The player
Slovenia may be a tiny Alpine corner of Central Europe, but for Krka, its leading pharmaceutical company, size isn't everything.
The regional drug manufacturer may be up against pharmaceutical giants from the United States and Western Europe, but it still intends to take a niche market in the region - and Poland is where it all starts.
On Oct. 30 in Warsaw, Krka opened its first manufacturing plant outside Slovenia and its first drugs came off the production line in mid-November. In addition, the company expects Polish government approval soon for four new products scheduled to hit the market by 2003. Meanwhile, the company is also busy building plants in Moscow and Zagreb, adding to its growing regional presence.
"Central and Eastern Europe is our traditional market and the medical community here knows us, so it's best to concentrate here," said Joďef Kolariă, director of Krka Polska.
The reason for the company's bullish behavior in an otherwise crowded market is the heavy demand for its main product: cheap generic drugs. "The Polish market buys mainly generics," said Bogusław Taźbirek of PBK Asset Management. "Generic drugs will stay on the Polish market because prices are lower and Polish consumers in the coming years won't be able to afford innovative drugs, which are several times more expensive."
The company sold $40 million worth of drugs in Poland last year - 5% higher than in 1999. Kolariă is hoping for similar growth this year. And depending on Krka's success, the company also plans to increase its workforce in 2002 to 200 employees from 160 and begin exporting to Ukraine and the Baltic States.
But despite its moves for regional expansion, Krka still faces strong competition on the Polish market, where even the leading Poznań-based GSK Pharmaceuticals has just 7.2% of the sector's sales.
"The biggest threat to us are the number of competitors - Polish, European and global," Kolariă said. In addition, more than a dozen Polish firms operate on the domestic market as well as major global players such as Servier, Novartis and Aventis.
According to a report on the pharmaceutical market by international research firm IMS, Krka has only 1.9% of the market in Poland. Kolariă's goal is 2.5% in five years. "Other big players are present here as well and they're investing, too," he said. "We're not looking for a 5% share, we must be realistic."
Regardless of Krka's plans, its Polish competitors see little threat from the Slovenian company's expansion. "Drugs made by foreign makers have been available on the Polish market for a long time and this won't change when drugs from the new factory reach the market," said Ryszarda Wolska, spokeswoman for drug maker Jelfa.
Nevertheless, industry analysts agree that Krka's investment in Poland makes sound business sense if the company wants to be a regional pharmaceutical player. "Poland is one of the biggest markets in Europe with nearly 40 million citizens and it's a good location for exporting to the east," PBK's Taźbirek said.
Krka is investing in a market that has grown by an average of 22% during the past 10 years and Kolariă is banking on future sales growth. "The volume of spending on drugs per capita in Poland is pretty low - slightly more than $50 per annum," he said.
Meanwhile, some analysts said Krka would do better to buy an existing state-owned pharmaceutical company in Poland rather than build its own $25 million plant. Kolariă, however, stressed that Krka's philosophy is to steer clear of state-run firms.
"If we took over some older Polish company, we would need to lay off personnel and to make a big investment to restructure and modernize it," Kolariă said.
And while big global drug makers are more cautious about investing in manufacturing plants in Poland, several regional players, such as Croatia's Pliva and Hungary's Gedeon Richter, are following Krka's lead and looking for regional investment opportunities.
"Western European producers are reluctant to invest in Poland because they prefer to import," Taźbirek said. He said that Central European drug manufacturers know the market, have a shared history and understand the habits of Polish and Central European consumers.
But according to Sylwia Jaskiewicz, a drug industry analyst at ING Barings, the current round of consolidation in the global pharmaceutical market will probably swallow Krka. "It's all only a question of time when consolidation comes to Central Europe," she said.
Robert Wylot
