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Having progressively improved its financial standings over the past decade, this Eastern European market is now a bastion of potential-to the tune of $1.2 billion
Serbia has had an undoubtedly troubled history since the breakup of Yugoslavia in the early 1990s. A costly war and ensuing UN sanctions have left the country's economy a few years behind those of its regional counterparts. The subsequent global financial crisis in the late 2000s resulted in another hit to many of the country's key industries, including Serbia's pharmaceutical and healthcare sectors. These historical events explain some of the key issues that underlie the sectors' current challenges, such as non-liquidity and inadequate funding. And while Serbia's population currently amounts to roughly 7.3 million inhabitants, "it is a little-known fact that 1.2 million people have no income, and that the state provides 520 dinars (roughly $7.30) per year for them," asserts Serbia's Ministry of Health.
Dance, oil on canvas (Copyright Mirjana Petrovic)
In an attempt to address the liquidity crisis in the Serbian healthcare industry, the government of the landlocked republic recently decided on a 10% price clawback across its drug reimbursement list. It has created an atmosphere of unpredictability for the pharma industry in the country. However, whether it is to grow the product portfolio, to expand into new markets via Serbia as a gateway, or to reduce manufacturing costs, both the national industry and the multinational companies (MNCs) in Serbia still see a huge potential for this roughly $1.21 billion Eastern European market.
Dragomir Marislavljevic, executive director of the Domestic Drugs Producers Association in Serbia, gives one important reason for the ongoing positive interest in the Serbian market. "For centuries, Serbia served as a bridge between East and West, and this is still an advantage to be capitalized on," he says. "Collaborations between the world's largest pharmaceutical companies and Serbia's domestic industry have been happening for over 70 years. Today, with the possible exception of biotech medicines, there is no product on the market that cannot be produced by the domestic Serbian industry. The potential for collaboration here is very high," Marislavljevic adds.
Zoran Stankovic, Minister of Health, Republic of Serbia
As general manager of Serbia's No. 3 flagship pharma company, Nenad Ognjenovic agrees with this view. Overlooking Belgrade's municipality of Zemun from the Galenika headquarters, Ognjenovic expresses how it is his personal wish to see as many MNCs as possible present in Serbia. Explaining why, he states that "we do drug manufacturing for all world markets here. While doing so, we also enjoy cheaper inputs; we have a relatively cheap labor force, are in close proximity to the EU, and have more privileged relationships with Russia and the Commonwealth of Independent States (CIS) countries, because of Free Trade Agreements (FTA)."
Dragomir Marisavljevic, Executive Director, Domestic Drug Producers Association
The welcoming attitude toward MNCs also explains the so far unsuccessful attempt of the Serbian government to privatize Galenika by selling a majority stake to international pharma majors. Hemofarm Group and Zdravlje, the two other flagship Serbian players, have been more successful at completing a sale to German-based STADA Arzneimittel and Icelandic major Actavis. Miomir Nikolic, current managing director at Zdravlje Actavis, praises the $50 million its parent has invested in the Serbian facilities since the takeover in 2002. "The positive experiences of aligning the company with the European standards and the synergy that we now have as part of the internationally renowned MNC Actavis also served as an example and guideline for the community which is preparing to join the EU. We have shown that this demanding process is a true investment into the future. Today, Zdravlje Actavis continues to supply its domestic Serbian market with high-quality products in compliance with EU requirements, while at the same time opening the door to a great European Union market," Nikolic says.
Per capita total expenditure on health
Already the only country outside the CIS with an FTA with Russia, Serbia, as an export-oriented nation, has high expectations for potential EU accession. "I strongly believe that EU integration will play a very positive role," agrees Dejan Sencanski, AstraZeneca's country manager for Serbia, Montenegro, Albania, and Macedonia. For Sencanski, accession will send a strong message to politicians to fully exploit the pharmaceutical growth areas through avenues such as the country's vast potential for clinical trials. "There is a lot of potential to do clinical trials here," the local head of the UK-headquartered MNC concludes. "I believe that the main hope for change is the process of Serbia becoming a member of the EU," concurs Bojan Trkulja, managing director of the Innovative Drugs Manufacturers Fund (INOVIA), Serbia's leading association for MNCs. "Serbia is a market where there is a lot of space for new companies to expand and try to find better positions, because nothing is set in stone. Even in the pharma industry, almost all the major players are in Serbia. There is still a lot of space in the market for them to position themselves," Trkulja finds.
Bojan Trkulja, Managing Director of Inovia
Very few MNCs are better positioned in the Serbian market today than the Danish Novo Nordisk. Predrag Radoševic, general manager of Novo Nordisk in Serbia, believes that the company's 85% share of the Serbian insulin market can be explained by the fact that the company was present in the market in the 1990s, through a cooperation agreement with local manufacturer Hemofarm. When NATO intervened in Serbia in 1999, Novo Nordisk took the unusual decision to remain in the country to become Serbia's sole insulin provider. As a result, Serbia is the only country outside of Denmark where Novo Nordisk enjoys such a high market share. In 2002-2003, the company restructured and Radoševic took on the position as general manager. He explains that learning from other countries in the region was extremely useful to him at this time. "In those early days, I relied a lot on the knowledge and experience of our neighboring countries, because everything that was happening in Serbia had already happened there in the years previous. It was an excellent opportunity to avoid mistakes, take advantage of their experiences, and approach things in an organized way," he says.
Predrag Radosevic, GM of Novo Nordisk
Indeed, Trkulja of INOVIA supports the argument that companies have found Serbia so attractive since the market opened up at the beginning of the new decade. Compared to other European countries and even countries in the Balkan region, Serbia's lack of development has left large room for growth and expansion. "Serbia experienced very strong growth in the years before the financial crisis, and although the country's recovery is happening a little slower than in more developed countries, today's data suggests that Serbia is starting to rally. I strongly believe that we are now in a position where we will see large growth in the years to come," Trkulja asserts. There is indeed plenty of data that supports the openness of the Serbian market for drugs of foreign producers. The country's Minister of Health, Zoran Stankovic, adds in a public statement that "there are 4,000 pharmaceuticals licensed to trade, which are produced by over 300 different producers. From the aforementioned number of pharmaceuticals, about 2,500 are produced by foreign producers."
Nenad Ognjenovic, GM of Galenika
The growing trend of cost-containment measures across Europe has led companies to focus harder on the long-term future of healthcare. Many, including Zoran Labudovic, general manager of Pfizer Serbia, believe that copayment will play a larger role in the future of European healthcare. Labudovic believes that in Serbia, this leaves a lot of room for growth. "Pfizer has prospered in Serbia because of the potential of the country, which is apparent from the size of the population and the country's attitude toward paying for healthcare out of pocket. Despite the fact that Slovenia and Croatia are much richer countries, the fact is that their populations are not in the habit of paying for healthcare. This is due to the fact that during sanctions, Serbians got used to the idea that in order to have access to certain medicines they needed to pay. This provides a good basis for the future," Labudovic explains.
Many of the MNCs operating in Serbia today are run by Serbians who are dedicated to ensuring their long-term presence in the Serbian market. Ana Govedarica is Roche's general manager in Serbia, and few in the industry are more dedicated to bringing high-level innovation into the country than her. Govedarica explains that, while the route Roche has taken around the world has certainly made doing business in Serbia tricky in recent years, she is positive that the company's presence in the country should be for the long-term benefit of patients.
Ana Govedarica, GM of Roche
"Our strategy is based on a five-year perspective. We would not be successful here as a company if we only planned on a daily basis," Govedarica explains. "Our strategy is to be the most successful company here in the Serbian market, and Roche certainly has the products in order to achieve this. We are moving purposefully, and we are a very brave company because we have taken the decision to stay committed purely to innovation. Innovation requires very knowledgeable and brave people, because any innovation demands courage. I am therefore paying close attention to my people, in order to equip them to be brave and extremely knowledgeable in their work, so that we can transmit Roche's science to Serbia."
Zoran Labudovic, GM of Pfizer
Surely, a lot of bravery and hard work will also be required in the Republic's governmental layers. While the potential is there, it will be up to Serbia's policymakers to provide the necessary political stability to nurture an environment for growth, as they continue to hold the keys to fully unlock this growing Balkan market.