Marketplace Chinese pharmaceuticals eye Czech Republic as base for EU operations

16-07-2014 15:29 | Jan Richter

Several Chinese pharmaceutical firms have recently sent their envoys to Prague to test the ground for potential cooperation. One opportunity eyed by the Chinese firms is making the Czech Republic the base of their operations in Europe, eventually expanding their business to other EU member states.

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Photo: LinetPhoto: Linet Representatives of seven large Chinese pharmaceuticals last Thursday paid a brief visit to the Czech Republic, one leg of their European tour which included Germany, the Netherlands, and other countries.

Their visit to Prague was organized by the Czech-Chinese Chamber of Cooperation, a group associating mainly Czech firms interested in doing business in China. Jan Růžička is the group’s expert on health care business.

“In the pharmaceutical industry, the Chinese are interested in cooperating in several areas. They would like to represent interesting Czech health care brands on the Chinese market, and distribute their products there.

“One well-known example is Linet, the Czech manufacturer of hospital beds, which already signed a distribution contract with Chinese partners. Another area of potential cooperation would be supplying and sub-supplying of medicines and their components.”

Among the firms whose representatives arrived in Prague were some of China’s biggest names in the industry such as the Beijing-based China National Pharmaceutical Group and Northwest Pharmaceutical Group from Shenyang.

The visit came at a time when the Czech government is making every effort to capitalize on a reset of Czech-Chinese relations. Czech Health Minister Svatopluk Němeček spent a week in China last month on a trip preceded by a visit by the industry and trade minister. Czech President Miloš Zeman, meanwhile, is set to travel to China in the fall. On their visit, the Chinese businesspeople also got in touch with the Czech Health Ministry where they attended a seminar on the Czech system of narcotic and psychoactive substances, a spokeswoman for the ministry said. But Mr Růžička says that the main goal of the trip was different.

Photo: Vangelis Thomaidis / freeimagesPhoto: Vangelis Thomaidis / freeimages “Another field of possible cooperation is the registration and sales of Chinese-made medicaments, mainly the so-called over-the-counter drugs, to customers in the Czech Republic and other European countries.

“Those firms which would like to export their products to the Czech Republic and elsewhere in the EU have expressed interest in establishing their regional representations here in Prague.”

During their short stay in Czech Republic, the Chinese visitors met with several Czech companies including Linet; Jan Růžička says negotiations went so well that the firms’ representatives will be coming again by the end of August which is when a major business conference, the Czech-Chinese Investment Forum, will take place in Prague.

However, no details of the Chinese pharmaceuticals’ plans in the Czech Republic or elsewhere in the region have been released. Filip Vrubel, formerly a deputy chair of the Czech pharmaceutical regulator, the SUKL, now works for the Prague-based Ambruz & Dark Deloitte Legal law firm.

“It’s logical that the EU, with 500 million people, is an interesting territory for Chinese firms. But it remains to be seen why they should choose the Czech Republic as their base. I don’t expect Chinese pharmaceutical producers would build their factories here.

“What seems more plausible is importing medicaments from China which is where most drugs sold globally under renowned international brands come from, including those registered in the US or the EU.”

Getting their drugs approved in the Czech Republic could take the Chinese firms anywhere between six months and two years, according to Mr Vrubel. Once registered here, however, the medicaments can be sold in every EU member state.

Filip Vrubel, photo: archive of DeloitteFilip Vrubel, photo: archive of Deloitte One strategy the Chinese firms could adopt to establish themselves on the Czech or European market is to offer cheaper generic drugs. But Mr Vrubels says EU countries have different approaches to generic drugs which could affect their sales.

“Countries where generic prescription is mandated or has a long tradition, such as the UK, generics make up a much bigger share of the market than in those states where doctors use trade names.

“The Czech Republic is somewhere in the middle. So what might work in the Czech Republic does not necessarily work elsewhere in Europe.”

So how do Czech pharmaceutical firms see the plans of their Chinese competitors? And how would Chinese imports affect the Czech market? I discussed these and other issues with Emil Zörner, the head of the Czech Association of Pharmaceutical Companies. He says he is rather sceptical about the prospect.

“I think plans to expand to other EU markets would be the only logical explanation of why the Chinese firms should register their products here. Using the mutual recognition principle – once registered in one country, it applies to all EU countries after some time – they could then penetrate other EU markets.

“But considering that most international companies use other countries for their Europe-wide registrations, I’m not sure whether the Czech Republic is the best choice for entering the EU market.”

Why not?

“The Czech Institute for Drug Control is not very active in these mutual recognitions. They do other things. Similar institutions in other countries such as Germany, Sweden or even Malta, they are more experienced.”

So how do Czech firms see the plans of their Chinese colleagues? Are they concerned they could become serious competition?

“The Czech market is crowded as it is, and all firms present here are used to intense competition. The Chinese’ entry would not be anything new to them.

“I would rather suggest that it will be an uphill struggle for the Chinese. More importantly, we should keep in mind that many international companies are in fact withdrawing their products from the Czech market as there are becoming economically nonviable due to the price pressure form the authorities.

Emil Zörner, photo: archive of Czech Association of Pharmaceutical CompaniesEmil Zörner, photo: archive of Czech Association of Pharmaceutical Companies “So under these circumstances, the intention to enter the Czech market by Chinese companies might seem a bit paradoxical.”

But isn’t this precisely an opportunity for cheaper Chinese-made generic drugs?

“I would challenge the assumption that the Chinese products will be cheaper. I’m not talking about other industries but in pharmaceutical business, there is no cheap labour. The most important thing which dictates the price of the product is the quality achieved by high-quality production lines. Cheap labour is a side issue, and the Chinese cannot offer a price that would differ much from what

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