Pharmaceuticals, Biopharmaceuticals, Medical Devices and Equipment
1. Scope of the STPA
1.1 Background information: Smart Specialisation strategy
Croatia’s Smart Specialisation strategy defines the emphasis of STPA1 as manufactured pharmaceuticals, biopharmaceuticals and medical equipment and devices. This STPA falls within the thematic priority area ‘Health and Quality of Life’, and is complemented by two additional STPAs on ‘Health services and new methods of preventive medicine and diagnostics’ and ‘Nutrition’.
The scope of the STPA includes the following RDI topics, which are suggested as possible areas for industry evolution and opportunities:
- generic and patenting drugs (almost all therapeutic groups and active pharmaceutical ingredients);
- OTC medicines;
- health products for animals;
- blood plasma;
- dermatological cosmetics;
- herbal medicines;
- medical and dental equipment and devices;
- new medical technology and procedures.
According to the Smart Specialisation strategy document, the sector is dominated by a few large companies (Pliva, Belupo, JGL, Genera), and is geographically concentrated in Zagreb, Savski Marof, Koprivinica, and Rijeka.
This prior information is the starting point for this document, which aims to give a fuller assessment of the starting position of the STPA.
1.2 Definitions and scope
We have elaborated fuller definitions of the RDI topics as follows:
- Generic drugs are defined as being comparable to a brand/referral listed drug product in dosage form, strength, quality, performance characteristics and intended use. According to the United States Food and Drugs administration (FDA) generic drugs are identical or within an acceptable bioequivalent range to the brand name counterpart with respect to pharmacokinetic and pharmacodynamic properties. Patented drugs will become generic drugs once their patent expires.
- Conventionally brand-name drugs are those with valid patents, but recently there has been a trend even for generic drugs to be ‘branded’ (despite being available in almost identical form from other producers). In the conventional definition, drugs will be new active substance(s) for which the innovator made full documentary evidence of efficacy, quality and safety. On this documentary basis the national regulatory body evaluates all relevant factors to ensure the quality, effectiveness and safety, and will grant a marketing authorization.
- Over-the-counter (OTC) medicines are those drugs which can be purchased without a doctor’s prescription. In other words, they are a subset of generic and brand-name drugs.
- A vaccine is a biological preparation that improves immunity to a particular disease. A vaccine typically contains an agent that resembles a disease-causing microorganism, and is often made from weakened or killed forms of the microbe, its toxins or one of its surface proteins. The agent stimulates the body’s immune system to recognize the agent as foreign, destroy it, and “remember” it, so that the immune system can more easily recognize and destroy any of these microorganisms that it later encounters7. Individual vaccine markets are constantly changing as countries introduce new vaccines and change preferences for more traditional vaccines8. Most supply chain systems were developed 30 years ago, when immunization schedules were much smaller and simpler, vaccines were less expensive, and immunizations were only given to infants. Vaccines now protect against twice as many diseases, are administered to broader age groups, and take up a lot more space in warehouses, trucks, and refrigerators.
- Health products for animals may include drugs or vaccines.
- Blood plasma is the largest blood component, making up about 55% of its overall content. The primary purpose of plasma is to transport nutrients, hormones, and proteins to the parts of the body that need it. Along with water, plasma carries salts and enzymes. Cells also deposit their waste products into the plasma. The plasma, in turn, helps remove this waste from the body. Blood plasma also ushers the movement of all the elements of blood through the circulatory system9. When isolated on its own, blood plasma is a light yellow liquid, similar to the color of straw10. Originally, the aim of fractionation was to separate albumin, which represents 55-60% of the total protein voIume. Over time, additional proteins were separated and used clinically. Later on chromatography processes to purify specific proteins, such as immunoglobulins further increased production yields. The fractionation of plasma is still in an active state of research as companies and researchers develop new ways to maximize the yield of key proteins from human plasma. Today, modern plasma fractionation plants are large and complex, capable of fractionating millions of liters of plasma into a wide variety of therapeutic products.
- Dermatological cosmetics (often also termed ‘cosmeceuticals’, ‘dermocosmetics’, or ‘medical cosmetics’) are products that combine dermatology and skin care. In other words, they are cosmetic products that contain ingredients with medicinal or drug-like benefits . Dermatological cosmetics as an industry includes products that prevent, mitigate, treat or cure skin conditions. Major categories of products include: sun care; antioxidants; anti-ageing (including wrinkles and stretch marks); and anti-bacterial/anti-inflammatory applications (including for acne, rashes, allergic reactions, bacterial or fungal infections) . Medicinal ingredients in these products may include naturally-derived ingredients or synthetic ingredients. Commonly-used active ingredients include : hydroxy acid (fruit acids); botanicals (e.g. green tea extract, grape seed extract); depgimenting agents; exfoliants (such as salicylic acid); moisturizers; topical peptides; retonoids (such as vitamin A); sunscreens; and antioxidants (such as vitamin C). Some of these active ingredients are herbally-derived (such as neem, tumeric, tamarind, and others).
- Herbal medicines refer to products from a number of traditions, including Western herbal medicine, Chinese herbal medicine, Ayurveda, and other origins. Herbal food supplements are emerging as alternatives to conventional synthetic supplements. There has been some evolution over time in the form in which herbal medicines are delivered. There has been a trend to produce herbal and botanical products in multi formula and combo formulas (rather than single herbal formulas), and to produce in accessible forms such as chewable capsules and tablets. Other forms include: herbal teas; plant extracts; juices; and other liquid preparations. Herbal medicines can (depending on the use) be applied topically to the skin, as oils, creams and lotions.
- Medical equipment is designed to aid in the diagnosis, monitoring or treatment of medical conditions. Medical and dental instruments are tools that help healthcare providers deliver quality health care service. From heart-lung to kidney dialysis machines, from MRI to CT Scans to other minimally–invasive diagnostics equipment, from peacemakers to self-test for glucose to dental drills – a wide array is available. Today, there are more than 10.000 types of medical devices available.
- Dental instruments are tools that dental professionals use to provide dental treatment. They include tools to examine, manipulate, restore and remove teeth and surrounding oral structures. Standard instruments are the instruments used to examine, restore and extract teeth and manipulate tissues12. This industry distributes dental equipment and supplies such as drills, crowns, dental gold, chairs, sterilizers, X-rays and cabinets.
2. National Supply
Croatia has a pharmaceutical history spanning from the middle ages13. In 1271 the first public pharmacy was established in the Dalmatian city of Trogir, as a maker and seller of medicines. The pharmacy of the Friars Minor in Dubrovnik is one of the oldest pharmacies in Europe, and has had uninterrupted operations since its establishment in 1317. The first pharmacy in Zagreb, which is currently a tourist attraction, was established in 1355.
Despite the early start, the pharmaceutical segment rapidly developed in Croatia between the 18th and 19th centuries. In 1770, the Empress Maria Theresa issued a law on the organization of public health facilities, incepting a regulatory structure for future activities. At the beginning of the 20th century, about 60 drugs were being produced in monasteries, mainly for medicines, digestive problems, and ointments. On the basis of the Pharmacy Act (1894) pharmacies became regarded as health institutions, and the pharmaceutical industry continued to expand.
Several large firms still in existence today were established in the 20th century.
2.2 Domestic production & evolution
Overall, STPA1 industries account for a relatively small proportion of Croatia’s economy. Firms in STPA1 industries employ approximately 4 000 persons directly, out of a total of 1,132,246 jobs in Croatia’s economy as a whole (0.4 percent). Firms in this sector produce approximately EUR 690 million of output, which is approximately 1.3% of all private sector activity. STPA1 in Croatia consists of approximately 62 companies, which is 0.04% of the approximately 147,000 firms in Croatia.
Many companies are involved in production of several ‘RDI’ topics. According to information available at this stage of work, the distribution of firms and RDI topics is as shown in Table 1.
Within this list, producers of pharmaceutical products (particularly generics and active pharmaceutical ingredients) account for the largest proportion of output. Table 2 shows a comparison of the revenues of the largest companies in pharmaceuticals with the largest companies in medical equipment and supplies. There is a stark difference in scale, with revenue of the top 8 companies in medical equipment being less than 500 million HRK annually, which is only just above 10% of the revenues of the largest pharmaceutical firm, Pliva.
Within pharmaceuticals, there is also substantial concentration. Pliva’s revenues alone are more than 50% higher than the next 9 largest companies’ revenues all combined.
Export data provides one of the richest sources of data about the STPA1 industry, partly because of the precision of customs data, and partly because exports products are usually the most competitively produced. Export data for this purpose is obtained from the UN COMTRADE database, which is interrogated via the open-access World Integrated Trade Solution (WITS) platform.
In analyzing export data, the team carefully reviewed the STPA1 definition and RDI topics against available export data. Table 3 shows the list of product categories that are included in the definition of STPA1 used subsequently.
STPA1 currently account for 4.6 percent of Croatia’s total exports. These are valued at approximately US$ 597 million of exports per year (according to 2015 data). Comparing exports with production data, it can be seen that STPA1 industries are relatively export intensive (accounting for 1.3 of production but 4.6 percent of exports).
The industry has grown at approximately 9.2 percent annually, on the basis of data from 2007 to 2015. This is a relatively healthy rate of growth, as can be seen from Figure 1: in the same period, larger industries have been volatile or declining, while STPA1 has been growing consistently. The Figure shows the top 10 largest product groups in Croatian exports.
Nevertheless, Croatia remains a net importer of STPA1 products. Imports of STPA1 products stood at US$ 1017 million in 2015, compared to exports of US$ 597 million. Nevertheless imports have been growing slowly, at an average of only 1.95% annually, while exports are growing faster. If these growth rates are maintained, Croatia would become a net exporter of STPA1 products in seven years time, in 2023.
Within STPA1, three product categories account for fully 91 percent of STPA1 exports. Table 3 in the previous section showed the value of exports in 2015. Exports are zero or negligible in most product categories, with the most notable exceptions being: 300210 ‘Antisera, other blood fractions and immunological products’; 300420 ‘Packaged medicaments containing other antibiotics’; 300490 ‘Packaged medicaments containing other related products’. These three product categories alone account for $543 million of Croatia’s $597 million of exports from STPA1 industries.
This is an unusual concentration: globally the same three product categories account for only 56 percent of STPA1. This question is assessed in more detail in Table 4, which compares Croatia’s basket of STPA1 exports with the proportions of STPA1 product exports of all other countries globally. The Table indicates that Croatia exports 36% more pharmaceuticals than the global average for pharmaceuticals as a proportion of a typical export basket (RCA for product code 30 of 1.36). However, Croatia’s pharmaceutical exports can clearly be seen to be concentrated in only a few product categories: human and animal blood fractions (300210); veterinary vaccines (300230); ‘other’ medicaments (300490); blood grouping reagents (300620); dental cements and fillings (300640); and particularly antibiotic medicaments (300420), of which Croatia exports 524% more than a typical country globally. Other categories are either negligible in size or are exported at a disproportionately low rate, or both.
When compared with High Income countries alone (rather than all global exports), Croatia’s STPA1 industries can be seen to be concentrated in only one product category (300420 antibiotic medicaments). All other product categories are exported at approximately average rates, or below-average rates. The data for this observation is shown in Table 5.
This pattern is shown at a higher resolution by looking at Croatia’s top 20 export destinations for pharmaceutical goods. These countries are shown in Figure 3. Russia absorbs fully 18% of STPA1 exports from Croatia, with Belarus and Kazakhstan also included in the top 20.
2.3.3 Growth and opportunities
In recent years, Croatian exporters have been successful in increasing their sales in several product categories. These are shown in Figure 4. In comparison to some of the other STPAs (e.g. STPA4, Energy), it is striking in STPA1 that many product categories have been growing quite fast in recent years. Of these, six have shown extraordinarily fast growth in Croatia and are also in fast-growing markets globally: ‘300210 Antisera, blood fractions, and immunological products’; ‘300390 Other unpackaged medicaments’; ‘300342 Packaged medicaments containing corticosteroid hormones’; ‘901832 Tubular metal needles’; ‘901850 Other ophthalmic instruments’; and ‘902131 Artificial joints’. The last four of these remain at relatively small scale (annual exports of less than US$ 3 million each), but they may still give substantial cause for optimism, since they show that Croatian firms can adapt quickly if opportunities are found. Production has been changed swiftly to meet increased demand.
A closer look at the exports of four of these ‘high growth’ products is shown in Figure 5. is apparent that exports blood plasma and veterinary vaccines are concentrated largely in Eastern Europe, the CIS, and the Middle East (particularly Iran). Meanwhile, fully 89 percent of artificial joints made in Croatia are exported to Belgium and Montenegro, and 99 percent of the high growth pharmaceutical category 300390 (other medicaments) are exported to Slovenia. Percentages of this magnitude imply a vertically integrated company or subcontracting relationship.
3. Industry Functioning
3.1 Financial health of the cluster
On the basis of financial data obtained for 48 pharmaceutical companies in Croatia (rising from 44 in 2013), revenues have been steadily increasing, from approximately EUR 663 million in 2013 to EUR 757 million in 2015. However, equity is declining, while liabilities are increasing. This data is shown in Table 6. 20 of the 68 companies on record are either in the process of liquidation or did not report any income for the past three years. 44 entities have had consistent operations, while 4 reported earnings in the past year.
According to conventional wisdom in Croatia, pharmaceuticals is an ‘innovative’ industry. Biotechnology and pharmaceuticals are reputed to account for more than 80 percent of all R&D business expenditure in Croatia. The top ranked subjects in Croatian science are medicine (1st place) and biochemistry, genetics and molecular biology (7th place). In addition, the patent for azithromycin comes from Croatia, and thus places Croatia as “one of only ten countries in the world that develop a completely new drug”.
4. Cluster Agents
4.1 Geographic locations
As noted in the Smart Specialisation strategy, these firms are heavily clustered in Zagreb, but with subsidiary clusters in other main regions of Croatia. Figure 7 is a map of the locations of these companies. Of the 62 companies estimated to be in STPA1 industries, the vast majority are located in Zagreb. Subsidiary groups are in Slavonia and Dalmatia, with the cluster of medical equipment and devices firms in Slavonia being rather notable. These are: Certifikat d.o.o. and Otos d.o.o. in Osijek (producers of microbial substrates, and producers of prosthetics and orthotics); Đuro Đakovic Aparati in Slavonski Brod (compressed air breathing equipment, and related products); and Tehna in Nova Gradiška (producers of disposable aprons, gloves, covers).
4.2 Position in the value chain and recent evolution
In terms of Croatia’s position in pharmaceutical value chains, some patterns can be observed across RDI topics. The generic value chain in Figure 8 shows a concentration of primary activities in the manufacturing and distribution sections, in addition to end-point services like disposal of infective materials and medical waste.
A number of activities remain vertically integrated within each firm. Pharmaceutical and distributor companies usually take responsibility for their own marketing and sales, rather than outsource to agencies. Top tier companies like Pliva and Belupo have a substantial number of medical sales reps who make direct sales to medical practitioners. Sales rep KPIs include the number of calls per given week, meaning the number of visitations to clinics and targeted medical personnel. Considering the highly competitive environment, marketing activities also include media buying in both digital and analogue formats.
In the pre manufacturing phase, one company stands alone: ACG Lukaps d.o.o. The company is part of ACG Worldwide group, producers of hard gelatine capsules. All their R&D activities are done in India. Despite the lack of local competitors and earning stable profits, they constructed three new production lines in 2015/2016, increasing their capacity by 35% and further increased the barrier to entry for any aspiring competitor. Their 2015 annual report shows further plans to continue capital investments that would expand production capacities, build a wastewater treatment plant (for 2017), and continue activities to gain larger market share in Western and Eastern Europe.
Post-manufacturing phases include the medical waste and equipment recycling firms. Additional activities that support the industry include insurance, fleet maintenance, private entities for capacity building, payroll and accounting services, legal services, IT services and call centers.
4.3 Key firms
As noted earlier in this document, STPA1 is dominated by a few large firms. Their evolution and current profiles are as follows:
- In 1921, a joint venture by Isis of Zagreb and Chinoin from Budapest founded a company in Karlovac called Kastel who were producing herbal extracts. They began producing complex products like injections, syrups and tablets in 1923. The factory relocated to Zagreb in 1928. Then in 1935, it began in-house production of pharmaceutical raw materials and finished drugs. Kastel Inc. was renamed Pliva in 1941, and in 1945 they intensified production of drugs. Pliva today is a member of Teva group with employees numbering about 1,980.
- Belupo was founded 1971, as a measure by PODRAVKA Group to diversify and expand their activities from food processing into pharmaceuticals; specifically the manufacture of medicinal products and cosmetics. They own production facilities in Koprivnica and Ludbreg. In line with the strategic goal of expanding to markets in South East Europe, Belupo has established a subsidiary in Slovenia in 2002 and representative offices in Ukraine, Poland and Kazahstan in 2013. The company distributes its products via its chain of pharmacies called DELTIS PHARM. Approximately 840 people work at Belupo.
- The primary activity of JGL is in the production of pharmaceutical preparations, manufacture of basic pharmaceutical products, production of other chemical products and production of perfumes and cosmetics. Established in 1991, the company has been focused on organic growth and is currently one of the highest earners in 2015 with approximate revenue of EUR 82 million. About 720 people are employed at JGL.
- ACG LUKAPS. ACG Lukaps is a manufacturer of two-piece hard capsules in Central Europe and a major supplier for leading pharmaceutical companies in Europe including Russia. The company activity is primarily on the production of hard Capsules made from fish gelatine, two-piece empty hard capsules, and hard gelatine capsules in ten sizes. It is a part of ACG Worldwide, a group that offers end-to-end solutions in Solid Dosage System. The local firm complies with the strategic direction and activities of the headquarters. Employees number around 200.
4.4 Regulatory and Monitoring bodies
A number of public agents are engaged in supporting and regulating the pharmaceutical sector. These are depicted in Figure 9.
Key public sector bodies include the following:
- Ministry of Health (MOH). MOH has a number of divisions supporting and intervening to help pharmaceutical companies. Within the Directorate for Inpatient Health Care and Inspection Activities there are three departments for; Health Inspection, Pharmaceutical Inspection, and Inspection of blood tissues & cells. These proper functioning of these departments are particularly critical for maintaining access to EU markets for Croatian pharmaceutical producers The Department for State and Boarder Sanitary Inspection conducts inspections for the import and export of certain pharmaceutical industry inputs or products2. This Department is critical for achieving exports of pharmaceutical products outside the EU.
- Croatia’s system of National Quality Infrastructure (NQI) relies on interlinked private and public actors that conduct inspections, provide testing reports and certify that firms are meeting some mix of both public and private standards. A conceptual layout of the interaction of these actors, many of whom operate at different parts of the value chain, is depicted below. The Croatian Health Insurance Fund (HZZO) and the Ministry of Economy conduct inspections related to the economic functions of the pharmaceutical companies. However, inspection functions for production are mostly concentrated in the Ministry of Health1.
- Ministry of Economy, Entrepreneurship and Crafts (MGPO) supports the sector through the priorities of the Smart Specialization Strategy.
4.5 Accredited Laboratory bodies
Beyond the public institutions involved in the national quality infrastructure, a number of accredited private entities are involved in certification and the provision of laboratory services (Croatian Accreditation Agency, 2016). Public and private actors can compete for the provision of some certification and testing services; however, there are some notable exceptions where public lab/certification regimes are mandated in order to complete the inspection requirement.
- The Ministry of Health’s National Institute of Public Health operates a national lab and a system of accredited county3 and educational labs.
- The Croatian Institute of Transfusion Medicine (“Hrvatski Zavod Za Transfuzijsku Medicinu”) is a state owned enterprise that operates a lab accredited for sterility testing, amongst other things.
- In the private sector, SGS Adriatica o.o is one such third party service provider that operates a lab accredited for testing pharmaceutical products. Several other accredited private labs are also accredited in Croatia for testing chemical or biological products.
4.6 Accredited Certification bodies
A few private certification bodies offer certifications for companies6, products and individuals in order to verify private or public standards are met.
- Most notably the Croatian Society of Pharmacists certifies individual pharmacists for professional qualifications and their competency/technical skill. This group is also involved in policymaking and professional development among other activities.
- The BIOCentar7 was also founded to form better connections between researchers and the private sectors and to incubate new firms through the provision of advice and training.