With approximately $90 billion flowing into the country (according to the Hungarian Investment and Trade Agency) since it abolished its centrally planned economy and transformed into an open, pro-business economy in 1989, Hungary has been a leading destination for foreign direct investment (FDI) in Central and Eastern Europe (CEE). Together with the automotive and software development sectors, the life sciences sector has been receiving the highest amounts of capital investment in the country.
Understandably, Hungary’s high-quality infrastructure, highly skilled labor force and central geographic location are often cited as features that have turned the country into an attractive destination for investment. Following historical prominence as a key supplier of pharmaceuticals to the former Soviet Union, the landlocked nation is regularly described as one of the oldest drug industries in the region. It has a rich history that has given rise to a number of successful local drug manufacturers, many of which have been picked up by international MNCs over time, such as Chinoin by Sanofi and EGIS per majority stake by Servier.
Economic and healthcare reforms no longer come out of the blue, but global cost cutting trends and ongoing structural reforms are a clear threat to investor confidence in some of Europe’s smaller and more vulnerable nations. All the more reason for the International Monetary Fund (IMF) to consider Hungary’s Széll Kálmán (Structural Reform Plan) as a welcome step towards growth and sustainability. ‘I do think that the aim of this government is to stabilize the whole economy of the country in the long run,’ opines Prof. Dr. István Nagy director of the Association of Innovative Pharmaceutical Manufacturers (AIPM). Needless to say that the Plan did cause quite a shakeup in 2011. ‘It proposes significant decreases in the drug budget by Ft. 83 billion ($372 million) next year and an additional Ft. 40 billion ($179 million) the year after,’ adds AIPM’s deputy director and market access specialist Tamás David. ‘Do I think it is a threat? Yes. Did we have conversations about whether or not we should stay in Hungary? Yes,’ adds AstraZeneca’s president for Hungary, Jenny Winter. Much like the rest of Big Pharma, Winter points out that the vast long-term potential of Hungary has prevented the British pharma giant from leaving. Instead, the different players are now focusing on defining a new business model that takes these current challenges into account, one wherein sustainability finds a new meaning.
‘Whenever new decisions are announced, it is important that new measures do not put at risk the long-term development of the pharma industry in Hungary, which remains one of the key industries in the country,’ observes Christophe Gourlet. As country managing director, Gourlet reiterates the economic role the French pharma giant Sanofi plays in Hungary. As the second-largest pharma company employing over 2,500 people and ninth-biggest exporter in the country, he points to the importance of upholding a healthy investment climate.
Excellence to counter Austerity
‘Hungary is extremely well positioned and a front-runner in some of the toughest austerity measures. Yet, many of the pharmaceutical companies have the cream of their portfolio in a good shape in Hungary,’ Janssen-Cilag’s country managing director Anna Romány says. ‘Being good enough is not enough in times when governments have to be picky about what can be reimbursed. You have to be excellent. This is why all our products managed to be on the reimbursement list, while I am sure that we can achieve the same status for our two new products,’ she adds. ‘Hungary has one of the lowest life expectancies in Europe,’ Romány continues, ‘and faces a rather similar level as Romania. Statistics are even worse for males than females. Hungary’s drug spending per capita is also half of the Western-European average. In terms of mortality there is thus definitely room for improvement. Even more so, it is unavoidable,’ she concludes.
‘When I arrived in Hungary in 2007, the country had just been through the first overhaul of the healthcare system,’ recalls Novo Nordisk’s country general manager Morten Vaupel. ‘When the new government came in in 2010, it was clear that the new policymakers were facing a number of significant financial challenges,’ he says. While Vaupel has always recognized that Hungary was a market with certain risk, the external environment has not necessarily prevented the world’s leading diabetes company to enjoy positive growth numbers in Hungary.
‘In the last four years, we have been proud to be part of the top five or six fastest-growing Novo Nordisk subsidiaries in Europe. Moreover, we have been among the top 10 fastest-growing companies in Hungary, according to IMS data,’ Vaupel posits. The World Health Organization (WHO) estimates that one out of 10 Hungarians will, to some extent, suffer from diabetes by 2014. Moreover, the track record of most international pharma companies in Hungary is far from negative, and to a large extent this is due to the vast potential in terms of meeting the population’s unmet medical needs.
With 28 clinical trials running in the country, Boehringer Ingelheim’s (BI) country general manager Gábor Zalai barely disagrees. Looking back on a decade where the company climbed the ranks from 47th to 17th in Hungary, Zalai stresses the importance of being present in the newest therapeutic guidelines. According to him, rather than the company saying how excellent its products are, these professional guidelines are a far stronger means to ensure the use of specific drugs. ‘Especially in the treatment of COPD, we are now the market leader and are proud that Spiriva is the No. 1 product in the retail and the pulmonology business,’ comments Zalai. ‘BI does not have this leading position with Spiriva in any other market. In terms of market share, this comes down to 21%, and we are treating round 40,000 patients. That is a great success, which is thanks to a long-term investment in the field of COPD,’ he adds. Looking ahead, Zalai is keen to replicate Boehringer Ingelheim’s previous success in another area of highly unmet medical need in Hungary: the prevention of stroke. ‘The current gold standard therapy will be replaced by our medication … In five years from now, Pradaxa will become a very important trademark that all doctors will know about,’ Zalai posits.
‘As far as the future is concerned, I believe that there are two key issues which concern every pharma company,’ posits Erik Bogsch. ‘The first is the very critical budget problem in every country and the measures that the different governments are taking. The second is the price erosion issue. Sustainability is an important aspect. While the growth potential is there because of an overall aging population, price erosion and budget constraints cannot be ignored,’ explains the managing director of Hungary’s flagship national champion Gedeon Richter.
18 Nobel Prizes
Hungary’s distinction as the pharma hub of the former Soviet Union has been a springboard for its local pharma scene to develop in the past 20 odd years. Indeed, as soon as the regime shifted in 1989, several ambitious entrepreneurs recognized these opportunities, each within their own niche. A great Indian inspirational leader once argued that one can make two mistakes: not going all the way, and not starting. In Hungary, the founders of companies such as Genetic Immunity, HYD, and Biosan have put this mantra into practice by avoiding both. ‘Following 1989, there were increasing opportunities for private companies to be founded and import products from abroad. The most popular areas of activity were in the automobile and computer parts sector, whereas we recognized the unique opportunity to enter the medical area,’ explains Gabor Vesztergombi, who still heads the local pharma distribution company Biosan today.
Inevitably, the opening up of the economy brought along a vast array of opportunities for the international pharma players too. Their competitive landscape, in turn, has been changing considerably too.
For innovative companies in Hungary, a carefully selected portfolio of some of their highest-quality products has done the trick in the past. Some of the more recent entrants have shown that a strong focus on nurturing the right stakeholder relations is equally imperative when penetrating new markets. ‘Wherever we go, the doors are already open. There is an extremely high interest from the medical community even in countries we have never been to before, highlights Celgene’s country manager.
Marthin Kwakkelstein established the company’s fully-fledged Hungarian affiliate at the start of 2011 and thus, in the midst of the turmoil. ‘Building up the network with the payers and the other partners’ says Kwakkelstein, when asked about his key priorities in such challenging startup phase. ‘In any discussion on healthcare,’ he continues, ‘classically only two or three stakeholders are being involved in discussions, which is a standard mistake that should be avoided. The first reaction is always the doctors, followed by the payers, and the pharma companies. For me, there are two other key players, which are the patients (and their associations) as well as the media. I believe all these stakeholders play a role.’
Dr. Zoltàn Jakab, country general manager of Abbott, adds that ‘without the presence of innovative companies in Hungary, there would not have been any post-graduate education of physicians—and sometimes medical staff as well—for the last 20 years. It sounds similar to other countries in this region, where doctors and healthcare workers are underpaid and cannot afford access to the latest knowledge and developments. Without innovators, the quality of care would not have been the same.’ What is more worrying for the future of Hungary’s healthcare system, however, is the ongoing exodus of the nation’s highly qualified medical practitioners. ‘Overall, many of the young professionals have shifted from the national healthcare sector to the private sector in Hungary, or went on to pursue more attractive opportunities abroad,’ observes Dr. Lajos Tamás Hodossy, Division Head, Diagnostics, at Roche in Hungary. The brain drain is not just a sector-specific problem either, but rather a challenge for Hungary at large. While Hungary has successfully produced 18 Nobel Prize winners so far, many of the Nobel Laureates received the distinction as nationals of other countries.
In pharma, many of the sales representatives were traditionally required to be either physicians or pharmacists by qualification, making it relatively easy for most companies to tap into an exceptional pool of Hungarian medical talent. While this situation obviously had no long-term benefit for the healthcare system at large, international pharma has a key role to play in the ongoing nurturing of this talent base. ‘Even after recruitment, we spend significant resources on training our people, not only on the ‘hardware’ such as scientific and technical information on the equipment, but also on the ‘software,’ which includes communication and presentation skills,’ explains Hodossy. ‘I strongly believe that people can only be the main competitive advantage today,’ he continues, ‘and defines which company can be successful, and which cannot. In general, many of the leading companies have grown to similar levels of technical and marketing expertise, which implies that the difference today can only lie in the people within the organization.’
Astellas’ secret to success in Hungary? ‘A strong combination of products and people,’ replies György Markovich. ‘Unfortunately, several pharma companies were forced to cut down their staff significantly. To adapt to the external conditions in Hungary, we have focused on reorganizing the company and finding a new optimal structure. For the new products for example, we are taking people from the sales force and moving them into other areas like key account management or the medical department,’ the country general manager of the Japanese innovator explains. Looking back at a turbulent time in Hungary’s pharmaceutical and healthcare sector, Markovich feels the inevitable need for every company to adapt to the new circumstances. ‘Every market has its own problems, and every government is currently looking into measures to curb costs … The environment is changing rapidly. To survive in every respect and to adapt to these economic changes, you need a completely different way of thinking. One of the most important topics remains market access and represents an area where you really require highly qualified experts,’ states the company’s GM. You cannot expect to meet the challenges of today with yesterday’s tools and expect to be in business tomorrow. And as the European economic powerhouses continue to revamp their respective economies, first in line will be the smaller and more agile nations to enter the fast lane of economic growth.