In BMI’s new Q408 Business Environment Rankings for the 17 major Central and Eastern Europe (CEE) markets, Croatia slipped to 16th from a more respectable joint 13th place, being judged as having the second-worst operating environment in the region, above only that of neighbouring and more turbulent Serbia. Key drawbacks to investing in the Croatian pharmaceutical market are its small size, modest per capita spending and healthcare debts, as well as some shortcomings of its regulatory environment.

Bureaucracy remains entrenched, while the government’s protectionist stance towards the local industry continues to be a cause for concern. Nevertheless, looking a couple of years into the future, the likely membership of the European Union (EU) has a major potential to improve operating conditions in the country.

In the meantime, however, the debts accumulated by the Croatian Institute for Health Insurance’ (HZZO), which is in charge of drug reimbursement, will continue to hamper market development and maturation.

The non-payments, underpayments and long payment delays are affecting not only the day-to-day operations of the pharmaceutical manufacturers, but also those of wholesalers and retail pharmacists, especially the independent sector. According to estimates, the country's pharmacies have received around US$17mn less than they are owed from first half of 2008, with the amount owed to them from 2007 topping US$143mn. Consequently, some closures as well as possible drug shortages to healthcare providers remain likely outcomes in the coming months.

On the other hand, the country’s generics pharmaceutical industry is going from strength to strength. The few larger players are increasingly focusing on foreign, largely regional and Commonwealth of Independent States (CIS) markets, in a bid to avoid pressures at home. To this end, in February 2008, the second-largest player - Belupo - merged with Bosnia’s wholesaler Farmavita, as part of its strategy to strengthen its regional position. Around the same time, Belupo signed an exclusive agreement with Turkish drugstore chain Farma-Tek, with the entery into the large Turkish market shortly following that of Poland and Romania.

Belupo is also making considerable inroads in Croatia. In June 2008, the company launched two new products for the treatment of osteoporosis, Aledox and Bonna, addressing an increasing domestic need for such drugs. Similarly, Belupo’s analgesics Neofen and Lupocet emerged as best-selling brands in the first five months of 2008, overtaking products manufactured by the country’s leading pharmaceutical company, Pliva. Pliva’s position in the over-the-counter (OTC) analgesics sector is also being threatened by Macedonian Alkaloid’s Caffetin, which has emerged as the third most popular brand in terms of sales, alongside Bayer’s Aspirin. The competition in the sector is intensifying, especially as the consumption of analgesics actually fell by 21% by volume and 15% by value in the period.