Will China Secure 30% of Poland’s Pharmaceutical Market?

The possibility of China acquiring Neuca SA, a publicly traded company and a pivotal player controlling over 30% of Poland’s pharmaceutical wholesale market, has triggered a wave of apprehension and scrutiny. Delving into the potential repercussions reveals a complex web of issues that warrant meticulous examination.

Just under three years ago, a leak from China’s Wuhan laboratory led to local and global lockdown measures, infecting over a billion victims with COVID-19 and claiming 10 million lives. Hence, it is not surprising that China’s entire medical and pharmaceutical industry has come under scrutiny regarding quality control, safety standards, and transparency.

The integration of Neuca, a key player in Poland’s pharmaceutical landscape, into the Chinese pharmaceutical ecosystem raises questions about adherence to stringent quality standards. This, in turn, could have a cascading impact on public health and the safety of Polish citizens.

Is Poland Surrendering 30% of Its Healthcare to China?

The decision to entrust a vital sector like pharmaceuticals to a foreign power, especially one with a history of government intervention in corporations, raises pertinent questions about Poland’s economic sovereignty. Placing substantial reliance on China for such a critical industry could potentially result in dependency, rendering Poland susceptible to external pressures and market manipulations.

It’s imperative to acknowledge that the pharmaceutical industry encompasses sensitive data, proprietary research, and essential supply chains. Bestowing significant control upon China in this sector gives rise to concerns related to national security. China’s track record of data breaches and state involvement underscores the urgency of safeguarding crucial medical data.

Polish President Andrzej Duda’s Relationship with China

In 2016, shortly after his inauguration, Polish President Andrzej Duda held a meeting with his Chinese counterpart Xi Jinping to sign a declaration on the establishment of a comprehensive strategic partnership between Poland and China.

The Polish President subsequently expressed on his official website, “I hope that Poland will become a gateway to Europe for China, particularly in economic terms, and that joint investment projects will be carried out.”

Russia’s Need for Medical Supplies to Support Frontline Troops

Poland serves as a host for train routes connecting China and Europe along the New Eurasian Land Bridge, which includes Russia, as part of the Belt and Road Initiative. Due to Putin’s conflict with Ukraine, the Warsaw train route to China via Russia has been suspended. Instead, the Polish fast train Polonez is now utilized to transport US and NATO weapons daily to Ukraine.

As reported by the Washington Post, over the past month, more than 20 train accidents involving military hardware and passengers have occurred, prompting Polish authorities to attribute the incidents to Russian radio hackers.

Given China’s defiance of Western sanctions and its continued annual export of $115 billion in trade to Russia, insiders in the industry suggest that the potential acquisition of Neuca’s wholesale supply chain is aimed at procuring and importing much-needed medical supplies to support Russia’s frontline injured soldiers.

Polish Healthcare: A Troubling Ranking

Over the past 3 years, Poland’s healthcare system, governed by socialized principles, has consistently found itself at the bottom of the rankings of the World Index of Healthcare Innovation (Freeopp).

Despite a population of 38 million citizens, the Polish Government’s healthcare expenditure currently stands at a mere 6.5% of the total GDP. In stark contrast, the United States, a non-socialist country, ranks 11th on the World Index of Healthcare and allocates a significant 18.8% of its GDP to healthcare. This includes investments in infrastructure, scientific advancements, and medicine to serve its citizens.

Rather than bolstering efforts to improve its healthcare sector, Poland’s current President, Andrzej Duda, is contemplating the sale of Neuca, the nation’s largest medicine wholesaler, to China.

Cracking the Polish Pharma Market

Poland’s healthcare landscape consists of 12,000 pharmacies catering to its 38 million inhabitants. The larger pharmacy chains leverage their size to procure medicines from multiple industry wholesalers, benefiting from reduced bulk purchase prices. On the other hand, around 4,000 smaller pharmacy players, representing approximately a third of the market, rely exclusively on Neuca S.A. for their medicine supplies.

The Impact of the ‘Pharmaceutical Law’ and ‘Drug Reimbursement Act’

Recent amendments to the ‘Pharmaceutical Law’ (also known as ‘ADA2’) and ‘Drug Reimbursement Act’ have further solidified Neuca’s dominance by imposing limitations on pharmacy chains, preventing them from expanding beyond five branches.

These amended laws, with the intent of diminishing industry strength, also prohibit existing pharmacies from transferring ownership, merging, or being sold. The ADA2 law’s amendments go a step further by granting Polish Provincial Pharmaceutical Inspectors the authority to retroactively revoke licenses. This provision alone is anticipated to result in the closure of 1,000 pharmacies and the loss of 6,000 professional jobs, with significant economic repercussions.

How the ADA2 Laws Bolster Neuca’s Market Grip

The pharmaceutical law amendments play a pivotal role in bolstering Neuca’s position in the pharma wholesale market by ensuring that their pharmacy clientele remains small.

To grasp this concept, consider a small “mom-and-pop” electronics store attempting to compete in terms of price and quality with a large franchise owning a thousand retail outlets. Clearly, the larger companies, purchasing products or services in bulk, receive favorable pricing from wholesalers.

The newly enacted anti-competitive ADA2 Pharmaceutical Law legislation effectively weakens the industry’s bargaining power by limiting its growth potential, consequently leading to elevated medicine prices. Industry experts explain that the only way for medical franchises, now constrained to five stores (without the ability to transfer ownership or merge with larger entities), to secure reduced prices from pharma wholesalers is by entering into long-term contracts.

Given that these pharmacies cannot change ownership or merge to enhance their purchasing power, they are effectively prevented from renegotiating contracts with major wholesale players.  As a result, this scenario favors Poland’s largest market player, Neuca, enabling them to stabilize prices and establish a monopoly over the pharmaceutical market.

Accusations Surrounding Corruption in the Polish Government:

Within a parliamentary gathering aimed at ratifying the Treasury Guaranteed Export Insurance Act, the unexpected introduction of late-stage adjustments to pharmaceutical regulations by MP Adam Gaweda has raised significant suspicions, inciting those entrenched in the industry to assert claims of malfeasance.

Per assessments from legal pundits, the recent modifications to pharmaceutical statutes, orchestrated by Polish Minister of Development and Technology Waldemar Buda and Mr. Gaweda, both aligned with the governing political entity “Law and Justice,” have been adjudged to potentially breach the constitution.

Parliamentary Controversy Surrounding ADA2 Legislation

A chorus of insiders, including voices within the government and the industry, speaking confidentially, have sounded the alarm on the ADA legislation amendments, with many pointing fingers at Waldemar Buda, the Polish Minister of Development and Technology.

This suspicion arises from the stark financial contrast between Mr. Buda’s decade-long public service, drawing a modest monthly government salary of 4,300 euros, and his reported net worth of $3.4 million USD. These glaring disparities raise questions about potential corruption influencing the legislative process.

Adding to the intrigue are allegations raised by Jakub Kulesza, a member of the libertarian Wolnościowcy party, vehemently opposing the pharma law changes. Kulesza conducted a thorough investigation into the legislative process of the Pharmaceutical Law ADA2 amendments and even brandished a folder labeled “Scam” during a “Sejm” (Polish Parliament) speech, presenting what he claimed was evidence of illicit lobbying by companies and politicians to shape the ADA2 regulations.

In response, Kulesza formally lodged his findings with both the Central Anti-Corruption Bureau (CBA) and the Polish Supreme Audit Office (NIK).

Neuca Founders Tax Evasion Allegations

Intriguingly, Neuca’s founders, Kazmierz Herba and his spouse Wiesława, who collectively own 53.14% of the company’s stock, previously utilized a Cypriot company named Abrasco Ltd. The abrupt transfer of controlling stock from this Cypriot entity to a Polish corporation has raised eyebrows, hinting at an impending sale to Chinese interests with a possible motive of evading government and public scrutiny, possibly involving tax evasion.

Insiders reveal that despite the Herba family’s primary residence being in Poland, they have managed to avoid paying the 19% capital gains tax for over three decades, thanks to Cyprus’ foreign corporate laws. This tax strategy is said to have saved the Herbas millions in annual tariffs.

Experts speculate that should the Polish tax revenue service pursue criminal charges against the Herba family, their controlling 52.14% shares could be subject to seizure by authorities pending the outcome of legal proceedings, which could effectively block a sale to the Chinese.

Scrutinizing Polish Regulatory Landscape

The pending acquisition of Neuca has cast a spotlight on Poland’s regulatory environment. Questions loom regarding the ability to uphold rigorous quality standards and safety measures under Chinese ownership, especially given the concerns surrounding the Chinese Communist Party’s (CCP) track record.

In 2005, the World Health Organization (WHO) introduced the International Health Regulations (IHR), a comprehensive legal framework applicable to 196 countries, including the 194 WHO Member States. The IHR mandates that all countries regulate their healthcare systems to protect citizens’ well-being, particularly in addressing public health emergencies.

EU Market Dynamics and Regulatory Challenges

Poland’s attractiveness to Chinese pharmaceutical companies as a gateway to the EU market raises significant concerns. Regulatory gaps and a relatively open investment climate could potentially expose vulnerabilities. Ensuring the same level of oversight and quality control observed in other EU nations becomes a priority to safeguard public health and technology security.

Geopolitical Complexity

Rumors suggest that potential buyers of Neuca SA are proxy corporations under the influence of the People’s Republic of China, a regime governed by the Chinese Communist Party (CCP). This raises the critical question of whether the acquisition aligns with Poland’s values and interests, given China’s ideological framework and governance approach. Poland, having liberated itself from the USSR’s communist regime 32 years ago, is understandably cautious about any return to oppressive governance.

Diplomatic Implications

The acquisition’s broader diplomatic consequences cannot be overlooked. Selling a substantial portion of its pharmaceutical wholesale market to Chinese investors could potentially clash with US trade policy and strain relations between Poland and the United States. Such developments could disrupt Poland’s standing in international diplomacy and its alignment with the EU and Western allies.

Ultimately, the decision to proceed with exporting a significant share of its pharmaceutical wholesale market to China requires meticulous consideration of a myriad of factors, balancing potential benefits against the associated risks and consequences for Poland’s economy, security, healthcare system, and international relationships.

As the industry landscape continues to evolve, pharmaceutical experts and observers remain vigilant, closely monitoring each development, eagerly awaiting Poland’s final decision on whether to export its pharmaceutical wholesale market to China.