomin opened Moscow outlets earlier this year; and Jelfa established a Moscow outlet in early September and will decide on a new outlet in Ukraine by year-end. "Polish pharmaceutical companies stand a great chance of success in the East," said Michał Górzyński, CASE-Doradcy's vice president. "Polish (drug) exports to Eastern Europe will certainly continue to grow." The former Soviet republics are the regions to expand to since, according to Górzyński, these markets are now enjoying high economic growth and consumers are beginning to pay more attention to health issues. "Spending on healthcare is playing an increasingly significant role in household budgets there," Górzyński said.

The advantages that Polish drug manufacturers want to exploit in East Asia are already boosting their sales in Central and Eastern Europe, he said. It's high brand awareness, traditional trade partnerships and low drug prices that help Polish exporters to compete with the multinationals, which offer innovative state-of-the-art drugs, but at significantly higher prices. Polish drugmakers have been unsuccessful in the developed markets of Western Europe, where consumers can afford more expensive high-quality drugs, while registration procedures are more stringent than in Eastern Europe and Asia. "Polish GMP (Good Manufacturing Practice) certificates aren't recognized in the West, and Polish companies have difficulties getting their products registered there," Osadziński said. "It's easier in the East." The multinationals are looking to enter the Eastern markets as well. The ones that took over Polish drugmakers are using their Polish subsidiaries as expansion hubs for Eastern Europe, Górzyński said. Their Polish arms can offer contacts, market knowledge and distribution networks in the East.