Drugmakers gain from distribution

About one year of lobbying from drugmakers later, the distribution dispute between the companies and the Romanian authorities is about to be solved in favour of the former.

The Chamber of Deputies has recently enacted the modification of Law 336/2002, which forbade drugmakers to hold or establish drug wholesalers and drugstores. The modification actually abrogated the paragraphs prohibiting such operations and was made after a series of major players on the market, such as GlaxoSmithKline Romania (branch of the world’s number two drugmaker), Lek Pharmatech (now Novartis) and Terapia Cluj had slammed the initial version of the law. #leadend#

All three are running strong distribution operations, so that maintaining the law as initially issued would have substantially impacted on their market position and financial situation. Particularly because the vertical integration decision was, in some cases, prompted by the arrearage in the health care system, forcing companies to find ways to collect their money faster.

Terapia, for instance, decided to establish its own distribution company three years ago, and this entity has come to account for 70% of the total sales of the company on the domestic market. The distributor has helped Terapia become the top performing Romanian pharmaceutical company in terms of cash flow.

As for GlaxoSmithKline (GSK), the British group decided to buy 65% in Europharm Brasov for nearly $30 million in 1998, precisely because the Romanian company holds a strong distribution division. After all, nearly 40% of GSK Romania’s approximately $100 million turnover is derived from wholesale and drugstores.

The prohibition of distribution was prompted by the Health Ministry, which, through its representatives, said that once the drugmakers seized control of distribution, they would gain more control over final prices and impact on the state budget. The drugmakers argued saying that the legislation in certain EU countries allowed producers to be distributors, as well.