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Pharmaceutical firm profits from venture with German drug producer

In the 50 or so years that pharmaceutical production has existed in Slovakia, several domestic companies' brands have become household names. One of these firms, Biotika a.s. Slovenská Ľupča, in 1992 joined with the German pharmaceutical leader Hoechst in a successful partnership in an industry that analysts see as profitable on the whole and a good investment bet.
Hoechst-Biotika spol. sro is a licensed producer of a variety of mostly specialized pharmaceuticals and some over-the-counter drugs, including injection solutions of vitamins, calcium and magnesium, blood vessel medicine, antibiotics, antimycotics (drugs that combat the growth of parasite fungi in the body) and cardiovascular products. Fifty percent of Hoechst-Biotika's production is placed on the Slovak market, 45 percent in the Czech Republic and the remaining 5 percent in neighboring countries.

In the 50 or so years that pharmaceutical production has existed in Slovakia, several domestic companies' brands have become household names. One of these firms, Biotika a.s. Slovenská Ľupča, in 1992 joined with the German pharmaceutical leader Hoechst in a successful partnership in an industry that analysts see as profitable on the whole and a good investment bet.

Hoechst-Biotika spol. sro is a licensed producer of a variety of mostly specialized pharmaceuticals and some over-the-counter drugs, including injection solutions of vitamins, calcium and magnesium, blood vessel medicine, antibiotics, antimycotics (drugs that combat the growth of parasite fungi in the body) and cardiovascular products. Fifty percent of Hoechst-Biotika's production is placed on the Slovak market, 45 percent in the Czech Republic and the remaining 5 percent in neighboring countries.

Daniel Krchňavý, 34, Hoechst-Biotika's financial director, attributes the company's strength to a combination of inexpensive, local skills and foreign know-how and money. Since the production premises, located in the central Slovak town of Martin, were put in use in mid-1992, the company has always been in the black, Krchňavý said, pulling in a 19 million Sk profit in the firm's first year of existence. As the lines for new products gradually were put into operation, the company's turnover and profit has increased, culminating in 1996's turnover of 623 million Sk and pre-tax profit of 38 million Sk, Krchňavý added.

"Slovakia needs to build an open economy, and we can be an example of cooperation which is beneficial for both the investor and the domestic company," Krchňavý, who is married with two children, said.

Hoechst-Biotika's financial head thinks the company is set on a course of stable growth. While the markets in Slovakia and in central Europe are saturated, Krchňavý said, Hoechst-Biotika's Slovak operations are likely to profit in the future from Hoechst moving its production capacities from its closing of other plants in western Europe to Martin.

"The main reason for moving some production to Martin is the cheap workforce," Krchňavý, who was born in Topoľčany, said. "And of course we have a certain level of quality, which makes it convenient for Hoechst to move its production to our plant."

On the other hand, Hoechst-Biotika's main domestic competitor, Slovakofarma, relies on aggressive expansion to markets abroad. The largest pharmaceutical company in Slovakia, Slovakofarma has a joint-venture plant in Ukraine and filial production in the Czech Republic, and it has sold licences to such faraway countries as Venezuela and Jordan. "Since 1992, we have doubled our company's turnover to 4.4 billion Sk, said Slovakofarma's head of marketing, Pavol Farkaš. Slovakofarma has captured some lucrative markets in the West - for example in Germany it sells 6 registered drugs - but even more lucrative appear to be markets further east: Arabic countries, Vietnam, China and, of course, Russia.

Like Krchňavý, Farkaš agrees that the main strength of Slovak pharmaceutical companies is a skilled, and relatively cheap, workforce, and he quoted as an example the plans of Eli-Lilly, a renowned American pharmaceutical firm, to place some production on Slovakofarma's premises.

The Hoechst-Biotika joint venture allocates little funds to research and development (R&D), instead leaving that work up to its parent companies.

"The major part of our products are licensed from Hoechst," Krchňavý said. "The product portfolio is part of the original agreement regarding research and development in mother companies [Hoechst and Biotika]. Research is expensive, and every company in Slovakia has got its own problems. But I know that we will introduce new products from Hoechst, and we will also increase the volume of other existing products."

All Slovak pharmaceutical companies prior to 1989 were lumped together into a state-owned trust named VHJ Spofa. The contract finalizing the Hoechst-Biotika partnership was signed in the first quarter of 1992 in the presence of Prime Minister Vladimír Mečiar and other government officials.

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