”We are Poland’s first distributor of medicinal products to venture into an uncharted territory. Three weeks ago, we announced expansion into the UK market. Yet it is the Lithuanian investment which is the first major international challenge to be tackled by Polska Grupa Farmaceutyczna. We have set our sights on a new goal – to become leaders of the Central and Eastern European market,” says Jacek Szwajcowski, PGF’s President. ”We chose Lithuania as the first destination for our expanding business due to its solid macroeconomic foundations, its rapidly developing pharmaceutical market and a fairly stable legal environment. The Polish market is so heavily regulated that distributors, feeling the pinch of 1-percent margins, are unable to tighten their belts any further and reduce the prices. We are constantly looking for new solutions. Foreign investment is a chance to improve our performance, achieve cost efficiencies and, as a consequence, reduce the prices of certain medicines.“ adds Mr Szwajcowski. According to IMS Health’s forecasts, in the years 2007-2011 the value of the Lithuanian pharmaceutical market is set to grow at a two-digit rate, driven by higher reimbursement for medicinal products and rising incomes of the Lithuanian population.
On July 23rd, Polska Grupa Farmaceutyczna registered its subsidiary – a special purpose vehicle established to acquire majority interests in several Lithuanian companies – the largest of them being *Limedika* (the third largest Lithuanian drug wholesaler with an 18-percent market share) and *Gintarine* *Vaistine* (“Amber Pharmacy”), which operates a chain of pharmaceutical outlets.
- The value of the transaction is EUR 22.5m, which represents the acquisition price of the majority stakes
- PGF has an option, exercisable in three to five years, to buy the remaining shares in the target companies at a price determined based on the companies’ performance.
PGF’s Management Board expects the overall impact of the investment on the current year’s performance to be neutral due to a rise in the company’s debt contracted to finance the investment. However, next year the investment should begin to yield profit, fuelling further improvement of PGF’s performance.
In its Lithuanian operations PGF intends to build on its experience and knowledge gained while implementing the “APTEKI dbam o zdrowie” scheme, a loyalty programme for private pharmacies unmatched for its scope anywhere in Europe. Lithuania’s *Limedica* is already operating the *Baltijos Vaistinu Grupe (BVG) *programme*, *modeled after PGF’s concept, having enlisted the participation of 14% of all pharmacies. “Both programmes are designed along the same lines – they are aimed at strengthening the relationship with private pharmacies and drug manufacturers, implementing modern solutions, cutting costs and, as a result, reducing the prices of medicines. By leveraging PGF’s connections, we plan to develop marketing strategies with an international dimension,” says Jacek Dauenhauer, PGF’s Vice-President responsible for strategy and development.
PGF’s business expansion will mostly benefit patients who make their pharmaceutical purchases at pharmacies supplied by the company. Thus far, price reductions could only be achieved through increased reimbursement or through squeezing the pharmacies’ margins. However, pharmacies are already operating at very tight margins and there are no plans to significantly increase state-budget spending on drug reimbursement. For these reasons, PGF’s investment may give it scope for reducing the prices of medicines offered to Polish patients. Drug manufacturers will begin to view the company as a more stable and reliable business partner. This will allow it to minimise the cost base and offer more favourable terms to pharmacies, which in turn will translate into lower prices of medicines. Drug manufacturers and pharmacy operators will be the first to feel the positive effects of the transaction. “Thanks to PGF’s new positioning our customers, both in Poland and in Lithuania, will gain a competitive edge over other pharmacies.” stresses Jacek Szwajcowski.
For manufacturers PGF’s presence in Lithuania means an easier access to foreign customers. This is of particular importance to Polish and Lithuanian companies which to date have not had such opportunity. “We are offering them a well-organised distribution network and guaranteed
security of supplies” adds Mr Szwajcowki.
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