Emerging from almost half a century of government ownership, newly privatized Central and Eastern Europe drug makers are poised to intensify competition in Western European and North American pharmaceutical markets.
But many in the drug industry are asking whether a foray into Western markets will lower prices for cancer patients or simply provide new "strategic partnerships," opening up extensive Eastern European distribution networks to large multinational brand name pharmaceuticals.
"We launched a new strategy to begin market operations in Europe and the United States in 1998 immediately after the Russian economic crisis," said Zsuzsa Beke, spokesperson for Eastern Europes oldest pharmaceutical house, Gedeon Richter, Ltd., Budapest, Hungary.
Of more than $262 million in total sales 2 years ago, $53 million came from exports to its largest market, Russia, while its second-largest export market, the United States, accounted for $18 million in revenue.
Central and Eastern European manufacturers see themselves not only as players in Western European and North American markets but also as being well-positioned to offer large Western multinational pharmaceutical firms access to repackaging services and extensive distribution networks in Russia, the Ukraine, Belarus, and other former Soviet republics. (Repackaging is a common industry practice in which drugs manufactured in one country are legally imported, then wrapped and reboxed with dispensing and other information that meets individual national regulations.)
Beke noted that there are more than 160 pharmaceutical manufacturers represented in the Hungarian market. Gedeon Richter is the only remaining privatized Hungarian drug maker without considerable foreign corporate "strategic" investment.
While there is a relatively "level playing field" in the U.S. generic drug market, these companies cannot alone come up with the $300 million to $600 million required to bring a new branded drug to market, explained Paul Kleutghens, president and chief executive officer of Lek Pharmaceuticals Inc., Ljubljana, Slovenia.
"We just cant compete on the research and development front against the larger Western companies," said Kleutghens. "In terms of new product entries, we just dont have the infrastructure, so often we end up going into a joint venture. Some compounds weve discovered weve ended up licensing to these larger multinationals."
Most industrialized countries maintain regulatory price controls of prescription drugs and ban or severely restrict direct-to-consumer advertising. In the United States, however, higher drug prices are driven in part by free market factors and advertising.
"In Europe you often have single-channel distribution. Drug wholesalers are competing at the manufacturer level to [represent] a range of products to the pharmacy. A whole range of services, including marketing and promoting to pharmacies, are then conducted by the wholesalers instead of the manufacturer," said William Goetz, president of the International Federation of Pharmaceutical Wholesalers, Washington, D.C.
The growing biotechnology sector may likewise offer additional opportunities for foreign competitors as well as domestic generic drug manufacturers, according to Clay ODell, spokesperson for the Generic Pharmaceutical Association, Washington, D.C. His group is now "pushing hard" for federal lawmakers and U.S. Food and Drug Administration officials to establish "new regulatory pathways" for generically produced biotechnology drugs.
The generic drug industry is hoping that the focus on cost containment will prompt a rethinking of existing patent law and how it should apply to bioengineered therapies like the cloned hormone erythropoietin, which treats chemotherapy-associated anemia without requiring blood transfusions but can cost up to $12,000 per year if used regularly.
"Oncologics involve a very specific market, and in the past you had to have very specific manufacturing processes," said Elie Betito, director of Public and Government Affairs for Canadas largest generic pharmaceutical company, Apotex Inc., Toronto.
"It has taken us years, but weve finally been able to begin to move into biotechnology. Oncology is a growing marketplace that has not been mined in the past but has huge potential. Oncologics tend to be very high-end pricewise, so there is obviously a need for more affordable medications," Betito explained.
Fine Chemicals
According to ODell and others, Central and Eastern European manufacturers are already moving quickly into the more loosely regulated "fine chemical" raw material market where they enjoy a competitive advantage.
Unlike many of their North American and Western European counterparts, Central and Eastern European drug manufacturers are almost universally vertically integrated; they produce their own raw materials, manufacture finished pharmaceuticals, and do their own marketing and distribution.
"Theres not yet a concern on the finished dose end of things, but youre never the only player and the market can shrink in a hurry. As the pie gets smaller, your portion decreases dramatically; if you can get a cheaper source of raw materials it obviously gives you a competitive advantage," said Jim Walker, director of scientific affairs at Pharmaceutical Partners of Canada Inc., a Richmond Hill, Ontario, hospital supplier.
At present, up to 70% of the bulk raw ingredients used in pharmaceutical manufacturing are supplied by India or the Peoples Republic of China, according to Roger Williams, M.D., executive vice president and CEO of the Rockville, Md.-based U.S. Pharmacopeia, which establishes quality standards for more than 3,400 prescription and over-the-counter drugs, dietary supplements, and health care products sold in the United States.
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Central and Eastern European pharmaceutical manufacturers are likely to have an immediate and more important impact on nearby Western European markets, Williams explained. With more integrated markets there will likely be better regulatory "harmonization" of quality standards within Europe as well as among Europe, Canada, and the United States.
Even though European harmonization of regulatory standards is under way, drug reimbursement policies and pricing in the European Union remain "the sole competence of individual member states," said Francesco Pignatti, M.D., scientific administrator of the European Agency for the Evaluation of Medicinal Products, London.
Pignatti said that a European practice of "parallel distribution" allows authorized wholesalers to purchase a marketed drug in one member state and, after repackaging, sell it in another member state, which "makes sense where the originally marketed product was at a much higher price."
Several Central and Eastern European countries with large and well-established pharmaceutical industries, such as Slovenia, Hungary, the Czech Republic, and Poland, are on track for EU accession as early as 2004. Factors such as market integration, cheaper manufacturing costs, and European Commission proposals to speed up the drug approval process (see News, Nov. 21, p. 1682) may even coalesce to leave these Eastern European manufacturers in a dominant generic market position.
Jim Keon, president of the Canadian Drug Manufacturers Association, a generic drug trade association based in Toronto, agreed that while Central and East European drug makers are "not yet" major players in the North American finished drug market, in Europe "there is a concern that these companies may be able to undercut the competition."
However, "brand name" manufacturers contend that generic drugs currently comprise a relatively small portion of the oncology drug market and it will likely remain that way.
"Practically speaking, combination therapy is huge in the area of cancer. So generic products may very well be used, but oftentimes they would be used with a novel or innovative product," said a spokesperson for Pharmacia Canada, Mississauga, Ontario.
"It is the synergistic effect that is important. There are very few single-agent chemotherapy drugs," he added. "Oncology is very much a protocol-driven, evidence-based discipline. Costs are not an issue if the results merit the usage."
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