Report from: Romania

The Romanian pharmacetuical market has grown significantly in recent years, but with stagnation on the horizon, a path forward is needed.
Feb 02, 2009

A series of new challenges and regulatory changes, including accession to the European Union in 2007, over the past two decades have forced the Romanian pharmaceutical industry to adapt to international and European standards, a process that has required the investment of tens of millions of dollars. Although still small in comparison with Western European markets, the Romanian domestic market fares well among those of its neighbors, currently ranking fifth after Russia, Poland, Hungary, and the Czech Republic (1).

Some analysts predict the country will continue to succeed as a location for generic drug manufacturing to become the third largest pharmaceutical market in the Eastern and Central Europe by 2015 (1). Others, however, believe the Romanian market has stagnated. According to an October 2008 report, "Pharmaceutical Market in Romania 2008: Development Forecasts 2008–2010," from the Poland-based market research firm PMR, the country's pharmaceutical market grew approximately 30% per year between 2004 and 2006, but only grew 11% in 2007. PMR's estimated growth figure for 2008 was 8%, and between 2008 and 2010, that figure is expected to be around 9.5% year over year, reaching nearly €2.4 billion ($3.6 billion) (2).

Between June 2007 and June 2008, the Romanian pharmaceutical domestic consumer market grew only 2% to approximately €1.78 million ($2.23 million), with 70% of the total value generated by mainly innovative imported drugs, according to Raiffeisen Investment Romania, a subsidiary of the mergers and acquisitions advisory firm Raiffeisen Investment AG (3). In terms of volume, generic drugs absorbed 70–75% of the total market during that time period (3).

"The Romanian pharmaceutical market is very dynamic, and the growth recorded in these past few years might be considered unbelievable compared to the growth registered in the well-established markets," says Dan Zaharescu, executive director of the Romanian Association of International Drug Manufacturers, a trade association. Still, the market has experienced a decline compared with previous years, and its future is uncertain.

Top-down regulation

The Romanian government continues to play a critical role in the market's transformation. Although "relations between the pharmaceutical industry and the government are good," says Zaharescu, on occasion, the control that the authorities exert in price policies for retailers, for example, has resulted in big losses for the sector. In an import-dominated market, fluctuating exchange rates are a risk and, even though current legislation states that drug prices should be adjusted to reflect exchange rates on a quarterly basis, the government has not enforced the rule since 2007, possibly because of the country's 2008 elections (3). Along with the country's depreciated currency, many importers and drug companies have experienced huge, unnecessary losses as a result. Some companies went as far as refusing to deliver drugs to pharmacies for several days in April 2008 in an attempt to compel the authorities to enforce the price adjustments (3).

Another government initiative likely to affect the industry negatively has to do with acceptable markups for distribution and retail. In the past, wholesalers were allowed to add a 7.5% distribution margin and an 8.5% margin for import activities. The government wants to eliminate the import percentage because as an EU-member nation, Romania enjoys negligible import costs when bringing in goods from other EU nations. "The pricing regulation is penalizing the local pharmaceutical industry, without bringing significant advantages for the healthcare system," says Zaharescu.

In addition, the government continues to favor large multinational companies by regulating prescription rules to provide more benefits for the use of branded products. In the past, for example, a pharmacist was able to offer a patient all available products within an INN (international nonproprietary name) class. Under the new laws, pharmacists are not allowed to do this, and patients must ask their doctor to add a note to prescriptions to indicate preference for a generic drug.