Slump in prices hurts PharmaFarm profitability

Marius Chereches, the general manager of the pharmaceuticals distributor PharmaFarm, says players could have prevented a drop in profit margins had they foreseen last year”s two successive price reductions announced by the Health Ministry.

“Despite the positive trend in turnover, income shrank from the level of 2004 as a result of the decline in drug prices. The Romanian pharmaceutical market had quite a difficult year in 2005, with many sudden changes. If prices had been constant during last year, we would have witnessed higher growth,” said Marius Chereches, the general manager of PharmaFarm.

PharmaFarm last year derived turnover worth 124 million RON (34.2 million euros), about 27% higher than in the previous year. On the other hand, the company”s profit diminished to 0.8 million RON (0.2 million euros), from 1.3 million RON (0.3 million euros).

At the end of last year the company had a market share of 3.4%, up from 3.1%. For this year, Marius Chereches estimates the market will advance by about 10-15%, with PharmaFarm targeting growth above market level. However, rates of growth may be disproportional from month to month. August, for instance, is the best month of the year. “Last year, we registered market growth in terms of value, but not in terms of volume. It would be a good thing if we had growth in this department, too in 2006,” explains Chereches. At present, PharmaFarm is owned by the Slovenian company, Kemofarmacija, part of Germany”s Celesio group, Europe”s biggest drug distributor and retailer.

Celesio took over the majority stake in Kemofarmacija from the Lek pharmaceutical group, thus indirectly entering the Romanian market, as well.

“Celesio wants to be among the top three players, and will pursue the same goal in Romania, too. The company will bolster its position through organic growth and new acquisitions. Celesio will buy at least one player in Romania,” stated Marius Chereches.

At present, says Chereches, about 200 companies are present on the drug distribution market, and the tendency is toward consolidation. “In the first phase, there will be approximately 15 players left and in the end their number will shrink further, to 12,” considers Chereches.

The company also has its own pharmacy network, made up of 14 drugstores, located in Cluj, Bistrita and Salaj and also a car fleet comprising 120 cars and a network of warehouses, the most important of which are situated in Cluj and Bucharest.

The main rivals of PharmaFarm in the pharmaceutical distribution market are Mediplus, part of A&D Pharma, Relad, Farmexim, Farmexpert, Fildas Trading and Montero. With the exception of Mediplus and Europharm Distributie, the rest of major players are controlled by Romanian businessmen. It is thought that this will radically change over the forthcoming period, with an increasing number of market rumours suggesting that several deals are going to be finalised over the following weeks.

PharmaFarm

* In 2005 registered lower income compared with 2004 as a result of falling drug prices

* 2005 turnover advanced by about 27%, to 34.2m euros

* Income dropped to 0.2m euros from 0.3m euros last year

* Targets growth above market level this year

* Is owned by Kemofarmacija Slovenian company, part of Celesio German group

* Accounted for 3.4% of the market last year, up from 3.1%.