Orfe moves to boost drugstore sales
In an effort to increase its drugstore sales market share, publicly traded pharmaceutical distributor Orfe said last week that it was planning to purchase two drug warehouses.
This year the company will invest zl. 60 million-zl. 70 million ($14 million-$16.2 million) in two drug warehouses, Cefarm Rzeszow and Torfarm.
"We are obliged to invest about zl. 120-zl. 140 million ($28 million-$33 million) by 2003," said Andzrzej Stachnik, president of Orfe.
Orfe's market share in direct sales to drugstores is expected to increase to about 10% from 3-4% following the acquisitions, Stachnik said. The company's 1999 revenue was zl. 865 million ($221 million).
Orfe has been trading on the Warsaw Stock Exchange (WSE) since 1998. Its strategic investor, Orphe Holdings holds 72.96% of the share capital.
Stachnik said Orfe's revenue increased by about 23% compared to the same period last year, from zl. 195 million ($50 million) to zl. 240 million ($55.8 million). Stachnik predicts further growth for Orfe by the end of the year.
While this level of growth looks impressive, Monika Cebula, an analyst with COK Banku Handlowego, warns not to be too optimistic.
Cebula said Orfe is a specialist in pharmaceutical imports and in May profit for that sector was down. She predicted that there would continue to be a lower than average demand for imported pharmaceuticals. "Considering that, things don't look too bright for the company," she said.
Cebula said that the strategic investor (Orphe Holdings) should be more active, but "there is a need to admit that it's not easy."
According to analysts, the pharmaceutical market is as dispersed as the market for drug distributors. In addition, the changes wrought by the health care reform, which was implemented on Jan. 1, 1999, have made matters worse. According to the reform, regional Patients' Funds (kasy chorych) are required to share the costs of pharmaceuticals bought by patients, thereby limiting the resources available for drug refunds.
"Even PGF, which is very successful, has problems," Cebula said. PGF is the strongest drug wholesaler with 25% of the market share.
Piotr Wisniewski, an analyst with Amerbrokers, said Orfe's results were among the worst of the pharmaceutical distributors listed on the WSE after their financial results for the first half of the year were published.
"Orfe had the lowest dynamics of revenue," he said.
Orfe supplies pharmaceutical warehouses and specializes in importing pharmaceuticals from abroad, whose sales are regulated. For that reason, the company wants to focus more on direct sales to drugstores.
"Orfe will do that," Wisniewski said, "but the competition still looks better."
The company also has plans for the Warsaw market. "We are planning to create a new distribution center in Warsaw," Stachnik said. "We have one that has 6,000 square meters of space, but we want to increase it."
According to Stachnik, Cefarm Rzeszow and Torfarm will increase Orfe's regional reach in Poland. "Having Cefarm Rzeszow and Torfarm, we'll cover all of Poland," he said. After the acquisitions, Orfe will supply 8,500 drugstores.
But Wisniewski had his doubts. "I don't think so," he said. "Only PGF covers all of Poland."
Stachnik also said that Orfe would be interested in taking over two different pharmaceutical distributors, Cefarm Lodz and Cefarm Warszawa.
Wisniewski said the move could prove difficult. "Here in Warsaw there is competition for that and (a drug distributor), Prosper, for instance, is stronger," he said.
Orfe's Stachnik predicts that the Polish market will follow the trend across the rest of Europe: that the market will consolidate and foreign companies will soon enter. "At the moment the are about 200 pharmaceutical drugstores on the market," he said. "But only about 10 of them are important."
