Pharmacy chains versus private pharmacies in Poland , 1989-2015

Na medida em que todas as obras da UC Digitalis se encontram protegidas pelo Código do Direito de Autor e Direitos Conexos e demais legislação aplicável, toda a cópia, parcial ou total, deste documento, nos casos em que é legalmente admitida, deverá conter ou fazer-se acompanhar por este aviso. Pharmacy chains versus private pharmacies in Poland, 1989-2015 Autor(es): Magowska, Anita Publicado por: Centro de Informação Europe Direct de Aveiro; Centro de Estudos Interdisciplinares do Século XX URL persistente: URI:http://hdl.handle.net/10316.2/39352 DOI: DOI:http://dx.doi.org/10.14195/1647-6336_14_7

An indication of economic recovery was the Economic Activity Act that came into force in 1988. On its basis pharmacists took over state-owned pharmacies that generated little profit, even though they had no experience in managing them on their own. They created small pharmaceutical wholesale outlets, ending the period of state monopoly on the distribution of medicines. 2 The processes of consolidation of pharmaceutical wholesalers and the commercialization of pharmacy started in the 1990s and led eventually to a situation in which the Polish pharmaceutical market became dominated by pharmacy chains belonging to pharmaceutical wholesalers. 3 The purpose of this paper is to identify the mechanisms of these changes.

Pharmaceutical wholesalers and their consolidation in Europe
The first commercial chains of pharmacies and health & beauty stores belonging to large pharmaceutical wholesalers were opened in England at the beginning of the twentieth century. Equal work organization of pharmacies and a uniform system of supply were in line with the expectations of society and economic principles, which is why pharmacy chains dominated retail markets for medicinal products in most European countries. In the second half of the twentieth century pharmaceutical wholesalers began to merge. This led to a situation in which, for example, pharmacies in Scandinavian countries were supplied only by two or three companies. The mergers led to the creation of international companies specializing in the wholesale distribution of pharmaceutical products across the continent.
These were: Gehe from Germany, known as the owner of Britain's "Lloyd's Pharmacy", British Alliance Unichem and the German company called Phoenix Tamro. In Western Europe international companies provided most of the deliveries to pharmacies, for example: in France 98% of all supplies, while in Germany and the Netherlands 60%.
Medicine manufacturers also contributed to the changes taking place on the pharmaceutical market. They wanted to lower distribution costs and hired specialized companies to deliver all pre-wholesale services: logistics related to packaging, storage and the delivery of large batches of medicines to pharmaceutical wholesalers. In the course of the prewholesale services, products remained producers' properties and thus their requirements in relation to companies specializing in logistics were high. While for the pharmaceutical industry cooperation with just one company giving it an exclusive right to pre-wholesale was the most advantageous, the mentioned companies found it most profitable to deliver prewholesale, wholesale services and retail sales via its own chain of pharmacies. In the longer term, the manufacturers intended to build a system of delivering certain medicines directly to patients. In response to this demand the International Pharmaceutical Services Organisation (IPSO) was founded and its members included such companies as: Alliance Unichem,

Factors of the consolidation of pharmaceutical wholesalers in Poland
During the first stage of the transformation of the Polish economy, pan-European companies engaged in pharmaceutical pre-wholesales and wholesales refrained from entering the Polish pharmaceutical market. During this period more than a thousand private pharmaceutical wholesalers were created. The experience coming from other countries showed that their mergers were inevitable. Since it took the state administration a few months to reimburse prescription medicines, pharmacies with the same delay repaid their debts to wholesalers. Each new financial burden imposed on pharmacies or wholesalers (e.g.: imposing VAT on medicines, introducing obligatory fiscal cash registers, lowering retail and wholesale margins) worsened their economic condition, reduced their working capital and accelerated the consolidation mechanism.
Private pharmaceutical wholesalers were too weak financially to maintain stability when one day profits were plummeting and others were growing. Their consolidation process reached its peak in 1998 when, on the one hand, all wholesalers experienced at least a 50% increase in turnover, but on the other hand, the negative effects of the health care reform in Poland were clearly visible. For example, the state no longer provided certain social groups with free medicine (they used to be reimbursed by the state and so now pharmacies' turnovers decreased) and it extended the time for medicine reimbursements. The financial standing of pharmacies and wholesalers was rapidly deteriorating. Too little capital meant that half of them were not able to provide a full range of medicines, even for one day, expecting deliveries from the wholesalers twice a day and one third of pharmacies needed more frequent deliveries of medicines. 6 Wholesalers took advantage of pharmacies' financial weakness and concluded with them such agreements which made pharmacies financially dependent on them. Pharmacies obliged to buy more medicines and in return wholesalers offered discounts and extended payment deadlines, thus creating a solid and loyal group of customers. In the following years, these groups significantly contributed to the commercialization process of Polish pharmacies. 7 In 2003 there were almost 300 wholesalers and many of them had their own branches. 8 When the number of wholesalers decreased to about a hundred, the Ministry of the Treasury started the process of privatization of the last state-owned pharmaceutical wholesalers, the so called Cefarms, which still existed in Białystok, Gdańsk, Łódź, Warsaw and Zielona Góra.
Some of them were key players as they retained a large number of its own pharmacies from the communist times. For example, in Warsaw, pharmacies of the local Cefarm had a share of 7% in the medicine retail market. The ORFE Company, among others, offered to buy these companies together with their pharmacies. 9

ORFE as a pioneer of pharmacy chains in Poland
The management board of ORFE has never concealed the fact that the company was set up by foreign investors, but private pharmacy owners were not afraid to compete with it for a long time. 10 Initially ORFE ran its own customs bonded warehouses and specialized in pre-wholesale services for western pharmaceutical companies, including Eli Lilly and Schering. Three years after registering in Poland, the company recorded a turnover of approximately USD50 million and was transformed into a joint stock company. 11 In 1997 ORFE S.A. began to create its own system of wholesale and retail distribution of medicinal products. First it took over the pharmaceutical wholesaler, Aflopa S.A., with its base in Pabianice and branches in Bielsko-Biała, Radom and Wroclaw. After the takeover, branches in Gdańsk, Katowice and Lublin were opened. Shortly after the take-over, the Łódź-

Other pharmacy chains
The growing profitability of retail sales led to a situation where listed companies chose their own pharmacies and retail sales over wholesales. One example is a company called Farmacol which has been listed on the Warsaw Stock Exchange since 1999. After the acquisition of Cefarm, Farmacol closed down wholesales and focused on a more profitable venture i.e. running 54 pharmacies of the company (at that time Farmacol had almost 150 pharmacies). Withdrawing from wholesales and focusing on maximizing its own profits coming from pharmacies was also a development strategy of the privatized wholesalers Cefarm, whose main shareholder was still the State Treasury.
It should be added that for many years Farmacol developed thanks to the so-called actually it belonged to the company. Although many such pharmacies were created, it is difficult to estimate their number. 25

Independent pharmacies and pharmacy chains
A self-government body of pharmacists and the Union of Pharmacy Owners tried to stop the process of creating chains of pharmacies in Poland, but to no avail. An amendment to pharmaceutical legislation introduced in 2002 was not effective either. Pharmacy chains were formed on the basis of commercial law and antitrust regulations limiting the concentration of capital were too weak to stop it. The initiatives of pharmacy owners were not successful because the listed companies with huge capital that ran pharmacy chains commissioned law firms to prepare an interpretation of the provisions which were favourable to them, for example: that the law could not be applied retroactively, or that there are no implementing provisions to a given regulation. It was not possible to prevent listed companies from buying companies running a few or over a dozen pharmacies. Pharmaceutical inspectors could not do anything and therefore the owners of private pharmacies tried to defend themselves on their own. They organized actions involving refraining from purchasing in warehouses which had their own pharmacies. They formed groups of pharmacies, created loyalty programs to attract clients and patients, e.g.: by using price promotions of selected over-the-counter medicines. 26 As competition from chain pharmacies was strong, owners of private pharmacies focused on developing their own wholesalers, purchasing groups and pharmacy cooperatives. In 2010 the Neuca Group S.A. was founded and Torfarm became one of its ten pharmaceutical wholesalers. Three years later, Neuca Med was founded. It managed a network of medical clinics specializing in primary health care. 28 Purchase groups proved to defend the interests of Polish pharmacists. Most of such groups were formed in the eastern regions of Poland and in Silesia. Thanks to them it was the number of independent pharmacies and not chain pharmacies that increased. 29

Pharmacy market in Poland in recent years
The pharmacy market in Poland is characterized by a steady increase in value and chain pharmacies contribute to it. In 2005 in Poland, there were 11,900 pharmacies available to the general public, of which 90%, that is about 10,700 belonged to independent pharmacists or were called mini-chains, groups of not more than nine private pharmacies. in the given province exceeds 1% of the total. And in particular it does not permit any company to have more than 1% of all pharmacies in a particular province after a license has been issued. After the verdict it was clear that pharmacy chains have built their strong position on the market thanks to well-educated staff, highly professional operations and the low prices of medicines, but also through continuous violation of the antitrust law. The court judgment being in favour of the pharmacists was a pleasant surprise both for the pharmacists and for the professional organization for pharmacists. Probably it is not a coincidence that the courts issued such a verdict in a situation when Poland's political scene was changing. When the Civic Platform was a governing party, pharmacy chains dominated the pharmacy market as they misinterpreted pharmaceutical legislations and regulations on competition protection.
In the autumn of 2015 a right-wing party, Law and Justice, won the elections and the owners of small pharmacies hope that it will improve their situation. The new government promised to support small businesses so the antitrust law should be respected 33 .

Conclusions
Polish pharmaceutical legislation was liberalized during the political and economic transformation that took place in Poland. As commercial law was given primacy over pharmaceutical legislation, public administration lost control of the pharmacy market, especially over the sale of over-the-counter medicines. The Ministry of the Treasury and provincial governors enabled the inflow of foreign capital to pharmaceutical wholesalers. The division of the pharmacy market between several large listed companies led to its greater commercialization, among other things through an increase in sales of over-the-counter medicines. In recent years pharmaceutical legislation has been bent to the interests of companies running pharmacy chains. Meanwhile, pharmacy chains operate against the principles of public health as they use promotional methods that lead to the greater consumption of medicines.
Not only did pharmacy chains contribute to the commercialization of the pharmaceutical market but they also undermined customer's confidence in pharmacists. After the recent presidential elections in Poland and a right-wing party coming to power, judicial decisions relating to pharmacy chains have changed. As mentioned above, the Provincial Administrative Court in Warsaw decided that running more than 1% of all pharmacies in one province is against pharmaceutical legislation. It could be a turning point.