Aug 25 2008
Cold War Drug Store
They say when the U.S. sneezes, the whole world catches cold…
Well, it’s time for a trip to the drug store. More and more often, that means Central and Eastern Europe, or Emerging Europe.
For our Taipan VIP subscribers who attended our August Global Summit conference in San Francisco earlier this month, you may remember me mentioning a couple companies. Big names… Internationally recognized pharmaceutical companies like Teva Pharmaceuticals (TEVA:Nasdaq) and Sanofi-Aventis (SNY:NYSE). They’ve set up shop in places like Hungary and the Czech Republic.
Hungary is one of the most developed pharmaceutical and biotechnology sectors in Central and Eastern Europe. Hungary boasts the strongest biotech sector among the twelve new EU member states. That has enticed seventy core biotech companies to set up shop in Hungary up to now and 170 companies have some kinds of biotech related activities. The reason? Cost savings. Companies can save 30-50% compared to Western European enterprises.
But there’s another side to the drug industry and it’s increasingly finding a home in this very region.
I’m talking about generic drugs.
This industry has seen some remarkable growth. Between 2003 and 2006, the generic drug sector has grown at an annual rate of 19% in Emerging Europe. More recently, this area has grown by about 9% a year, and rakes in about $10 billion in sales.
McKinsey Quarterly estimates that international companies can bring in somewhere in the neighborhood of $1 billion in additional sales each year.
One of the ways international companies become big player in these markets is through acquisition. With the growth of Central and Eastern European economies, small local companies have sprouted up everywhere.
These smaller companies have at times made quite an impression on market share. Names like Zentiva and Egis Pharmaceuticals might ring a bell to investors. Both are traded as pink sheets here in the U.S. and on a number of German exchanges.
Sanofi-Aventis hold a large stake in Zentiva (about 24.9%), and even tried to take the company over. The offer was rejected, though. Another French company, Servier, owns 50.91% of Egis.
For now, drug companies, and especially generics, are still in a major growth spurt. Look for companies who have strong product brands. That’s different from company brands, and it really opens up the playing field for those smaller regional manufacturers.
This could spur even more acquisitions, so be on the look out!
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