A Case Study of the Cyprus Pharmaceutical Industry

24 June 2016

Structural changes in industry post financial crisis:

A case study of the Cyprus pharmaceutical industry

Master Thesis

Political Science: International Relations

Name: Maria Ioannou

Student number: 11125721

Supervisor: Prof. Jeffrey Harrod

Second Reader: Dr. Luc Fransen Abstract

The thesis examines the impact of financial crises on industrial structures. It concretes financial crises as exogenous factors that alter industrial structures and analyses the effect of the contemporary global financial crisis on structural changes in industry by using a case study method of the Cyprus pharmaceutical industry. The thesis seeks to scrutinize the relationship between financial crises, industrial growth and structural changes. It uses Schumpeter and regime theories to explore the evolvement of industries during financial crises. The thesis argues that the impact of financial crises on industrial structures ascribes from the size of the countries΄ market, its dependency on external economies and industries΄ characteristics before crisis. The thesis finds that financial crises generate a rise of competition between firms and new ways to innovate although protectionist measures by governments determine the way firms operate during crisis.

Table of Contents

List of Abbreviations………………………………………………………………………. 4

Chapter 1: Introduction

1.1 Introduction to the topic…………………………………………….………… 5

1.2 Research Question……………………………………………………………... 8

1.3 Methodology……………………………………………………………….…... 8

1.4 Case Study Selection……………………………………………………………9

1.5 Limitations of the study………………………………………………………... 10

1.6 Structure of the paper…………………………………………………………... 10

Chapter 2: Theoretical Framework

2.1 Schumpeter΄s Theory………………………………………………………….. 11

2.2 Regime Theory………………………………………………………………… 13

2.3 Conclusion of the chapter……………………………………………………… 14

Chapter 3: Financial crisis and industrial growth

3.1 Industrial sectors……………………………………………………………….. 15

3.2 The global pharmaceutical industry……………………………………………. 19

3.3 The case of Europe…………………………………………………………….. 25

3.4 Conclusion of the chapter……………………………………………………… 28

Chapter 4: The situation of Cyprus

4.1 Economic crisis in Cyprus……………………………………………………... 29

4.2 Impact on industrial structures…………………………………………………. 32

4.3 Conclusion of the chapter……………………………………………………… 37

Chapter 5: Pharmaceutical industry in Cyprus

5.1 Healthcare System……………………………………………………………... 38

5.2 Troika΄s Measures………………………………………………………………43

5.3 Pharmaceutical Law……………………………………………………………. 48

5.4 Conclusion of the chapter…………..…………………………………………...51

Chapter 6: Structural Changes in the Cyprus Pharma industry

6.1 Analysing Data………………………………………………………………….53

6.2 Interviews………………………………………………………………………. 56

6.3 Discussion Analysis……………………………………………………………. 60

6.4 Conclusion of the chapter…………………………..……………………...... 62

Chapter 7: Conclusions………………………………………………………………….. 63

Chapter 8: References……………………………………………………………………. 67

Appendix 1: Tables………………………………………………………………………… 80

Appendix 2: Transcripts of interviews ……………...………………………….…………..119

Appendix 3: Annexes…………………………………………………….…....…….……...146

List of Abbreviations

EC European Council

ECB European Central Bank

EU European Union

FDI Foreign Direct Investment

GDP Gross Domestic Product

IBC International Business Company

IMF International Monetary Fund

MNE Multinational Enterprise

NHS National Health System

R&D Research and Development

TFP Total Factor Productivity

Chapter 1

Introduction

1.1 Introduction to the topic

The latest global financial crisis is characterised by a uniqueness in terms of a wide range of economic factors including a dramatic impact on the international real activity, trade and inflation to a degree unprecedented since the second World War (Cecchetti et al., 2009, pp.1- 3). Particularly, consumer, business and investor confidence have tremendously decreased. The financial crisis became a global phenomenon because it did not only affect small and large countries but also the poor and rich ones (Claessens and Kose, 2013, p.3). OECD (2010, p.3) depicts, that there is a dramatic fall in trade flows that occurred during the height of the economic crisis where protectionist measures by the government have been developed and led into a restriction in trade between the states. Policy measures have been adopted by governments in response to the crisis and are being negative for trade because of their design and their intent to restrict or distort trade or increase trade costs (OECD, 2010, p.37). Moore and Miraei (2016, p.159) argue that the recent financial crisis led into the decrease of industrial growth although the impact is heterogeneous across industries. Specifically, the authors argue (Moore and Miraei, 2016, p.178) that the crisis had a negative impact mainly on the industries which are more reliant on external finance. Wehinger (2009, p.2) claims that fiscal policies led into the interpretation of existing strategies by firms where investors’ confidence has declined.

Furthermore, new economic cycles could also lead into unpredictable changes in an industry level and influence firms to obtain structural strategies to overcome a financial crisis (Archibugi et al., 2013, p.1247). Consequently, financial crises provide an opportunity for companies to restructure productive facilities and to consider new opportunities to remain successful in the competitive arena (Archibugi et al., 2013, pp.1247). Caree and Thurik (in Audretsch and Thurik, 1999, pp.86-87) argue that a change in an economic activity leads to changes in industrial structures; a change in an economic activity can either lead into favourable processes of innovation of industries, can alter the role of small firms and industry dynamics or can affect the performing capabilities of firms and the strategies that they develop during an economic crisis (Caree and Thurik, 1999). Particularly, Schumpeter uses

the theory of “creative destruction” to describe the development process as an outcome of innovative strategies developed by firms to sustain their dominance in the market-arena (Archibugi et al., 2013, pp.1247). On the one hand, a few economic agents may emerge as winners because of the strategies they develop during a financial crisis. On the other hand, losers are more likely to be found among the companies that reduce their investment in innovation (Archibugi et al., 2013, pp.1247). However, as regime theory explains, multinational corporations which affect trade policies could lead into an alteration of a specific regime and a specific issue-area (Oshiba, 2011, p.3). Nevertheless, economic stability in an industry could be obtained in a post period of financial crisis when the creative industries attract investors, businesses and consumers (Brabazon, 2014, p.9).

For the purpose of this thesis, the paper views financial crises as “extreme manifestations of the interactions between the financial sector and the economy” (Claessens and Kose, 2013, p.3) and industrial structures as “structural changes that occur in the sector- structure of an economy, where “sectors” are some theoretical “groups” of goods and services” that too epitomise the development process (Stijepic, 2010, p.III). Silva and Teixeira (2008, in Memedovic and Lapadre, 2010, p.4) state, that structural changes “can be studied by focusing on a relatively small number of groups or activities that comprise the economic system, and form the economic structure”. Therefore, this thesis by focusing on the pharmaceutical industry, aims to investigate the ways in which financial crises affect industrial structures.

Malebra and Orsenigo (2015, p.665) argue that economic behaviour is conceptualized by being driven by rules and routines that surround the sector. The pharmaceutical industry has been continuously changing over a century as a consequence of the interaction of exogenous shocks such as technological, market, financial, political opportunities and constraints. The differential performances of the pharmaceutical firms in the industry have been formulated as a result of the interaction of processes of learning, such as technological, organisational, market, financial and political circumstances (Malerba and Orsenigo, 2015, p.664). Therefore, that is not to say that this research paper marginalises other reasons that affect the industrial structure of the pharmaceutical industry but instead, emphasises the effect of the financial crisis as a consequence of a central exogenous factor that influences the structure of the industry. In particular, Cecchetti et al. (2009, p.1), Lőrinczy (2013, p.21), Monastiriotis (2014, p.80), Zamora-Kapoor and Koller (2014, p.1511) argue that the financial

crisis has transformed trade policies while as a consequence, the structure of the pharmaceutical industry has been revised.

Significantly, everyone seeks health care at some point in his or her life and thus, the role of manufacturers and suppliers of medications and medical devices is significant (Bauchner et al., 2013, p.609). Buysse (2009, p.3) explains that global financial crises have a considerable impact on governments’ budgets and the available funding for health services. Hence, the pharmaceutical industry becomes “a creature of government, because it cannot exist for long without government protection of its economic turf” (Reinhardt, 2001, p.136). As the purpose of this thesis is to investigate the structural changes in industry post financial crisis with a focus on the pharmaceutical industry, it is crucial to first determine the role of the financial crisis on industrial structures. Firstly, the potent role of the pharmaceutical companies is depicted on the fact that nearly every government in the developed world supports funded health related research (Malebra and Orsenigo, 2015, p.668). Nevertheless, a lack of performance of pharmaceuticals has been remarkable due to the lack of emphasis that is given by the government for innovation and profitability in medicine products. Additionally, price control by the government has discouraged research and development projects as well new business firms from entering the industry (Malebra and Orsenigo, 2015, p.668, 680). Therefore, market competition becomes more absent although it is the primary mechanism to pull down prices in medicine products. Pharmaceutical industry experts claim that inconsistent policies of successive governments are the biggest reason for this disparity and the oligopolistic market that is found in the pharmaceutical industry (Shahzad, 2002, p.23). Moreover, the extreme economic, political and ethical trade-offs that are inherent in the nature of pharmaceutical industry lead to new concerns over the structure of the pharmaceutical industry thoroughly. Thus, how the industrial structures are affected by financial crises?

The alteration of the industrial structures saw a great effect especially on countries that have been centrally affected by the financial crisis and new political strategies have been escalated to overcome the domestic market crisis (Clerides and Stephanou, 2009, p.34). Monastiriotis (2014, p.84) argues that the implementation of austerity policies affects in a negative way growth and debt sustainability in the short-run. Institutional changes have been generated, as a result of governmental efforts and imposed austerity policies that have been developed to face the crisis. Additionally, financial crises shift the structure of the political

field, allowing the rise of new political actors and novel alignments on both new and old political issues. As a result, political changes have a considerable impact on the pharmaceutical industry as the industry is going through changes because it needs to react to the global economic demands (Lőrinczy, 2013, p.21). These phenomena are very apparent especially in small countries where markets are financially depended on other economies (Lorinczy, 2013, p.30). The financial crisis of the late 2000s as Zamora-Kapoor and Koller (2014, p.1511) explain, has increasingly transformed Europe with a more emphasis given in the South of Europe because is one of the regions where the consequences of the crisis have become most salient. Therefore, the thesis aims to investigate the role of the financial crisis in structural changes and uses a case study of the pharmaceutical industry of Cyprus to investigate the ways in which financial crises affect industrial changes.

1.2 Research Question

The purpose of this thesis is to provide an in-depth information on the role of the financial crisis in industrial changes. The research question the thesis addresses is: How do financial crises affect industrial structures?

1.3 Methodology

To study the effect of financial crises on industrial structures, the research includes a Case Study method and a qualitative research of the Cyprus pharmaceutical industry. The thesis uses a theoretical framework of Schumpeter’s and regime theory to test the hypotheses that rise through the particular theories to study the effect of financial crises on industrial structures.

A mixture of primary sources- newspapers and governmental documents- as well semi-structured interviews by seven experts in the field are included to investigate the impact of the financial crisis on the pharmaceutical industry in Cyprus. The interviews took part in Cyprus between 19th and 24th of April, 2016 and each interview lasted approximately ten minutes as also all of the interviews have been recorded. The interviews are comprised of six same questions to all of the participants and further questions were adjusted according to the interviewees΄ specialization and the form of discussion. Six of the interviews were held by a

direct interaction and one by telephone as the interviewee denied to meet in person (Anonymous 2). The interviews aim to investigate the ways in which the economic crisis that started in 2012 in Cyprus affected the structure of the pharmaceutical industry in the country.

Primary sources encompass a study on the Cyprus pharmaceutical law and the demands of Troika to analyse the political impact on the industrial structure of the pharmaceutical industry in Cyprus. Newspaper documents which explicitly refer to the effects of the economic crisis on pharmaceutical products are included to identify any structural changes that occurred in the pharmaceutical industry during the economic crisis in Cyprus. The Pharmaceutical Price Lists of 2006, 2009, 2012, 2015 and 2016 published by the Pharmaceutical Services, Ministry of Health, are the main primary sources of this paper and are used to make a before-after analysis. The particular analysis aims to find whether changes in the dynamics of the pharmaceutical companies- manufacturers, distribution and multinational companies- took place during the financial crisis as well as to examine the main characteristics of the Cyprus pharmaceutical industry and the industrial changes as an result of the financial crisis.

1.4 Case Study selection

Cyprus entered the European Monetary Programme in March, 2013 to March, 2016 as an outcome of the banking crisis that started in 2012 in the country. Demands and austerity programs by Troika have been developed and led into the alterations of several sectors in the country΄s economy (Rapanos and Kaplanoglou, 2014, p.7). Cyprus moreover, experienced unpredictable shifts in its economy due to the financial crisis mainly because of its small economy and its dependency on other economies through foreign investment (Rapanos and Kaplanoglou, 2014, p.8). Some main articulations for the particular case study are the small market that describes Cyprus, the small number of manufacturers of pharmaceutical products and the existing predominance of multinational companies in supplying pharmaceutical products to the domestic market (Petrou and Vandoros, 2015, p.563). Moreover, what makes the pharmaceutical market in Cyprus unique are that and there is no universal health insurance scheme, the distinction between the public and the private healthcare sector where different pharmaceutical products supply each sector (Petrou and Vandoros, 2015, p.563). Yet, Cyprus was one of the countries that experienced an economic crisis in 2012 as an effect of the contemporary financial crisis. 9

1.5 Limitations of the thesis

One central limitation is that most of the available information on the Cyprus pharmaceutical industry, the primary sources and mainly in the Greek language. All interviews were also conducted in Greek. Because of the language ability the particular primary sources and the transcripts of interviews are translated by the author.

The primary aim of this thesis was to include the Pharmaceutical Price List before the global financial crisis. However the particular information is not available as the Pharmaceutical Price List of 2007 and of 2008 is not published. For that reason, the thesis includes an analysis of the year 2006 to study the Cyprus pharmaceutical industry before financial crisis and then to compare with the years 2009, 2012, 2015 and 2016 to find whether structural changes in the pharmaceutical industry are affected as an outcome of the financial crisis.

1.6 Structure of the paper

The purpose of this thesis is to investigate the ways in which structural changes in industry is affected after the financial crisis with a focus on the pharmaceutical industry. The thesis aims to provide a thorough analysis on the topic. The next chapter uses Schumpeter’s and regime’s theory to interpret the ways to which financial crises affect industrial structures. Chapter 3 illustrates the impact of the contemporary financial crisis on industrial growth with a particular emphasis on the global pharmaceutical industry as well it distinguishes the case of Europe. Chapter 4 illustrates the situation of Cyprus and the impact of the contemporary financial crisis on Cyprus΄ trade and seeks to provide a synthesis of analysis by depicting the role of the financial crisis on the different industrial sectors in the country. Chapter 5 provides an in-depth examination on the structure of the pharmaceutical industry in Cyprus and the effects of the economic crisis on the structural changes. The chapter comprises a study of the healthcare system of the country, Troika΄s policy measures and a study of the Cyprus Pharmaceutical Law. Chapter 6 includes the annual pharmaceutical price lists by the department of Pharmaceutical Services, newspaper and Ministerial documents and the interviews, thus to provide a thorough analysis on the industrial changes in post-financial crisis. Finally, Chapter 7 presents the findings and concludes the ways in which financial crises affect industrial structures.

Chapter 2

Theoretical Framework

This chapter uses Schumpeter’s theory of creative destruction and regime theory on international institutions to provide an in-depth analysis on the theoretical hypotheses that arise under which financial crises affect structural changes in the pharmaceutical industry.

2.1 Schumpeter’s theory

Schumpeter created the term “creative destruction” to articulate economic growth through the efficiency of firms to remain dynamic when they adopt innovation strategies. Significantly, Schumpeter believed that economic development is merely associated with innovation as also the industrial structure and innovation are related holds (Nicolas, 2003, p.1055; Schumpeter, 1927, p.311).

Schumpeter’s approach views financial crises as essential elements of the capitalist processes and do not need to be individually explained because they are a creation of capitalism (Schumpeter, 1927, p.287). Economic crises as Schumpeter argues (1927, p.288), are characterised by a “circular flow”, which describes that “all economic activities are essentially repetitive and follow a familiar routine course”. Schumpeter further argued that because firms know the total demand for goods, they adjust the supply of output accordingly (Schumpeter, 1927, p.288). Therefore, the demand and supply are in equilibrium at each point of time. Moreover, as this equilibrium is continually affected by growth, it tends to re- establish thus to produce the “business cycle”. Schumpeter views that industrial fluctuations are the outcome of the particular “business cycle” as firms work in a system under a competitive equilibrium. The author (1935, p.168) supports, that by using this cycle one can understand all of the processes that are reflected at a particular time period because firms always adjust themselves to changes and always recover to sustain that equilibrium. A creative response therefore takes place when firms develop practices that aim to change social and economic situations positively (Schumpeter, 1947, p.150). According to Schumpeter, (1947, p.150) an entrepreneur innovates to earn profits. However, these profits rise because of the dynamic changes resulting from innovation practices as well they continue

to take place until the innovation becomes general and sustainable. Hence, economic development is a dynamic and discontinuous process where innovation is the key source of a favourable progress (Somashekar, 2003, p.77). Structural changes transcribe, by the entrance of new firms in the field of production or some firms disappear and that encloses the primary role of innovation. New products start appearing in the market with the particular entrance of new firms that consequently displace the role of the old products. This process of capitalist development is regarded as creative destruction wherein the old economic structures of society after destructions are ultimately replaces by new economic structures (Somashekar, 2003, p.77). Particularly, a crisis for Schumpeter is “a process by which economic life adapts itself to the new economic conditions” (Schumpeter, 1943 in Somashekar, 2003, p.76). In the Schumpeterian literature, economic development is associated with technological changes and the drivers of innovation (Somashekar, 2003, p.76). Winners evolve as a result of the development of innovation strategies and losers are likely to be developed among the firms that decline their investment in innovation (Archibugi et al., 2013, pp.1247). However, by taking into account Schumpeter’s theory and the dynamic position of technological growth we exclude any other factors that are able to alter industrial changes. The pharmaceutical industry is associated with technological changes, political circumstances as well financial capabilities (Malebra and Orsenigo, 2015, p.665). For instance, could technological growth be sustained in the height of an economic crisis? Evangelista (2015, p.3) argues that not only economic crises differentiate to one another because of their different nature and their effects, but the contemporary financial crisis had challenged the widespread positivistic view on the role technology plays in economies and societies because of its tremendous negative impact on the society. On the other hand, Schumpeter (1943, p.82) states that because capitalism deals with an evolutionary progress, exogenous phenomena need to be considered as secondary factors that can alter industrial structures. The term “creative destruction” emanates from the concept that new firms may enter an industry as a result of the endogenous relationship between market power and economic growth (Nicolas, 2003, p.1023). Schumpeter’s hypothesis on market structures suggests a strong affiliation between large firms with considerable degree of market power and incremental technological progress that in turn accelerates economic growth and improve the standard of living (Nicolas, 2003, pp.1023-1025). Based on the assumption that firms are driven by technological processes and innovation, what strategies are they using during a

financial crisis and how industrial development is affected? Additionally, could the role of policies and financial institutions become central for encouraging innovation and facilitate creative destruction in the industrial sector? Therefore, while Schumpeter’s theory on innovation and creative destruction provides an understanding of how industrial structures could be affected, it raises questions on the capabilities of firms to sustain their market position during a financial crisis.

2.2 Regime theory

Regime theory on the other hand, stresses the importance of decision-making procedures that affect actors’ expectations in a specific issue-area (Krasner, 1982, p.185; Oshiba, 2011, p.2). In particular, Krasner defines regimes as “sets of implicit or explicit principles, norms, rules and decision-making procedures around which actors’ expectations converge in a given area of international relations” (Krasner, 1982, p.185). Financial crises play a major part on the adoption of policy measures where in Europe these procedures became more crucial (Zamora-Kapoor and Koller (2014, p.1511). Particularly, financial crises affect decision- making procedures that could lead into a thorough change of an industry and influence the potent role of the enterprises (Krasner, 1982, p.186; Oshiba, 2011, p.2). A change in domestic politics such as in trade, in the financial sector and in the sectors of economy can influence all the actors involved within the system (Zamora-Kapoor and Koller (2014, p.1511). For this reason, the thesis uses regime theory to examine how international regimes can influence industrial structures during financial crises.

Significantly, international regimes such as IMF, are conceptually institutions and have the capacity of providing financial assistance to economies (Gehring, 1994, p.23; Szyliowicz, 2012, p.136). Therefore, international regimes that intervene in a national level processes and affect trade outcomes, alter industrial structures whereas during a financial crisis this impact strengthens as many governments adapt protectionist measures to overcome the crisis (Haggard and Simmons, 1987, p.495). Moreover, Krasner (1982, p.189) argues that regimes are important catalysts of influencing behaviour and outcomes because they are “basic causal variables” which are characterised by power and interests. Moreover, Krasner (1982, p.191) views market industries as determinants of atomization. For that reason, when the distribution of power change behaviour, regimes’ structures will be affected (Krasner, 1982, p.191).

Regime theory provides with an analogy to the very nature of the pharmaceutical industry. For instance, Krasner (1982, pp.201-202) -by using Hirsch example of the evolution of capitalist systems- argues that without “pre-capitalist” values such as, hard work and sacrifices, capitalism would have be fallen apart. Significantly, the pharmaceutical industry was born in the late nineteenth century as a segment of the chemical sector (Malebra and Orsenigo, 2015, p.667). Whereas, the rising of the modern pharmaceutical industry which is usually labelled as ‘the Golden Age’, had effectively took place after the 1940s as a result of different and interacting events and processes (Malebra and Orsenigo, 2015, p.668). Darroch and Miles (2011, p.725) note that market-creating innovations need to come from firms with a well-developed marketing capability. In regards to the pharmaceutical industry, this means that those within the firms need to possess superior market sensing and opportunity recognition capabilities, to uncover a demand and then to develop demand for a particular product by persuading the consumers that the specific new product addresses their implicit or explicit needs (Darroch and Miles, 2011, p.725). The significance of health for people’s wellbeing makes the pharmaceutical market one of the most key industries in the world (Bauchner et al., 2013, p.609; Reinhardt, 2001, p.136).

The regime theory explains that an alteration on decision-making procedures influence regulatory policies and these in turn affect industrial structures (Szyliowicz, 2012, p.150). Given the potent role of regimes, the thesis is concerned with the ways international institutions attribute to any alternation in industrial structures during a financial crisis.

2.3 Conclusion of the chapter

This chapter includes Schumpeter’s theory and regime theory to explain the variety of the ways industrial structures are affected. On the one hand, Schumpeter’s theory demonstrates the important role of innovation in the industrial development. On the other hand, regime theory signifies the role of international regimes into domestic-politics procedures that affect industrial structures. Thus, the next chapter examines the ways in which global financial crises affect industrial growth and innovation as also, how policy measures influence industrial structures with an emphasis on Europe.

Chapter 3

Financial crisis and industrial growth

The chapter analyses the structural changes in the global pharmaceutical industry as a result of the contemporary financial crisis with a focus on Europe and looks into the impact of the policy measures that have been developed on industrial structures.

3.1 Industrial sectors

The current global financial crisis stigmatised industrial growth in many economies worldwide (Gros and Alcidi, 2010, p.4). A rise in risk aversion and financial market volatility was transmitted worldwide as financial markets are highly integrated at the international arena. Whereas, within Europe, the crisis affected all of the member states because the integration of financial markets and supply chains is even stronger than it is at the global level (Gros and Alcidi, 2010, p.4). Importantly, the financial crisis started in the United States in 2007 and involved financial institutions in many OECD countries. Developing and emerging market economies were thereafter affected when the crisis became global, mainly through the trade channel, or through workers’ falling remittances (Dullien et al., 2010, p.1).

The worldwide recession which is the first since the Second World War, led to a reduction of world GDP by 0.6 per cent in 2009. Graph 1 depicts that countries that constitute the Commonwealth of Independent States such as Cyprus and those in Central and Eastern Europe were the most severely affected. Significantly, their GDP growth rates fell by 15.2 percentage points between 2007 and 2009. In general, countries with large current-account deficits or surpluses, and those with large fiscal deficits prior to the crisis have been affected much greater than others. Development strategies and quick policy responses led emerging economies to be the winners in the global market in relation to other economies because of their capacity to return to their previous paths of high growth (Dullien et al, 2010, p.5).

Graph 1

Annual GDP growth, 2005–2010

Source: Dullien et al. (2010, p.2)

On the other hand, economic crises are historically times of industrial renewal (OECD, 2009, p.8). Deriving from Schumpeter’s theory, OECD (2009, p.8) shows that less efficient firms fail while more dynamic ones emerge and expand while the majority of firms that have been affected by the crisis are small-and medium-sized enterprises. The current economic crisis however, is not the result of the emergence of a superior innovation that has rendered some existing industries obsolete. Instead, the crisis generates destructive forces that bring economic growth to a halt and weaken the dynamics of innovation and industrial renewal (OECD, 2009, p.8). Processes of strategic planning are delayed as firms need to primary adjust to the crisis. The downturn in trade and FDI (Annex 1) have a negative impact on firms that are significantly dependent on sourcing from overseas. Moreover, the financial crisis might deepen linkages between industries in different countries because of the complex sourcing strategies of firms. A sharp decline in trade and in the FDI and in the access to international financing, poses a risk to the global supply chains that underpin innovation (OECD, 2009, p.11). Laperche et al. (2010, p.1317) argue that the strategy of multinational enterprises combines a constant supply renewal both through technological, organizational and commercial innovation as well the renewal of production rationalization such as, reduction of production costs. The financial dimension which is narrowly linked to these strategies, generates a strong pressure on enterprises because of the financial deregulation 16

that aims at increasing the shareholder value. The economic crisis is also widely seen as a catalyst for the development of new innovation paths (Laperche et al., 2010, p.1319). A fundamental impact of the crisis on industrial groups is depicted on the decline in sales volumes in the industrialized countries, where sales prices and margins are the highest. Maintaining margin is essential as well as seeking support and assistance to pursue innovation development during a financial crisis. However, different sectors are also developing new ways to innovate. Innovation could take the form of exploitation of new markets and products or on its accumulation to develop more radical innovations. (Laperche et al., 2010, p.1320).

Graph 2

Industrial production growth rate (Globally)

Source: Index Mundi (2014)

Table 1

Financial crisis and Risk assessment in 14 sectors (2014)

Source: Khalid and Guillaume (2014, p.2)

Numerous industries have experienced fluctuations on their operation as a result of the current economic crisis; Figure 2 illustrates the industrial production worldwide and depicts that in the height of the current financial crisis, industrial production has been decreased where thereafter it has been slowly recovered. Moreover, Table 1 portrays the impact of the economic crisis on business risk in 15 different industries and 3 regions using the survey by Khalid and Guillaume (2014). North America witnessed important development in the chemical, the transportation and the textile-clothing industries because of the good shape of the American economy as also because of the fall in oil prices (Khalid and Guillaume, 2014, p.1). Industries which have been centrally affected are mainly from European countries where all industries are strongly or moderately affected by the economic crisis. Particularly, sectors that are linked to infrastructure such as, metallurgy, chemicals and construction are characterised by overcapacity. On the other hand, in Asia many sectors benefit from the marked decline in the prices of products and raw materials. In general, emerging Asia is now one of the most emerging economy and a strong competitor of Europe (European Commission, 2014, p.2).

The pharmaceutical industry is among the industries that experienced different impact depending on the particularity of the region investigated. In Western Europe the industry faces high risk because of the severe policies that have developed in the region, for instance through cutting the health spending and through growing government regulation of the industry (Khalid and Guillaume, 2014, p.10). Significantly, the pharmaceutical industry is regulated by public authorities because of the considerable health and social issues (Khalid and Guillaume, 2014, p.10). The decisions taken by the authorities influence the activities of pharmaceutical companies; One of the main measures European Union developed, was the demand of cutting in the prices -not only for medicines that were still protected by patents but also for generic medicines- and that led into a rise of generic companies as also resulted in a change in the pharmaceutical structure (Khalid and Guillaume, 2014, p.10).

Consequently, in the pharmaceutical industry, the crisis has accelerated the reduction in health spending and in particular the amount devoted to medicines. Industrial sectors have been affected by the crisis in both negative and positive ways; while the financial crisis seems to alter strategies obtained by firms in different industries because of the business risk that they face. Nevertheless, some enterprises successfully increased their dominance due to the strategies that have developed.

3.2 The global pharmaceutical industry

The global pharmaceutical industry, or the “Big Pharma”- has been identified as an oligopolistic multinational market where high prices and profits, a lack of price competition and heavy product differentiation exists within the industry (Craig, 1994, p.1). Consumer exploitation as well unsafe and poor quality pharmaceutical products is possible as a result of the industry’s oligopolistic nature. Governments throughout the world develop measures to prevent this situation where in times when the industry faces difficulties, concerns over unsafe products are increasing (Craig, 1994, p.2). Moreover, such regulations can significantly dominate the industry’s structure and its conduct worldwide (Craig, 1994, p.3). However, while the industry faces fluctuations within its structure, it is argued that its dynamic strength -because of the social importance of pharmaceutical products, and the key role of the pharmaceutical companies- suggests that the industry will adapt to the changes and will continue to be successful (Craig, 1994, p.1). Moreover, to examine the impact of the

financial crisis on the industry’s structure it is of main importance to first define the structure of the global pharmaceutical industry and its primary mechanisms.

As it has been previously stated, the pharmaceutical industry is of great interest because of its relatively young and extremely successful background. The Second World War acted as an impetus for the pharmaceutical industry as demands to provide drugs for treatment and cure of illness, general medical knowledge and better medical equipment were developed and were influenced the evolutionary character of the industry (Craig, 1994, p.2). Soon the industry had developed into an oligopolistic market with the individual firms that dominated the market to form a multinational character later (Craig, 1994, pp1-2). As demand for pharmaceutical products took an international scale and R&D for such products were of massive importance for those specific firms, international marketing became the only possibility for many of the products that were developed. By becoming MNEs these companies had been able to take advantage of the global market demand (Craig, 1994, p.50; Dunning, 2013, p.136). Furthermore, financial and technical resources for innovation have allowed MNEs to dominate the market with their developments (Craig, 1994, p.50; Hashemi, 2012, p.2). MNEs are distinguished by product differentiation, high R&D expenditures, high promotional activities associated with barriers to entry and marked specialisation in such fields as marketing and management (Craig, 1994, p.50; Dunning, 2013, pp.133-135). Smaller companies may innovate successfully although in the current competitive climate such small companies do not have the funds to develop and create their discoveries rapidly. Additionally, as Achilladelis and Antonakis explain (2001, p.539) technological innovation is one of the most dynamic processes of all industrial activities. Whereas, a change in R&D sector could affect the pharmaceutical industry because of the creation of new drugs, the originality of the products, the brand loyalty and the market competition (Achilladelis and Antonakis, 2001, p.540). Cockburn (2004, p.16) further notes that the alternation on the structure of the industry is also defined as a profit-seeking market where increased willingness to exploit external sources of technology -through in licensing or strategic partnerships- reinforces firms not only to survive but to extent the competition that transcribes in the industry.

Table 2

Driving forces of the pharmaceutical industry

Complied by the author from Craig (1994) Graowski (2011) and Hashemi (2012)

The structure of the industry is explained by various parameters. Table 2 illustrates the factors that affect the structure of the pharmaceutical industry using the studies by Craig (1994, pp.54-58), Graowski (2011, pp.164-168) and Hashemi (2012, pp.1-2). The oligopolistic market refers to the very nature of the pharmaceutical industry, for example through the expansion of small firms and the evolution of the domestic market in general (Craig, 1994, p.55). Secondly, the demand side is defined by market and consumer demand such as, the increased insurance coverage, prescription drugs, generic competition, sales and innovative drugs. Moreover, any changes in the biotechnology sector can affect the structure of the pharmaceutical industry because of the dependence of the pharmaceutical market on technology-driven stage firms and on the creation of new medicines. Technological growth and R&D costs therefore stimulate the evolution of pharmaceutical firms (Craig, 1994, p.56; Graowski, 2011, pp.167). Inequalities of production costs may drive pharmaceutical firms to research and develop away from home countries because of the regulations on such activities and the high costs (Hashemi, 2012, p.1). For instance, many pharmaceutical firms from France, Italy, Japan and Canada started taking the prices in the United Kingdom as a benchmark to maximise the impact of the decisions taken in that country -which it accounts for nearly a quarter of the world market for sales of pharmaceutical products (Khalid and Guillaume, p.11). Moreover, fluctuations in currency values and spread risks as well constraints of the international environment for instance, tariffs, import quotas, consumer

preferences, policy issues, all influence decisions taken by firms as well affect their development and consequently lead into changes in the structure of the global pharmaceutical industry (Graowski, 2011, pp.165). Therefore, is the financial crisis a factor that affects the structure of the pharmaceutical industry? If we take into account the various parameters that define the driving forces of the industry, we note that alterations in the industry’s structure are expected to be reformed during an economic crisis, for instance through fall in currency values, alterations in domestic-policies and innovation practices. As Lőrinczy (2013, p.2) explains, healthcare policies are strongly connected with pharmaceutical products and an economic recession results into changes by governments in the health system of particular countries. The access in free-care systems increases in a period of a financial crisis as also, prescriptions and substitutions, new fees of medicines, non-transparent prices, changes of reimbursement and ethical issues become more visible. Moreover, consumers΄ purchasing power change, as a consequence of the economic stress that leads consumers and health services to choose to buy non-patent protected generics instead of patent protected brands (Buysse, 2010, p.47). The increasing pressure on the healthcare sector affects pharmaceutical companies to redefine their strategies and also it alters the industrial structure of the industry (Behner et al, 2009, p.2). Biotech companies do not have stable cash flows from products because they are experiencing difficulties as an outcome of the credit crunch that leads into a loss of their traditional funding sources (Behner et al, 2009, p.3). R&D growth has been decreasing during the current economic crisis at a global arena (Annex 2). An economic downturn affects the budgets available for healthcare- on both the public and private sectors- reducing their ability and willingness to pay for healthcare both from market and the consumer side. Governments and institutions intensify scrutiny of healthcare budgets which lead into a change on the structure of the pharmaceutical industry. More specifically, the industry faces a decrease of drug prices, a growth on generic substitution, and a rise of the demands for proof of value (Behner et al., 2009, pp.2-4).

However, as Flanagan et al. (2008, p.9) argue, an economic crisis may seem “a challenging opportunity”, but it could also mean “a genuine opportunity” of firms to further develop as the pharmaceutical industry was shown to cope with exogenous shocks. A recent example which depicts the impact of the financial crisis during and after of financial crisis is the Japanese pharmaceutical industry. Particularly, the Lost Decades in Japan stimulated a reformation of the industry (Umemura, 2014, p.832). Japan’s national system of innovation 22

has evolved from an autarkic, firm-based domestic system to a more open, networked, global system between 1990 and 2010 (Umemura, 2014, p.832). During the recession, actors within the system made valiant efforts to upgrade the nature of innovation, supranational organisations influenced the government’s updating and public confidence rose as the government took control over the industry. Nevertheless, the changes during the Lost Decades had an evasive impact on pharmaceutical firms; in 1997 there were 436 prescription drug makers but only 107 remained by 2010. Moreover, a wave of mergers and acquisitions swept over many large firms, and a good number of small to medium-sized firms went out of business (Umemura, 2014, pp.832-834).

Notably, at the global level the main challenges the pharmaceutical industry faces are the creation of more value for patients, providers and payers as well for shareholders (Pwc, 2012, p.4). Demand for pharmaceutical products is continually rising as a result of independent reasons such as the rising of global population, aging and today’s living standards (Pwc, 2012, p.4). However, financial pressures have led into hardening of healthcare payers’ policies and higher taxation which that led into alterations in the global pharmaceutical industry (Pwc, 2012, p.6; Pwc, 2010, p.2). The mature markets have experienced enormous turmoil while in strongest economies they tend to be recovered. Innovation has declined, strict regulations increased and market conditions became more severe because of the rise of healthcare costs (PwC, 2012, p.7). In addition, price controls and greater government scrutiny led into changing marketing and sales font as a different market demand evolves. From 2013, all hospitals which served medicare patients with the most common conditions started paying for the quality of the care rather than the quantity of services that they supply (Evaluate Pharma, 2014, p.7). These changes expose medicines to much greater scrutiny and endanger value-based purchasing (Pwc, 2012, p.12). Countries are encouraging generic prescribing where some independently from financial crisis, and others increased generic prescribing as an outcome of the crisis as new medicines which are more economically and clinically effective are reducing (Evaluate Pharma, 2014, p.10). The financial crisis also led patents to choose lower prices on medicines and buy the most affordable product (Pwc, 2012, p.12). Hence, the financial crisis reinforces the evolution of generic products and innovation becomes extremely important for brand-name companies.

Table 3

Prescription Drug Sales during financial crisis in Europe

Source: Evaluate Pharma (2014, p.10)

The financial crisis led into changes in the firms’ strategies; before the financial crisis companies followed a route of four main profit forces namely: R&D productivity, cost cutting, marketing and extension of firms (Pwc, 2012, p.14). Most companies relied mainly on marketing but the specific lever became less effective during the crisis because of the rising of competition among the companies and pharmaceutical products. Table 3 summarizes the effect of the crisis on prescription drug sales and shows a reduction on the number of the drug sales in the top 20 companies during the financial crisis in Europe. As the table illustrates, currency values had also affected the growth of the MNEs whereas some companies accomplished into increasing their demand. Companies have been focusing on volume sales and market share, particularly by selling primary-care products, using differential pricing and building generics divisions (Pwc, 2012, p.19). For instance, Eli Lilly focuses on selling branded medicines. Sanofi, invested heavily in building generic products while Merck & Co. emphasises brand-name quality and generic products adoption. Roche- which is one of the companies that experienced growth during the current financial crisis, sustained in its policy of same prices for the same products regardless of consumption. Novartis moreover, implemented the prices of its original and main products on cancer therapies while the company permitted the production of generic versions of patented drugs. 24

The company also collaborates with Gilead Sciences for buying aid medicines. Furthermore, some patients are now willing to pay extra for the reassurance that comes with big brands though these numbers are diminishing as governments cut back on reimbursement charges and promote local producers (Pwc, 2012, p.21).

As costs are still rising relentlessly many of the big players have simultaneously been experimenting with new R&D structures where in periods of crisis, reallocations of resources encounter difficulties and postpone the process of “creative destruction” (Laperche et al., 2011, p.1323). Globally, the R&D2 expenses of groups, mainly financed by cash flow and loans, have decreased or increased less rapidly during the current economic crisis. The profitability imperative associated to the economic crisis leads firms to either obtain innovative strategies or to focus on exploitative innovation, such as, through the development generic products, creation of new firms that create generics and to invest in minor innovation thoroughly (Dunning, 2013, p.136; Laperche et al., 2011, p.1323).

3.3 The case of Europe

Pwc (2012, p.20) notes that reconciling the healthcare needs of the rich and poor is one of the biggest challenges the governments of the mature economies face. Nowadays, the governments and pharmaceutical groups focus on rising demand for higher-value medicines from wealthy citizens and call for better access to essential medicines from those in the lower socioeconomic spectrum (Pwc, 2012, p.21). In Europe, the strict fiscal rules led into an increasingly important constraint on the healthcare sector which that has as an addressee the consumers and consequently, the pharmaceutical companies (Pwc, 2012, p.27). European countries initiated health policy responses that signified changes to their health systems and raised concerns over the access in health between people from different social class backgrounds whereas unemployment was massively increased during the crisis (Karanikolos et al., 2013, p.1323).

In particular, countries in Europe had responded to the financial crisis in various ways. Within the EU, some countries such as the Czech Republic, Estonia, Italy, Lithuania and Slovakia were better prepared than others because of the fiscal measures1 adopted prior

1 Countercyclical policies, such as holding of financial reserves for health spending or linking of government contributions for economically inactive groups (Karanikolos et al., 2013, p.1324). 25

to the crisis (Karanikolos et al., 2013, p.1324). In Belgium and Denmark, health budgets were protected and in the UK, they had frozen although actual expenditure decreased. Governments of Austria, Latvia, Poland, and Slovenia used the crisis to reduce costs, particularly in the hospital and pharmaceutical sectors as well they strengthened their position in price negotiations with pharmaceutical companies while Denmark, Greece, Latvia, Portugal, and Slovenia sped up the restructuring of their hospital sectors. Moreover, Cyprus, Greece, Ireland, Lithuania, Portugal and Romania decline the salaries of health professionals and in many cases employees in the pharmaceutical sector had affected (Karanikolos et al., 2013, p.1324). Drawing upon the regime theory which supports that decision-making procedures affect industrial structures through international institution it is important to note that member-states like Greece, Italy, Ireland, Spain and Portugal saw sever changes in their healthcare systems as a consequence of IMF΄S financial involvement in the countries which led into alterations of the pharmaceutical structure in the countries (Karanikolos et al., 2013, p.1324). The Greek government for instance, generated various healthcare reforms, including a restrictive reimbursement list, under its two “EU/IMF Memorandums of Understanding” and cost-saving measures involved the promotion of generics. Furthermore, some pharmaceutical companies announced their withdrawal from the Greek market as they claimed that they would not accept price reductions. The Italian government passed a ‘liberalisation’ law strengthening the rules on the use of generic alternatives. While Ireland proposed a draft bill permitting automatic generic substitution. Price cuts, high taxation and generic erosion are among the measures that have developed during the economic crisis as also the industry’s concerns in all of the European Countries (Deloitte, 2013, p.5).

Vogler et al., (2011, p.22) explain that pharmaceutical pricing and reimbursement systems in European countries differ from the other countries worldwide because of the overall organisation and funding of healthcare in which the pharmaceutical systems are embedded. EU’s countries are characterised by the obligation to grant access to essential medicines, for example, medicines that fulfil the priority needs of their population. For that reason, there is a great division between private and the public sector where during the crisis people that turned into the public sector had increased (Vogler et al., 2011, p.23). The Pharmaceutical coverage usually includes for the majority of the medicines dispensed in hospitals and medicines prescribed by the doctors. All of the EU member-states are obliged

under the Transparency Directive2 which aims at guaranteeing pharmaceutical pricing and reimbursement decisions to be taken in a transparent way (Vogler et al., 2011, p.23). However, individual countries decide how they organize their pharmaceutical pricing and reimbursement system. Price reductions of pharmaceuticals were among the main measures that member-states developed. Moreover, other measures included a change in co-payments such as an increase in cost for the patients, increase of the prescription fee and higher co- payment due to the lower reimbursement rates. Policy changes affected reimbursement lists and procedures and led into generic promotion measures while they raised concerns about medicines availability, especially for small national markets in European countries. Therefore, many initiatives included the promotion of generic use and the enforcement of policies for more rational use of medicines (Vogler et al., 2011, p.24).

The EC (2010, p.14) claims that the financial crisis increases competition3 for innovative medicines of the pharmaceutical companies. The economic recession led into problematic governance of the Member States, fiscal sustainability and the development of several legislative and non-legislative actions that altered the role of many of pharmaceutical companies (European Commission, 2010, p.5). The EU proposed that generic and biosimilar medicines need to be promoted by public and private payers as a consequence of the crisis and because of the uncertainty of the EU΄s economy due to the rise of the global competition on new pharmaceutical products (European Union, 2010, p.10). The introduction of pro- generic drug policy had impacted major pharmaceutical companies as doctors are being encouraged by the authorities to prescribe generic drugs (Coface, 2014, p.3).

2 The Transparency Directive of 2013 requires EU member states to respect minimum procedural requirements when taking decisions concerning subject matters. Shortcomings in the coordination between the policy objectives and subsequent effects of national decisions by the EU in other Member States can lead into creating market distortions and endangering the predictability of the business environment for the pharmaceutical industry (ESMA, 2016; Vogler et al., 2011, p.23).

3.4 Conclusion of the chapter

The chapter found that industrial growth faced a reduction in many of the industries globally. The pharmaceutical industry is shown to be one of the industries that have been massively affected both globally and in the EU particularly. The crisis led into a reduction of R&D investment, fluctuations in the medications΄ prices, a reassessment of the healthcare systems and a further division between the public and the private healthcare sectors. Also, the crisis led into alterations in consumer preferences, a revitalization of generic products and an evolvement of domestic companies in the countries. Nevertheless, MNEs sustained their dynamic role in the international market because of their originality of their products and their investments in generic production which that also outlines Schumpeter΄s theory on innovative practises that are taken by firms during an economic downturn. By illustrating the nature of the global pharmaceutical sector and the distinction of the European case, it is now possible to move into the next chapter that demonstrates the effect of the global financial crisis and EU΄s influence on Cyprus΄ economy and the industrial sector of the country.

Chapter 4

The Situation of Cyprus

The chapter aims to provide a brief background on the financial crisis in Cyprus and its effect in trade and the industrial sector of the country to examine how the financial crisis affects industrial structures. The chapter begins by offering a brief description on the economic crisis in Cyprus to provide an analysis on the impact of the crisis on the industrial sectors in the island.

4.1 Economic crisis in Cyprus

Cyprus became a member of the EU in 2004 under the Treaty of Accession to the EU3 as an attempt to reconcile a solution to the Cyprus Problem 4 . The membership included the provision for the suspension of the application of the acquis in the northern Turkish-occupied part of the island to be lifted when the island is reunited (Georgiou, 2013, p.56). In 2008, Cyprus became the fourteenth member state of the EU to join the Eurozone, adopting the euro currency and abandoning the Cyprus pound. The economic success story of the Republic of Cyprus from its independence year of 1960 along with its membership in the EU in 2004 seemed to be a great highlight of Cyprus political and social life; something that was soon proved to be oversighted and short-lived (Georgiou, 2013, p.57; Katsourides, 2016, p.62). With the accession of the Republic of Cyprus to the EU in 2004 and the subsequent preparation to adopt the euro in 2008, numerous structural reforms were promoted, such as: the liberalisation of the market, increasing competition, the development of the financial

3 The Treaty of Accession to the EU of 2003 included Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia. Among the conditions of the treaty was the condition of the withdrawal of new member states from any free trade agreement with third countries (Ivanica, 2003, p.7). 4 In 1960 Cyprus received independence from Britain under three guarantees; Britain, Greece, and Turkey that were to guarantee the independence, the territorial integrity, and the constitutional order of the Republic of Cyprus. Under a staged Greek military coup in 1974, Turkey invaded Cyprus and since then the island is divided; Greek-Cypriots have been living in the south and Turkish-Cypriots have been living in the north (Clerides, 1998, p.17).

sector and the enterprise sector (Clerides and Stephanou, 2009, p.28; Georgiou, 2013, p.57). For a number of years leading up to the economic crisis that began in 2012 in the country as a consequence of the global bank crisis, Cyprus was experiencing rising living standards, though the particular prosperity fell under pressure during the height of the global financial crisis through the reduction of the foreign demand in the country (Ioardinou and Samaras, 2014, p.65). Particularly, the domestic financial crisis followed by the scale of the global financial crisis was massively triggered by the island’s strong affiliation with the Greek bank sector (Georgiou, 2013, p.60). Specifically, in 2009 the Cypriot economy was adversely affected by the default of the Greek bonds where Cypriot banks shed large positions and were infected by the write-downs in the Greek Private Sector Involvement (PSI)5 of February 2012 (European Parliament, 2015, p.2). In response to the country’s deteriorating effects of the Greek debt crisis, the Cypriot government implemented measures to overcome the bankruptcy through cutting the cost of the state payroll, curbing tax evasion and revamping social benefits (Georgiou, 2013, p.61). However, these measures had proved insufficient and in June of 2012, Cyprus requested an economic bailout program from the European Commission, the European Central Bank and the IMF- known as the Troika or Eurogroup- of 17 billion euros. Troika’s initial bailout response on Cyprus in March 2013 was characterised as political rather than economic (Clarke, 2014, p.99; Georgiou, 2013, p.62; Orphanides, 2014, p.244). German officials had questioned the necessity of bailing out a small island economy that represents no more than 0.2 percent of Eurozone output, arguing that such a small-scale sovereign default would not present a systemic risk to Eurozone (Georgiou, 2013, p.62). Hence, according to this claim, the stability of the entire Euro region would not be threatened and unlike a true sovereign debt crisis such as in Greece, Cyprus’ crisis was mainly a bank crisis (Georgiou, 2013, p.62; Ioardanidou and Samaras, 2014, p.64). However, since the Cypriot bank sector has always been a massive multiple of the Cyprus’s GDP, Eurozone

5 The Greek Private Sector Involvement refers to the second Greek assistance package of €130 billion by the IMF which included private sector involvement (PSI) in a Greek government debt exchange. The net present value loss accepted by private sector bondholders was around 75% based on market pricing following the bond exchange (Reserve Bank of Australia, 2012, pp.30-31).

agreed on providing 10 billion euros in bailout funds with an additional 5.8 billion euros to be generated by a haircut through a bank deposit tax 6 . The particular request resulted in significant pushback by various stakeholders and an unprecedented unanimous rejection of the initial bailout agreement by the fifty-six-member Cypriot Assembly. Deposits would bear the brunt of the haircut while almost half of the deposits were de facto from non-resident Russian citizens (Georgiou, 2013, p.63). Unlike other previous euro bailouts, Cyprus would not be given a debt haircut but a deposit haircut instead (Georgiou, 2013, p.63). Once Cyprus΄ Assembly rejected the initial bailout offer, the Eurogroup made it clear to Cyprus that it was up to the country to come up with the 5.8 billion euro bail-in part of the agreement. Cyprus then sought assistance from Russia and made an offer of either granting to Russian firms development rights to Cyprus’s natural gas and oil deposits, or to grant a naval base for Russia on the island. Given the significant stake Russian nationals and Russian firms had in Cypriot banks as well as the request of Russia to generate a naval base in the island in 2015, it was a surprise to many that Russia rejected all offers of Cyprus (Georgiou, 2013, p.64; Iskyan, 2015, p.8). Cyprus had thereafter accomplished a compromise with Eurozone with a revised deal7 as the turmoil of the situation affected not only the Eurozone, the EU, and Russia, but also markets as far away as the United States and Japan (Georgiou, 2013, p.65). The country finally signed the Memorandum of Understanding and the Memorandum of Economic and Financial Policies on April 2013, between the Authorities of the Republic of Cyprus, the European Commission and the IMF (Charalambous, 2015, p.22).

6 The bank deposits would take 6.75% percent from insured deposits of 100.000 Euros or less, and 9.9% from uninsured amounts above 100.000 Euros. Cyprus would also raise the country’s nominal corporate tax rate which was the lowest in Europe, from 10.0 percent to 12.5 percent (Georgiou, 2013, p.63). 7 In the revised deal Cyprus agreed to the terms that all bank deposits of less than 100.000 would be guaranteed. The Cyprus’s second largest bank the “Cyprus Popular Bank (Laiki)” would shut-down and deposits of less than 100.000 Euros would be transferred to the Bank of Cyprus. Cyprus also agreed to sell 400 million euros of its gold reserves and imposed further losses on Bank of Cyprus depositors and creditors (Georgiou, 2013, p.65).

4.2 Impact on industrial structures

It is argued (Charalamous, 2015, p.29; Regional Focus: The Levant, 2014, p.74) that Cyprus has been proceeded throughout a positive progress in the post-era of the economic crisis. Nevertheless, the great flow on the development of industrialisation of the island and the impact of the economic crisis on all of its industrial sectors are still discrete phenomena in the country (Roussos, 2014, p.24). However, the reformation of all of the industries in Cyprus was not only influenced by the financial crisis and the policy interpretations of Troika, but was also affected by the very nature of the industrial structures of the country before the crisis (Glushenkova and Zachariadis, 2014, p.63; Michael, 2015, p.5).

On the one hand, the strategic location of the island between Europe and Middle East, the well-educated workforce and the fast-recovering banking system are among the factors that reinforce the growth of the investment funds in Cyprus (Regional Focus: The Levant, 2014, p.74). Particularly, Gregoriadis -the head of the Cyprus Investment Funds Association, stated in 2014 (in Regional Focus: The Levant, 2014, p.74) that “Banks are deleveraging, and private equity funds are taking their place” and supported, that the recent legislation of the Memorandum could provide the possibility of enabling local corporations to be evolved and to face the lack of SMEs and corporate funding as it is one of the biggest obstacles to growth (Regional Focus: The Levant, 2014, p.74). Charalambous, who is also a Director of Financial Stability of the Ministry of Finance argues (2015, p.29) that the impact of the economic crisis on economic sectors is rather positive as an outcome of the restoration of confidence through the implementation of the reform agenda which was agreed with Troika -regardless of the some delays. In this sense, Charalampous (2015, p.29) explains the policy agenda reinforced the favourable external developments which support the tourism sector and the resilience of the business services sector. While government΄s officials argue that economic growth was remarkable during the years of the financial crisis by supporting that the GDP of the country returned to moderate growth, others (Clerides, 2014, pp.3-4; Glushenkova and Zachariadis, 2014, p.64) argue that this statement is rather questionable, as the GDP, the manufacturing and the industrial sector of the country have been facing a lot of fluctuations as a result of the economic crisis.

Graph 3

GDP growth (annual, Cyprus)

Source: World Bank (2015)

Graph 1 depicts GDP growth in Cyprus from 2006 to 2014. As it is illustrated, GDP saw a fall after the adoption of Euro currency while GDP significantly decreased in 2009 when the global financial crisis started though it increased in 2010 (Glushenkova and Zachariadis, 2014, p.63). Glushenkova and Zachariadis explain (2014, p.71) that this is mainly because Cyprus became more economically integrated with the core of Eurozone΄s countries by 2010. While before being a member of the EU, the country used to trade more with non-European countries. In 2010, Cyprus increased the costs for tradeables and the achievement in its economy is explained by the greater geographic distance from potential trade partners as also by the small economic size that describes the country΄s market. From 2010 to 2013, when the GDP of the country fell, public debt reached 86% while the private sector debt soared towards 300% of the GDP (Vegh, 2014, p.300). The interdependence between the Greek and the Cypriot economy such as, through the bank system, the industrial sectors and different products, influencing by the stigma of the Greek debt on Cyprus bank sector affiliated into a significant downturn of the Cyprus economy in the first years of the financial crisis (Roussos, 2014, p.19).

By 2010, the purchasing power of people had decreased because of the rising of the prices, whereas in 2011 the inflation rate had also increased. Productivity was therefore affected, and the GDP began to fade significantly until 2014 (Karaginakis et al., 2013, p.60). Moreover, Pashourtidou et al. (2014, p.113) note, that fiscal consolidation efforts being either a government΄s expenditure reduction or an increase on the government΄s revenue, led into a

fall of the GDP and outlined negative responses of investment, private consumption and employment rates. Along with the unpredictable shifts in the FDI (Annex 3), the low productivity level and the impact of the Greek bonds on the banking sector of the country, the year of 2013 was stigmatised by the mandatory contraction of two large banking institutions- bank of Cyprus and Laiki- and the adoption of the austerity measures (Michael, 2015, p.5). As the rise on production costs was an important input into the production of most goods and services, this increase in cost placed a serious burden on the industrial sector (Michael, 2015, p.5). More specifically, Cyprus is characterised by a small market-size and that implicates that there are a lower number of potential domestic producers and a smaller number of exporters to the domestic market. Consequently, both factors reduce the degree of potential competition in the small economy especially when that economy is distant to others and faces higher transportation costs (Michael, 2015, p.5).

Therefore, the financial crisis that led into the insolvency of the Cypriot economy, the adoption of a memorandum and the Troika's implementation had resulted into deposits' haircut and an illiquidity. Theophanous explains (2014) that because the growth rate of government΄s expenditures was much higher than the growth rate of the economy during the economic crisis, and the fact that there was not an essential fiscal policy to reinforce new governmental measures that could lead into problem solving and innovation practices, industrial groups were negatively affected. More specifically, the Republic of Cyprus agreed on the reduction of the states' expenditures on research funds while at the same time, the EU considered that the investment in research and innovation was a necessary measure to boost the economy (Theophanous, 2014). Given the potent role of innovation that is found on Schumpeter΄s theory, it is significant to note that governmental procedures are shown to play a key role on the propulsion of innovation during the financial crisis. Furthermore, among the changes that have been resulted from the economic recession was the lower growth rates that caused income redistribution and resulted into unfavourable effects in the economy, mainly in the public and private sector, such as the healthcare system and education because of the highest participation ratios in labour unions that are usually found in the public sector (Karagiannakis et al., 2014, p.98; Mallis, 2015, p.3). Moreover, SMEs were centrally affected (Tissios, 2013, p.3). Specifically, the crisis led into the increase of unemployment rates among industrial groups, a delay of payments and the difficulty of firms on funding access where the latter had a consequence on some small companies to close as were incapable to cope with the crisis (Tissios, 2013, p.3). 34

It is further important however to examine the nature of the domestic industrial structure before the financial crisis thus to comprehend the reasons the industrial sector of Cyprus faced important alterations during the years of the economic crisis irrespectively of exogenous factors. Firstly, Cyprus has been characterised as a “haven” for MNES and the industrial structure is mostly described by offshore corporations mainly from Greece, Russia and the United Kingdom (IBP, 2015, p.46). Significantly, IBCs can take a full advantage of the Cyprus double-tax treaty network8 as well as there is no restriction in the carry-forward of tax losses. Additionally, Cyprus has 32 double tax treaty agreements which apply to 40 countries and which can be exploited to minimise their tax (IBP, 2015, p.46). Particularly, there are not any exchange control restrictions and an IBC can open a bank account at any currency. Secondly, one of the strategic aims of the economic policy of Cyprus is the Gradual conversion of Cyprus into a Regional Service Promotion Centre -except of the tourism sector, including the Financial Services. The state de facto offers more elastic measures 9 to companies that belong to foreigners exclusively including the tax system, a high level of professional services and modern infrastructure (Roussos, 2014, p.26). However, the consecutive lending in the bank sector that brought about economic recession along with the increasing public debt and the inability of the government to realize at prompt the socioeconomic danger, resulted in the downturn of the economy thoroughly (Roussos, 2014, p.80).

Specifically, during the economic crisis in Cyprus, the government lacked access to capital markets (Michaelides and Orphanides, 2011, p.163). For example, the evolvement of the economic crisis through the fall of the foreign investment led into the decline of the real estate sector. As a result, there was a lack of new developments, numerous companies had shut down and unemployment increased (Michaelides and Orphanides, 2011, p.163). The

8 An international businesses company pays a tax of 10% on its net profits when it is a Cyprus resident (the management and control is in Cyprus). Full advantage of the Cyprus double-tax treaty network can be obtained by resident IBCs. However, IBCs pays zero tax when it is not considered to be resident of Cyprus, i.e. its management and control is outside Cyprus. Not withholding tax on payment of dividends exists or interest and royalties by an IBC to non-resident individuals or companies (IBP, 2015, p.46).

9 In the 1970s Cyprus introduced a “Special tax system” for companies that were exclusively belonged to foreigners and were operating only in foreign countries. After the membership in the EU, the Treaty of the Offshore Company and the Special Tax Treatment were abolished (Roussos, 2014, p.26).

crisis moreover caused structural reforms such as, low professional level, over-borrowing and uncontrolled undertaking of investments. Whereas, the structure of sector is now delineated by the oversupply of houses and the existence of a big number of Non-performing Loans10 (Michael, 2015, p.5). The particular illustration is due to the fact that consolidation of the banking system and the implementation of the banking practices to support development initiatives and innovative practices had declined in the years of the financial crisis (Michael, 2015, p.5). In addition, resources of raw material are very limited in Cyprus, restricting the scope for industrial activity (Sofroniou, 2013, p.16). Between 2002 and 2007, there was a low capital intensity that indicated a low investment levels and directed into low productive capital (Sofroniou, 2013, p.16).

Technological improvements had played a significant role for the evolution of the industrial productivity (Annex 4). After 2008, both labour productivity and TFP fell and capital deepening increased (Karagiannakis et al., 2013, p.90). Moreover, a gap between labour productivity and total wages throughout 2009 and 2011 were existed and were constantly increasing. The unit labour cost increased throughout the economic crisis, indicating a loss in the competitiveness of the Cypriot economy. As a consequence, the manufacturing sector was strongly affected. The TFP experienced an increase in 2008 but this was again followed by a fall when the global financial crisis began (Karagiannakis et al., 2013, p.97). Karagiannakis et al., (2013, p.94) claim that the labour market distortions are largely responsible for the loss of competitiveness of the Cypriot economy especially in the transport sector, the manufacturing sector and the accommodation sector which all faced a negative productivity growth during the financial crisis. However, sectors which are controlled by trade unions are more prone to loss of competitiveness than other sectors of the economy (Karagiannakis et al., 2013, p.97).

The tourism sector became one of the Cyprus major industries after the country’s independence in 1960. Nevertheless, the financial crisis led into the reduction of the government’s spending on the country’s advertising spending in 2014 and the decision to provide residence permits to foreign buyers of real estates that would be cost up to 500.000 Euro (Roussos and Pachoullaras, 2014, p.62). An aftereffect was that the hotel industry was

10 A loan is nonperforming when payments of interest are past due by 90 days or more, or interest payments are delayed by agreement, or a debtor filing for bankruptcy and thus the payments are doubt to be made in full. After a loan is classified as nonperforming, it remains classified until written off or payments of interest (IMF, 2015, p.4).

affected as a result of the decline in the tourists΄ numbers and the increased interest rate hotels have to reimburse to the banks as also, numerous hotels had shut down (Roussos and Pachoullaras, 2014, p.62). In addition, the petroleum sector- which is the major contributor to the economy of the country- was also influenced by a fall of its imports, a fall of private consumption and a reduction in its prices (Roussos and Pahoullaras, 2014, p.39).

Table 4

Trade Indicators, Cyprus

Source: Patziara (2016, p.23)

In general, trade in Cyprus faced a reduction and from 2012 and 2013 which it was the epitome of the economic crisis, trade had decreased at 10%. The particular fall was reinforced by the continuous recession of the Cyprus economy and its aftermath; the increase of unemployment, the restriction in the incomes and the reduced consumer spending which led into the fall of the 25% of the imports (Patziara, 2015, p.7). Important partner countries of Cyprus until this period is Russia in the bank and the tourism sectors, the United Kingdom in the tourism sector and Greece through bilateral trade agreements. The level of trade had decreased in 2013 as a result of the reducing number on imports although exports were constantly increasing (Patziara, 2015, p.27). To this extend, the financial crisis has affected mostly the domestic small companies because of the restriction of development, the lack of capital and the minimal development of the business activities (Patziara, 2015 p.77).

4.3 Conclusion of the chapter Having studied the role of the economic crisis on industrial changes during the financial crisis, the next chapter focuses on proving an analysis of the factors that affect structural changes in the pharmaceutical industry in Cyprus.

Chapter 5

Pharmaceutical Industry in Cyprus

As it was previously mentioned, the pharmaceutical industry in Cyprus is characterised by a uniqueness in terms of the structure of the healthcare system of the country (Petrou and Vandoros, 2015, p.563). Therefore it is important to specify the interrelation between the healthcare system and the pharmaceutical products in Cyprus to investigate the ways in which the financial crisis determines structural changes. This section focuses on providing an in-depth analysis on the impact of the financial crisis on structural changes in the pharmaceutical industry of Cyprus. The first section analyses the healthcare system of the country and its linkage with the structure of the industry. Secondly, Troika΄s policy measures that had agreed with the Republic of Cyprus and the Pharmaceutical Law before and during the financial crisis are examined to comprehend the factors that affect the industry in Cyprus.

5.1 Healthcare System

Cyprus is the only country in the EU which is not comprised by a universal NHS (World Health Organisation, 2015, p.1). The health system of the country is specifically comprised of public and private sectors of relatively similar sizes (World Health Organisation, 2015, p.1). Particularly, a new General Health Insurance Scheme was proposed by stakeholders from the government and international consultants in 1992 that was later approved in 2001. However, cost concerns delayed the process of the scheme and in 2012, EC along with the Cyprus application for accession to the EU support mechanism, recommended to the Cypriot cabinet to recommit the reform despite the economic crisis in the country. The new scheme which will go into effect later in 2016, derives from considerations over the division between the public and the private sector because of the lack of efficient payment mechanisms and monitoring systems, the inequalities in access to care and the inefficient allocation and utilization of resources. The World Health Organisation explains (2015, p.12) that the reform aims to lead into changes for financing, coverage, provider payments, administration, auditing and data collection that in turn highlight the improvement in the quality of care, the equity of access and efficiency. Specifically, the public health care system is financed almost completely out of tax revenues whereas the 38

private sector receives negligible public financing. The financial crisis in Cyprus which resulted into lower household incomes led into a decrease of the use of the private sector, while the public sector has experienced an increase in demand (Woutersa and Kanavosa, 2015, p.605). As a consequence, reforms penetrated in the existing health care system, revealing an overloading number of patients in the public sector and decreases in the revenues of the private sector (Woutersa and Kanavosa, 2015, p.605). Therefore the purpose of the new scheme is to facilitate the sustainability of both sectors through the increase of private sector utilization by likely using lower reimbursement prices. Moreover, the division of the two sectors are strongly interrelated with pharmaceutical products and are characterised by different structures (Petrou, 2014, p.290). Importantly, the public sector is financially supported by the government which pays for the health care. Moreover, individuals with annual incomes of no more than €15 400 and the chronically ill and civil servants -which represent the 83% of the population, are eligible for public-sector coverage and the rest are merely eligible to turn into the private sector for treatment (Woutersa and Kanavosa, 2015, p.606). Patients and private health insurers pay for the private-sector health care. Woutersa and Kanavosa (2015, p.606), argue that the total health expenditure was about 7.3% of the GDP of the state in 2013. Whereas, approximately 43% was publicly funded and 57% of health spending was privately funded. In 2010, pharmaceutical expenditure accounted for 19.8% of the total health expenditure in Cyprus and until 2014 pharmaceutical expenditure was growing systematically as well as the volume of medicines dispensed increased by 55% (Petrou, 2014, p.289). However, the prices of the pharmaceutical products were continually falling and consumption had significantly decreased due to the fall of the household income level (Petrou, 2014, p.289). Moreover, public spending on healthcare in the light of the economic crisis in the country was significantly lower in relation to the other EU member- states (Annex 5). Andreou and Pasiardis note (2010, p.12) that the financial crisis has differently affected industrial groups. The authors (Andreou and Pasiardis, 2010, p.12) note that the private sector faces more difficulties because of the bigger fall of the salary in relation to the public sector and the rise of unemployment.

Significantly, availability and affordability of medicines varies between the private and the public sector (Woutersa and Kanavosa, 2015, p.604). More specifically, public-sector drugs, which are freely available to patients with public health insurance, are procured centrally by the Ministry of Health through open invitations and negotiations. In an open 39

invitation, which is used for about 75% of the drugs consumed in the public sector, the Ministry of Health issues a request for a quantity of drugs and invites confidential bids from manufacturers internationally. The manufacturer who offers the lowest price is then asked to supply the entire market for two years even though changes in brand suppliers have been taking place more often during the last years of the financial crisis (Woutersa and Kanavosa, 2015, p.605). A tender category usually includes a single molecule such as, the originator brand drug and generic drugs with the same active ingredient as though it may also include all drugs that treat the same condition. The remaining 25% of drugs that are used in the public sector, which are mostly on-patent, are procured through negotiations and account more of the government expenditure. Significantly, the public-sector tender prices of generic drugs are usually 20% to 70% lower than the private-sector wholesale prices. For on-patent drugs, however, the public-sector prices are usually only 5% to 10% lower than the private-sector prices. For all tenders, the government buys the stock in three to four instalments and distributes the drugs to the 11 hospital and 34 retail pharmacies in Cyprus. By contrast, private-sector drug prices are set by the health ministry based on the recommendations of a pricing committee. For on-patent products, this committee bases the Cypriot wholesale price on the mean of the wholesale prices in one high-price country. If a medicine is not available in one of these countries, the committee uses the price in a pre-selected alternate country. Finally, to account for the cost of importing the drug into Cyprus, the committee adds a 3% mark-up to the derived mean price. The committee recalculates the prices of most drugs every two years and revises the price of each newly launched product annually for the first two years.

The private-sector prices in Cyprus are among the highest in Europe because international price referencing does not capture confidential discounts in other countries (Woutersa and Kanavosa, 2015, p.607). Additionally, the private-sector pharmacists charge a flat fee of one Euro per drug prescription. Consumption of generic drugs in the private sector is very low because pharmacists are forbidden by law to substitute such drugs for any originator brand drugs prescribed by physicians. Yet, as prices of medicine products are significantly decreasing in the latest years, stakeholders agreed upon following a different pricing policy. Particularly, the national associations for drug importers, the local generic drug manufacturers, the pharmacists and the research-based manufacturers argued that there is a possible trade-off between low prices and the availability of medicines; Meaning that, as Cyprus is a small market and prices would drop too low, the manufacturers of originator 40

brand and generic drugs would not sell their products in Cyprus because that could produce insufficient returns on the manufacturers’ investments and would also affect prices in other markets that use Cypriot prices for reference (Woutersa and Kanavosa, 2015, p.608). As public-sector prices are published online and influence prices in countries that use the Cypriot prices for reference, manufacturers were not willing to provide large discounts to the ministry of health (Woutersa and Kanavosa, 2015, p.609). For that reason, generic substitution had increased and by 2013 there was an underuse of generic drugs in the private sector where generic substitution by pharmacists is forbidden (Woutersa and Kanavosa, 2015, p.609). Nonetheless, the government does not disseminate any prescribing guidelines and there are no information systems to monitor or control prescribing behaviour. Notably, there are potent and opaque financial relationships between physicians and manufacturers as well patents and pharmacists which lead into conflicts of interest during the crisis (Woutersa and Kanavosa, 2015, p.610).

In addition, the underfunded and overstretched public general hospitals have come under additional pressure due to the effect of the crisis on people’s health care-seeking behaviour as also because in Cyprus the purchasing function is fragmented, underdeveloped and weak methods of paying providers are developed (Cylusa et al., 2013, p.8). Furthermore, hospital prices are considerably lower in comparison to the official pharmacy retail prices in the out-patient sector. This is due to the inexistence of margin profit in the hospital prices and due to the competition which is originated by the big number of beneficiaries to free medical care by the state. Significantly though, the price of a medicines in public hospitals is the same regardless its use. Beneficiaries of both in-patient and out-patients to free medical care by the state get their medicines from public pharmacies, including hospital pharmacies. Consequently, public pharmacies during the economic crisis are overloaded and have reached their optimum output capacity (PHIS, 2010, p.10). In addition, depending on the medicine, for instance on the level of competition and the generic entry, the reduction of medicine sales in the private hospitals usually ranges from 15-80%. As a result, public hospital pharmacies do not sell medicines to non-beneficiaries thus to avoid competition with private pharmacists (PHIS, 2010, p.11). Nicolaou (2016, p.19) further argues that the present recession which is found in the hospital sector is mainly a result of the rise of government spending and the reduction in revenues. Moreover, while the intense competition within the pharmaceutical industry leads into a reduced distribution of patients and a fall of the prices, it strengthens

social wellbeing as it seeks to improve the quality towards lucrative diseases (Nicolaou, 2016, p.31).

Andreou et al. (2010, p.8) explain that the main factors of the health expenditure in Cyprus are considered to be technological innovations in pharmaceutical products and population ageing. During the economic crisis in Cyprus, the public health care of the country diseases while many patients turned to public medical care as a result of unemployment and the redistribution of salaries (Nicolaou, 2016, p.71). That implicates the reinforcement of pharmaceutical products that enrich the public hospitals and pharmacies (Petrou, 2014, p.289). The increase of ageing population, the rise of chronic diseases and other types of diseases as well as the increasing demand of medical care and the strong affiliation between doctors and patients in Cyprus –since patients’ choice of provider is sensitive to quality and that interpersonal quality- and the lack of transparency, constitute to the consumption of pharmaceutical products as profitable despite the growing healthcare costs (Andreou et al., 2010, p.6; Nicolaou, 2016, p.77). Moreover, Andreou et al., (2010, p.3) support that the provision of public health care in Cyprus mostly benefits poor households because of the reduction in the total household health expenditure due to eligibility to freely provided public health care. Remarkably, an inefficiency of the private sector is moral hazard in the provision of health insurance as the insured patient might be prone to overuse health services because a large part of his/her medical expenses are covered by the insurance (Andreou et al., 2010, p.4). The pharmaceutical industry differs significantly compared to other EU countries, and it is in a sense unique with regards to insurance coverage, pricing and procurement of medicines. Significantly compared to other EU countries, and is in a sense unique with regards to insurance coverage, pricing and procurement of medicines (Petrou and Vandoros, 2015, p.564).

The medications΄ consumption is articulated according to the role assigned to the public and the private sector respectively; their features such as, externalities, redistribution, inequality, inefficient production, asymmetric information which these signify the importance of the policies' interpretation into the health sector which in turn influences changes in the pharmaceutical market (Andreou et al., 2010, p.6). Consequently, the main drivers of the industrial changes in the structure of the pharmaceutical industry in Cyprus is the governmental politics and the distinction between the public and the private health care which in turn are influenced by pharmaceutical companies (Andreou et al., 2010, p.6).

Moreover, both sectors saw an increase in generic medicines and fluctuations on the branding companies as economic crisis influenced significantly the consumption of the products. Patients criteria on access in medical care has been restructured while a big number of population turned to public health care that is importantly constituted by generic products (Petrou, 2014, p.289). More so, medicine prices as also the branding companies are constantly being revising more frequently during the years of the financial crisis (Petrou, 2014, p.289).

5.2 Troika’s measures

Troika’s implementation on Cyprus economic life emphasised industrial changes in many industries including the pharmaceutical activity (Petrou, 2015, p.807). As previously illustrated, the health sector is strongly correlated with the pharmaceutical market and structural changes in the industry. The agreement to the Memorandum of understanding in 2013 with creditors from the EC, the ECB and the IMF introduced an economic adjustment programme that addressed the country’s financial, fiscal and structural challenges. In the health sector, the memorandum required the development of the new national health system reform “to allow free choice of the provider, social equality, solidarity, financial sustainability, and universal coverage of a minimum benefit basket” (Petrou, 2015, p.806). In the particular system, the government is required to pay for all of the healthcare services as also it is expected to decide which drugs to cover, what pricing it will use, what reimbursement policies are to be applied and what type of cost sharing the government will introduce (Petrou, 2015, p.807).

The EC pointed out that the government spending on domestic enterprises should face a truncation thus to boost a healthy competitive environment in the Cypriot market that was longstanding inexistent (Mouzoulos, 2014, p.87). Troika recommended changes in industrial policies that among others, included that when the enterprises that would be severely affected by the debt crisis could receive public funding for restructuring purposes once in ten years’ time. The taxation system has been reformed as during the economic crisis the government focused on intervening on the tax system of the country to raise the state΄s income (p.98). However the private sector of the country had low profits and many companies stood inefficient in the repayments of their loans. The agreement of Memorandum demonstrated the necessity of Cyprus΄ government to find new sources of benefiting and to reduce its 43

spending. Specifically, Troika required “to restore the soundness of the Cypriot Banking Sector by thoroughly restricting, resolving and downsizing financial institutions, strengthening of supervision, addressing expected capital shortfall and improving liquidity management” (2013, in Mouzoulos, 2014, p.163). The specific requirement led into a deposit haircut and hardened the conditions of loans payments with a result many depositions including domestic enterprises to sell their companies to external buyers or to be face a closure due to the firms΄ inadequacy to repay the loans back (Mouzouros, 2014, p.194). SMEs have been the more centrally affected by the crisis because of the high taxation and the decrease of public spending that Troika along with the Republic of Cyprus agreed upon (Mouzoulos, 2014, p.195). On the contrary, enterprises in the private sector that have been economically succeeded during the economic crisis were argued to be the firms whose governmental representatives are financially benefited by non-transparent supplies such as through “bribes” (Mouzoulos, 2014, p.215).

Additionally, opposed to the Scumpeter΄s theory on innovation and new developments during an economic downturn, Troikas suggesting measures lacked in creation and innovative practices in industries as well the promotion of generic pharmaceutical products took place which that had a consequence of the rise of the competition between generic-based companies (Mouzoulos, 2014, p.279). Nevertheless. the absence of a pragmatic measure by the government to invest in innovation practises was not only an effect of the financial crisis and Troikas΄ implementation in Cyprus΄ industrial environment, but it is a result of the collective antiquated mentality of the state throughout history (Mouzoulos, 2014, p.280).

In the healthcare sector, Petrou (2015, p.807) signifies that the Cyprus’ Emergency department is characterized by over-use, misuse, and even abuse, findings that do extrapolate to the whole health sector. Therefore, the overcrowding and abuse of the Emergency Department defines an indicator of waste. One of the main goals of Troika was to enhance efficiency and reduce waste (Petrou, 2015, p.807). An introduction of user charges as a demand side measure took place while on the other hand, the lack of guidelines led into a causality of polypharmacy (Petrou, 2015, p.807). The health system put forward generic utilization, through setting of a lower price compared to branded products. In addition, pharmaceutical prices had to be updated frequently which that signifies the continual assessment of the annual price lists during the last 8 years from 2008. The pharmacist’s fee

should had to be reassessed in a new financial perspective though savings should be transferred to a faster adoption of innovative products and mainly generics (Petrou, 2015, p.807). Hence, if we take into account Schumpeter’s theory on innovation, we observe that the economic crisis in the particular country led into the adoption of generic substitutions due to the unavailability of domestic manufactures of new medicines as well as the Troikas΄ implementation measures on the health sector that reinforced generic production (Petrou, 2015, p.807). Also, the role of non-prescription of medicines in Cyprus, is strongly related to specific products΄ market access pathway.

In the times of the economic crisis however, consumption becomes significantly decreased and patients’ consumption criteria is facilitated by the necessity of the product (Petrou, 2015, p.807). Whereas, prior to the crisis there were no volume-control measures in place, resulting in overprescribing and overconsumption of drugs, for instance in the case of antibiotics (Petrou and Vandoros, 2015, p.564). Petrou and Vandoros (2015, p.563) further demonstrate that the pharmaceutical market in Cyprus had a high volume and a steep increase in per-capita expenditure over the past decade. Most importantly, the market is fragmented due to the absence of universal health insurance, and the uninsured have to rely exclusively on the private market. Therefore, Troikas΄ implementation on Cyprus pharmaceutical consumption altered the industrial structure of the pharmaceutical industry based on the alterations made in the public healthcare system and the pharmaceutical enterprises; Measures included, the control of healthcare expenditures, the abolishment of the category of the beneficiaries for access to free public healthcare which was based on all non-income related categories in exception of people who were suffering from certain chronic diseases but depending on illness severity (Ministry of Finance, 2013, p.18). Another measure was to develop financial disincentives to minimise the provision of medically unnecessary laboratory test and pharmaceutical products. Yet, the creation of protocols for laboratory tests and the prescription of pharmaceuticals based on scientific evidence was introduced to eliminate the lack of transparency found in the system of the country. Prices moreover were adjusted in accordance with the Article 7 of Directive 2011/24/EU of the European Parliament11 (Ministry of Finance, 2013, pp.18-19).

11 The directive of 2011 refers to the application of patients’ rights in cross-border healthcare and included the possibility for EU patients to receive cross-border healthcare in the EU countries (EUROPA, 2011, p.2).

The Troika΄s recommendation on new income criteria for public health care beneficiaries and the reduction of the further health insurance coverage led into the push of 150,000 people into the private market where they had to pay for their healthcare entirely out of pocket price (Petrou and Vandoros, 2015, p.564). Moreover, price of pharmaceutical products below 10 Euros were frozen where the 47% of total private wholesale pharmaceutical expenditure falls in this category. Petrou and Vandoros (2015, p,564) explain that the specific measure influences changes in the pharmacists’ remuneration in the private sector particularly from a flat percentage to a regressive margin, which removes the incentive to dispense more expensive medicines. Furthermore, the introduction of capped fixed co- payment fee to reduce medically unnecessary demand for medicine products restricts the access to healthcare thoroughly. The policy measures which were implemented by Troika in 2013 led into the reduce profitability of the industry mainly in the private sector where branded medicines are dominating the market and the lower prices in medicines influenced the shortages of medicines (Petrou and Vandoros, 2015, p.565). The most important effect is that the Cyprus΄ pharmaceutical market is a small-sized market and it is massively characterised by MNEs and foreign investments which during the economic crisis the market became unattractive as also FDI in the country significantly deceased (Petrou and Vandoros, 2015, p.565).. Other measures included reductions of the financial burden -although the particular measure was not explicitly demanded by Troika- and a Health Technology Assessment to specific pharmaceutical companies and consumables. However, not important ameliorations took place because of the lack of human resources. Also, the supply of pharmaceutical products reduced to 5% in the pharmacies which that resulted into the fall of the number of medications accessed by the patients and are further discussed in the next section of the chapter (KEFEA, 2014).

Importantly, the fall of the prices in medicine products led into a low profit margins of pharmacies and an over-saturation while pharmacies begun selling a number of products such as perfumes and antibiotics to kiosks (Cyprus Mail, 2014). KEFEA12 -the Cyprus Association of Research and Development, was concerned over the drug pricing under the new health scheme and patients’ access to medicine that was proposed by Troika (KEFEA, 2014). The association supported (in Cyprus Mail, 2014) that the innovative medicines are absent in the

12 KEFEA represents multinational pharmaceutical corporations in Cyprus; Astrazeneca, Genesis Pharma, Glaxo Smith Kline, Lilly, MSD, Novartis, Pfizer, Sanofi, Janssen and Amgen Hellas (KEFEA, 2016).

Cypriot market because of the inequalities on the pharmaceutical products΄ prices between the private and public sector. Moreover, the new measures over the prices in the pharmaceutical products that are mostly sold by multinational corporations in the private sector hinder the access of people in the particular medicines and lead into a significant fall of the revenues of the MNEs (KEFEA, 2013). Particularly, the existing policy measure without the adoption of the NHS in 2013 led into conditions of relevant competence in the market as well prevented the importation of innovative products in the market (Cyprus Mail, 2014).

The public sector which saw an increase in the number of patients during the financial crisis is characterised by a limited source of innovative medicine products and that had as a consequence, new medicines to be remarkably limited. Further so, KEFEA argues (2014) that the proposal by Troika to provide only one medicine per disease after the adoption of the new scheme would have dramatic consequences on the provision of indispensable pharmaceutical medicines for patients as well it would lead into the withdrawal of medicines in Cyprus. Finally, the proposal of the provision of one medicine per disease defines the existing conduct of the drug purchasing process through the tender notice in the public sector and delays the import of new therapeutic medicines (KEFEA, 2014).

Therefore, Troika΄s imposed measures in Cyprus΄ economic arena along with the agreement of Memorandum in 2013 redounded in alternations in the pharmaceutical activity in the country; As this section illustrated the measures taken in the public sector including the fall of the prices in medicine products, the abolishment of the category of a group of the beneficiaries for free-access to the public healthcare and the restriction in the public spending affected the private healthcare sector in the country which is mostly characterised by innovative and branded products. Moreover, because of the important decrease of the public spending, generic substitution in the public sector was significantly increased during financial crisis. However, that is not to say that Troikas΄ imposed measures stimulated the particular changes as the particular phenomena characterised the nature of the healthcare system.

5.3 Pharmaceutical Law

As previously illustrated, the pharmaceutical law has been continually revising and a number of changes in the pharmaceutical law have been influenced by Troika΄s implementation in 2013. It is significant to note however that the economic crisis in Cyprus reached its zenith in 2012 where some measures had adopted regarding the pharmaceutical Law. Reforms included a reduction of current duplicative health structures, a continuity of care between the public and private sector, a large risk pooling and a centralised negotiating process which reinforced the purchaser of health services to raise the bargaining power (Petrou, 2014, p.37). Nevertheless, the pharmaceutical law lacks on the development of a barrier in the prices of pharmaceuticals in the private sector and a monopolistic system in the public sector regarding the pharmaceutical products (Petrou, 2014, p.36). Particularly, the prices in the private sector are relatively high and several stakeholders have been urging the introduction of price reductions. Petrou (2014, p.37) explains that the pricing is a multifactorial process and all mark-ups are extremely problematic while there is a lack of transparency for instance for the wholesale price, the pharmacy mark-up profit and the Value Added Tax.

From 2007 the private sector is financed with out-of-pocket payments and there is no reimbursement system for the services provided whereas the public sector falls under the Ministry of Health and it is block-funded by the Ministry of Finance. The General Health Care Scheme was launched in 2008 and aimed to cover all Cypriot citizens irrespectively of their level of income (PPRI, 2007, p.19). Whereas, the criteria for inclusion of a pharmaceutical in the List of Approved Pharmaceuticals include product-specific criteria of medical and therapeutic value, safety, lack of alternative therapies, economic criteria such as cost-effectiveness and budget impact. Also, patient-specific criteria such as age, sex as well chronically or terminally ill patients and disease-specific criteria implicating severity of illness or special medical needs (PPRI, 2007, p.22). Moreover, the state did not adopt a comprehensive policy in the pharmaceutical industry though regulations that govern the sector are implemented by the key players of the industry depicted on table 5 (PPRI, 2007, p.19). The table below summarizes the factors that determine the industrial structure of the pharmaceutical industry in Cyprus and how decisions΄ that affect the pharmaceutical market are taken.

Table 5

Key players in the Cypriot pharmaceutical system

Complied by the author from PPRI (2007, p.19)

The introduction of the Pharmaceuticals for Human Use Act of 2006 led into the decrease of the number of the registered products mainly because market authorisation holders could not upgrade their dossiers and renew their market authorisation licences as the law required. Finally, the number of generics available on the market from 2006 was outnumbered as most of them are used in the public sector. The prices of pharmaceuticals are regulated according

to the Pharmaceuticals for Human Use Act of 2004 until the present day (Cyprus Bar Association, 2016). On the other hand, the prices of imported pharmaceuticals are set through external price referencing and only for the private sector, using four European countries΄ price references of one country with the most expensive prices, two countries with medium prices and once with cheap prices (Government of Cyprus, 2015; PHIS, 2009, p.2; PPRI, 2007, p.20). Additionally, internal price referencing is not applicable in Cyprus and free pricing is only applicable at manufacturer level for imported pharmaceuticals in the private sector (PPRI, 2007, p.20; Cyprus Bar Association, 2016). Furthermore, the price set is the wholesale price and on top of that the pharmacist’s margin is added and it does not include a specific profit margin for the wholesalers13.

In 2013, the Pharmaceuticals for Human Use Act was amended on the basis of the EU directive regarding border healthcare on patients in the EU (2013, p.3). Also, in 2013 Cyprus adopted several modifications on the particular Act adopting the rules of the European Medicines Agency and the directive 2001/83/ΕC referring to the Community code relating to medicinal products for human use (2013). In 2014, online drugs purchasing became available only if the “natural person or the legal person” who sells the pharmaceutical product is approved by the government and a prescription is not needed (Cyprus Bar Association, 2014). Moreover in the same year the Pharmaceutical Council of Cyprus along with the European Commission and the European Medicines Agency conducted and promoted information campaigns for the general public on the dangers of falsified medicinal products to reinforce the consumer awareness of the risks related to medicinal products supplied illegally (Cyprus Bar Association, 2016).

Due to the small market size, serious availability problems exist for several medicinal products that lack market authorization. The Drugs Council has implemented Article 126a (known as the Cyprus clause) of Directive 2001/83 in 2015, which allows for medicinal products authorized in another member state to be allowed in the market when needed for public health (Petrou and Talias, 2015, p.68). Additionally, in the last years of the financial

13 The prices of imported generics after external price referencing cannot exceed 80% of the price of the original branded product marketed in Cyprus. For locally manufactured generics the external price is set on the basis of the production cost plus a mark-up of 20%, which should not exceed 80% of the original product (PPRI, 2007, p.20; Cyprus Bar Association, 2016).

crisis a continual change in the prices of the pharmaceutical products took place where every year prices are significantly reducing (Petrou and Talias, 2015, p.70). Theodorou and Charalambous (2015) note that in January 2015 the Ministry of Health updated the prices for 2,743 drugs while 5,374 pharmaceutical products were included in the public pricelist. However, due to regulations, some products were exempt from the update. Even though, for 333 drugs, prices should have increased the Ministry of Health decided to leave them as is. This resulted in an average price reduction for all drugs of 4.8% only in 2015 with updates to even be taken in a daily basis- three changes occurred in March and April of 2016 (Cyprus: Ministry of Health, 2016).

5.4 Conclusion of the chapter

The chapter demonstrated the main drivers that affect the structure of the pharmaceutical industry in Cyprus. The healthcare system, Troika΄s imposed policy-measures and the Pharmaceutical Law, contribute to the ways in which the structure of the pharmaceutical industry is influenced. During the years of the financial crisis changes in the healthcare sector of the country, alterations in the pharmaceutical Law and policy-measures related to the health sector, have influenced the mechanisms under which the pharmaceutical companies operate. Particularly, the industrial structure has been revised as pharmaceutical firms tried to find new ways to overcome the economic and political situation. For that reason, the next chapter provides an in-depth illustration on the impact of the financial crisis on structural changes in the pharmaceutical industry in Cyprus.

Chapter 6 Structural changes in the Cyprus Pharma industry

This section offers an analysis on the structural changes in the pharmaceutical industry in Cyprus by studying the particular sector before, during and after the financial crisis. To answer the research question, the purpose of the case study is to analyse the structural changes in the pharmaceutical industry in Cyprus in the light of the global financial crisis in 2008 and during the economic crisis that began in Cyprus in 2012. For that reason, primary data include the Price Lists of the Pharmaceutical Services by the Ministry of Health for the years 2006, 2009, 2012, 2015 and 2016. Drawing upon Schumpeter΄s theory on innovation and the existing characteristics of the global pharmaceutical industry, the case study comprises a research of the pharmaceutical products separating the brand-named and generic pharmaceutical products to investigate the impact of the financial crisis on structural changes in the pharmaceutical industry in Cyprus. The tables (Appendix 2) which are constructed by the author, study the alterations of the companies΄ manufacturers, the distributors of pharmaceutical products in Cyprus as well they portray the characteristics of the Cyprus pharmaceutical market before the financial crisis. The specific analysis is used to study the structural changes in the industry before, during and after the global financial crisis. The books of the Pharmaceutical Price Lists by the Pharmaceutical Services, Ministry of Health, for the years 2006, 2009, 2012, 2015 and 2016 were at first gathered and then a sample of 102 pharmaceutical products for all the years’ examined- brand-name and generics- were analysed depending on their therapeutic classes. By studying which companies produce or distribute the active substance of the particular medications, the method aims to find the structural changes in the industry during the financial crisis. The specific sample distinguishes pharmaceutical products in respect to fifteen therapeutic classes which contribute to the top global sales (Annex 6). It examines the same pharmaceutical products for all of the years mentioned, to find whether changes in the companies΄ characteristics took place during the crisis. It includes MNEs, manufacturers, distribution and importing companies of the pharmaceutical products to examine whether changes in the firms which import the products have been made as a result of the financial crisis. The method aims to find the structural changes in the pharmaceutical industry by analysing the structural changes of the pharmaceutical firms that import the products in Cyprus.

For the purpose of this thesis, this section also includes (7) Interviews in total; (2) key managers from Multinational companies, (1) owner of private pharmacy, (1) manager of a private pharmacy and (3) managers of distribution companies in Cyprus. Finally, newspaper and ministerial documents have been collected to study the industrial changes in the pharmaceutical industry in Cyprus during the years of the economic crisis. It furthermore investigates newspaper and ministerial documents that demonstrate the impact of the financial crisis on the industrial structure of the pharmaceutical industry in Cyprus.

6.1 Analysing Data In Cyprus, the pharmaceutical industry is been fundamentally comprised of five generic manufacturers; Aegis, Codal Synto, Delorbis, Medochemie and Remedica. Approximately 95% of the production is exported to other countries while by the end of 2014, medications΄ industry was the second sector of the bigger exports after the petroleum industry (World Bank, 2016). The local industry therefore does not play important role in the domestic market though it is an important source of foreign income. Moreover, R&D is limited due to the nature of the industry of generic production. Distributors make up the 95% of the importing pharmaceutical products in the pharmacies which are in turn dispensed through community pharmacies. As it was previously noted, there are no restrictions on establishing pharmacies as well doctors are all represented in the Drugs Council through the Doctors Association and consequently they are key players in the registration of new products on the market (Petrou, 2014, p.37). The study focuses on the investigation of importing companies of 102 pharmaceutical products in the Cyprus market – brand-named and generic pharmaceutical products - from the 15 top-sales global therapeutic classes which are conducted by the author using data by the Pharmaceutical Price lists that are published by the department of the Pharmaceutical Services, Ministry of Health of the years 2006, 2009, 2012, 2015 and 2016. As it was investigated, many drugs have been introduced after 2006 in all of the therapeutic classes examined as well most of the products had later imported from the EU member-states and this is partly influenced by the integration of the Cyprus economy and the trade goods with other European countries in 2009 (Glushenkova and Zachariadis, 2014, p.63). In the height of the economic crisis in Cyprus and particularly 2012, was stigmatized by the advanced entrance of generics while in the last years of the economic crisis in Cyprus- 2015 and 2016- the specific evolvement was further reinforced. Therapeutic classes such as Oncologic, Anti-diabetics, Pain-management, Mental Health and HIV antivirals are

characterised by a uniformity as most of the pharmaceutical products in these classes were either imported from brand-name pharmaceutical companies or from generic companies; there is an absence of brand-name products where generic importation takes place. The antibacterial therapeutic class is comprised of a majority of brand-name products for the years 2006 and 2009 whereas after 2012 most of the products were imported in the market from generic manufacture companies or distributors of generic products. Furthermore, medicines that are used to treat Gastrointestinal Conditions and Autoimmune Drugs face an absence of brand-name products excluding the Caltrate drug. More significantly, lipid regulators saw a decrease of both generic and brand-name products during the years of the economic crisis in Cyprus. Whereas, some products have been erased in the market in 2012 but reappeared in 2015, for example Abacavir and Lamivudine, Pravachol, Lovastatin and Keflex. Some medications such as Retamulin have erased completely from the market in 2015 while in the same year the therapeutic class of anticoagulants faced a reduction in the number of generic products in comparison with 2009 and 2012. In general, as it is observed, during the years of the economic crisis generic competition increased although generic production was dynamic in Cyprus even before the financial crisis. Companies that are characterized by an originality of their products, mainly whose that import medications for chronic diseases such as for Cancer, Mental Health and HIV did not face any change regarding the particular drugs. However important changes occurred, for instance, “Merk & Co” and “Sanofi- Aventis” where companies that before the financial crisis focused on importing original and brand-name products, began producing and importing generic pharmaceutical products. As generic importation rose, Cypriot distributors benefited, such the case of “The star medicines importers co. LTD” and “Costakis Tsisios & Co LTD”. Multinational companies of pharmaceutical products on the other hand, decreased their sales in Cyprus as generic products were promoted via doctors΄ prescriptions and the rise of generic pharmaceutical products in the public healthcare sector. Cyprus΄ generic manufacturers such as “Aegis” and “Medochemie” saw a reduction in their products when the economic crisis in Cyprus began however as will be discussed in the next section Cyprus pharmaceutical manufacturers focused on exportation of their products. Particularly, Greek generic companies increased their sales in the last two years of the financial crisis, for instance, “Iasis Pharmaceuticals Hellas SA”, and “Medhel Hellas S.A.” due to the increase of generic competition in these years. Importantly, competition between generic pharmaceutical

products started increasing dramatically from 2012 while many of the MNEs began importing generic medications into the market.

As figures below 1 demonstrate, fluctuations on the country΄s trade regarding medications took part in the years of the economic crisis. Figure 1 portrays the top 3 importing countries of pharmaceutical products in Cyprus from 2009 to 2014. Particularly, Greece increased significantly its imports in Cyprus at 15.2% in 2013 whereas Switzerland and United Kingdom decreased their imports during the economic crisis in Cyprus. Moreover, as Graph 4 depicts, exports of medications of Cyprus pharmaceutical manufacturers grew rapidly from 2012 to 2013.

Figure 1

Top 3 Importing Countries of Medications from Cyprus

Complied by the author from OEC (2016)

Graph 4

Cyprus Exports of Medications

Complied by the author from World Bank (2016) 55

Ma and Cheng (2005, p.253) explain that trade links are important in the “contagious- effect” between countries. On the one hand, an economic recession could lead into a reduction of domestic demand and total output and export capability but on the other, the capital outflow forces the country to increase its exports (Ma and Cheng, 2005, p.255). Currency crises- as was one of the cases of the European crisis- that are affected by an external shock, could cause the demand for local products to be decreased in the international market, such as the case of the United Kingdom (Ma and Cheng, 2005, p.255; Shelburne, 2010, p.13). As the authors support (Ma and Cheng, 2005, p.257), when an economy’s exchange rate remains unchanged, it experiences a price deflation and during a price deflation, firms usually suffer losses while unemployment rises. Furthermore, while the theoretical analysis implies that imports and exports will face a fall during crises, the authors argue that the effect after the crisis depends on the source of external shocks (2005, p.258). Further so, Shelburne (2010, pp.10-25) reveals that although the crisis resulted in increased trade barriers these were relatively insignificant and temporary. Trade barriers in turn, were promoted via protectionist measures for example, Troika΄s measures, as well the impact of the financial crisis on trade varies between countries and it significantly depends on bilateral agreements between the countries, such as Cyprus and Greece. Moreover, Greek imports in Cyprus increased at 7.8% in all the importing products regardless the economic crisis (Sigma Live, 2015). Yet, exporting goods from Greece had risen significantly (Sigma Live, 2015). However, it is important to note that a significant portion of the imports from Greece in Cyprus takes part via multinational companies or Greek firms that have their headquarters in Cyprus (SigmaLive, 2015).

6.2 Interviews

The interviews were held between 19th and 24th of May, 2016 and are comprised of 7 experts in the field of the Cyprus pharmaceutical industry; Anonymous 1, manager of a private pharmacy; Anonymous 2, Agent of Multinational Company; Aggela Demetriou, Sales Supervisor at “The Star Medicines Importers Co. Ltd”; Fanis Mosaitis, a company’s Agent at “The Star Medicines Importers Co. Ltd”; Costas Panagiotou, a key account manager at “Astellas Pharmaceuticals” which imports only in public hospitals; Chrysanthos Demetriades, the manager “Pharmaschope” which imports only into the private pharmacies; and Maria 56

Kanaris-Leonidou, the owner of a private pharmaceutical shop. For the purpose of this research, the interviews aimed to investigate the impact of the economic crisis in Cyprus on the structural changes in the pharmaceutical industry.

In the question “What are the current difficulties within the sector?” all of the interviewees referred to the healthcare system, the rise of generic products in the pharmaceutical market and the rise of unemployment which led into a revision of the pharmaceutical products΄ consumption. Costas Panagiotou- a key account manager of the Greek company “Astellas Pharmaceuticals” which imports medications in the public hospitals- said “It (Cyprus) is a small market. The distinction between the private and public sector” influences the structure of the industry. Also, he noted that “the government’s budget had decreased in the healthcare sector… there are less available money for spending thus people buy less products”. Unemployment is another factor that was pointed out by all of the interviewees and as Aggela Demetriou, said “It affects it (the company). If someone has no job how can he cope with his life? It is difficult for your company and the profits in general”. Fanis Mosaitis explained, that the economic crisis led into “a decreased number of the patients, a decreased number in prescription medicines, a fall in the pharmaceutical market, and we finally reach the zenith where you (the company) has to “push thus to earn”… (the company) begins to face difficulties in the repayments”.

Demetriades, the manager of Pharmaschope, said that the structure of the pharmaceutical industry “is influenced by the prices in the occupied part (of Cyprus) of the products, because they are much cheaper so the market is affected because people prefer to go the opposite site and buy them, regardless if the products are substandard- they prefer to give less money”- which that was pointed out by 4 of the 7 interviewees in total (Anonymous 2, Demetriades, Kanaris-Leonidou and Panagiotou). However, the manager and the owner of the private pharmaceutical shops (Anonymous 2 and Kanaris-Leonidou) explained, that “people do not trust to buy generic medicines, they prefer the branded one, the original one. The prices of these products are not usually so suspending; if the difference between the original and the generic product is 3 to 4 Euros then people will buy the original one”. However, the particular interviewee later argued that “…as the prices decrease and there are products -even generics that are much cheaper than the originals, it is a positive thing. And there are (generics) of a good quality”. Nevertheless, the interviewee (Anonymous 2) said that “people usually ask for discounts which is a new phenomenon. We make a discount. If

we don’t do a discount we lose the customers… the shortages in the products generally is unprecedented for me…You can’t imagine what is happening the day people get their pensions”. More importantly, both of the people who work in the private pharmacies noted that during the economic crisis shortages in products took place where Kanaris-Leonidou stated that “Pharmaceutical products such as of high-pressure, or from a big company like Pfizer it΄s absurd to have shortages in its products”.

However, an agent of a multinational company (Anonymous 2) further explained that because of the economic crisis “Only some medicines enter the public sector and also the access of medications depends on the prices which during the crisis the prices reduce. Patients also turn into public hospitals so to not pay in the private sector, so to not pay any fee…the rise of unemployment affected this situation”. Panagiotou stated “in some products we were not willing to sell the products at a lower price, with a result, to not sell the products in Cyprus”. In response to “Do you think the financial crisis had a positive impact on the pharmaceutical industry?” Anonymous 2 stated that “in Cyprus, because the health system is connected with the industry such as in the case of Greece, the health system is connected with the economic crisis…patients do have access in the private healthcare system, multinational companies face important losses and are more affected…in some categories of medicines, the economic crisis influenced their (generics) evolution”. By contrast, Demetriou also said that “A lot of small companies had shut down, because of the capabilities of the bigger companies… the innovation of medicines will never stop to exist because medicines are a part of our lives and everybody needs medicines. I don’t think a medicine will ever stop to be produced. But during the crisis, the sales will be limited”. Mosaitis, also noted that “It (competition) increases because companies develop offers..with the fall of the prices the government made three times now (in 2016), you (the company) is forced to make more offers- because with a better offer to the shop, the pharmacist will promote your products”.

In the question What government policies have affected the sector? What do you think the government should do?, all of the responders highlighted the division between the public and the private healthcare sector. Signifiantly, Demetriou pointed out that “There are companies that do a parallel importation with another one and this is a mistake of the government…a parallel importation is unreasonable” which that was also illustrated in the analysis of the case study. Anonymous 1 replied that “The patients need to have access in new medicines, to buy products from multinationals”. Also Panagiotou, said “The ideal thing

is to provide all of the medications…all of the companies to be able to sell their products…but this opportunity is blocked by the economic situation and how it affects all of the society”. Demetriou, argued that “They should develop benefits for the pharmacies and the pharmaceutical companies so to be able to cope with the crisis…so the company to be able to earn profits and have the firm opened”. Demetriades on the other hand, responded that government policies that affected the sector are “The rise of the taxes, only. The taxes nothing else”. In this regard, he explained that “If it is a medicine of necessity people will buy it. If it is an effective one, he/she will buy it. He will make a deprivation of his salary and he will take it. If the product is not necessary such as lotion, hair products and cosmetics… that were actually decreased during the crisis, then okay, it is not a necessary product”. In the specific question, Panagiotou argued that “…one decision could lead into a thoroughly change in the industry. And we prefer, all of the enterprises, to have a consistent policy so to know where we are going...a decision by the Ministry of Health, could change the whole structure of the pharmaceutical industry, only with one decision if it is a serious decision. With the GESY (NHS) for example, with the implementation of NHS, the industrial structure will change for sure”. Significantly, where agents of “The Star Medicines Co Ltd” (Demetriou and Mosaitis) argued that the crisis affected all of the small companies and not MNEs, Anonymous 1 and Panagiotou supported that the impact of the crisis is more negative for MNEs because of the rise of generics and the changes of government΄s policies regarding taxes and the fall of the prices. Moreover, as the case study found the specific company increased the products that imports in the market in the last two years of the financial crisis in Cyprus.

Importantly, the interviewees emphasised the evolution of generics in the Cyprus market during financial crisis and on the other hand, three of the responders (Demetriou, Mosaitis and Panagiotou), noted that “The economic crisis brings much less revenues and less opportunities for research. That leads into a limited way of treatments because of the expenses. Patients that way, have a limited access in new treatments” (Panagiotou). Unemployment and change in consumption preferences that led into the rise of generics were another argument that was mentioned unanimously. Whereas interviewees held adverse perspectives on the dominated role of multinational companies during the economic crisis in Cyprus but emphasised the economic difficulties SMEs face. However, Demetriades who became a manager of “Pharmascope” during the financial crisis argued, that “when I became the manager I used the knowledge I have in the marketing area… as a company we sell food 59

supplements so we are in a different phase… the consumption depends on the necessity of the product”.

6.3 Discussion Analysis

As previously mentioned, important alterations in the pharmaceutical industry were influenced by policy measures such as higher tax in pharmaceutical products, access of patients in the public and private healthcare sector depending on their income and changes on the prescription drugs. For example, as also mentioned by interviewees a dynamic influence of the changing structure of the industry is the doctors΄ choices on the prescription of medications. Particularly, doctors were required to prescribe medications depending on the active substance of a drug and not of the branded names of medications excluding the medications of chronic diseases (Iefimerida, 2012).

Importantly, the case study portrayed a restricted number of generic pharmaceutical products in the categories of chronic diseases. Yet, during the economic crisis several decreases of prices in the pharmaceutical products occurred with approximately 7.1% reduction every year. Significantly though, the prices of out-of-pocket pharmaceutical products are determined by the importing companies (Simerini, 2016). As a result of the economic crisis moreover, 9 million people do no longer have access in the public healthcare and had to be placed into the private healthcare sector of the country (Neophytou, 2016). Additionally, multinational companies in Cyprus called for stricter regulation within the framework of European efforts to increase transparency and credibility in the pharmaceutical industry and required stricter provisions on the interaction between medical representatives and healthcare professionals, the promotion of prescriptions of medicinal products, the availability of samples as well the promotional material (Cyprus Mail, 2013).

However, Cyprus has been one of the most expensive countries in pharmaceutical products between the countries in the EU and only in 2012, it was the second country in the EU with the highest prices in pharmaceutical products (Euripidou, 2012). In 2005, the lack of transparency in government΄s studies regarding the pharmaceutical market led into the increase of expensive generic pharmaceutical products and the absence of cheaper drugs which that caused the rise of the governmental spending on the pharmaceutical sector (Euripidou, 2012). The government moreover explained that the different prices of the

pharmaceutical products between the private and the public healthcare sector aims to the growth of the exports by the manufacturers of pharmaceutical products in Cyprus. To this extend, Kades (2016) explains that there is a lack of necessary medicines for people suffering from rare diseases in public hospitals as they are not able to have access on free treatments. Several of the vital drugs prescribed to patients are either not available or are costly and people often go to the north where drugs are cheaper to buy them (Kades, 2016). Yet, in 2015 pharmaceutical products entered the market via multinational companies that were proved to encompass illegal substances (Phileleutheros, 2015). Kefea moreover noted that the 40% of the medications available from public pharmacies have incomplete labelling (Hadjiathanasiou , 2015). The association which represents multinational companies in Cyprus argued that the consistent policy of reducing the prices of medications affects the association as it prevents innovation and new medications from entering the market (Kefea, 2016). For that reason, Kefea asked for an elaboration on the country΄s existing policy regarding the external price referencing and asks the involvement of two medium and two cheap countries as price reference of medications (Kefea, 2016).

On the contrary, Pittas the founder of Medochemie- one of the country΄s medicines΄ manufacturers – said (2016 in Orphanides, 2016) that “no time has the Cyprus government services supported us, neither with subsidies nor with legislation”. Pittas also argued that the “severe banking crisis which did not leave Medochemie unaffected- as it is creating huge problems both for incoming and outgoing payments” and that the company focuses on cooperation with smaller pharmaceutical companies as well as setting up a joint-venture production site in other countries (Orphanides, 2016). Moreover, innovation in the post-era financial crisis has been proclaimed as an important element for the economic development from the government, biomedical manufacturers and manufacturers of pharmaceutical products in Cyprus while the government focuses on the adoption of new policies that could lead into new practices of innovation by the manufacturers in Cyprus (Cyprus Profile, 2016).

However, as data revealed, during the crisis generic evolvement was incremental. Vogler (2012, p.44) argues that because of the financial crisis and the limited states΄ budgets, European countries view “generics as a policy option that enables savings to be made and which can then be used for funding high-cost medicines”. Moreover, small markets -such as in the case of Cyprus- face a lack of interest by MNEs especially during financial crises because MNEs prefer to sell their products in countries with more business opportunities

(Lima et al., 2012, p.191). In addition, bilateral agreements between Cyprus and Greece had extended and focus on the promotion of generic medications in the Cyprus market via prescriptions (Cyprus Trade Center, 2013, p.6).

6.4 Conclusion of the chapter

Having studied the impact of the economic crisis on the structural changes in the pharmaceutical industry in Cyprus by using an analysis of primary data- the annual pharmaceutical price lists, ministerial and newspaper documents as well a qualitative research of interviews- the next chapter presents the main findings and the conclusion of the thesis.

Chapter 7

Conclusions

The thesis seeks to address the research question of How do financial crises affect industrial structures? To answer the research question, the thesis draws upon a theoretical background using Schumpeter΄s and regime΄s theory and a case study method of the Cyprus pharmaceutical industry to study the ways in which industrial structures are affected by financial crises.

Importantly, Schumpeter΄s theory explains that firms which obtain particular strategies and mainly through innovation practices will emerge as dynamic after an economic downturn. However, firms that reduce their investments in innovation are likely to be affected in a negative way (Archibugi et al., 2013, pp.1247). Nevertheless, the thesis shows that on a global scale, enterprises reduced their investment in innovation during the contemporary financial crisis. Moreover, the financial crisis has led into a rise of competition between existing enterprises, fluctuations in currency values, changes in consumers΄ preferences and the adoption of protectionist measures by governments that restrain trade and industries΄ opportunities. These phenomena are particularly apparent in the EU member- states where the affiliation and the integration between the EU economies are strong as well the introduction of policy-measures to overcome the crisis is escalated (Gros and Alcidi, 2010, p.4). To this extend, regime theory provides an understanding of how international institutions can affect trade policies that in turn affect changes in industrial structures (Oshiba, 2011, p.3). Moreover, financial crises as “extreme manifestations” (Claessens and Kose, 2013, p.3) are found to alter industrial structures although this impact is rather temporary and significantly depends on the nature of industrial structures before financial crises as well as of the size of the market. This is mostly because financial crises and especially the current global financial crisis, is not an outcome of an industrial shrinkage but it is a crisis that has prevented economic growth and weaken innovation dynamics and industrial development (OECD, 2009, p.8). Particularly, the fall in trade activities and in the FDI affected industries which are mainly economically dependent on external markets (Lorinczy, 2013, p.30).

The case study of the pharmaceutical industry depicts, that the creation of new drugs, the originality of the products, the brand loyalty and the market competition are important

factors that affect the structure of the industry (Achilladelis and Antonakis, 2001, p.540). Innovation has a key role for the firms because of the very nature of the industry whereas, during a period of a financial crisis enterprises postpone the process of “creative destruction” because the industry experiences difficulties in the reapportionment of resources (Laperche et al., 2011, p.1323). The thesis portrays, that on the one hand, firms need to find new solutions to overcome the general economic downturn and on the other, need to face the main challenges of the pharmaceutical industry due to political constraints. Whereas, Krasner (1982, p.189) explains that regimes are important components that alter behaviour of a particular sector, the financial crisis led into the development and the adoption of imposed policy-measures by Troika in exchange for financial support. For instance, the reduction of the states' expenditures on research funds in EU΄s member states, the further division between private and public sectors, and specifically to the pharmaceutical industry, the decrease of the government΄s spending on the healthcare sector and the promotion of different products such as of generics which led into the increased competition among the enterprises. Firms for that reason, focus on providing more value for patients, for providers and for shareholders as also, the distributors of the products face difficulties in their repayments (Pwc, 2012, p.4).

In Cyprus, the economic sector of the country is significantly affected by the global financial crisis because of the country΄s central involvement to the Greek bank crisis. With the agreement of the bailout programme between the Republic of Cyprus and Troika, the memorandum brought about structural reforms in many of the industries of the country (Roussos, 2014, p.24). During the economic crisis the GDP globally as well as of the country declined, which that resulted into a negative effect to the manufacturing and the industrial activity (Dullien et al., 2010, p.2; OECD, 2009, p.8). The purchasing power of people during the crisis decreased while prices were continually increasing (Karaginakis et al., 2013, p.60). Nonetheless, as the case study demonstrates, the factors that restrict favourable processes of industrial development are the small market of Cyprus and the low productivity levels in industries during the global financial crisis. Also, as the government of Cyprus lacks in a directive that could promote local industries, domestic firms during financial crises emphasise exporting their products overseas (Glushenkova and Zachariadis, 2014, p.63; Michael, 2015, p.5; Patziara, 2016, p.23). Furthermore, Troika΄s involvement in the bank sector of the country resulted into severe changes for domestic enterprises while some

companies had shut down and others had been sold to foreign investors as an outcome of the crisis (Mouzouros, 2014, p.194).

Among the measures that significantly lead into a change of the industrial structure of the pharmaceutical industry are the consecutive reduction of the pharmaceutical products΄ prices, though until 2009 the prices were heavily expensive (Woutersa and Kanavosa, 2015, p.607). However, medications that are imported to private pharmacies are still costly (Woutersa and Kanavosa, 2015, p.607). The elimination of the beneficiaries΄ group into the public healthcare sector results into a big number of patients΄ turn in the private healthcare sector of the country. The case study finds that patients tend to buy their medications from elsewhere where products are cheaper. The particular situation leads into a rise of difficulties for MNEs because of their main attribution to the private healthcare sector in the country. Unemployment is also a key factor that altered the structure of the industry because a large amount of people turn into the public healthcare sector of the country where the sector is described by a majority of generic pharmaceutical products. Additionally, one of the main policies of the EU is to promote generics through prescription medicines, something that is also observed in the case study of the Cyprus pharmaceutical industry. Consequently, MNEs are significantly influenced and change their strategies, for example, through the reduction or their elimination of some products into the Cyprus market as also they focus on exporting their products into bigger markets or even create generic drugs as the cases of Sanofi and Merck & Co depict. More specifically, MNEs and domestic manufacturers are shown to be unwilling to reduce their prices (Pwc, 2012, p.19). Firms that import generic products to Cyprus, such as Greek MNEs, and domestic distributing companies of generics such as “The Star Medicines Co Ltd.” achieved into benefiting from this situation as numerous products were introduced by these companies during the financial crisis. Therefore, the thesis supports that enterprises that are willing to adjust to these changes are capable of coping with and further benefiting from the financial crisis.

An important finding of this thesis is that the originality of innovative products are not influenced; for example, the products or services such as medications of chronic diseases and treatments for serious illnesses which that illustrates the potent role of innovation. However, the case study of the Cyprus pharmaceutical industry concludes that all companies- biotech companies, representatives and local manufacturers- have been affected by the crisis as a consequence of the implementation policies that were introduced and led into a reformation

of the structure of the pharmaceutical industry. However, firms find new ways to innovate or develop different strategies; for example, they emphasise exporting products into bigger markets, increase generics΄ importation to Cyprus or reduce their prices (Dunning, 2013, p.136). Innovation during financial crisis declines and firms need to find new ways of innovating or changing the way they process (Dunning, 2013, p.136). By contrast, the distinct importance of the industry which is inhabited in its very nature imparts that these changes are rather temporary. Moreover, a financial crisis can lead into new restrictions but also new opportunities for industries (Brabazon, 2014, p.9). Particularly, the industrial structure of the pharmaceutical industry in Cyprus has always been characterised by a majority of generic pharmaceutical products, an expensive market-place, a large number of MNEs, a lack of transparency between the state΄s relationship and the industrial sector, and a strong affiliation between the pharmaceutical industry and the healthcare sector of the country (Petrou, 2014, p.37). Hence, the way in which structural changes in industry are influenced during financial crises is importantly reinforced by the characteristics of the industry before the crisis.

This thesis argues that industrial structures are affected by financial crises mainly because industries are globally interrelated and a severe economic crisis in one country can impact another, though that significantly depends on the size of the market and its dependency on external economies. The case study of Cyprus shows the interrelationship between the global financial crisis and the domestic industrial activity. Specifically, domestic manufacturers and MNEs, during financial crisis are shown to prefer to do business activities markets overseas with more expectations for profits when the state does not hold different measures which could promote local industries into the domestic market (IBP, 2015, p.46; Patziara, 2015, p.27). The thesis supports that Cyprus has limited market-size while the economy is weightily dependent on specific economies and foreign investors, such as from Greece or Russia- while the particular influences showed that had played a key part on the country΄s negative economic and industrial development. For this reason, a further research on the impact of financial crises on industrial structures in closer economies could be helpful to question whether countries΄ economic structures signify industrial changes during a period of a financial crisis.

Chapter 8

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Appendix 1: Tables

Tables are compiled by the author using the “Price Pharmaceutical Lists” by Pharmaceutical Services, Ministry of Health (2006, 2009, 2012, 2015, 2016) on 102 selected medications- brand-name and generics in 15 therapeutic classes.

Table 6 Category 1: Oncologic and Cancer Drugs

Products 2006 2009 2012 2015 2016 Alimta - - Eli Lilly BV Eli Lilly BV Eli Lilly BV Pemetrexed - - - - Phadisco LTD

Avastin - Roche Roche Roche Pharma Roche Pharma Pharma Pharma bevacizumab - - - - -

Glivec Novartis Novartis Novartis Novartis Novartis Imatinib - - - Accord A Potamitis Medicare Healthcare Pharmasin. Actavis Group Remedica PTC EHF Sanofi-Aventis Remedica Teva Pharma BV Sanofi-Aventis Teva Pharma BV

Herceptin - - Roche Roche Roche Registration Registration Registration Trastuzumab - - - - -

Neulasta - - Amgen Amgen Europe Amgen Europe B.V Europe B.V B.V Pegfilgrastim - - - - -

Revlimid - - Celgene Celgene Europe Celgene Europe Europe Lenalidomide - - - - -

Rituxan - - - - - Rituximab - Roche Roche Roche Registration Registration Registration LTD LTD LTD

Taxotere - - Sanofi- Sanofi- Aventis Sanofi- Aventis Aventis Docetaxel - - Actavis Actavis Group Actavis Group Group Accord Accord Healthcare Ebewe Healthcare Hospira Pharma Delorbis Teva Pharma BV Hospira Pharmaceuticals Teva LTD Pharma Hospira Teva Pharma BV

Table 7 Category 2: Antidiabetic Drugs

Products 2006 2009 2012 2015 2016 Humalog - Eli Lilly BV Eli Lilly BV Eli Lilly BV Eli Lilly BV Insulin Lispro - - - - -

Janumet - Merck Sharp Merck Sharp Merck Sharp Merck Sharp & & Dohme & Dohme & Dohme Dohme Metformin and - - - - - Sitagliptin

Januvia - Merck Sharp Merck Sharp Merck Sharp Merck Sharp & & Dohme & Dohme & Dohme Dohme Sitagliptin - - - - -

Lantus Sanofi- Sanofi- Sanofi- Sanofi- Sanofi- Aventis Aventis Aventis Aventis Aventis Insulin - - - - - Glargine

Levemir - - Novo Novo Novo Nordisk A/S Nordisk A/S Nordisk A/S Insulin Detemir - - - - -

NovoLog - Novo Novo Novo Novo Nordisk A/S Nordisk A/S Nordisk A/S Nordisk A/S NovoRapid - - - -

Victoza - - Novo Novo Novo Nordisk A/S Nordisk A/S Nordisk A/S Liraglutide - - - - -

Table 8

Category 3: Pain-management drugs

Products 2006 2009 2012 2015 2016

Advil - - - - -

Ibuprofen Aegis Aegis Codal Synto C A C A Papaellina LTD Papaellina & & Co LTD Bard Medochemie Co LTD Pharmaceutica Interpak LTD Codal Synto Remedica ls Codal Synto LTD Lifepharma Vianex SA LTD Crookes (Z.A.M) LTD Medochemie Healthcare Medilink Medilink Pinewood Pharmaceutica Medochemie Pharmaceutica Laboratories ls LTD ls LTD LTD Remedica Medochemie Medochemie Reckitt Tad Reckitt Benckiser Hellas Pharmaceutisc Reckitt Benckiser Chemical Abee hes Benckiser Hellas Hellas Remedica Vianex Chemical Chemical Abee Varnavas Abee Hadjipanayis Remedica Remedica LTD Varnavas Thornton & Hadjipanayis Ross LTD LTD Vogen

Laboratories

Bufferin - - - - -

Aspirin Bayer - Bayer Hellas Bayer Hellas Bayer Hellas Bitterfeld Abee Abee Abee

Remedica Novagem LTD

Medilink Pharmaceuticals LTD

- -

Celebrex Pfizer Pfizer Pfizer Hellas Pfizer Hellas Pfizer Hellas AE Pharmaceutica Pharmaceutica AE AE ls LLC ls LLC

Celecoxib - - - - -

Morphin - - - -

Morphine - - Macarthys Macarthys Macarthys Laboratories Laboratories Laboratories

LTD LTD LTD

Martindale Martindale Martindale Pharmaceutica Pharmaceutica Pharmaceuticals ls LTD ls LTD LTD

Mundipharma Mundipharma Waymade PLC Pharmaceutica Pharmaceutica

ls LTD ls LTD

Waymade Waymade PLC PLC

Nurofen Plus - Reckitt Reckitt Reckitt Reckitt Benckiser Benckiser Benckiser Benckiser Healthcare Healthcare Healthcare Healthcare

Ibuprofen, Bard Aegis Bristol Boehringer Boehringer Codeine Pharmaceutica Laboratories Ingelheim Ingelheim Ellas Bene- ls LTD LTD Ellas AE AE Arzneimittel Crookes Delorbis Bristol

Healthcare Bard LCM LTD Pharmaceutica Laboratories LTD Pharmaceutica ls LTD LTD Medilink ls LTD Medochemie Pharmaceutica Multi-Pharm Multi-Pharm Co Medochemie ls LTD Co LTD LTD Remedica Mundipharma Omega Pharma Tad Pharmaceutica Hellas SA Pharmaceutica ls LTD ls

Vianex

Panadol Glaxo Smith Glaxo Smith Glaxo Smith Glaxo Smith Glaxo Smith Kline Kline Kline Kline Kline

Paracetamol Aegis Aegis Aegis Akis Pharmaceutical Panayiotou & Trading Co LTD Bene- Bene- Akis Son LTD Arzneimittel Arzneimittel Panayiotou & Uni-Pharma Son LTD Codal Synto Kleon Tsetis Bristol-Myers Bristol-Myers LTD Pharmaceutical Codal Synto Medochemie Famar Abe Laboratories SA LTD Delorbis Remedica Glaxo Pharmaceutica Akis Panayiotou Medilink ls LTD & Son LTD Medochemie Pharmaceutica ls Ltd Faes Farma Boehringer Pinewood SA Ingelheim Ellas Laboratories Medochemie AE Fresenius Remedica Multi-Pharm Kabi Hellas Crescent Pharma Co Ltd AE LTD Remedica Pharmaceutica Delorbis ls LTD Uni-Pharma Pharmaceuticals

Kleon Tsetis Medochemie LTD Pharmaceutica

l Laboratories Multi-Pharm Fresenius Kabi SA Co Ltd Hellas AE Pharmaceuticals Novartis LTD Hellas S.A.C.I. Medochemie

Remedica Multi-Pharm Co Ltd Omega Pharma Hellas Novartis Hellas SA S.A.C.I.

Uni-Pharma Olvos Science Kleon Tsetis SA Pharmaceutica Remedica l Laboratories SA

Percocet - - - - -

Oxycodone Bard Bard - - Mundi-pharma Pharmaceutica Pharmaceutica Pharmaceuticals ls ls LTD

Ultran - - - - -

Tramadol Aegis Aegis Aegis Codal Synto Codal Synto LTD LTD Fisiopharma Farmceutisch Codal Synto SRL Analytisch LTD Delorbis Delorbis Laboratorium Pharmaceutica Pharmaceuticals Medochemie ESP Pharma ls LTD LTD Medochemie Ltd

Medochemie Medochemie

Table 9

Category 4: Antihypertensive Drugs

Products 2006 2009 2012 2015 2016

Coreg - - - - -

Carvedilol Medochemie Medochemie Costakis Delorbis Costakis Tsisios & Tsisios & Co Pharmaceuticals Co LTD Roche Spa- Elpen AE LTD LTD Italy Pharmaceutica Delorbis l Co Inc G A Costakis Tsisios & Pharmaceuticals Stamatis & Co LTD Roche Spa Co G A Stamatis & G A Stamatis & Co Remedica Co Remedica Remedica Medochemie Medochemie

Diovan Novartis Novartis Novartis Novartis Novartis

Valsartan - - Arrow Arrow Generics Actavis Group PTC Generics LTD EHF LTD Codal Synto LTD Codal Synto LTD KRKA, Delorbis Delorbis D.D., Novo Pharmaceuticals Pharmaceuticals Mesto LTD LTD Zentiva SRL KRKA, D.D., Fair-Med Healthcare Generics Novo Mesto GMBH Pharma Zentiva SRL Hellas LTD Generics Pharma Medochemie Hellas LTD

Pharmasasin LTD KRKA, D.D., Novo Mesto Zentiva SRL , Generics Pharma Hellas LTD Medochemie

Pharmasasin LTD

Lasix Sanofi- Sanofi- Sanofi- Sanofi- Aventis Sanofi- Aventis Aventis Aventis Aventis (Famar L΄aigle)

Furosemide Bard Remedica Hameln Hameln Hameln Pharmaceutica Pharmaceuti Pharmaceuticals Pharmaceuticals ls LTD cals LTD LTD LTD

Remedica Remedica Remedica Rosemond Pharmaceuticals Rosemond Rosemond LTD Pharmaceuti Pharmaceuticals cals LTD LTD

Prinivil - - - - -

Lisinopril Astrazeneca Aegis Aegis Astrazeneca Astrazeneca

Medochemie Astrazeneca Astrazeneca Codal Synto LTD Codal Synto LTD

Medochemie Codal Synto Delorbis Delorbis LTD Pharmaceuticals Pharmaceuticals

LTD LTD Medochemie Medochemie Medochemie

Tenormin Astrazeneca Astrazeneca Astrazeneca Astrazeneca Astrazeneca

Atenolol Aegis Aegis Aegis CDL Codal Synto LTD Pharmaceutical G A Industrias Codal Synto Delorbis

Pharmaceutica Farmaceuticas LTD Products LTD Pharmaceuticals ls Almirall LTD Hexal AG Codal Synto LTD Prodesfarma Industrias Hexal AG Medochemie Delorbis Farmaceutical Medochemie Pharmaceuticals The Star Medicines s Almirall Remedica Remedica LTD Importers & Co LTD Prodefarma The Star Salutas Hexal AG Medochemie Kleva LTD Medicines Pharma Importers & Medochemie Remedica Medochemie Co LTD Remedica Remedica

Salutas Pharma

Table 10

Category 5: Antibacterial Drugs

Products 2006 2009 2012 2015 2016

Amoxil Smithkline Smithkline Smithkline Smithkline Smithkline Beecham Beecham Beecham Beecham Beecham

Amoxicillin Aegis A.Menarini Aegis Codal Synto LTD Codal Synto Manufacturing LTD A.Menarini Codal Synto Costakis Tsisios Logistics and Manufacturing LTD & Co LTD Costakis Tsisios Services Logistics and & Co LTD Costakis Delorbis Services Codal Synto Tsisios & Co Pharmaceuticals Medochemie LTD Codal Synto LTD LTD Remedica LTD Elpen Hellas Medochemie Medochemie SA Vogen Medochemie Remedica Remedica Laboratories Medochemie Ranbaxy LTD Vogen Vogen Limited Remedica Laboratories Laboratories LTD Remedica LTD

Vogen

Laboratories

Cloxapen - - - - -

Cloxacillin Medochemie Medochemie Holden Medochemie Medochemie Medical Remedica Remedica Remedica Remedica LTD

Medochemie

Remedica

Duricef - - - - -

Cefadroxil Aegis Alkem Aegis Delorbis Medochemie Laboratories Pharmaceuticals Medochemie Medochemie Limited LTD Ltd Remedica Medochemie Medochemie

Keflex Eli Lilly Eli Lilly - Eli Lilly Pharma - Pharma Pharma

Cefalexin Facta Remedica - Codal Synto LTD Codal Synto Farmaceutici LTD Medochemie Delorbis S.P.A Pharmaceuticals Delorbis Medochemie LTD Pharmaceuticals LTD Remedica Medochemie Medochemie Phadisco LTD Phadisco LTD Remedica Remedica

Lanoxin Sanofi- Aventis Sanofi- - - - Aventis

Digoxin - - Aspen Aspen Pharma Aspen Pharma Pharma Trading LTD Trading LTD Trading Bristol Bristol LTD Laboratories LTD Laboratories Bristol LTD

Laboratories

LTD

Pipracil - - - -

Piperacillin Wyeth-Ayerst Wyeth-Ayerst Mylan S.A.S Costakis Tsisios Mylan S.A.S

Lederle Inc Lederle Inc & Co LTD

Demo S.A.

Fresenius Kabi Hellas AE

Mylan S.A.S

Pfizer Hellas AE

Rocephin F Hoffmann-La F Hoffmann- - - - Roche La Roche

Ceftriaxone Demo Pharmac. Demo SA Codal Synto Codal Synto LTD Codal Synto Industry Pharmaceutica LTD LTD Costakis Tsisios l Industry Elpen Hellas Costakis & Co LTD Costakis Tsisios S.A Elpen Hellas Tsisios & Co & Co LTD Medochemie SA LTD Medochemie Medochemie The Star Medochemie Medochemie Medicines The Star The Star Importers & Co Medicines Medicines LTD Importers & Co Importers & LTD

Co LTD

Zyvox - Pfizer Pfizer Pfizer Pfizer

Linezolid - - - - -

Table 11

Category 6: Respiratory Drugs

Products 2006 2009 2012 2015 2016

Advair - - - - -

Fluticasone and - - Costakis Glaxo Group Costakis Tsisios & Salmeterol Tsisios & Co LTD (Glaxo Co LTD LTD Smith Kline) Glaxo Group LTD Glaxo Smith (Glaxo Smith Kline Abee Kline)

Azmacort - - - - -

Triamcinolone Bristol- Myers Bristol- Myers Hexal AG Janssen- Faes Farma SA inhalation Squibb Co. Squibb Co. Cilag Janssen- Janssen-Cilag International Sanofi- Cilag International NV NV Aventis International

Cyprus LTD NV

Sanofi- Aventis Cyprus LTD

Cipro Bayer Bayer Bayer Bayer Bayer Healthcare Healthcare Healthcare Healthcare Healthcare

Ciprofloxacin Aegis Fresenius A Potamitis Fresenius A Potamitis Kabi Hellas Medicare Kabi Hellas Medicare LTD Alcon- AE LTD AE Couvreur Cooper SA Pharmathen Fresenius Sapiens Anfarm Hellas Costakis Tsisios & Kabi Pharmaceuti SA Co LTD cals LTD Sapiens Codal Synto Codal Synto Ltd. Pharmaceuti

LTD cals LTD Delorbis Pharmaceuticals Demo LTD Pharmac. Industry Fresenius Kabi Hellas AE Medocemie Galenica SA Rafarm SA Medochemie Remedica Remedica

Sapiens Pharmaceuticals LTD

The Star Medicines Importers & Co LTD

Clarinex - - - - -

Desloratadine SP Labo NV SP Labo NV - - SP Labo NV (Actavis Group PTC EHF)

Aqua-E - - - - -

Vitamin E - - - Fresenius Fresenius Kabi Kabi Hellas Hellas AE AE George Petrou George LTD Petrou LTD Minerva Remedica Pharmaceutical SA

The Star The Star Medicines Medicines Importers & Importers & Co

Co LTD LTD

Theosavva Theosavva Co Co LTD LTD

Remedica

Sumycin - - - -

Tetracycline - Medochemie Medochemie Medochemie Medochemie

Merz Pharma Theosavva Rafarm SA Rafarm SA Gmbh & CO Co LTD Remedica Theosavva Co KGaA LTD Remedica

Table 12

Category 7: Mental Health Drugs

Products 2006 2009 2012 2015 2016

Abilify Bristol-Myers Bristol-Myers Bristol-Myers Bristol-Myers Bristol-Myers Squibb Squibb Squibb and Otsuka Squibb and Otsuka Squibb and Pharmaceutical Pharmaceutical Otsuka Europe Ltd Europe Ltd Pharmaceutical Europe Ltd

Aripiprazole - - - - -

Ativan - - - - -

Lorazepam Medochemie, Medochemie Medochemie Medochemie Medochemie Remedica Pfizer Pfizer Pfizer Pfizer Pfizer Remedica Remedica Remedica

Celexa - - - - -

Citalopram Lundbeck H Lundbeck H Adelo- Adelo- Adelo- A/S A/S Chromatourgia Chromatourgia Chromatourgia E.Colocotronis Bros E.Colocotronis E.Colocotronis Rafarm SA S.A Bros S.A Bros S.A

C G Papaloisou C G Papaloisou C G Papaloisou LTD LTD LTD

Iasis Pharma Hellas Delorbis Delorbis S.A Pharmaceuticals Pharmaceuticals LTD LTD Remedica Iasis Pharma Iasis Pharma

Hellas S.A Hellas S.A

Medochemie Remedica

Pfizer

Remedica

Lexapro - - - - -

Escitalopram - H.Lundbeck H.Lundbeck A/S Codal Synto LTD Actavis Group A/S PTC EHF Vera Pharma KFT Delorbis Pharmaceuticals Codal Synto

LTD LTD

H.Lundbeck A/S Delorbis Pharmaceuticals Medochemie LTD Teva Pharma BV H.Lundbeck A/S

Medochemie

Teva Pharma BV

Prozac - - - - -

Fluoxetine Aegis Actavis Actavis Group PTC Actavis Group Actavis Group Nordic A/S EHF PTC EHF PTC EHF Eli Lilly and Company Aegis Aegis Ltd Delorbis Delorbis LTD Pharmaceuticals Pharmaceuticals Generics LTD Codal Synto LTD LTD LTD Generics Medochemie Medilink Limited Medilink Medochemie Pharmaceuticals Remedica Pharmaceuticals Medochemie LTD Pinewood LTD Laboratories Remedica Medochemie Medochemie LTD Remedica Remedica Remedica

Seroquel Astrazeneca Astrazeneca Astrazeneca Astrazeneca Astrazeneca

Quetiapine - - Aegis Actavis Group Actavis Group PTC EHF PTC EHF Arrow generics LTD Delorbis Delorbis Pharmaceuticals Pharmaceuticals LTD LTD

Generics LTD. Generics LTD.

Vianex S.A Vianex S.A

Xanax Pfizer Pfizer Pfizer Pfizer Pfizer

Alprazolam Aegis Aegis Aegis Medochemie Delorbis Pharmaceuticals Medochemie Medochemie Medochemie Remedica LTD Remedica Remedica Remedica Medochemie

Remedica

Zoloft Pfizer Pfizer Pfizer Pfizer Pfizer

Sertaline KRKA D.D KRKA D.D KRKA D.D Novo Delorbis Delorbis Novo Mesto Novo Mesto Mesto Pharmaceuticals Pharmaceuticals LTD LTD Iasis Pharma Hellas S.A Iasis Pharma IASIS Iasis Hellas S.A Pharma Hellas

S.A

Table 13

Category 8: Autoimmune diseases Drugs

Products 2006 2009 2012 2015 2016

Azasan - - - - -

Azathioprine Heumann Heumann Aspen Europe Aspen Europe GMBH Aspen LTD LTD GMBH Europe Remedica GMBH Remedica Remedica Remedica Remedica

Clarinex - - - - -

Desloratadine SP Labo NV SP Labo NV Structured Actavis Group PTC Actavis Products Europe EHF Group PTC EHF Delorbis Pharmaceuticals LTD Delorbis Pharmaceuti Merck Sharp & Dohme cals LTD LTD KRKA D.D

Novo Mesto

Merck Sharp & Dohme LTD

Enbrel Wyeth Wyeth Pfizer Pfizer Pfizer Pharmaceutica Pharmaceuti ls cals (company sold to Pfizer in 2009)

Etanercept - - - - -

Famvir Novartis Novartis Novartis Novartis Novartis

Famciclovir - - Arrow generics - - LTD

Otrexup - - - - -

Methotrexate Haupt Pharma Excella Pharmaceutical Accord Healthcare LTD Accord GMBH GMBH Trading Co LTD Healthcare Pharmaceutical Trading LTD Remedica Orion Pfizer Hellas AE Co LTD Pharma LTD Pharmaceuti Remedica Pfizer Hellas AE cal Trading Remedica Co LTD

Pfizer Hellas AE

Remedica

Remicade - Janssen Janssen Janssen Biologics BV Janssen Biologics Biologics BV Biologics BV BV

Infliximab - - - Celltrion Healthcare Celltrion Healthcare Hospira UK LTD Hospira UK

LTD

Twinrix - - - - - hepatitis A and Aventis Aventis Aventis Pasteur Aventis Pasteur Aventis hepatitis B Pasteur Pasteur Pasteur Glaxosmithkline Glaxosmithkline vaccine Glaxosmithkli Glaxosmithk biologicals SA biologicals SA Glaxosmithk ne biologicals line line

biologicals biologicals

100

SA SA

Zyrtec UCB Farchim UCB UCB Farchim UCB Farchim SA UCB SA Farchim SA SA Farchim SA

Cetirizine Codal Synto Delta LTD Aegis Ltd. CDL Pharmaceutical Delorbis LTD Products LTD Pharmaceuti Kleva LTD CDL cals LTD Delta LTD Pharmaceutical Delorbis MC Dermott Products LTD Pharmaceuticals LTD Medochemie Kleva LTD Laboratories LTD Hexal AG HEXAL AG Mylan SAS MC Dermott Laboratories Medochemie Lifepharma Ltd Lifepharma Ltd LTD Remedica Medochemie Medochemie Salutas LTD Pharmaceutical Mylan SAS Pharma Salutas Trading Co LTD Remedica Pharma Remedica

101

Table 14

Category 9: Lipid regulator Drugs

Products 2006 2009 2012 2015 2016

Crestor Astrazeneca Astrazeneca Astrazeneca Astrazeneca Astrazeneca

Rosuvastatin - - Teva Pharma BV Codal Synto Codal Synto

Medochemie Medochemie

Lescol Novartis Novartis Novartis Novartis Novartis

Fluvastatin sodium - - Demetriades & Accord Accord Papaellinas Healthcare LTD Healthcare LTD

Glaxosmithkline Glaxosmithkline AEBE AEBE

Lipitor Pfizer Pfizer Pfizer (Hellas Pfizer (Hellas Pfizer (Hellas AE) AE) AE)

Atorvastatin Medochemie Actavis HF DR. Reddy`s Actavis Group Actavis Group Laboratories LTD PTC EHF PTC EHF

Iwa Consulting KRKA D.D Novo Generics Pharma APS Mesto Hellas LTD

KRKA D.D Novo Medochemie KRKA D.D Mesto Novo Mesto Pharmathen Medochemie Medochemie Rafarm SA Remedica Ltd. Merck Sharp & Remedica Dohme LTD Sandoz GMBH

Rafarm SA

Remedica

Sandoz GMBH

102

Mevacor - - - - -

Lovastatin Aegis Aegis - Codal Synto LTD Medochemie

Medochemie Elpen AE Delorbis Remedica Pharmaceutical Pharmaceuticals Remedica Co Inc LTD

Medochemie Remedica

Pravachol Bristol- Bristol- Myers - Bristol- Myers Bristol- Myers Myers Squibb Squibb Squibb Squibb

Pravastatin - - Akis Panayiotou - Delorbis & Son LTD Pharmaceuticals LTD Arrow Generics LTD

Vytorin - - - - -

Ezetimibe/Simvastatin - Merck sharp & Merck sharp & Merck sharp & Merck sharp & Dohme Ltd Dohme Ltd Dohme Ltd Dohme Ltd

Zetia - - - - -

Ezetimibe Schering- Schering- Merck sharp & Merck sharp & Merck sharp & Plough Plough Dohme Ltd Dohme Ltd Dohme Ltd Products Products Inc. Inc.

Zocor Merck sharp Merck sharp & Merck sharp & Merck sharp & Merck sharp & & Dohme Dohme Ltd Dohme Ltd Dohme Ltd Dohme Ltd

103

Ltd

Simvastatin KRKA D.D Aegis Aegis Abbot Healthcare Costakis Tsisios Novo Mesto Products LTD & Co LTD KRKA D.D Costakis Tsisios Rafarm SA Novo Mesto & Co LTD Costakis Tsisios Medilink & Co LTD Pharmaceuticals Tad Pharma Medochemie KRKA D.D Novo LTD GMBH Mesto Delorbis Rafarm SA Pharmaceuticals Medochemie Medilink Tad Pharma LTD Pharmaceuticals Remedica GMBH LTD Medochemie Tad Pharma

Medochemie Medilink GMBH Pharmaceuticals MSD-SP LTD LTD Tad Pharma Tad Pharma GMBH GMBH

104

Table 15

Category 10: Dermatologics

Products 2006 2009 2012 2015 2016

Altabax - - - - -

Retapamulin - Glaxo Glaxo Group - - Topical Operations UK LTD

Azelex - - - - -

Azelaic acid - Intendis Intendis Bayer Hellas - Manufacturing Manufacturing Abee Spa Spa

Benzamycin - Aventis Pharma Aventis Pharma Aventis Pharma Aventis Pharma Inc. Inc. Inc. Inc.

Erythromycin Aegis Medochemie Focus Costakis Tsisios Costakis Tsisios & Pharmaceuticals & Co LTD Co LTD Mayne Remedica LTD Pharma PTY Focus Focus Stiefel LTD Glaxosmithkline Pharmaceuticals Pharmaceuticals Laboratories LTD LTD Medochemie Louanfarm

Trading Co LTD Glaxosmithkline Glaxosmithkline Remedica Pfizer Iasis Iasis Stiefel Pharmaceuticals Pharmaceuticals Laboratories Hellas SA Hellas SA LTD Medilink Medilink

Pharmaceuticals Pharmaceuticals LTD LTD

Pfizer Hellas AE Pfizer Hellas AE

Denavir - - - - -

105

Penciclovir - - Varnavas Novartis Novartis Hellas Hadjipanayis S.A.C.I. LTD

Stelara - - - Janssen Janssen

Ustekinumab - - - - -

Zovirax Glaxosmithk Glaxosmithkline Glaxosmithkline Glaxosmithkline Glaxosmithkline line

Acyclovir Aegis Aegis Aegis CDL Codal Synto LTD Pharmaceutical Kleva LTD Remedica CDL Delorbis Products LTD Pharmaceutical Pharmaceuticals Medochemie Kleva LTD Products LTD Codal Synto LTD LTD Remedica Medochemie Codal Synto LTD Delorbis Hexal AG Salutas Pharma Pharmaceuticals Hexal AG Medochemie GMBH LTD

Interpak Mylan SAS LTD Medochemie Rosemond Hexal AG Pharmaceuticals Pharmaceutical Mylan SAS LTD Trading Co LTD Medochemie Remedica Remedica Remedica Pharmathen S.A Rosemond Pharmaceuticals Rosemond LTD Pharmaceuticals LTD

106

Table 16

Category 11: Anticoagulants

Products 2006 2009 2012 2015 2016

Arixtra Glaxo Smith Glaxo Glaxo Smith Glaxo Smith Kline Glaxo Smith Kline (Glaxo Smith Kline Kline (Glaxo (Aspen Pharma Kline (Aspen Wellome (Glaxo Group Ltd.) Trading Limited) Pharma Trading Production Wellome Limited) Production

Fondaparinux - - - - -

Eliquis - - - Bristol-Myers Bristol-Myers Squibb/ Ppfizer Squibb/ Ppfizer EEIG EEIG

Apixaban - - - - -

Heparin Leo Pharma - - - - Products B.V.

Heparin A. Menarini A. Menarini A. Menarini Wockhardt UK A. Menarini Sodium Manufacturin Manufactur Manufacturing LTD Manufacturing g Logistics ing Logistics and Logistics and and Services Logistics Services Services and Merz & Co Theosavva Co Theosavva Co Services LTD LTD Merz & Co The Star The Star Medicines Medicines Importers & Importers & Co Co LTD LTD

Wockhardt Wockhardt UK UK LTD LTD

107

Pradaxa - Boehringer Boehringer Boehringer Boehringer Ingelheim Ingelheim Ingelheim Ingelheim

Dabigatran - - - - -

Xarelto - Bayer Bayer Bayer Schering Bayer Schering Schering Schering Pharma A.S Pharma A.S Pharma A.S Pharma A.S

Rivaroxaban - - - - -

108

Table 17

Category 12: G.I. Products

Products 2006 2009 2012 2015 2016

Acidophilus - - - - -

Lactobacillus - - CDL CDL CDL acidophilus Pharmaceutical Pharmaceutical Pharmaceutical Products LTD Products LTD Products LTD

Caltrate - - Pfizer Hellas A.E - -

Calcium Innothera Innothera Novartis Hellas Novartis Hellas Novartis Hellas carbonate Chouzy Chouzy S.A.C.I S.A.C.I. S.A.C.I

Novartis Novartis Pharmaceutical Reckitt Benckiser Reckitt Benckiser Pharma SA Pharma Trading Co LTD Hellas Chemical Hellas Chemical SA Abee Abee

Lonox - - - - -

Atropine - - Martindale Martindale Martindale Pharmaceuticals Pharmaceuticals Pharmaceuticals LTD LTD LTD

Motofen - - - - -

Atropine Demo Demo C A Papaellina & CooperSA Pharmaceutical sulfate Pharmac. Pharmac. Co LTD Trading Co LTD Pharmaceutical Industry Industry The Star Trading Co LTD The Star Medicines Medicines Importers & Co The Star Medicines Importers & Co LTD Importers & Co LTD LTD

109

Neut - - - - -

Sodium - - Actavis Group Dalketih Dalketih bicarbonate PTC EHF Laboratories LTD Laboratories LTD

Ipsen EPE Martindale Martindale Pharmaceuticals Pharmaceuticals Lifepharma LTD LTD Reckitt Meda Benckiser Hellas Pharmaceuticals Chemical Abee SA

Pap Medical LTD

Pharmaceutical Trading Co LTD

Reckitt Benckiser Hellas Chemical Abee

Phillip΄s - - - - Milk of Magnesia

Magnesium Saprochi S A Saprochi CDL - Aurum hydroxide S A Pharmaceutical Pharmaceuticals Products LTD LTD

Baxter (Hellas) EPE

CDL Pharmaceutical Products LTD

Costakis Tsisios & Co LTD

Fresenius Medical Care Nephrologica GMBH

110

Table 18

Category 13: Anti-ulcerant Drugs

Products 2006 2009 2012 2015 2016

Aciphex - - - - -

Rabeprazole EISAI Co LTD - Janseen- Cilag Delorbis Delorbis International NV Pharmaceuticals Pharmaceuticals Remedica LTD LTD KRKA, D.D., Novo Mesto Janseen- Cilag Janseen- Cilag International NV International NV

KRKA, D.D., KRKA, D.D., Novo Mesto Novo Mesto

Terix Labs LTD Terix Labs LTD

Zantac Glaxosmithkline Glaxosmithkline Glaxosmithkline Glaxosmithkline Glaxosmithkline

Ranitidine Medochemie Medochemie Codal Synto Accord Accord LTD Healthcare LTD Healthcare LTD Remedica Demo SA Pharmaceutical Costakis Tsisios Codal Synto Codal Synto Elpen AE Industry & Co LTD LTD LTD Pharmaceutical Co Inc Elpen AE HexalAG Costakis Tsisios Costakis Tsisios Pharmaceutical & Co LTD & Co LTD Salutas Pharma Medochemie Co Inc HexalAG HexalAG Remedica Salutas Pharma Medochemie Medochemie GMbH Remedica Remedica

Prevacid - - - - -

111

Lansoprazole Aegis Aegis Aegis Delorbis Delorbis Pharmaceuticals Pharmaceuticals Codal Synto Iasis LTD LTD LTD Pharmaceuticals Iasis Iasis Pharmaceuticals Pharmaceuticals Hellas SA Hellas SA

Nexium Astrazeneca Astrazeneca Astrazeneca Astrazeneca Astrazeneca

Esomeprazole - - KRKA, D.D., Costakis Tsisios Costakis Tsisios Novo Mesto & Co LTD & Co LTD

KRKA, D.D., KRKA, D.D., Novo Mesto Novo Mesto

Sun Sun Pharmaceuticals Pharmaceuticals UK LTD UK LTD

Tad Pharma Tad Pharma

Terix Labs LTD Terix Labs LTD

Prilosec - - - - -

Omeprazole Astazeneca Anfarm Hellas Actavis Group Accord Accord SA PTC EHF Healthcare LTD Healthcare LTD Kleva LTD Kleva LTD Astrazeneca Astrazeneca Actavis Group Laboratorios PTC EHF Bial-Portela & Astrazeneca Bial-Portela & Actavis Group CA Ca, SA PTC EHF Astrazeneca Medochemie Medochemie CDL Aurobindo CDL Laboratorios Pharmaceutical Pharma LTD Pharmaceutical Rafarm bial-portela & Products LTD Products LTD CA, SA Bial-Portela & Remedica CHR. K. Ca, SA Costakis Tsisios Elpen AE Union Unimed LTD & Co LTD Pharmaceutical Costakis Tsisios Farmaceutica Co Inc Costakis Tsisios & Co LTD Medochemie

112

& Co LTD Medochemie Vian SA

Medochemie CHR. K. Aurobindo Unimed LTD Pharma Pharma Remedica LTD Vian SA Remedica Remedica

Protonix IV - - - -

Pantoprazole Atlana Pharma Nycomed Actavis Group Actavis Group Actavis Group Oranienburg PTC EHF PTC EHF PTC EHF Gmbh Aegis Aurobindo Aurobindo Pharma LTD Pharma LTD Medhel Hellas S.A. Delorbis Delorbis Pharmaceuticals Pharmaceuticals Mundipharma LTD LTD Pharmaceuticals Medhel Hellas Medhel Hellas Teva Pharma S.A. S.A. BV Mundipharma Mundipharma Wockhardt UK Pharmaceuticals Pharmaceuticals LTD Sapiens Sapiens Pharmaceutials Pharmaceutials LTD LTD

Sun Sun Pharmaceuticals Pharmaceuticals UK LTD UK LTD

Wockhardt UK Wockhardt UK LTD LTD

113

Table 19

Category 14: HIV Antiviral Drugs

Products 2006 2009 2012 2015 2016

Combivir - - Glaxo Group LTD Glaxo Group Glaxo Group LTD LTD

Lamivudine and - - - - Milpharm LTD zidovudine

Crixivan Merck Merck Merck Sharp & Merck Sharp & Merck Sharp & Dohme Sharp & Sharp & Dohme Dohme Dohme Dohme

Indinavir - - - -

Emtriva - - - - -

Emtricitabine - - Bristol-Myers Gilead Sciences Gilead Sciences Squibb and Gilead Sciences

Epivir - - VIIV Healthcare VIIV Healthcare VIIV Healthcare

Lamivudine - - - - -

Epzicom - - - - -

Abacavir and - - VIIV Healthcare - VIIV Healthcare Lamivudine

Trizivir - - VIIV Healthcare VIIV Healthcare VIIV Healthcare

Abacavir - - - - -

114

Sustiva - - - -

Efavirenz - - Bristol-Myers Aurobindo Aurobindo Pharma Squibb and Gilead Pharma LTD LTD Sciences Merck Sharp & Merck Sharp & Dohme Merck Sharp & Dohme Sandoz GMBH Dohme Sandoz GMBH Teva Pharma BV Teva Pharma

115

Table 20

Category 15: Cardiovascular Drugs

Products 2006 2009 2012 2015 2016

Atacand Astrazeneca Astrazeneca Astrazeneca Astrazeneca Astrazeneca

Candesartan - - Tad Pharma Delorbis Delorbis Pharmaceuticals Pharmaceuticals UCB Pharma LTD LTD SA KRKA D.D. Novo KRKA D.D. Novo

Mesto Mesto

Sapiens Sapiens Pharmaceuticals Pharmaceuticals LTD LTD

Tad Pharma Tad Pharma GMBH GMBH

Avapro - - - - -

Irbesartan Sanofi Sanofi Aegis Accord Healthcare Accord Healthcare Winthrop Winthrop LTD LTD Bristol-Myers Industrie Industrie Squibb Bristol-Myers Bristol-Myers Squibb Squibb Codal Synto LTD Costakis Tsisios & Codal Synto LTD Co LTD Medochemie Costakis Tsisios & Codal Synto LTD Co LTD

Delorbis Delorbis Pharmaceuticals Pharmaceuticals LTD LTD

Medochemie Medochemie

Pharmathen S.A Pharmathen S.A

116

Teva Pharma BV Teva Pharma BV

Terix Labs LTD Terix Labs LTD

Benicar - - - - -

Olmesartan - - - Menarini Menarini International International Operations SA Operations SA

Cozaar Merck Sharp & Merck Sharp & Merck Sharp & Merck Sharp Merck Sharp & Dohme Dohme Dohme Dohme LTD Dohme

Losartan - - Menarini Delorbis Delorbis International Pharmaceuticals Pharmaceuticals Operations SA LTD LTD

KRKA D.D. Novo Iasis Mesto Pharmaceuticals Hellas SA Medilink Pharmaceuticals KRKA D.D. Novo LTD Mesto

Pharmasin LTD Jubilant Pharmaceuticals Remedica NV Wockhardt UK Pharmathen S.A. LTD Remedica

Wockhardt UK LTD

117

Micardis Boehringer Boehringer Boehringer Boehringer Boehringer Ingelheim Ingelheim Ingelheim Ingelheim Ingelheim

Telmisartan - Bayer Bayer Actavis Group Actavis Group Healthcare AG Healthcare AG PTC PTC

Delorbis Delorbis Pharmaceuticals Pharmaceuticals LTD LTD

Teva Pharma BV KRKA D.D. Novo GMBH Mesto

Teva Pharma BV GMBH

Teveten Solvay Solvay Abbot Abbot Abbot Pharmaceuticals Pharmaceuticals (company sold to Abbot in 2009)

Eprosartan - - Varnavas - Mylan SAS Hajipanayis GMBH LTD

118

Appendix 2: Transcripts of interviews

General questions

1. What are the main factors that influence the structure of the pharmaceutical industry in Cyprus? (such as – foreign investment, trade, health system, generic competition). 2. What are the current difficulties within the sector? 3. Do you think that the financial crisis made major changes in the sector? 4. Do you think, the financial crisis had a positive or a negative impact on the pharmaceutical industry? 5. What government policies have affected the sector and what do you think the government should do? 6. Was the possibility for growth potential more sustainable before the financial crisis?

List of Interviewees

1. Aggela Demetriou- Sales Supervisor at The Star Medicines Importers Co. Ltd

2. Fanis Mosaitis- Company’s Agent- at The Star Medicines Importers Co. Ltd

3. Maria Kanaris-Leonidou- Owner of a private pharmaceutical shop

4. Anonymous 1- Company’s agent at Pavlides & Araoutos Company

5. Anonymous 2- Manager of Labor Pharmaceutical Ltd.

6. Costas Panagiotou- Key Account Manager at Astellas Pharmaceuticals

7. Chrysanthos Demetriades- Manager of Pharmaschope

119

1. Interview

Name: Aggela Demetriou, Sales Supervisor at The Star Medicines Importers Co. Ltd

Date: 19/04/2016

Duration: 10 minutes

What are the main factors that influence the structure of the pharmaceutical industry in Cyprus? For example, foreign investment, trade, health system?

The health system is of main importance however it is still not yet implemented and we don’t know what will happen. The pharmacists however are afraid because they think about their losses, what they will do, they don’t know what will happen. Generics is also a factor, the pharmacists do not know what they will face, they are scared because there are so many pharmacists that are opening every day and all over the places, so everybody is concerned about what they will do. It is not like it was years ago. Before, the pharmacists were more comfortable, the crisis, the people who lost their job influences their revenues.

What are the current difficulties within the sector?

The economic crisis basically, because people are unemployed. They go to the pharmacies and go to buy their prescription medicines but buy only one-two products that are the most necessary and people won’t even buy these.

Do you think that the financial crisis made major changes in the sector?

Yes, yes. The competition increased because people do not know which products they buy. People who became unemployed or saw a decrease on their salary are consuming different now.

Do you think the financial crisis had a positive impact on the pharmaceutical industry?

No. A lot of companies shut down. I don’t think people decide to open a pharmaceutical company right now. Many people lost their job; when a person leaves his job the company is trying to use the other employees to do the duties that the other person used to do so to not pay more money.

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What companies to you think they have been more affected by the economic crisis? What happened to your company?

The small companies for sure, like ours. The bigger companies not at all. A lot of small companies had shut down, because of the capabilities of the bigger companies.

Do companies have any opportunities for development during the economic crisis?

If it is a big company, it has. If it is a small company that is not able to cope with the crisis it will shut down for sure.

What is the case of the necessity΄s pharmaceutical products though? Aren’t they important?

Yes of course. Look, the innovation of medicines will never stop to exist because medicines are a part of our lives and everybody needs medicines. I don’t think a medicine will ever stop to be produced. But during the crisis, the sales will be limited. It is not like going to a pharmacy and people buy different products. Right now, for example, cosmetic products are not sold like they used to before. The medicine is medicine, it will always be important. But this is not the case of cosmetic products. People will not buy unnecessary products. A person could have a prescription of 5 medicines and buy only the two. It depends on how much are the products. Someone who takes 750 euro and pays 50 Euro to the doctor and another 50 to the medicines, how will he cope? This is my opinion.

What government policies have affected the sector? What do you think the government should do?

What could the government do? Regarding the new health scheme, I don’t really know what the government should do. They should develop benefits for the pharmacies and for the pharmaceutical companies so to be able to cope with the crisis, to be able to pay their employees, so the company be able to earn profits and to be able to have the firm open. Otherwise, if they don’t have any profits they can’t cope. The pharmaceutical companies have a lot of expenses, it is not only about the pharmacies. A pharmaceutical company has a lot of expenses; the cars of employees, the insurances, the gasoline, there are so many things.

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Was the possibility for growth potential more sustainable before the financial crisis?

Generally in Cyprus it used to be better. Of course we talk about the crisis but if you go to the coffee-shops they are always crowded. They don’t have any job but seat in the coffee shops. But a lot of people who had a big salary have faced reductions in them, many people lost their 13th salary. A lot of people is not able to find a job now.

How unemployment affects your company?

It affects it. If someone has no job how can he cope with his life? It is difficult for your company and the profits in general.

A last question. The competition between the pharmaceutical companies’ decreases or increases during the economic crisis?

It decreases. There is a big competition. Each company tries to take down the other company. There are companies that do a parallel importation with another one and this is a mistake of the government; a company is eligible to bring medicines and another company is able to bring the same medicine and does a parallel importation and the government to do nothing on that, this is unreasonable. It should had been only one representative company in Cyprus. A company should not bring the same medicines as another one and be able to have more profits, the other company is affected. This is not right. I believe it is a mistake that two companies are eligible to bring the same products. Is it right to take the work of the other? The company will put a smaller price- that means the person will buy the medicine from this company and not from me. The pharmacy will prefer this company also. This is the mistake of the government; it leaves the parallel importation to take place.

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2. Interview

Name: Fanis Mosaitis- Company’s Agent- at The Star Medicines Importers Co. Ltd

Date: 19/04/2016

Duration: 18 minutes

What are the main factors that influence the structure of the pharmaceutical industry in Cyprus? For example, foreign investment, trade, health system?

Actually our company does not manufacture medicine products in Cyprus, it imports the products. Basically, we represent, distribute and promote the products in pharmaceutical shops. The companies who manufacture the products for the Cypriot market is Remedica, Medochime, there are the main manufacturers. Thus I cannot tell you if the industry is affected by the economic crisis because most of the companies in Cyprus are foreign-based. Meaning, Cyprus has a very small part of the companies’ exports. If you want I can tell you about the imports; part, it would be pleasure.

Was the trade of the company affected?

Trade has changes of course because people, for sure, lost their flexibility to buy products. When somebody used to work and now they’re unemployed because of the economic crisis, they wouldn’t have the same habits as they used to have before the crisis. Their habits are changing and so the consumption changes. Meaning, when somebody’s salary was for example an “x”, he could have gone to a pharmaceutical shop and buy different products but he would go to the store and now buy only necessary products; no beauty products etc. When he loses his job and his salary, it means that he would turn into the public health sector. Hence, we have a big turn into the public sector where depending on your financial situation, you can have a free access on medical care. So, a lot of people that have been served in the private health sector, they turned into the public because medical care is free and offers by companies are increasing in the public sector. In the public, there are importing companies or manufacturers. The public sector accepts offers every 3 years and for the 3 years when a new treatment develops the government asks companies to make offers for the public sector. The lowest offer wins so there are specific medicines from specific companies that they make 123

offers. Hence, a person who has not a good financial situation and he might had lost his job – and that way he has the right to turn into the public healthcare sector- he would take the specific medicine. So the private sector- as the things I have mentioned to you- begins to fade- it is shrinking. So, it’s clear that the private has been more shrinking in relation to the times before the economic crisis.

Had the distribution and the importation of the products had decreased during the economic crisis?

A: There is a specific market in Cyprus. They might had been decreased because people turned into the public sector or might had been decreased because other companies create something new as in the case of our company. You (the company) might had taken some wrong strategies. But the economic crisis is also a factor that affected the company as well other factors played a role; but for sure, they (the importation and distribution) have decreased. Now that the consumer is blown turned into the public or prefers to buy something much cheaper. Because there are generic products also, brand products have a specific price- but after 5 years that the rights of the brand products expire, then you (a company) have the right to sell the generic product or to import generic products with the same active substance. Hence, someone who couldn’t buy the brand product, he turned into generics. So, the branding companies decreased their revenues. The consumer started to buy generic products but also turned into the public healthcare sector. So, it’s not only about the economic crisis but also other factors that affect the importation of pharmaceutical products or the distribution and the innovation.

What are the current difficulties within the sector?

The main difficulties that presents actually is that it presents adverse enterprises; the reduced purchasing power of the consumers hence the reduced revenues in the pharmacies or a decreased number of the patients, a decreased number in prescription medicines, a fall in the pharmaceutical market, and we finally reach the zenith where you (the company) has to push thus to earn.

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What do you mean by push thus to earn?

I.e. a particular private hospital which had a specific number of employees, slowly because of the economic crisis and the turning of patients into the public sector, they (private hospitals) faced much more difficulties. It (the company) begins to face difficulties in the repayments as in that case it used to pay on-time and now it says that “I can’t pay you all together” but you (the hospital) orders from the company products again, the balance that it owes increases and it (the company) faces difficulties in the earnings.

Do you think the financial crisis had a positive impact on the pharmaceutical industry?

I believe, that surely because of the economic crisis you (the company) begins to think differently. You are trying to improve the way you work, to make use of the time, to implement new schemes that would spared money and time hence you enter into new places, build new philosophies so to be able to cope with the difficulties , to stand up hence it is a “positive” thing; to be able to improve your strategy much more and surely, after the economic crisis (now that we are in “in the end”) you will be much more powerful as a company, wiser, and much easier –if you managed to cope in this situation- you would be in a better position than before.

So, are there any companies that had been benefited from the economic crisis?

You may not get material benefits- you didn’t get an increase in the revenues though you could also had achieved that with the new strategies that you developed. If you (the government) didn’t consider safe before to make a plan thus to put 15 pharmacies in the same neighbourhood, and to create a path thus to usually see them, in line, and you just had 15 pharmacies spread over, and people consumed much more gasoline and now you come and make a plan that says that you would put the pharmacies in these neighbourhoods and streets, people consume less gasoline and time. You made some small changes saying, “I will decrease the budget because I think I shouldn’t do these things and I must do these things that cost the same money but are more effective into bringing back money in the company. You might to increase your sales during the economic crisis but think about later- with this strategy you followed and succeeded in difficult times- into better economic eras how much better you (the company) could be succeeded. I gave you an example, a simple example, you could had made different things, and this is a simple one.

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Do government policies affect the sector? What do you think the government should do?

They surely do because one decision could lead into a thoroughly change in the industry. And we prefer, all of the enterprises, to have a consistent policy so to know where we are going. i.e. in a consistent political arena, investments surely increase and representative companies work much better. I.e. a decision by the ministry of health, could change the whole structure of the pharmaceutical industry, only with one decision if it is a serious decision. With the GESY (NHS) for example, with the implementation of GESY, the industrial structure will change for sure. We go into different paths that we didn’t have before. I.e. free healthcare for everybody not based on economic criteria. And you begin (the company) again to plan a new strategy how to be able to sell the medicines- because a medicine is based on a particular active substance. But think about it, with the development of GESY it changes συθέμελα the way of approaching doctors, the health system; you should have your own doctor who will refer you to a new doctor. It is not like now that you go directly to a specific doctor, for example to an orthopaedic and the orthopaedic does not prescribe a medicine. You must go to a pathologist, to the general doctor basically that he will refer you to the doctor I have to go based on my problem, and that doctor will tell me what medicines I will buy.

The competition between the pharmaceutical companies’ decreases or increases during the economic crisis?

It increases because companies try with offers, with the fall of the prices the government made three times now, you (the company) is forced to make more offers- because with a better offer in the pharmacy, the pharmacist will try the same thing, he will promote your products. Thus, you are trying to promote your products with a better offer in the pharmacy and the other will make a better offer so competition will increase and the most effective will be more benefited.

What companies to you think they have been more affected by the economic crisis? What happened to your company?

The most radical is that the company that has a big percentage and it is big, it is much more influenced by the fall of 0.2%. It is a big loss for these companies. The smaller company will

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be surely antagonized from the bigger companies so to “take him out of the way”. I believe the companies that will continue to survive are the companies that changed their strategy and adopted a new one in regards to the new market place and tried to followed the market place truthfully thus to be able to cope. You had to change your strategy during the crisis, you couldn’t continue in the same manner. So, the bigger companies that changes, they limited their απώλειες, the smaller companies limited their losses and will become much stronger later. The domestic pharmaceutical companies had been of course affected. as I said in the beginning Cyprus is a small market so the biggest part of their revenues is based on exportation and thus it depends on where the company exports, how much the crisis affected the countries the companies export. I don’t have the information to tell you which are the countries and how.

As Cyprus is a small market that means that exports have more consequences in the changing structure of the pharmaceutical industry in Cyprus?

For those who manufacture medicines?

For your company also, as they at some level are based on exportation.

To clarify, I say small market meaning from population perspective. With one million people, generally, I consider that we are a small market in relation to Greece of 11-12 million, to Italy or France. Hence, that is why I am saying that we are a small market. It is different when a representative company imports its products in a one million country that wouldn’t had the same revenues as in a different country with a bigger population. Depending on the quantity the price decreases. So it’s different for one and different for eleven. Thus, the companies in Cyprus that manufacture products are not supported by the domestic trade of the one million people and moved into exportation. It wouldn’t had any benefits if the company would be based only in the domestic market. But these companies didn’t start to do this now. That happened before; that the companies were focusing on the exportation instead of importation. It is not because the economic crisis that they increased their exports but because of the crisis they might had increased their exports and the cooperation abroad so to cover the losses of the Cypriot market.

Okay thank you.

Can I add something?

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Yes of course.

Because of the economic crisis, if you lose a portion of existing products you bring a portion of new products so to cover the loss of your “mature” products.

Does that mean that the company introduces innovative products also?

Yes all of the time, new medicines are produced. For example, an active substance that was produced 20 years ago in comparison with a new active substance that has been created now and has the same characteristics, is more effective.

Does the economic crisis influences the production of new medicines?

It influences because of the decrease of the budget to create these medicines. We don’t speak about Cyprus though. In Cyprus we don’t have any original product. When rights of a medicine breaks the manufacturers will produce generic medicines. But internationally, the economic crisis does influences the innovation of new medicines.

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3. Interview

Name: Maria Kanaris-Leonidou- Owner of a private pharmaceutical shop

Date: 20/04/2016

Duration: 15 minutes

What are the main factors that influence the structure of the pharmaceutical industry in Cyprus? For example, foreign investment, trade, health system?

I will tell you generally about it; the exportation is really important for the industry because the industry is expecting only from the Cyprus market which it is a very small market and surely the industry will be unprofitable. Foreign investments are very important such as AEGIS when there are foreign investors but I am not completely sure about it. The offers that are taking place in the government for the public hospital are very important; some companies give their medicines in the hospital but suddenly they start to sell their medicines only in the private pharmacies. It is of main importance for the industry because most people go to the public hospital too. There are a lot of people who take their medicines in the public sector and that is very important for the industry because the companies in the private sector are affected. Moreover, we don’t have any innovation medicines we mostly have generic products in Cyprus. We don’t have any pharmaceutical product that is unique.

Did generic consumption increased during the crisis?

People do not trust to buy generic medicines, they prefer the branding one, the original one. The prices of these products are not usually so suspending; if the difference between the original and the generic product is 3 to 4 Euros then people buy the original one. When some medicines have a very high price difference though, the consumer might think about it and buy the generic ones, because their effectiveness is not so different than the original ones, some generic companies are very good but some generic products are very different to the original products.

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What are the current difficulties within the sector?

Difficulties have increased in the last years. Beginning with the internet sales, the opening of shops that sell biologic products or food supplements such as vitamins etc. The companies that make the products are not the same but people don’t care about it; if the product is effective, they find it anywhere else. It might not be the same brand but the product is the same. Thirdly, is the occupied part where people run to shop their medicines from there because medicines are cheaper. The continual fall of the prices is another difficulty because it means that the profits of the companies decrease. Also, the economic crisis that affected the market in Cyprus. The continual fall of the prices and the opening of pharmacies everywhere leads into more sales of a specific medicine that cost 10 euro before the crisis and now it costs 8 but that does not balance the difference. People also require discounts so you obligingly decrease the profits for yourself and everyone faces limitations, it is a chain.

Have you faced any deficiencies in the products that the pharmacy imports?

In some periods yes. Especially after the fall of the prices some medicines are unprofitable for the traders to import them, so they stop them from the market; some products that were cheap. That happened in the first period that the reduction of the prices took place in a vertical manner. We have a lot of deficiencies from manufacturers in Cyprus, from trade companies also, because now with the economic crisis they (companies) ask for cash payments at the same time and for that reason they bring less products which that influences a kind of deficiencies.

Do you think that the financial crisis made major changes in the sector?

Everyone faces limitations. Before the crisis, a lady used to come at the pharmacy and used to buy different products e.g. her medicine, a vitamin, a lipstick, a lotion, now she is coming and gets a Panadol and that it is. There are reductions everywhere, there is no way to buy all of these products together. And the fall of the prices leads affects our profits, we get compressed.

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Did you face a change in the companies that import medicines in your shop?

The companies that we used to import the medicines have not changed. There are some associations/ groups that accept offers from the companies and sell the products to us in a reduced price. However, I buy the medicines directly from the companies, not from any association. Generics have increased also. Companies increased the number of the generic products that they bring, both from multinationals and the manufacturers in Cyprus. Their aim is to bring much cheaper medicines into the market in order for the people who face money difficulties to be able to buy the medicines in a more approachable price.

Do you believe that the rise of generic products is because of the economic crisis or is it an exogenous factor?

Look, I believe the economic crisis affected this (the rise of generics) because if there was not an economic crisis anyone would buy a medicine of a good quality- not that it is a bad thing, but if you would had the opportunity to buy the original product or the generic product what would you prefer? The original I imagine. But if you couldn’t afford it you would buy the generic one. Now if you have problems with the generic and it won’t be effective then you will think it again; if you don’t have any money then you would think to go to the occupied part to buy it which that it is also a grenade in your organism and your stomach because you don’t know the quality of these products, the products there are not that safe, in the Northern part (of Cyprus). I don’t know. I think because there is not any safety there. But people at the end of the day, look at their own interest.

Does government policies affect the sector? What do you think the government should do?

Surely. Don’t they influence changes? They opened the borders, everyone is going and coming back, there is not any control (on what they buy). Secondly, the health system should be developed but in the correct way. They must think about whom the new health system will serve and in what way the pharmacist will benefit. If the pharmacists don’t take any governmental help then the system will collapse, as in the case of Greece where everything had collapsed. I’m not an expert but I think in some way this should take place. In a robust state everything is better. All of the industries have the opportunity to be developed. Now you are unsure of what you will import. The market sunk.

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A last question. Did companies stopped to import their medicines here?

Look, some small companies have closed down but there were not companies that had basic products. Maybe some enterprises that used to bring medicines in private pharmacies from the former Soviet Union, Yugoslavia, Bulgaria, Russia although Russian products are not imported that much, Chezc products. But there is not any transparency, everyone can go abroad and bring in a container different products and sell it to the Cypriot market. We must be very careful. For example in the gyms they sell doping products but these are illegal to be sold in Cyprus. Some people came and told me “If you are not able to bring them to us we will find them another way”. Some medicines that are not existed in Europe they might bring them from the U.S. or any other place. We are basically a mess.

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4. Interview

Name: Anonymous 1- Company’s agent at Pavlides & Araoutos Company

Date: 21/04/2016

Duration: Approximately 5 minutes through phone interview

What are the main factors that influence the structure of the pharmaceutical industry in Cyprus? For example, foreign investment, trade, health system?

The health system; because there is a division between the private and the public sector. People because of the crisis end up in the public healthcare.

What are the current difficulties within the sector?

There are multinational companies and generic companies which because of the economic crisis there is an increase in the number of generic consumption with a consequence, our company to loss.

Do you think that the financial crisis made major changes in the sector?

Yes. The health system of the country limits the evolution of some products. Only some medicines enter the public sector and also the access of medicines depends on the prices which during the crisis the prices fells. Patients also turn into public hospitals so to not pay in the private sector, so to not pay any fee. The rise of unemployment affected this situation. People in the nursing lost their jobs too.

Do you think the financial crisis had a positive impact on the pharmaceutical industry?

Maybe in different countries but not in Cyprus because the health system is connected with the industry such as in the case of Greece and the health system is connected with the economic crisis. In the time of the economic crisis that patients do have access in the private healthcare system, multinational companies face important losses and are more affected. It has only negative consequences because there is a fall in the original products and a rise of the generic products during the economic crisis.

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Do you think then that if there was not an economic crisis, generics would be absent?

Yes in some categories of medicines, the economic crisis influenced their (generics) evolution.

What government policies have affected the sector? What do you think the government should do?

I don’t know about the measures. The patients need to have access in new medicines, to buy products from multinationals, from big companies so the patients will have access to new medicines.

Do you think innovation in medicines had increased during the crisis?

On the contrary. The economic crisis brings much less revenues and less opportunities for research. That leads into a limited way of treatments because of the expenses. Patients that way have a limited access in new treatments.

The competition between the pharmaceutical companies’ decreases or increases during the economic crisis?

The competition decreases as there is a reduction of the pharmacies’ activation thus the competition decreases.

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5. Interview

Name: Anonymous 2- Manager of Labor Pharmaceutical Ltd.

Date: 22/4/2016

Duration: 9 minutes

What are the main factors that influence the structure of the pharmaceutical industry in Cyprus? For example, foreign investment, trade, health system?

Firstly it’s the doctors in Cyprus. The information and knowledge of people that happens with the advertisements, the magazines, when someone reads something about the products. But the most important role is of the doctor’s, of the pharmacist for what the patient will eventually buy. Yes, he gets informed but someone leads him.

What about the medicines that are imported to the pharmacy? Is there any change that happened during the economic crisis?

There are shortages, this is a new phenomenon. Many brands have been absent though this is not something that is connected with the crisis, there are a lot of copying medicines, generics, that are cheaper. So, there is an increase on the number of medicines because there are a lot of copies and there is a choice of buying something much cheaper where because of the crisis people prefer it.

What are the current difficulties within the sector?

In Cyprus the high prices. Everyone complains about the high prices in Cyprus. They have been always expensive but because of the crisis people find it difficult to buy medicines. Although some reductions on the prices happened in the last 4 years, the prices are much higher than in Greece or in the occupied part (of Cyprus). Many people buy from the occupied part. In the morning I had a discussion with a lady, she was saying that she has to pay a medicine for 50 Euro but she prefers to go (to the occupied part) and buy the medicine for 20 euro, in the half price.

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Beyond the generics, did the economic crisis had other impact in the pharmaceutical industry Cyprus?

People prefer to buy cheaper choices. Yes, of course they are trying to benefit by buying cheaper products. People usually ask for discounts which is a new phenomenon. There is a standard price on products but anyone who comes into the shop they ask “how much is it going to be cost?” We make a discount. If we don’t do a discount we lose the customers. As a corporative pharmacy we have been trying to do some discounts when we could but people require this right now, they don’t just ask for it but require it.

I was here on Tuesday and I had observed that some people had a prescription with them but asked for a specific number of medicines, for example they said the first two medicines.

Yes, until they receive their pensions, their unemployment benefit, they don’t have any money and buy only the urgent products and they are coming back again once they get paid. And this is a new phenomenon.

Do you think the financial crisis had a positive impact on the pharmaceutical industry?

Yes, as the prices fell and there are products even the generics that are much cheaper than the originals, it is a positive thing. And there are of a good quality.

What government policies have affected the sector? What do you think the government should do?

People is expecting to get medicines free in the way he used to it before. It has to be a scheme that covers patients and that does not, like now, be unemployed and to not be covered by a scheme and take the medicines and think how much you will spend and to try to find a solution. That didn’t exist before the crisis. In the public hospitals they used to sell good medicines but right now there is nothing and people are forced to come and buy their medicines from here or from abroad because they don’t give them in the public hospitals. Or they come to buy them here (private pharmacies).

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In your case, what companies started importing less and which increased their imports?

The multinational companies lessen their products but not… The shortages in the products generally is unprecedented for me. They were not these kind of problems before. We usually don’t have pharmaceutical products, inhaled medicines for example in the winter when these medicines are important. You can’t leave people without medicines for a long time. We face shortages and this is very strange. Pharmaceutical products such as of high-pressure, or from a big company like Pfizer to have shortages in its products, which that happened last year and in Greece –I think the company was sold, something happened-, people to be forced to find other solutions, this is very serious, they can’t stop their treatment.

Do people buy the same medicines produced by another company?

Yes they go into a different company. We found some Greek products and we brought them but people prefer to buy them from the occupied part. Some things have changed, companies stopped to bring their products because they don’t have any benefits by selling them. We stopped selling some medicines, for example in the Pfizer case, because we used to import the medicines from Greece but the company was sold and that affected Cyprus. The products were not sold in Greece or in Cyprus and we had to import generic products. Buy you know, this is a bit difficult; to advise people to take something else in serious illnesses. Some people were saying that they were effective and some others were saying that these products (generics) were ineffective.

But how before the economic crisis was different? Didn’t people prefer to buy something cheaper, even generics?

No they weren’t interested in this. They had money and wanted the best one, the best company that would be for sure good. But now they want the best one and the cheapest one like the people you saw too. Many people, especially in the middle of the month, if you see our prescriptions we have a lot and later the month they disappear. You can’t imagine what is happening the day people get their pensions.

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6. Interview

Name: Costas Panagiotou- Key Account Manager at Astellas Pharmaceuticals

Date: 23/04/ 2016

Duration: 14 minutes

Did the economic crisis affected the company? And how?

The medications that we sell are Urological, Antibiotics and immunosuppressant for transplantation. And the medications I’m talking to you about are only for hospital use and are bought from the state. Thus, the economic crisis- “the wallet of each patient”- is not affected by the prescription of these medicines because they are bought from the state generally.

Does the company sell them into private pharmacies?

No. Because the patients that take our medications are only the beneficiaries with chronic ailments- they are covered at a 100 percent of the health system in Cyprus, the patients take their medications free.

Did any alterations took place on the government’s spending on the company’s pharmaceutical products? Did any change occur in the quantity of the products sold to the government?

No, as the quantity depends on the number of the patients.

But the government’s spending had decreased in the last years.

Yes. The government did that. The fact that is now more difficult to write down a new prescription medicine, yes. But, for the existing patients and for the patients that are being diagnosed right now, they get medications regularly.

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What are the main factors that influence the structure of the pharmaceutical industry in Cyprus? For example, foreign investment, trade, health system?

It is a small market. The distinction between the private and public sector. The private sector is the 20% of the market and the public is the 80%. In the public, however, we don’t have access in all of the pharmacies of a specific category. The government buys only one medication from the category. Thus, if you are lucky (the company) and win the competition, you (the company) will be in a monopolistic way at the hospital. Otherwise, you are not selling anything. On the other hand, the most medications that the state buys are generics, the rights expired and are copied. What is the reason? Concerning the drugs purchasing into the public sector, there is a competition and the competition aims only at finding the cheapest price, there are not any other criteria. As a consequence, the original products and the brand products are out of prescription, out of the public sector because the state buys the same products at the cheapest price. Mostly, the main factors are the decisions made in the Ministry and the accession of new medicines in the prescriptions. It is now very difficult to introduce new medications, innovative, expensive not because the economic crisis but because of an economic capability.

Do you think the economic crisis had an impact on the rise of generic products in the public sector or was it always like that?

I don’t think it played a role. It is all about the rights. And the economic crisis occurred in the same time. But no, because the processes of drugs purchasing were the same in 2008 when the period was very good.

Did the company change the prices of its products in the public sector?

Yes. The reason that this happened though is because of the ministry’s pressure; the ministry decreases the cost of each medicine at 15%. In a nutshell, yes you (the company) has to decrease its prices. But in some products we were not willing to sell the products at a lower price, with a result, to not sell the products in Cyprus.

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Does the fact that Cyprus is a small market influences the decision made in your company?

Yes but the thing is we have an obligation to the society and to the patients. It does not have to do with the size of the market but with the configuration of the prices in Cyprus. Because a multinational company may not be interested in Cyprus because it is a small market, but it will be interested, if the prices of Cyprus affect the prices of the pharmaceutical products in Germany, in Italy, in Spain , because Cyprus is used as a price reference country of different countries.

What are the current difficulties within the sector?

To introduce new pharmaceutical products in the market. Another difficulty is the neighbouring countries such as Greece and the occupied part (of Cyprus). Many patients now buy their products either from Greece or the occupied part because they are much cheaper than it is in the free part of Cyprus. As a result the purchases of the companies are significantly decreasing. A characteristic example is that a specific product that here is sold 12.5 Euro, in the occupied part is sold 6.5 Euro; the same medication, the same brand.

Do you think that the financial crisis made major changes in the sector?

Yes absolutely. The government’s budget had decreased in the healthcare sector. The economic crisis had an impact as in happens in all of the industries. Surely, it does. There are less available money for spending thus people buy less products. It is not possible that there are pharmaceutical products that are for the cancer therapy and cost 3000 Euros and the chemotherapy is much cheaper.

Do you think the financial crisis had a positive impact on the pharmaceutical industry?

No, how?

For example, has the competition decreased?

But this is not positive. Because if competition decreases then there is much more pressure for lowering the prices and more costs. So, if competition decreases then prices are falling. I don’t see any positive thing, personally. 140

What companies to you think they have been more affected by the economic crisis? What happened to your company?

The big multinationals, research and development because the main problem is the access of new medications in the prescriptions and in the markets.

Do you think government policies affected the sector?

Absolutely. Absolutely because when there are not available funds to introduce new medications in prescriptions then a company will not continue to trade in Cyprus. The existing products when are expired, generics develop and people prefer buying them. So, this does not help the viability of a multinational company.

What do you think the government should do?

It depends on the philosophy of the government. If the government focuses on providing the best healthcare access in the pharmaceutical products or if the government wants to provide the cheapest one. The ministry as in our case, focuses on providing the best economical solution regardless the consequences. The ideal thing is to provide all of the medications thus all of the companies to be able to sell their products. But this opportunity is blocked by the economic situation and the how it affects all the society.

Was the possibility for growth potential more sustainable before the financial crisis?

Yes but it is based on exogenous factors, such as now that people buy the medications from the occupied part or from Greece.

Yes but isn’t this an aftereffect of the economic crisis? Aren’t people go there because the medications are much cheaper?

Yes it is a consequence of the economic crisis. Yes, surely. The economic crisis surely influences the industry. 141

7. Interview

Name: Chrysanthos Demetriades- Manager of Pharmaschope

Date: 23/04/2016

Duration: 13 minutes

What are the main factors that influence the structure of the pharmaceutical industry in Cyprus?

It is influenced by the prices in the occupied part, firstly, on the products, because they are much cheaper thus the market is affected because people prefer to go opposite to the occupied part and buy them, regardless if the products are substandard they prefer to give less money. So they go to the occupied part because the medicines are much cheaper, the commodities are always much cheaper in the occupied part. We speak about 10-15 Euros less so some people who want to save some money they will go there. Also, it is influenced by the crisis because prices changed. The pharmaceutical representor brings only the main products that are sold more in the pharmacy and the consumers buy the most economic ones.

Therefore some medicines are not now sold in the pharmacies?

Yes because of the costs and as I know, the government reduced the prices of some particular medicines which that is a disadvantage for the traders and prevents them by importing their products. It affected all companies, this is a chain.

What are the current difficulties within the sector?

There are so many similar products right now that you need to do as a company a very good marketing and adopt a very good strategy for a product so to take it into the market. And it is always starting by the prices, it is important to bring a new medicine but it is also important to have an affordable price for the customer and a good offer to the pharmacist so to be able to develop a chain in order to sell the product.

Does the fact that people prefer buying the medicines in the occupied part affect you as a company?

That does not concern me, personally. I don’t have a statistic list to tell you how many people buy their products but it does not affect me or my company- when people go to the occupied 142

part to buy their medicines. As a company we sell food supplements so we are in a different phase.

If the products are not of main importance, does that lead into a more negative consequence during the economic crisis?

The food supplements are necessary but are different than other medicines. Right now, the government tells you to reduce your price on the medicines but in medicines of food supplements the government has not a say, you determine the price yourself. That means that if the government requires a reduction in the prices, revenues will decrease.

Did the consumption on the products in your company changed?

The consumption depends on the necessity of the product in the body and if there is in the market. But if people go to the occupied part, the consumption decreases in the pharmacies of Cyprus.

Do you think that the financial crisis made major changes in the sector? Do you think the financial crisis had a positive impact on the pharmaceutical industry?

Yes because new medicines have been developed and old medicines were erased from the market.

Is there innovation in the industry?

Yes, yes of course.

Do you think economic crisis affected innovation?

No I don’t think so. I just believe new medicines have been developed as a result of the crisis. Some medicines that were more expensive had erased and medicines which are cheaper had entered the market. Some companies abroad reduced their prices so to promote their products in the Cypriot market because they didn’t have the same consumption as they used to do. Thus, that was positive for us; when we import our products from foreign companies we have benefited. Our company imports from other countries and it is only in Cyprus and manufactures some products via Greece so we basically promote our products in Cyprus.

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How the company does cope with the crisis?

My company is in a different phase because when I began managing the company myself it was in a very difficult place. So, when I became the manager I used the knowledge I have in the marketing area and I have managed to bring a lot of benefits in the company. But I was one of the lucky ones; because it was not a company that was “left on the street” and collapsed during the crisis but it was a company that collapsed before the crisis and I managed to develop it again when I became the manager in 2014. That means that I belong into a different area in this phase now. I managed to raise the revenues in the first year of 30% and now I am interested in other products that are related with my company’s. I promote these products via marketing, the people, even if they don’t buy I always speak about my products, how good they are. I’m not going to be bored on promoting the products, if the product is effective why not promoting it? If I know that it is effective for me. And I do that every day, I live through it. I love what I am doing, in a nutshell.

What government policies have affected the sector? What do you think the government should do?

The rise of the taxes, only. The taxes nothing else. There is not any other policy that affects us as a company. Other companies could had been influenced but not our company.

How about GESY and the present health system with the division of the public and the private healthcare?

The public healthcare of course because a lot of people turned into the public sector for healthcare, because it is cheaper, people don’t pay a lot… But I am telling you, that because we handled things differently we have achieved than different companies. Some companies if they use this situation they succeed.

What are the main ages that consume the products of the company? Do prescription medicines exist?

All of the ages. We begin from no age till 60 years old and older. People buy them with prescriptions by the doctors though our products are not to be prescribed. But our products are sold to everyone. They are sold prescribed and out-of-pocket. I can advise you on a product and you would say “it is very good, I will take it”.

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Do you believe that after the crisis things are better?

Yes it is better. Now we see more positive things because the market begins to stabilize; because we built the grounds during the crisis and now we are growing. I believe things are better now. Do you know why? Because the people’s fear decreases, it is the fear that dominates the market. A lot of things might not had changes but the fear dominates. The “boom” of the crisis had shocked a lot of people and a lot of things had changed. And now that the situation stabilized people are more comfortable. It is a psychology issue.

The competition between the pharmaceutical companies’ decreases or increases during the economic crisis?

Surely, yes. The competition increases. Companies which are more benefited according to their marketing capabilities, their products, their professionalism and their steady grounds.

But when a person does not have the money to go and buy his medicines that does not affect you as a company? How are you going to persuade him to consume the products?

If it is a medicine of necessity he will buy it. If it is an effective one, he will buy it. He will make a deprivation and he will take it. If the product is not necessary such as lotion, hair products and cosmetics generally as well food supplements, vitamins basically that were actually decreased during the crisis, then okay, it is not a necessary product.

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Appendix 3: Annexes

1. Graph 5

FDI Global Growth (annual, net inflows in US$)

Source: World Bank (2015)

2. Graph 6

Global growth on pharmaceutical R&D spending

Source: The statistics portal (2016) 146

3. Graph 7

FDI in Cyprus (annual, net inflows in US$)

Source: World Bank, 2016

4. Figure 2

Labour Productivity, TFP and capital deepening in Cyprus between 2002 and 2011

Source: Karagiannakis et al. (2013, p.90)

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5. Figure 3

Public Spending on health share (%) of GDP (2013)

Source: Woutersa and Kanavosa (2015, p.607)

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6. Table 21 Top 15 therapeutic classes by global pharmaceutical sales in 2014

Complied by the author from Statista (2015)

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