Olga Pavuk, Ieva Skrastina, Ruta Slusnyte (Lietuvos Rytas), Hannes Tamme
Latvia's Barriers Against Dubious Remedies
Once Latvia held the leading position in the USSR as regards to consumption of medicine. The passion for pills has not ceased much since then. Citramone (an effective kind of pain killer) alone - a popular favourite - has sold around 3 million packets on average per year.
According to data provided by the Pharmeuticals Department of the Ministry of Welfare, the yearly turnover the market for medicines of Latvia has doubled over the last four years, reaching 186 million USD (108 million lats) in 1999. Out of this amount, 94.3 million lats are obtained from sales of medical remedies and substances in Latvia. The local market (as of the end of 1999) had a record four thousand kinds of medical preparations, and on a monthly basis, this record is supplemented by 70 to 100 new product names. This branch of industry employs about 7 thousand people.
The lion's share of the medicine - over 90 percent - is imported from other countries. Thus, in 1999, import of pharmaceutical preparations to Latvia constituted 88.2 million lats, while export accounted only for 10.4 million. As to the geographical characteristics of importers, many countries and large international suppliers like Pharmacia & Upjohn, Nycomed, Bristol-Myers Squibb have been represented. The position of main importer by amount of imported products is held by Poland, which is followed by Bulgaria, Ukraine, Russia and Germany. According to the Medicine Information Centre, there are 70 wholesale companies on the Latvian market, 15 of which can be considered large. 668 pharmacies are operating in the territory of Latvia (compared to 627 in 1996).
The share of locally produced medicine on the Latvian market was 6.8 percent in 1999 (10.9 percent in 1998). The output of the 19 Latvian producers was equal to 16.5 million lats last year (20.5 million in 1998). The largest local companies are Grindeks and Olainfarm. Among the medium-sized companies, Medpro, Baltijas terapeitiskais serviss, Rigas Farmaceitiska fabrika and Kalceks should be mentioned.
All of these companies have licenses, and their production meets Latvian quality standards. However, none of the ready-made medicines produced in Latvia are sold to the West. Grindeks is determined to obtain its first GMP certificate for sales of tablets and capsules in Europe (basically in the United Kingdom) this year. Nevertheless, in order to sell Latvian products there, they have to be registered, and Valdis Jakobsons, President of the Latvian Association of Medicine Producers (also Chairman of the Board of Grindeks) notes that this procedure is much more expensive there than in Latvia. Registration of just one kind of medicine for sales in Europe costs about 200,000 USD.
Only semi-finished products - substances in various stages of refinement - are exported to Western countries by Latvian producers. Exports of raw materials which have been refined up to 90 percent comprise over 5 percent of the total turnover of Olainfarm; such products are sold to Switzerland, Austria, Germany, USA and Argentina. 13 percent of the production of Grindeks is exported to Europe, and 14 more percent go to Japan.
The consequences of the Russian crisis could be noticed in the decrease of production output in the greater part of local pharmaceutical companies. The company Grindeks managed to keep the leading position with a total turnover of 9.85 million lats (compared to 9 million lats a year before). Olainfarm experienced a slight decline of output (from 6.6 to 5.58 million lats). Although in 1998, four more enterprises produced medicine for at least a million lats per year, only Medpro Inc. succeeded in crossing that line in 1999 (1.35 million lats). The explanation does not lie in the shrinkage of exports that took place, as Latvian medicine enjoys high demand in Russia and the CIS. The crisis resulted in loss of part of the local market share, which was filled by large quantities of cheaper medicines imported from Russia.
The Russian crisis forced Latvian producers to adapt their structure of exports. Now more attention is paid to the European markets and other countries in the CIS.
«Placing all the hopes on Russia alone is not the right thing to do. It is an important, but a very risky market,» reckons Valdis Jakobsons. «Export to Russia should not exceed 5 percent.»
Currently, Grindeks is selling 17 percent of their production to Russia and 14 percent to other CIS countries. At the same time, 45 to 50 percent of medical preparations produced by Olainfarm go to Russia. «We have no intention of reducing trade with the Russian market, but the share of Russia will be diminished in the common sales structure due to the expanding geography of deliveries,» said Valery Maligin, President of Olainfarm, during his interview with BC.
«There are no large companies in Latvia, all of them are medium-sized or small. Nomenclature of medicines is huge. That makes production costs high. It is difficult to bring in profit necessary for further development,» states Valdis Jakobsons. «There are no companies holding foreign capital. Expansion could only be possible with the help of foreign capital.» Valery Maligin, President of Olainfarm, confirmed his determination to unite 12 of his enterprises and production units into a single Baltic concern by the end of the year.
Another issue brought up by Valdis Jakobsons during his interview with BC is the training of specialists. For now, the work is done by specialists trained in the old Soviet way. There are no opportunities of receiving training for medicine producers in the Baltic States, except through the production companies themselves.
Olainfarm scored additional points with their famous «Remantadine» drug during the epidemic of influenza last winter. The popularity of this medicine along with the cheap price increased the sales of the preparation more than two times in 1999 compared to 1998 (500 thousand packets versus 200 thousand). Janis Polis, author of the method for obtaining remantadine, was brought out of oblivion - the campaign against the epidemic helped to solve the difficult everyday problems of this Honorary Member of the Latvian Academy of Sciences. By the way, remantadine was created back in Soviet times at the current Grindeks company, which was then an experimental facility.
The basic problem facing both suppliers and consumers of medicine in Latvia, is connected with the disappearance of a series of cheap Russian and Ukrainian medical remedies which were not registered and cannot be found in drugstores as of July 1st. As it was explained by Juris Bundulis, Director of the Pharmaceuticals Department of the Ministry of Welfare, it is not the cheap medicines that are limited for import to Latvia, but the unregistered ones. Somehow, some of the Russian producers of medical remedies have happened to be the ones who have been less prompt in this respect.
Approximately 1500 applicants are waiting in line. The procedure of registration can take up to several years. The European Union has set a period of 7 months for the procedure, apart from correspondence and acquisition of all the necessary documents.
The costs of registration of a single medical preparation in Latvia range from 200 to 800 lats (USD 300-1300). In cases when the producer has no documented proof of the quality, efficiency and safety of the medicine, the registration of the preparation is refused. Janis Ozolins, Director-General of the State Medicine Agency, recalls 150 such cases last year. «One should not think it is just India and Russia, there are also America, France and others, because every country has good companies, outstanding companies and not so good companies,» remarked Janis Ozolins. «Trade of unregistered products poses serious risks to consumers,» according to Valery Maligin. «Registration of dubious products must be flatly refused.»
«If a medical remedy having no analogues disappears from the market,» explained Janis Ozolins to the BC, «the law provides three cases when the preparation can still be obtained: in case of catastrophes and epidemics; in case the medicine is prescribed to a particular patient; and also if a medical establishment applies to the State Medicine Agency with a request for unregistered medicine and can present grounds for such action.»
Halting operation of the plant Kalceks in Riga just two weeks after privatisation kicked up a row on the pharmaceuticals market this spring. The State Pharmaceutical Inspectorate found a batch of calcium gluconate with harmful admixture in it. After that, a general inspection of the plant was carried out and shortcomings detected in 60 samples. Halting of the plant production raised panic in hospitals, as they are the main consumers of cheap analgesics produced by Kalceks. A month later, the plant received its licence back. Nevertheless, Kirov Lipman, a well-known businessman in Latvia and the holder of 39 percent of the shares, applied to the Privatisation Agency which had sold him a «cat in a bag.» Lipman asked for a correction in the sale price of Kalceks as compensation for damage done to the image of the plant, but the claim was rejected. Kirov Lipman says that his plans included construction of a new plant out of city. Now he is no longer certain if he should stay in this business at all.
Meanwhile, Latvian scientists attempt to make use of the local advantages in order to stimulate the chemical and pharmaceutical industry. Two well-known persons in Latvia - the academic Nikolay Vedernikov and the Doctor of Chemistry Aivars Kreituss (the latter with some experience as a member of Parliament) - are implementing a project on production of furfural (the only raw monomer used in industrial synthesis which is obtained from raw plant material and not from oil). This substance is one of the components of many medical preparations, including nitrofuran, furamon, acrichine (vitamin B) and the anti-tuberculosis vaccine. Latvian researchers propose that leftovers of leafed wood should be used for production of furfural.
According to the President of Furans Ltd, Aivars Kreituss, this project would be the most extensive one in Europe with its production rate of 5000 tons per year. Production facilities have already been found - a biochemical plant in the small town of Livani. The required investment amounts to USD 12.6 million, 7 million of which would have to be spent on production equipment. Investment is planned to repay within 3 years. The authors of the idea have not accepted foreign assistance so far, since they count on state support.
Lithuanians Willing to Forget the Russian Nightmare
The volume of the Lithuanian pharmaceutical market is roughly estimated to exceed 700 million lits. In the beginning of 2000, the first signs of revival could be observed. Wholesale dealers predict an increase of turnover in 2000, while producers of medicine hope to develop new markets.
The participants in the market assert that they have had the hardest times during the second half of 1999. Producers of pharmaceuticals were heavily influenced by the consequences of losing the main market at that time - Russia. At the same time, wholesale dealers and retail pharmacies had to bear the heavy load of state debts for compensation medicine on their shoulders. Moreover, the whole pharmaceutical market, just like other sectors of economy, experienced drastic decline in the purchasing power of the population of the country.
According to the Lithuanian Association of Medicine Wholesale Companies (AMWC), the turnover of members has nevertheless grown last year, reaching 572 million lits (compared to 557 in 1998). The association unites the ten largest wholesale companies including Tamro, Interfarma, Armila, etc.
Statistics show that currently 168 enterprises are in the medicine wholesale business in Lithuania. However, Rimantas Zemaitis, Director of AMWC assumes that only 70 of them are actively dealing on the wholesale market at the moment. The official numbers do not reflect the fact that some of the companies who have received licences actually do not operate in the field of pharmacy. Licences for pharmaceutical business have been issued to nearly 700 pharmacies.
Wholesale dealers hope to increase the turnover this year by storing medicines according to the European standards, including the stocktaking system. «Perhaps it will not be an actual growth of market, but just internal shifts. Nevertheless, it is extremely important for wholesale dealers to maintain good relations with the producers who have high demands as regards to storage of medicine,» remarked Rimantas Zemaitis. A real growth of market is expected by wholesale dealers after the rise of purchasing power among the inhabitants of Lithuania.
Having focused on improving their own internal situation, medicine wholesale companies are also expecting foreign investors. In 1999, the Lithuanian company Farmacija joined the international Tamro group - the leader of the pharmaceutical market in Scandinavian countries and in he Baltic States. Eventually, foreign capital is expected to flow to other large pharmaceutical companies of Lithuania as well.
Last year was marked by a trend of amalgamation of wholesale companies. They started to merge due to increased requirements towards medicine trade. Furthermore, many of the companies did not have any space for expansion on the market.
Wholesale dealers state that the only thing actually preventing them from expanding enterprises is the debt of state medical insurance for delivery of compensation medicine reaching almost 98 million lits in the beginning of March. The money frozen in state debts to the largest companies leaves them with nothing but sweet dreams of reviving the whole pharmaceutical market as soon as possible.
Pharmaceutical producers of Lithuania, summing up the results of last year, reported a slight increase in production. Medicines and other medical preparations are produced by 28 enterprises; however, some of them are only engaged in the packaging of medicine.
Production output of the nine largest medicine producers of Lithuania amounted to nearly 60 million lits. Among these producers, Norfachema, Bakteriniai preparati, Hvenssionil vaistazolos, Endokriniai preparatai, Vilniaus farmacijos fabrikas, Sanitas, etc. can be mentioned. Net profit of these nine medicine producers united by the association reached 1.77 million lits in 1999. Such enterprises employ 1,250 people.
«The pharmaceutical industry reflects the state of the whole industry of Lithuania, as it is closely linked to the Russian market. Loss of this market did not have so much impact in 1998, but in 1999, the bottom of the pitfall was reached. Currently, a certain revival can be observed, and at least the economic indicators are not falling down anymore,» stated Albertas Bertulis, Head of the Lithuanian Association of Pharmaceutical Industry Enterprises.
The main task set out for the producers of pharmaceuticals last year was to activate alternative markets, that is, all prospective markets except for the Russian one. Entering the markets of Central and Western Europe, countries of Asia and Latin America may take up to two years, which is the time necessary for meeting all requirements for registration of medicines in these countries.
Last year Lithuanian producers managed to enter the markets of CIS countries, for instance, Kazakhstan and Armenia, as well as the markets of Central Europe, Asia and Latin America. Moreover, sales of Lithuanian medicine have grown in Lithuania itself - they have taken 15 percent of the market compared to 10 percent the year before. In total, 6,242 kinds of medicine and 757 foodstuffs used as medical remedies have been registered in Lithuania.
Experts believe that foreign investors could only be attracted by companies with modern production technologies and holding appropriate certificates. There are few enterprises in Lithuania corresponding to these criteria, but almost all of the serious companies have set obtaining these certificates as a goal to be attained this year.
Strict Quality Control for Estonian Pharmacists
According to the Medicine Agency, in 1999 Estonian pharmacists have sold pharmaceutical products for 1.13 billion crowns (approximately USD 75 million). «It is by 16 percent more than in 1998,» states Kristin Raudsepp, Director-General of the Agency. In the period from 1993 to 1999, the amount of medicine sold on the local market had increased eight times.
«I believe that the market has already reached its limits, and no more serious increase of turnover can be expected,» says Tarmo Laanet, Chairman of the Board of the joint-stock company Magnum Medical, the largest wholesale dealer in Estonia. According to his words, the market for medicines is stabilising throughout Europe. Gross national product of Estonia diminished by 1.5 percent last year, so an increase in sales by 16 percent can be considered a success.
As of 1 January 2000, there were 272 pharmacies, 54 hospital pharmacies and 47 medicine wholesale companies in Estonia. The largest network of pharmacies belongs to Medimax. «At present we have 10 pharmacies, but we intend to obtain 20 more pharmacies in the largest cities of Estonia by the end of the year,» said Meelis Meeots, Chairman of the Board of Medimax. He explains that Medimax does not build new pharmacies, but buys out the existing ones instead. Medimax has been operating on the market for only two years now, and their manner can be characterised as very aggressive.
We can speak about good maintenance of Estonian pharmacies, as they have to meet very strict requirements. «I suggest that they are even too strict, which creates a situation when large amounts of investment in pharmacy equipment are required,» recognised Meelis Meeots. For medical remedies priced over 100 Estonian crowns (USD 5-6), pharmacies are not allowed to put an extra charge exceeding 15 percent.
Pharmacies are paying their bills to wholesale dealers in time; they do not make debts. About 150 pharmacies order medicines through Internet. Even rural pharmacists use the computer web for making orders, which reduces the prime costs of medicine sold in pharmacies. «Last year we sold 45 percent of the total amount of medical preparations through Internet,» said Tarmo Laanet. Over the last four years, Magnum Medical has invested 10 million crowns in the computerised system of warehouses and orders.
Among the wholesale companies, Magnum Medical, holding 100 percent of local capital, had a market share of approximately 40 percent last year. Finnish company Tamro controls 28 percent of the market. These companies are followed by TopMed (owned by Lithuanians), Pharmac (Estonian owners) and another company with Finnish capital - Oriola. The ten wholesale companies have a whole nomenclature of medicine at their disposal.
Last year Magnum Medical opened a new warehouse in Tallinn, covering 4000 sq.m. and fully provided with modern equipment. This spring Tamro Eesti is starting construction of new warehouse premises in the capital city. «The new premises will cover 8500 sq.m., which is four times the space we have today,» noted Tarvo Vaasa, Director of Tamro Eesti. Construction costs are expected to amount to 90 million crowns.
In order to attract customers, wholesale companies have introduced a practice of presenting directors of pharmacies with free passes to resorts in the recent years. Seminars on cruise ships and similar places are arranged for pharmacists as bonuses. For instance, the game «Millennium 2000» is coming to an end on April 14. Three «Mercedes Benz» cars, 30 trips to exotic countries and 30 «Sony» TV-sets will go to pharmacies buying medicine from Magnum Medical.
The largest provider on the Estonian market is Nycomed Sefa, controlling 60 percent of the market. It is followed by Glaxo Wellcome, Ratiopharm, Novartis and Bristol Myers Squibb.
There are only two pharmaceutical plants producing medicine in Estonia. Tallinna Farmaatsiatehas (Tallinn Pharmaceutical Plant) belongs to the Latvian company Grindeks. Nycomed Sefa (owned by the Danish concern Nycomed) is situated in small town Pilva with just 7 thousand inhabitants. Last year, Nycomed Sefa sold medical preparations for 54 million crowns on the local market, Tallinna Farmaatsiatehas - for 19 million. Nycomed Sefa export their products to Latvia, Lithuania, Russia, Sweden and Denmark. Exports of Tallinna Farmaatsiatehas go to Latvia, Lithuania and Russia. Several small enterprises owned by foreign companies Bristol Myers Squibb, Vagos and Dorpson perform only packing functions for these companies.
Medicine produced locally is on the average 20 to 50 percent cheaper than those which are imported. «Preparations of 250 producers have undergone registration in Estonia, however, medicine produced by nearly 400 companies is actually available on the market,» informed Andres Raukas, Development Director of Nycomed Sefa. As for the beginning of 2000, 2,345 medical preparations and 825 active substances had been registered.
Since 1 January 2000, permits for imports of medicine unregistered in Estonia are not issued anymore. Among unregistered medical preparations, medicine from Russia, India and Bulgaria prevail: they are still on sale, but no more deliveries are planned. Such medicines as the common and cheap citramone, pentalgin, validol and a series of other popular medicines have disappeared from pharmacies.
Producers have to pay 10,000 crowns for registration (approximately USD 500). As regards to rare or unusual medicines, the Estonian Medicine Agency is entitled to issue a single permit for import of a certain medicine. «We cannot sell medicine bearing no guarantees of the producer,» declares Kristin Raudsepp, Director of the Estonian Medicine Agency. Last year cheap medicine composed 35 percent of all kinds of medicine, but it accounted for less than 10 percent in the financial turnover.
Since 1998, it is again allowed to advertise medicine that can be sold without prescription in Estonia. There are about 80 agencies of medicine companies operating in the country, and they maintain active communication with pharmacies and doctors. According to Andres Raukas, Johnson&Johnson have spent much more money on advertising «Tylenol» than they earned from selling this medicine in Estonia. Competitors estimate that the expenditures of SmithKline Beecham on advertising «Coldrex» exceeded the profit from the sales by more than two times.
«The problem lies in the fact that International Medical Statistics provide inaccurate data on the market for medicines in the Baltic States, and at the same time this information is very expensive,» complained Andres Raukas. He says that «as regards to Estonia, this data is simply ridiculous.» The information provided by Estonian Medicine Agency is ten times cheaper, and producers and wholesale dealers of medicine have already understood that.