Major pharmacy chain founds dozen new firms on eve of reforms ({{contentCtrl.commentsTotal}})

A Euroapteek branch in the Priisle neighborhood of Lasnamäe,
A Euroapteek branch in the Priisle neighborhood of Lasnamäe, Source: Euroapteek

Retail pharmacy Euroapteek has started setting up a large number of pharmacy companies on the eve of the government's pharmacy reform coming into effect, a type of franchise approach which is permissible, though not in line with the spirit of the law, according to a social affairs ministry spokesperson.

Euroapteek is the Estonian arm of the Lithuanian-owned Euroapotheca group. The company announced last month that it was leaving the Estonian Pharmacies Association (EAÜ), a body which represents the larger wholesalers in Estonia, and their related outlets, expressing at the time disillusionment with a process which had been put in place five years ago after the passing of the Medicinal Products Act.

The company has founded around a dozen new companies, with lawyer Ene Soloviev appointed board member. All of the companies are registered to the same address, Akadeemia tee 45 in Tallinn,

Pharmacy reform due to come in force on April 1 requires pharmacies to be majority-owned by the dispensing pharmacists that work in them, rather than the large chains; the move by Euroapteek will remain in line with this but overall control will still lie with the parent company via a minority shareholding.

It is also referred to disparagingly as a type of "figurehead franchisee".

Oksana Kostogriz, chair of Euroapteek's management board, finds the term offensive, however.

"This [term] here is offensive and malicious. Anyone who takes look at the content of this large-scale project, even at a glance, will understand that the process is far more complicated than it may seem. There are no simple solutions. We have decided together with pharmacists that this model is the best fit for us," Kostogriz said.

Whether a new parent company will be set up instead of Euroapteek, Kostogriz said was too early to say, though said more company foundations were likely.

"Negotiations are underway, and certainly more will be forthcoming. We can't say the exact number yet," Kostogriz went on.

The move is also an effort to guide dispensing pharmacists with no prior business experience through the transition, Kostogriz said.

"The transfer of pharmacies to pharmacists is a very complex and complicate process. People who have not previously operated as entrepreneurs need to acquire the full range of skills and knowledge that they have so far lacked and, in general, they lack any entrepreneurial experience," Kostogriz added

"Corporate responsibility, business and financial management, accounting, contract management, etc. are just some of the issues that pharmacists, or future owners, have to deal with in a day-to-day business."

The transition will impose a very high administrative burden on future entrepreneurs as well as on Euroapteek, she said.

"Together with the pharmacists, we have decided that the best way to carry out this process is through a 'support person' who is knowledgeable in all the processes and helps resolve legal and business issues," she explained in a letter appointing Soloviev as Euroapteek's lawyer.

Whether Soloviev will remain on the board of any new pharmacy business that he will set up after April 1, Kostogriz said was also not set in stone at this point.

"We have separate agreements with each pharmacy. Everything depends on people's desires and capabilities," she went on.

Practice already well-known, Euroapteek has done something similar in the past

The state agency of Medicines (Raviamet) says that it is familiar with the practice Euroapteek is initiating.

"The scheme is the same as for other chain pharmacies - licenses are passed on to a qualifying pharmacy company. We have received some applications, and a decision will be made on the basis of the data and documentation provided," said Kristi Sarap, Head of Communications at the medicines agency.

The approach is not new for Euroapteek, according to ERR's online news in Estonia, which already wrote 18 months ago that the company had embarked on a large campaign of founding companies, often simply named "PharmaOne OÜ", "PharmaTwo OÜ" etc. and were grandfathered in to a Lithuanian company called UAB Oktopharma, Euroapteek's associated wholesaler. These companies have been restructured as pharmacies since then, though their parent company, OÜ Sarmandia, was liquidated in January this year.

The practice does not transgress any Competition Authority (Konkurentsiamet) regulations, though Maris Jesse, undersecretary at the social affairs ministry, says the practice is not in line with the spirit of the law even if it is with the letter of the law.

Other major wholesalers in Estonia are Magnum Medical, which operates the Apotheka chain of pharmacies, and Tamro, which runs the Benu chain. Magnum's owner Margus Linnmäe threw in the towel on pharmacy reform, which saw its last challenge at the Riigikogu via three voted-down bills last month, earlier in the year, saying that he would nonetheless be seeking damages from the state.

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Editor: Andrew Whyte

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