The Emerging Markets of the East

The countries of Central and Eastern Europe and the Commonwealth of Independent States are closing in on global pharmaceutical competition.
Oct 02, 2009
Volume 33, Issue 10

Leaders from Brazil, Russia, India, and China, also known as the BRIC nations, met in Yekaterinburg, Russia, this past June at the first formal emerging economies summit. The group of nations is expected to surpass the current leading economies by 2050 (1), and the pharmaceutical industry is paying attention. IMS Health projects pharmaceutical sales in the so-called pharm-erging markets (the BRIC nations plus Mexico, South Korea, and Turkey) to grow collectively at 13–16% in 2009 and through 2013, according to April 2009 estimates. Meanwhile, the global pharmaceutical market is expected to grow by only 2.5–3.5% for 2009, and only 3–6% through 2013, with US pharmaceutical sales declining 1–2% this year.

With so much promise in developing pharmaceutical markets, small and large companies as well as contract research and manufacturing organizations (CROs and CMOs) are seeking a piece of the warming pie. Although China and India remain hot spots for industry growth, Central and Eastern Europe (CEE), along with the neighboring Commonwealth of Independent States (CIS) (see sidebar, "The region"), constitute a region to contend with.

CEE offers market advantages

After having lost ground during the past 20–30 years, European active pharmaceutical ingredient (API) producers, specifically in CEE, seem to be rebounding. It's well known that API manufacturers in Europe have been squeezed out by competition from China and India as a result of Europe's more prohibitive operating costs for the good-manufacturing-practice (GMP) compliant production of off-patent APIs (typically, 25% of site operating costs) and increased regulations, says Agnieszka Stawarska, a pharmaceutical market analyst at PMR. A market-research firm based in Poland, PMR issued a report on the CEE pharmaceutical market, "Pharmaceutical Contract Manufacturing and API Sourcing in Central and Eastern Europe," in January 2009. The number of companies throughout Europe that offer contract manufacturing services, including API production, is also quite low in comparison with the number of companies operating in China and India.

But after a series of supply-chain breaches such as the contaminated heparin event and a high percentage of reported incidences of counterfeiting in China and India, global firms are taking more notice of the CEE region's advantages. For starters, "CMOs and API suppliers in Europe are located much closer to their clients in comparison with CMOs and API suppliers that come from China and India, which translates into lower transportation costs," explains Stawarska. Moreover, most companies in CEE are GMP-compliant, she says, whereas most companies in China are not. There are an estimated 5000 rogue API manufacturers in China, Stawarska explains, and about 3000 of them are not Chinese GMP-compliant.

In comparison with Western Europe, production costs in the CEE region are still lower, and wages are between one-quarter and one-sixth of those in Western Europe. On the other hand, CEE companies do not have a long tradition of cooperation with companies from Western countries.

Currently, "the most attractive countries in the CEE region for finding partners for contract manufacturing and API sourcing are the Czech Republic and Poland," says Stawarska. Home to the sites of the largest API manufacturers in the CEE region—Polpharma (Starogard Gdanski, Poland) and Zentiva (Prague), which was acquired by sanofi aventis (Paris) in September 2008, these two countries offer an abundance of qualified scientists and high levels of investment into the domestic pharmaceutical market. The Czech Republic and Poland even have more companies specializing in API production than Russia, which is surprising given Russia's size and market potential, says Stawarska.

Neighboring Hungary, however, has been losing favor among international players because of its government's recent cost-cutting measures and their effect on the country's business environment, she says. So pharmaceutical firms based in Budapest such as Egis and Gedeon Richter, which have provided pharmaceutical production and drug-development services for decades, are losing some ground.

Gedeon did, however, invest HUF 15 billion ($103.7 million) in a new manufacturing plant for biopharmaceutical products, including mammalian-cells and therapeutic proteins, in Debrecen, Hungary, in July 2008 (2). The plant, which will create 110 new jobs, is expected to be operational in 2012, starting with clinical trial materials and moving to commercial-scale production in 2014.

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