Central Europe's drug wholesalers face slower growth this year as governments look to trim spending in their battle with budget deficits, while European Union entry in May will trigger sector consolidation, industry executives and analysts say.
Market growth is set to slow to single digits this year after a strong expansion in recent years.
"We expect eight to ten percent growth this year," Ferenc Szabo, President of Hungary's Association of Pharmaceutical Wholesalers, told Reuters on Tuesday.
Hungary's drug wholesale market grew by 18 percent in 2003 to around 350 billion forints ($1.63 billion).
As governments in countries such as Poland and Hungary wrestle with big budget deficits that threaten to delay euro zone entry until the end of the decade, one spending item in their sights is drug subsidies.
Analysts say the pressure on state budgets is likely to feed through as a squeeze on wholesaler profit margins.
Hungary's Health Minister Mihaly Kokeny told Reuters earlier this month he would take tough steps to ensure drug subsidies remain within this year's 240 billion forint budget.
Hungary's ballooning public sector deficit hit 5.6 percent of gross domestic product in 2003, prompting the dismissal of the finance minister and a search for spending cuts.
Growth in the drug wholesale sector elsewhere in central Europe will also slow, but should stay just above inflation, say industry experts.
"Growth (in Poland) will slow to five to seven percent this year after hitting 12 percent in 2003," said Anna Hess, a Warsaw-based analyst at Pekao. Poland's drug wholesale market is estimated to be worth 12 billion zlotys ($3.15 billion).
Growth in Poland's wholesale drug market last year was much faster than a projection of four percent due to changes in the list of drugs subsidised by the state. The removal of many drugs from state reimbursement schemes for this year triggered stockpiling in 2003, Hess said.
Conditions are also expected to deteriorate this year in Slovenia, one of the healthiest economies among the EU newcomers. Producers there are setting tougher supply rules.
"Profits will be lower due to conditions set by suppliers," said Davorin Poherc, deputy chief executive of Kemofarmacija, one of the country's two biggest drug wholesalers.
Growth this year is seen slowing to single digits.
"There is also a trend to lower health care costs that is more damaging for pharmaceutical and medical equipment distributors than for producers," Poherc added.
As in western Europe, where Germany's Phoenix International Beteiligungs GmbH, Celesio and Britain's Alliance Unichem control about two thirds of the market, central Europe's drug wholesale markets are concentrated.
Experts said new wholesalers would more likely appear in central Europe through acquisitions rather than new investment.
In Hungary, Phoenix and Hungaropharma - controlled by local firms Richter, Egis, Beres and pharmacists - lead the market, each with a share of around 33.
"I doubt Alliance Unichem or Celesio would come to Hungary via greenfield investment, but they must watch the market and will come when a (wholesaler) firm is up for sale," said Szabo.
Four Polish firms - PGF, Farmacol, Orfe and Prosper - account for over half their home market, and all are potential take-over targets for foreign companies.
In Slovenia, Kemofarmacija and Salus are the two largest wholesalers, with market stakes above 30 percent. Manufacturers, like Krka and Lek, will look to protect their market position via stakes in wholesalers, said Poherc.
"They will work to preserve their market share that is under threat from all sides though I see the big multinationals will have an advantage here," Poherc said, signalling likely ownership changes following EU enlargement.
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