Hungary’s pharmaceutical companies focused abroad

The Hungarian pharmaceutical sector has often been critical of the measures introduced by the government with the aim of revising the national system’s management and reducing its costs.

The Fidesz government’s overhaul of the healthcare system most prominently affected the domestic operation of pharmaceutical firms through the introduction of the so-called “blind bidding” system, where products offered at the lowest price receive preferential treatment from the state.

Since in these cases price is the only factor, producers object to the fact that innovative, high-quality products are left out of the mix completely, and also that they are often squeezed out by Asian competitors able to go lower on prices, while companies operating in Hungary are already as low as they could go.

Other areas of the healthcare industry have also noted that the current governments’ policies aren’t exactly conducive to their operations. Starting from September, pharmacies have to operate under revised regulations requiring them to have a specified, increased number of skilled professional employees on the payroll in order, the state says, to increase both professionalism and safety of supply.

“A significant number of pharmacies will be unable to meet the requirements of the decree,” the association of chain pharmacies HGySz said in a statement prior to the regulations’ launch. It warned that in some cases, entire towns might be left without a pharmacy as a result.

The overall healthcare system is still reeling from the lack of funding that has been the case seemingly forever, compounded by developing staff shortages as new graduates are increasingly looking to find employment – and belter salaries – abroad. Even so, the state will yet again spend a sum amounting to nearly 30% of the country’s gross domestic product on welfare expenditures next year.

Still investing
Despite the complaints, drugmakers haven’t scaled back their domestic operations significantly; in fact, they are continuing to invest. The 2012 figure was HUF 80 billion, largely unchanged from 2011.

But while the production bases in Hungary remain, pharma companies increasingly have to look at export markets to keep afloat. According to the national association of medicine manufacturers, MAGyOSz, the industry saw overall revenue growth of 4.21% in 2012 on the year, which pales compared to the 15.1% increase seen in 2011.

The shift towards foreign markets is quite apparent, seeing that out of the total HUF 996 bln collected by the sector, sales abroad accounted for HUF 821 bln and only HUF 175 bln came from the domestic market.

The low sales contrast with the fact that political think-tank Századvég found that four major drug producers, Richter, Teva, Sanofi, and Egis generate 3.7% of the country’s Gross Value Added.

Mixed messages
According to the newly submitted 2014 budget, drugmakers can expect an increase in their overall contributions to the central budget with the planned total rising to HUF 56 bln, up HUF 7 bln from 2013.

At the same time, the government is increasing the overall allocation for the healthcare system by 10.6% on the year to HUF 2.3 trillion from HUF 2.1 tln in 2012. This amount is comprised of HUF 2.2 tln in budget funds and HUF 133 bln in European Union financing.

On the level of gestures, the government remains amicable to the industry, as signaled by the conclusion of so-called strategic cooperation agreements. Market leading firms Richter, Sanofi, and Teva are all on the growing list of companies that the government has distinguished as being strategically important for Hungary’s economy.

“Teva Magyarország Zrt in many ways pursues the same economic policy that the Hungarian government has since 2010: constant development, job creation, while making products that are competitive on the international market leading to a 2012 export total of HUF 172 bln,” Economy Minister Mihály Varga, the signatory of the agreement, said in May.

Richter Chief executive Eric Bogsch, who earlier openly criticized government measures and warned of impending supply shortages in the healthcare system, also commended the terms of the strategic agreement. According to the deal, Richter will remain entitled to R&D incentives while the government promised to support the company’s goal of staying independent and pledged to hold on to the state’s 25%+1 share stake to fend off any potential hostile takeovers.

The government has also called a public procurement scheme to centrally manage the supply of pharmaceutical products to healthcare institutions. As state secretary in charge of health issues Miklós Szócska said, this alone saves the national hospital system HUF 2.77 bln. The winning bidders, Hungaropharma Zrt, Euromedic Pharma Zrt, Teva Magyarország Zrt, Fresenius Kabi Hungary Kft, and Biotest Hunagária Kft say they are also satisfied with the system, and the related stream of deliveries.