The ’90s was an enthusiastic time. With the fall of communism in 1989 and the emergence of the free economy, the international pharmaceutical industry arrived in the Czech Republic to find a highly receptive market. Modern therapies found alacritous patients. Uninitiated Czech doctors welcomed pharmaceutical representatives into their offices for the first time. A nascent and inexperienced regulator kept loose control over the industry’s operations.
The market was growing—quickly. Many players enjoyed a boom time: “Every company was growing; the market itself was growing very substantially. Simply having a representative office was almost enough, as the healthcare industry was eager for new products, and people believed that everything that came from the West was somehow superior,” says Beáta Hauser, general manager of Ipsen CR.
As the Czech Republic matured as a state, however, things began to change. One outcome of the market’s evolution was the propensity toward ethical practice—something that was not a given in the past. This sharpened the competitive advantage of players like Janssen and Amgen, who base their market strategies in large part on their refusal to cut corners in compliance.
But the system also became much more costly, as the population aged and the demand for modern therapy increased. In the eyes of many industry stakeholders, the system began to suffer, too, from over-complexity. CMS Cameron McKenna partner Tomaáš Matêjovský, head of the law firm’s life sciences practice in the Czech Republic, believes that today, it is due to “the formality—the heavy weight—of the system,” that it “has become very expensive—and does not work very well.” Matêjovský sighs. “We are still trying to invent the wheel here.”
Cost concerns have lead invariably to heavy cost-containment. Timm Pfannenschmidt, country manager for Boehringer Ingelheim CR, remembers when the cost pressure came to a head: “In 2008/2009, changes came in terms of price cuts, new legislation, and reimbursement cuts—and the situation was transformed. The industry was not prepared for these changes. People working in the market for 10 or 20 years, used to constant growth, struggled to handle the business under different rules.” Since 2009, the market, according to local research firm CEEOR, has grown by an average of only 1.2% year-over-year.
Change has come ever more rapidly thanks to the appointment of Health Minister Leoš Heger, a veteran hospital administrator with a distaste for politics, a dedication to reform, and the honor, with only two years under his belt, of being the new republic’s longest-serving minister of health. Under his tenure, the government introduced blunt cost-containment measures such as 7% flat price cuts in 2010 and 2011, and the possibility of electronic tenders is on the horizon.
Perhaps inevitably, the once-booming market has started to look like a microcosm of the financially austere EU. Henning Sommermeyer, a two-decade managerial veteran of the European pharmaceutical industry, and recent founder of the Czech-based consultancy Pronaos, has watched the times change, and innovators have perhaps been hit hardest.
“In the past, the industry had a very simplistic approach,” Sommermeyer says. “Today, governments are starting to ask, ‘if I have to pay for this, what do I really get in return?’ Me-too’s will not be given a premium of ten times the generic price. Why should they? It was foolish to believe that such trends would continue.”
As the Czech Republic increasingly sheds its ’emerging market’ standing, the industry must take the good with the bad, and adapt its strategies to continue to derive value from the second largest (at approximately USD 3.2 billion) pharmaceutical market in Central and Eastern Europe (CEE). Sommermeyer muses, “We lived in paradise, but paradise has been closed recently.”
Richter Gedeon CR’s managing director František Gyürüsi finds that the greatest appeal of the Czech market is its stability relative to regional neighbors. Indeed, here, the pharmaceutical industry can think in long-term strokes. But how will companies fare in the meanwhile, and what challenges will they face?
Zdenêk Zahradník, general manager for Teva CR, takes a pragmatic approach. “When we speak about how attractive a market is, we must think about how we define ‘attractiveness,'” he says. For Zahradník, the formula is simple. Is the market predictable? Sustainable? Transparent? Growing?
Growth is flat. What of the other pillars? Zahradník sees a challenging environment: “The Czech authorities are speaking about long-term policy—however, the reality is that we more often face various ad hoc directives. It is very difficult to address strategic principles when we face immediate measures such as the flat price cuts we have seen in the last two years.”
Portentously, Zahradník adds a thought on volume: “I believe that the principle of sustainability is critical—especially in a market like the Czech Republic, with a population of only 10 million. Small and medium-size companies may think twice about doing business in an unfavorable environment.”
Gyürüsi, for his part, acknowledges that Richter Gedeon has decided to withdraw products from the market in the past.
The sorcerer’s apprentice
In 2008, the Czech Republic set up a novel referential mechanism of pricing and reimbursement. Under this framework, the maximum ex-factory price for a given drug is set at the average of the three lowest prices in a basket of eight reference countries in the EU27. Reimbursement level is based on the price of the least expensive product within the relevant therapeutic reference group in the entire EU. Effectively, the Czech Republic today has some of the lowest drug prices on the European continent.
The low prices have had troubling consequences. Gyürüsi notes that the State Institute for Drug Control (SUKL), the Czech Republic’s drug regulator, has officially stated that 10-15% of drugs passing through the Czech healthcare system are exported to foreign markets. The problem has become more than an operational challenge; it has become one of access. Gyürüsi observes, “For some companies, parallel export is a major problem—firstly, because of reputation; but more importantly, because of ethical considerations towards patients. Representatives of the Ministry of Health recently confessed that the main problem is not the price, but rather the availability of products.”
Emil Zörner, executive director of the generic players’ association Ĉeská Asociace Farmaceutických Firem (CAFF), offers a more charged critique: “The Czech Republic has a healthy medium-strong economy—we are certainly not the poorest market in Europe. And yet, we want to have the lowest prices on drugs. To whom do you give the lowest price? To a good customer—the biggest customer, a customer that guarantees a certain volume. But the Czech government, as the customer, provides no guarantee on volume, despite their stipulations of driving down price.”
Zörner frowns. “The people that framed our pricing mechanisms did not foresee that changing just one parameter in the system creates an imbalance somewhere else—and the imbalance was indeed created: we have a shortage of products. Re-export from this country is a daily event. You will find drugs that simply do not exist on this market.
“It is like the sorcerer’s apprentice—conjuring spirits that now cannot be tamed. Intelligent people in the Ministry say, ‘Price is not our concern anymore; availability is our concern.’ The authorities are now thinking of how to stop the trend. But you cannot stop the free flow in Europe.”
Zörner’s counterpart Jakub Dvořáĉek, executive director of the local innovator association Asociace Inovativného Farmaceutického Průmyslu (AIFP), is convinced that the Czech healthcare system is adequately funded—in fact, according to Dvořáĉek, even as neighbors like Hungary have approved severe cutbacks, the Czech Republic maintained a stable rate of healthcare investment as a proportion of GDP. In a challenging global climate, Dvořáĉek posits, “the fact that we have the same budget today as we did in prosperous years like 2008 is a success.”
“If we look at the amount of money that flows into healthcare in this country, I believe that it is enough—it is enough to have a very strong standard of care for all citizens.” Dvořáĉek pauses. “But we need to use our resources better, in all segments of the system.”
Part of the agenda of the AIFP is to create a more fair-and-balanced approach to value assessment and budget allocation. Dvořáĉek notes that the other ‘eaters’ in the budget seem to get a disproportionate share of the pie. AIFP member Luboš Chadim, general manager of Astellas CR, extrapolates: “If we look at the situation fairly, we see that pharmaceuticals are always touched when it comes to cost-cutting measures. Equipment, for instance, has never been a real focus for cost reduction.”
Czech Health Minister Leoš Heger confirms that, indeed, additional funds are not forthcoming in the budget. Given the global financial crisis, the Czech Republic will have to contend with the same stable—but nonetheless relatively small—proportion of GDP going to healthcare (7.8%) that it has seen throughout recent memory. And yet Heger, along with SUKL Director Pavel Březovký, have pledged to find greater efficiencies in the system.
“We are not in heaven,” Březovký observes wryly, “and we cannot satisfy all budget concerns. The prices in the drug market are those that we can manage given our current healthcare resources—we must be able to afford new drugs, and drugs for special cases, and etc. However, we are improving the system. For instance, medical devices do not currently receive enough regulation and oversight. We aim to apply the same structure for registration, life cycle, and reimbursement to medical devices as we have for drugs.”
In general, Minister Heger promises to realize greater balance through the injection of technology into the system. Measures like the introduction of E-health, and the further development of Health Technology Assessment, will provide an objective data set that will—theoretically—be able to better guide the authorities in the allocation of resources to the parts of the market that need them most.
The problem with market access
In 2011, the IMS analyzed data regarding new drugs introduced to five European markets—Austria, Poland, Hungary, Slovakia and the Czech Republic—in the period from January 2008 to March 2011. The findings were striking: on average, Czech patients received access to new products up to three years later than their neighbors in Austria, and up to 1.25 years later than Slovakian patients. 93% percent of drugs deemed ‘most important’ lagged considerably in market introduction, and the Czech Republic was never the first among neighbors to introduce the 30 key drugs in Europe.
The delay can be attributed to a running theme: the complexity of the Czech system, and the high entry barriers. Regulators have themselves acknowledged the unwieldiness of the dense framework. The AIFP’s Jakub Dvořáĉek observes, “The issue is that a new drug can only be introduced on the Czech market after two other countries introduce it in Europe. Hence, we must always wait. My question is, why? What constitutes the major difference between the Czech Republic and a neighbor like Austria?”
Richter Gedeon’s František Gyürüsi, whose company offers both generic and innovative products, illustrates. “In the Czech Republic,” he says, “it is difficult to predict the time when a product will be given the go-ahead for launch. Price and reimbursement negotiations take anywhere from one month to a few years, depending on the product. For instance, this year, we settled with the authorities upon price and reimbursement levels for a simple generic product within one month. However, for original products, the period has taken up to one or two years.”
Gyürüsi, like his counterparts at Teva and Glenmark, does praise the improvements in time-to-market for generics. The generic association CAFF notes that the Czech Republic’s shortening of generic registration procedures has been a long time coming—and is simply in line with EU directives; nonetheless, Glenmark’s Jiří Havránek is quite satisfied with today’s expediency: “New legislation is shortening time-to-market quite dramatically. Generics players receive both price and reimbursement levels much faster today. In our previous experience, products took over 200 days to reach the market; now, we are looking at approximately 70 days, and in some cases even faster. The regulation is definitely favorable for companies; but it is also favorable, of course, for patients.”
Yet for innovators, market access is not only encumbered by timelines; companies are also facing an increasingly intractable regulator. One challenge is that many international pharmaceutical organizations standardize their drug registration procedures for Europe, the Middle East and Africa (EMEA)—but not all indications are accepted at the local level. Another is the question of whether the negotiations will yield an economical output for the manufacturer. It is up to managers and their market access teams to argue for a favorable price and reimbursement level, and proving added value is today a tricky game.
Given difficult conditions in market access and an environment further blemished by low prices, will companies launch new innovations here? Janssen CR Managing Director Jane Kidd, echoing her colleague at Teva, enunciates a foreboding observation regarding the small size of the Czech market. Companies will be hesitant to damage their regional business by accepting an unworkable deal in a small-volume country like the Czech Republic.
“Something I believe the Czech authorities should consider,” says Kidd, “is working together with the industry to take account of the relative size and impact of countries such as ours on the region. Most pharmaceutical companies that operate internationally will consider the region as a whole, and work to ensure that access for their medicines is open and fair. This includes taking account of access, pricing and reimbursement mechanisms.
“With the marketplace challenges our government is facing, both they and the industry need to consider more innovative approaches and mechanisms to ensure that access to innovative medicines can continue. The authorities must question whether they want new innovative medicines on the market, but at the same time it is up to the industry, of course, to prove that these medicines add value. The effects of not addressing this will not be seen immediately. However, if over time innovative products cannot gain access, this will be to the detriment of patients.”
Kidd further notes that in the Czech market, “the review of medicines and their prices and reimbursement is continuous and ongoing”—”so companies have to work to maintain their products in the marketplace.” Many managers have commented that such product maintenance is one of their greatest challenges.
But is the industry being treated unfairly? Are barriers truly too high? Or are pharmaceutical companies demanding a premium for drugs that bring little added value?
Minister Heger, with characteristic firmness, offers his opinion: “The notion that the government is short-sighted, and ineffective from a strategic perspective, is essentially just a matter of politics. We must have proofs. Where the proof is available, the decisions can be made. What is sure is that drug companies always ask for a higher price for their new products, but we cannot afford to pay a premium for incremental innovation. We can instead help companies to demonstrate value: for instance, by running pilot projects in a small proportion of the population.”
Grading the regulator
When SUKL was given responsibility for maximum price and reimbursement evaluation in 2008, the Czech pharma market changed considerably. Pavel Březovký, the body’s director, was appointed on the 1st of May of 2012—and he has immediately contended with a dissatisfied base.
Astellas’ Luboš Chadim articulates the industry’s misgivings about such consolidation of power within a single entity. According to Chadim, “The system was simpler in the past, and, in principle, the Ministry of Finance dealt with prices, while the Ministry of Health (MOH) would set reimbursement levels. The authorities changed this, and delegated pricing and reimbursement decisions to a single body: SUKL.
“On one hand, the MOH creates legislation, and passes it to SUKL for implementation. On the other hand, SUKL does not have the capacity to implement. The agency has a tremendous backlog, and is encumbered by complex procedural requirements.”
Chadim believes that from a budgeting perspective, the reorganization of SUKL was beneficial. “However,” he notes, “the negative consequences we saw from the creation of this body ensured that many products were not launched on the market.”
SUKL has a daunting task, and many believe that it does not have the manpower to perform adequately. Glenmark CR head Jiří Havránek has seen a disconcerting outcome emerge: “There is not enough capacity within SUKL. Sometimes, we find a very confusing situation, wherein products enter the market with a different reimbursement level than similar drugs already on the market. The reason behind this is that there are so many INNs, and so many molecules, that the regulator is not able to manage the environment given their current capabilities.”
Havránek affirms, “The challenge for SUKL is huge, and they are simple unable to deliver on time.”
Březovký, a man with close ties to the industry, aims to make improvements. “My goal,” he says, “is to be more proactive with the registration of drugs. New drugs can change treatment paradigms and change the approach that doctors take to treatment and diagnosis. Outcomes can become more economically viable or effective for patients. Hence: my first goal is to shorten the registration period. The industry will benefit a great deal from this.”
A reasonable environment
Is the Czech market attractive? Ultimately, the answer can perhaps be derived from a straightforward assessment. Minister Heger remarks, “A good measure of attractiveness is the number of drugs that are not available on the market due to poor business conditions in the country. This has happened in the Czech pharma industry in the past: approximately twice a year, a particular drug has disappeared from the market. One reason is parallel export, of course—but there are also some companies that do not come to the market or chose to exit the market because of a lack of economical attractiveness. We see that the number of drugs absent from the market is not increasing, and the broader supply of drugs is quite stable. Looking at this measure, I would argue that the business environment is reasonable.”
Grievances or no, players on the market seem to agree, and the launch of new drugs is continuous—indeed, perhaps it is an insulator against turbulence. The proof, then, is in the pudding. Teva has launched the most diverse portfolio on the market; Richter Gedeon introduces 5-7 new products every year. Glenmark has grown at a rate of 25-30%, driven by portfolio expansion. Astellas and Janssen, with considerably more focused strategies, seek to continuously bring new innovation to stay above the flat market growth curve. As they contend with market pressures, stakeholders industry-wide seem to take a nonetheless optimistic view—within reason.
Hundreds of small steps
The Czech Republic has come a long way for a two-decade-old democracy. Already one of the most prosperous economies in the region, its standards, rules, policies, and demands for quality demonstrate unbelievable growth.
According to many, the healthcare system here is already on par with Western Europe—patients have access to the same level of care that can be found in Germany of France.
It is the legislation that is lacking. And yet, Jean-Philippe Duc, country manager of Amgen CR, ponders the question of whether it is fair to directly compare the Czech Republic to Western Europe. According to Duc, “For all of its successes, this is still a new country, and it is still not yet at the level of a nation like Germany in terms of the organization of the healthcare system. But the market is improving a lot—and there are additional reforms coming to spur further evolution.
“As a long-term goal, I believe that yes, in terms of things like predictability, the Czech market should look to compare itself with Western Europe. This is where we are going. However, I believe that it is unfair to the country to expect change in such a short timeframe. If we look at the evolutions that have taken place here in only 20 short years, it is quite remarkable.” Like his colleagues throughout the industry, Duc is simultaneously challenged and rewarded by the Czech market. The boom time may be over—but players here are strategizing for the long-term.
A very positive development has come in the dialogue between parties. The CAFF’s Emil Zörner happily reports, “What changed—particularly under the new administration—is that the Ministry now deals with the industry as partners. In the past, directives were handed down from the Ministry without consultation, and would often hit the industry by surprise. Today, the authorities are considerably more open. They listen to our suggestions, and incorporate some of them into legislation. In some fields, we have reached good progress.”
Minister Heger leaves the international community with the following admonition: “The changes demanded in Czech healthcare often border on revolution. But I do not believe a revolution is necessary. Instead, I believe that after these last twenty years, what we need to do is tune up the system, with hundreds of small steps.”
As the private Czech pharmaceutical market was being incubated, Czechs themselves came to know an industry that was theretofore alien to the country. Many joined the ranks with little idea of how the business really worked.
But today, local country managers are proof that the situation has changed significantly. Czechs have quickly learned the ropes. What is more, they have cultivated a hometown advantage.
Take the example of Petr Tor, who rose through the ranks at MSD for nearly two decades before coming to head Stallergenes CR as country director in 2010. When Tor joined the organization, he found that his team was challenged by a major reimbursement barrier. Under his supervision, Stallergenes made short work of its difficulties.
Tor comments, “Our breakthrough in reimbursement was chieved quite quickly after my start in Stallergenes—it took us five onths. I believe that this fact was highly valued by our headquarters, and believe that it requires a local to realize such results.
Foreign managers have not had the chance to develop the required contacts and the knowledge of the domestic market.” One year later, Stallergenes’ business had grown by 37 percent.
From Czech Foundations
As the AIFP’s Jakub Dvoˇáˇek notes, for all of its small size, the Czech market is certainly not lacking in “specificities that you can hardly find elsewhere.” These three companies have built distinct strategic advantages from Czech foundations.
Zentiva: Globalizing the local giant
Newly arrived Zentiva President Jerome Silvestre reminisces on the modest roots of his company: “The origins of Zentiva date back to the mid-19th century, when the Fragner family bought the “Black Eagle” pharmacy in the historical center of Prague, and decided to build a workshop in the Dolni Meˇholupy village in order to make lotions and creams.”
After over a century of transformations, the company was bought by Sanofi, and now, buoyed by the positive associations enjoyed by the Zentiva brand, Sanofi has decided to re-brand its pan-European generics business under the Zentiva umbrella—and Africa and the Middle East are next. As for Dolni Meˇholupy? “This village, Sivestre says, “will become the place of the current headquarters and a major manufacturing site of Zentiva”—art of an operation that exports 70 million boxes per year from the Czech Republic mainly to Slovakia, Russia and Poland.
With a touch of pride, Silvestre adds, “Zentiva is also a center for global genericsdevelopment for the entire Sanofi group. Here—nd this has little to do with businessand sales—ur ambition is to be a real center of expertise recognized not only internally, but externally, for fast innovation in the field of generics.”
Teva and Glenmark: Facing Europe from the Czech Republic
In 2008, Teva made the largest infrastructural investment in the Czech pharmaceuticalindustry since 1989 when it committed more than CZK one billion (USD 53.5 million) to the expansion of a local facility the company had first acquired in 2006 in Opava, northern Czech Republic. How has the presence of a local site changed the game for Teva?
Teva CR’s general manager Zdeneˇ Zahradnik stresses the reputational significance of the Opava plant’s old ownership—he ‘Galena’ brand. The Galena name is, “to this day, well known by doctors, pharmacists, and patients.” It is “prestigious” for his team, Zahradnik notes, that “the company decided to make such a substantial local investment.”
Zahradnik continues. “Obviously, the tradition of this facility, coming from Galena times, is quite strong—ut you cannot invest based on tradition alone. I believe the decision was driven by the quality and professionalism of our colleagues in Opava.” Today, Teva’s production staff has made Opava a strategic global site for the company. Glenmark, the burgeoning Indian giant, has too made a highly strategic move in he Czech Republic, with the 2007 integration of the local company Medicamenta and its production facility. Glenmark has refitted the site, and plans to use it as a logistics and distribution center for all of Europe— springboard to the continent. “The biggest advantage of the Czech Republic,” explains country manager Jiˇi Havráek, “is geographic convenience. Additionally, the market has great infrastructure, the political environment is stable, and analysts have called the Czech Republic the most ‘Westernoriented’ state in the CEE. Situated in the heart of Europe, we are able to bring goods here, package them in different languages, and transport them to the rest of the region.This was a great starting point for Glenmark’s logistical operation in Europe.”
Calulation vs Argumentation
Martin Pospíšil, managing director of Lundbeck CR since 1991, is likely the longest-serving pharma country head in the Czech Republic. Over the years, he has seen market access become an increasingly difficult undertaking. Pospíšil explains, “The system became more about calculation than argumentation. If we cannot discuss the advantages of modern medicine, and we can only show numbers, our work as a drug company is difficult.”
Some organizations are rising to this challenge in new and innovative ways, and challenging a regulator who is reluctant to see the bigger picture. Michaela Hrdlicˇkova, senior country manager for Biogen Idec CR, head of the Innovation Working Group at the AIFP, and easily one of the most spirited managers in the Czech pharmaceutical industry, tells her side of the story.
More than price
“The pharmaceutical field is extremely complex; we have to understand the business, regulatory environment, scientific advances, reimbursement issues, and we have to bring scientific information to our customers. This is especially true with specialized treatments. In an innovative sector, and especially in the biological segment, competition should not be based only on price.
“As the representative of Biogen Idec in the Czech Republic, I am a board member of the AIFP. With the appointment of our new director, Jakub Dvoˇraˇcek, I believe that we are heading in a strong new direction. There are many opportunities to communicate the added value that this industry can bring to society. We are changing individual lives, helping families, saving money in the social system, and we are investing in education and new drug development.”
Putting health economics to work
“One of the main goals declared by the Czech government is to save finances in the social sphere. The announcement of this drive was a sign for me: innovative drugs can save money in areas such as disability payments, since many patients who have access to proper therapies can stay active longer—going to work, staying in school, etc. The innovative platform of the AIFP initiated an analysis of the volume of chronic-illness-related disability pensions. The volume of disability pensions has been growing over the last few years, and the analysis showed that these payments could be reduced for many patients with the use of innovative drugs. This argument was supported by calculating strong health economics data.
“At Biogen Idec, we believe every patient should have access to the treatments they need. The traditional sales model in the industry is gone. Today, there are more stakeholders involved in treatment decisions, and we as an industry must accept that payers are increasingly the key decision-makers.“
The First Hundred Days
Pierre Boyer, managing director of Servier CR, joined the affiliate in October 2011, having previously headed Servier’s operations in Slovakia. In his first hundred days as manager, Boyer identified three pressing difficulties for his business and quickly got to work.
The problem: Generic competition
The Context: “From the moment I arrived, I have had to contend with the generic competition that Servier is facing in the market. Our market share had already started to decrease prior to my appointment, and by the time I arrived, the impact was quite strong.”
The Solution: “When you lose market share in the beginning, it becomes quite difficult to restore your position. You can almost never recover those initial losses. Hence, for the first of our products that became subject to competition, we were not able to return to our targeted sales volume. However, subsequently, we anticipated what we would face in the market, and for the second product that became subject to competition under my tenure, we were able to take steps to retain market share: i.e., we tried to be competitive on co-payment to avoid the switch at the pharmacy level, and we increased our Share of Voice at the doctor level. We have also focused on accelerating the development of innovative products to offset generic losses.”
The Problem: Parallel Trade
The Context: “Servier has been challenged in this market by importation. Although the prices here are very low, we have one product in our portfolio that is commonly imported from Spain. This issue has had a substantial impact on our business.”
The Solution: “We appealed to our headquarters in Paris, and asked them to take internal measures, prioritizing access to the drug for local patients. We ourselves cannot act on this issue from Prague. Having discussed the problem with top management, we have seen great improvement, and the import volume has slowed down step by step. We expect that the flow will halt altogether within a short period of time, which will help us to recover a positive trend with this brand.”
The Problem: Unfavorable Exchange Rate
The Context: “Servier is currently consolidating its business in Euros, and one issue we face is the fact that the Czech crown is not currently performing very well. We are losing some portion of our business due to the exchange rate.”
The Solution: “We of course cannot do anything to affect the exchange rate. Instead, I have asked my team to be more focused on their daily business. We try to give our medical reps the right tools to succeed, and emphasize our priority therapeutic areas.”