Pelion's activities

For ten months now, the pharmaceutical industry in Poland has been operating in a new regulatory framework. The changes have affected all participants of the pharmaceutical market. Given lower margins on reimbursed drugs and limited possibilities of selling other products, an average pharmacy has had to cut down its monthly costs by some PLN 5,000. As a result, many pharmacies have found themselves on the verge of bankruptcy. To avoid winding up, they reduce their headcounts and procurement from wholesalers. This in turn gives rise to serious difficulties in the availability of drugs, frequently making patients wait for a medicine to be delivered from the wholesaler. Following introduction of the ban on pharmacy advertising, pharmacies make strenuous efforts to cover their fixed costs, having no chance to compensate for the losses by increasing sales on products other than reimbursed drugs. They are also unable to successfully compete with other distribution channels (including retail chains), which have OTC products in their offerings, due to the full ban on pharmacy advertising and the absence of such ban for other distribution channels. As a result, there is a risk that the sale of OTC products will be transferred to non-pharmacy stores. Despite this threat, activities aimed at providing patients with an attractive offering of dermocosmetics, personal care products and dietary supplements come in for criticism from the Pharmaceutical Supervision Authority. The situation is exacerbated by frequent changes in the lists of reimbursed drugs. As the lists are published with little notice and the prices are fixed, pharmacies are unable to sell off inventory, thus being exposed to further losses.
 

Patients in the centre of focus

Patient care, understood as the need to provide access to drugs at reasonable prices, is viewed by the Pelion Group as its top priority. Therefore, the Group uses its best efforts to ensure that the offering of its pharmacies is the most attractive on the market. It continues to develop programmes dedicated to various patient groups, e.g. information campaigns on lower cost drug therapies, with a view to reducing the total costs of pharmacological treatment. This is particularly important considering patients’ growing share in the financing of drugs, the increasing number of people giving up treatment for financial reasons and the lack of knowledge on cheaper generic drugs. As specialists active on the market for some 20 years, we are perfectly aware that not only money, but also the lack of knowledge on cheaper and equally effective therapies is a barrier to availability of drugs.  Changes introduced under the Drugs Reimbursement Act have created a mechanism enabling patients to benefit from cheaper pharmaceutical treatments.  Our objective is to advise the patients on these possibilities. The 60+ Programme may serve as an example. Under the programme, we run regular educational campaigns on lower cost drug therapies. We know that awareness allows patients to pay less.
 

Adjustment measures
 

The Group has undertaken a number of steps to adjust its activities to the new conditions in the pharmaceutical market. These measures should soon yield measurable benefits.
 
In the retail segment, most affected by the new regulations, the Group optimised its pharmacy portfolio - 37 pharmacies were sold or closed by the end of October.

348 job positions were cut as part of the employment streamlining process planned for 2012.
 
In its wholesale distribution to pharmacies business, the Group focused on reducing operating costs through optimisation of the network of warehouses, tight control of receivables and further development of electronic distribution channels. Today, Pelion has the smallest and the soundest portfolio of receivables. The Group cooperates with reliable customers, while enjoying positive effects of its long-term conservative approach to trade credit policy. However, it is now facing two difficult years. A further reduction of statutory margins on reimbursed drugs is expected in the wholesale segment (by 1pp as of January 1st 2013 and by another 1pp as of January 1st 2014), as a result of which the PLN margin on these pharmaceuticals will fall by 14% in 2013 and by another 14% in 2014. Following these changes, the entire wholesale segment in Poland will be forced to reduce its costs by approximately PLN 140m in 2013 alone. Difficulties in enforcing claims against pharmacies which go bankrupt or wind up may add to the problems.
 
“Our strategy for the coming year provides for optimisation of processes between all business lines and leveraging of synergies,” said Jacek Szwajcowski, President of the Pelion Management Board. “Also, we do not rule out that our business model will have to change in those segments where that proves necessary,” he added.
 
The table below presents the Q3 2012 financial highlights, along with the year-on-year comparative data:

Pelion S.A., formerly Polska Grupa Farmaceutyczna S.A., has operated on the market for twenty-two years. Initially, it was a local pharmaceutical wholesaler. In 1998, the Company shares were floated on the Warsaw Stock Exchange. Proceeds from the initial public offering fuelled the Company’s dynamic growth and allowed it to embark on consolidation of the pharmaceutical wholesale market. Since its floatation, the Company has secured a top position among domestic distributors of medicinal products. Today, the Pelion Healthcare Group is one of the largest groups operating on the healthcare markets in Poland and Lithuania. Its services cover all market segments (wholesale, retail and sale to hospitals) and are targeted at individual patients, pharmacies, hospitals and manufacturers. As a holding company, Pelion S.A. oversees all areas of the Group’s operations, which are conducted by PGF Hurt Sp. z o.o. (wholesale), PGF Urtica Sp. z o.o. (sale to hospitals), CEPD N.V. (retail sale), and Pharmalink Sp. z o.o. (services for manufacturers).