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Generics dominate Central and Eastern European pharma

Generics will dominate the pharma market in Central and Eastern Europe until 2011, according to a report from PMR Publications (Poland).

Generic and innovative drugs market in Central and Eastern Europe 2009, states that generics were worth €17.2billion in Central and Eastern Europe in 2008, giving them an approximate market share of 58%. Between 2009 and 2011, their value is expected to increase by as much as 14%. In contrast, the market for innovative drugs in 2008 was worth only €12.4 billion and future growth is expected to be slow for the coming years because of cost containment policies in Central and Eastern European countries, which are becoming more demanding as the global financial crisis continues.

(IMAGE SOURCE/GETTY IMAGES)

The slow growth of innovative medicines and the reign of generics can be attributed to the fact that the majority of players in the region are generic drug manufacturers. The larger players, such as Gedeon Richter (Hungary) and Zentiva (Czech Republic), have a wellestablished presence in most Central and Eastern European countries and the region also represents the main area of their activities.

A number of international generic players are also very active in the region, particularly in Russia. Russia is one of Indiabased Dr Reddy's key markets, as well as an important market for Stada (Germany), which has recently acquired Russian companies Nizhpharm and Makiz-Pharma. Actavis (Iceland) also has a strong presence in Russia, as well as in Bulgaria, while Ranbaxy's (India) key markets include Romania and the Commonwealth of Independent States countries.

Consolidation within the pharma industry has also given more generic manufacturers a foothold in the region. Teva (Israel) now has a strong presence in the region after acquiring Barr in July 2008, which includes Pliva (Croatia) – one of the largest local generic drug producers. Also in 2008, US generic manufacturer Mylan acquired the Central and Eastern European generics businesses of Merck KGaA (Germany), which includes operations across the region. More recently, in 2009, sanofi aventis acquired Zentiva, a leading generic business for the region, and Novartis has acquired EBEWE Pharma's (Austria) generic cancer drug production unit.

Although the region is home to many representative offices of multinational companies, it is not, in most cases, considered their main market. Many of them do, however, choose to conduct clinical trials locally because of the low costs, high population and limited access to innovative therapies in the region.

Although growth for innovative medicines will be slow for the time being, PMR does expect to see some improvement in the medium-term. Improvements in the region's health awareness and the modernisation of healthcare systems, including the development of private health insurance and the establishment of health insurance and drug reimbursement systems, are expected to drive the market for innovative drugs. The ageing population of the region may also exert some influence over the market as the demand for medicines increases. As a result, sales of innovative drugs are expected to increase steadily in the coming years.

www.ceepharma.com

www.pmrpublications.com

2020: a taxing time for pharma

An increase in the effective tax rate for the pharmaceutical and life sciences industry is inevitable, according to a poll of senior tax executives conducted by PricewaterhouseCoopers (PwC). PwC's report Pharma 2020: taxing times ahead – Which path will you take? also explains that tax planning will become much more complicated in the next 10 years, which will give pharmaceutical tax executives a more prominent role in strategic business planning.

"Tax planning will be a critical consideration, not an afterthought, of long-term business plans to grow, buy, merge or sell and will be one of the most important considerations in deciding where to locate intellectual property, manufacturing and service delivery," Michael Swanick, Global Pharmaceutical and Life Sciences Tax Leader at PwC, explained in a press statement.

Part of the reason for pharma's increased tax burden can be attributed to the economic downturn, which has caused immense financial damage that governments must somehow repair. An obvious solution is to increase tax rates and PwC believes that industries that have enjoyed relatively low rates of taxation are likely to become targets. "Multinational corporations — and many pharmaceutical companies fall into this category — are one obvious target," says the report.

In particular, the report expects governments to clamp down on opportunities that enable companies to minimise corporate taxes by moving profits from countries with higher tax rates to 'tax haven' countries with lower tax rates.

"By 2020, all multinationals will be subject to much more stringent tax regulations, and the major powers could impose trading restrictions on any traditional tax havens that still refuse to cooperate," says the report. The press statement also warns: "identification of uncooperative nations may become more common, and corporations that continue to use tax havens could face financial penalties and reputational damage."

Given the current state of public finances, it is unsurprising that governments will become so strict when it comes to taxes. However, the report also warns that governments will have to be careful not to cause a mass migration of companies to more favourable tax jurisdictions. "Companies sometimes use the threat of relocating as a bargaining tool, but this is not always idle talk. A number of companies have already relocated to other countries specifically to protect or improve their tax positions," says the report.

There's also more good news because many countries will be offering generous tax incentives to entice companies involved in R&D, which offers a good source of economic growth for a country. "The industry spent an estimated $75 billion on R&D in 2008 and an increasing number of countries are vying for a slice of this business," says the report.

Because of this, there is increasing competition between countries — particularly developing economies — for companies involved in R&D and manufacturing, and pharmaceutical tax executives should be keeping a close eye on the situation so that they can advise management of places to locate new facilities.

All of these factors combine to give pharma tax executives a much bigger strategic role. "To continue delivering value to shareholders and society, pharmaceutical and life sciences companies must make strategic decisions about how they will drive innovation and profitability, but as they do so, each company's top tax executives needs a prominent seat at the 'C suite' table," said Swanick in the PwC statement.

Already many companies have realised the importance of involving a tax executive in business planning. More than half of the respondents to PwC's poll said they were now being consulted earlier on by senior management when it came to strategic business decisions; however, 34% of respondents said they are still consulted "late in the game" and 9% said they are only informed after strategic business decisions with tax implications have already been made.

"A company's tax strategy should obviously be aligned with its business strategy," says the report. "So the development of new business models, together with the possibility of harsher tax regulations, will require the development of new tax strategies."

www.pwc.com

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Read more at: www.pharmtech.com/epha

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Read more at: www.pharmtech.com/hollywood

The XX files

In boardrooms and management suites, pharma and biopharma executives are asking each other how their companies can develop innovative new products and turn a profit in the coming years. Hiring more women managers could help achieve this.

Read more at: www.pharmtech.com/xxfiles

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Read more at: www.pharmtech.com/settlements