The FINANCIAL — The value of the Georgian pharmaceutical market has increased almost 40-fold since 1995 and is expected to exceed $200 m in 2008. The outlook for coming years also looks optimistic, PMR Polish research group reported.
The development of the Georgian pharmaceutical sector started in the mid-90s, when the market was still full of illegal, low quality and low cost drugs. In 1997, a set of new regulatory changes was ratified by the government and the Georgian Drug Agency was formed, which is currently the main supervisory body of the local pharmaceutical industry. Since then, the share of counterfeited drugs has been falling and currently is an insignificant part of the total market.
In 2007, the size of the Georgian pharmaceutical market stood at $177 m, growing on average by
34% per annum since 1995. Through these years, the pharmaceutical industry has enjoyed tax incentives, which stimulated growth of the sector. Rising household incomes and growing share of healthcare in household spending (to 9.5% of disposable income in 2007 from 6% in 2003), accelerated the development of the market even further. In 2008, the value of the Georgian pharmaceutical market is expected to exceed $200 m.
During the mid-90s, the pharmaceutical market attracted many entrants, the majority of which were motivated by the prospect of high profits from sales of illegal, low cost and low quality medicines. Increased regulation and tough competition were the two major factors that cleaned the market from illegal activities. Those who survived have established themselves as professional, western standard pharmaceutical companies, continuing their successful operations up to the present.
After a reduction in customs tariffs for pharmaceutical products to 1%, drug imports into Georgia more than tripled in volume terms in 1997. At the same time, the exemption from VAT enjoyed by pharmaceutical companies created incentives for developing local pharmaceutical production. Currently, 2,041 pharmaceutical companies are registered in Georgia, of which 76 companies produce various pharmaceuticalproducts in the country. The share of pharmaceutical products in Georgia’s exports reached 2%, while their share in total imports amounted to 3% in 2007.
Main destination countries for exports of Georgian pharmaceutical products are Kyrgyzstan, Kazakhstan, Uzbekistan, Azerbaijan and Turkey. They will soon be joined by the Ukraine and Armenia. Although locally produced medicines represent an attractive substitute for imported products, due to their lower prices and competitive quality, their consumptions is low as a share of total drug consumption in Georgia, oscillating between 8% and 10%. The main reason is lack of assortment breadth. Of the 50,000 drugs registered in Georgia, only 100-150 types of medicines are produced locally. Georgian pharmaceutical companies, with their
own production facilities, are planning to increase this share up to 30%. The task seems challenging. Tax breaks on imported pharmaceutical products, once welcomed, now represent an important threat to local pharmaceutical production.
Leaders of Georgian pharmaceutical industry
Aversi Pharma, PSP Group and GPC are three leading domestic pharmaceutical companies, controlling approximately 75% of the local market between them. These companies are engaged in drug distribution, as well as production and imports.
Aversi Pharma was established in 1994. With a market share of 35%, the company owns the country’s largest chain of drugstores, with more than 140 outlets throughout Georgia. Aversi is the second largest producer of pharmaceutical products and holds an ISO 9001 certificate. Its Aversi Rational plant produces 65 types of medicines.
PSP Group, established in 1994, currently with 114 drugstores in Georgia, controls up to 30% of the local market. With production capacity of 500 m pills and 200 m capsules per annum, GMP (member of PSP Group) is the largest producer of pharmaceutical products in Southern Caucasus (Georgia, Armenia, Azerbaijan). Established in 2000, it produces more than 100 types of medicines. In 2004 the company was awarded an ISO 9001-2000 certificate, and in 2007, a Good Manufacturing Practice certificate.
GPC, established in 1995, with a market share of 10%, has 39 drugstores in Georgia. The rest of the Georgian drug retailing market is shared by small, individual drugstores, the biggest of which is Sakhalkho Aptiaki (People’s Drugstore), owned by People’s Bank of Georgia and Peoples Insurance. Currently, the chain owns 38 drugstores and controls 4% of the market. However, Sakhalkho Aptiaki plans to increase its share up to 15-17% by the end of 2009. The company will soon launch its own pharmaceutical production, together with its Ukrainian partners.
During the last few years, pharmaceutical companies have been striving to achieve a high level of vertical integration and increase their market power further. Due to their strong bargaining power, foreign pharmaceutical concerns supply medicines to Aversi and PSP at more favourable terms compared to other local drug wholesalers. Lower prices, high service quality, superior reputation and trust all contribute to their significant competitive advantage with respect to other local companies. Their own pharmaceutical production adds up to their market power.
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