Interview with Ognian Donev for Bloomberg TV, Bulgaria

"Sopharma gets less than 2% of the state funds for medicines" Host: Our guest at the studio is the Executive director of "Sopharma", Mr. Ognian Donev, and we’ll talk with him about the Bulgarian business climate. Hello and welcome! Ognian Donev: Hallo! Host: Thank you for accepting to be our guest at "Business Start". Let's begin with the company’s annual statement. Are you satisfied with the report, with Sopharma’s results, etc.? Ognian Donev: The statement is just what it is – a statement. It reflects on everything that happened last year and indeed, 2015 was a very complicated period of time. Some of our shareholders have been asking themselves why didn’t "Sopharma" distribute any dividends but our expectations were not for such hard times and we decided to retain the financial resources of the company in order to be able to meet the challenges. Thank God 2015 didn’t turn out to be as bad as we expected it to be considering the possible risks we could have met. The drastic drop in sales abroad became a fact and it was estimated at about 14%. Given the international situation this surprises no one. We were able to maintain the viability of the company and to achieve good financial results expressed in the collection of profits. Host: What are your forecasts for this year? What are your expectations? Ognian Donev: The same as 2015. The pressure from the depreciating currencies of the eastern parts of Europe is manifesting itself. Just think of the oil prices which effect the Russian Ruble, the Ukrainian Hryvnia. And I’m not going to mention all the other currencies with which our company traditionally operates. Host: What about the results – do they show a return on the investments made? Ognian Donev: Sales are not directly related to investments. What Sopharma was able to do was to invest in the establishment of a modern production facility, which may serve as the base for a more optimistic future. In the troubled world we are now living in making predictions isn’t easy. The bankers often ask us about our expectations but what we want to hear from them is what they think will happen to one or another currency; after all they are the professionals in this sphere and they know better. Making predictions is a difficult job indeed. Host: There are media speculations that you're trying to sell your business! Is there any truth in this or is it just the next round of routine speculations? Ognian Donev: Rather the second: just speculations! Sopharma is a growing organism. In other words, 2016 might see an expansion of our purchases from abroad rather than sales. Sales are out of the question. Host: So no selling of the business? Let’s be clear and definitive. Ognian Donev: If we have to be clear and definitive I have no intention to sell my shares in the company’s capital! Host: Right. Let's discuss this a bit… Ognian Donev: Otherwise, trading in Sopharma shares, as you know, is a daily practice. Our company is listed on the stock exchange and, thank God, not only Sopharma’s shares but the shares of our other companies are attracting the interest of the investment community in Bulgaria and abroad. Host: Well, let's move to the business with medicine. When will the price of medicines in Bulgaria go down? You've talked about this on a number of occasions. Ognian Donev: There are many ways to do this, but I would first ... Host: Are you seeing a way to do this? Ognian Donev: I do see how this can be done, but I am also asking myself why is it that some very obvious things haven’t been done all the more that the task is to render better services by employing the public resources which, as we know, increase through the years. In other words, it is not that the resource, generated by society, will be reduced, but that this resource will decrease the share of – as we say – “out of pocket expenses”. This is to say that what people will have to pay out of their pockets will serve to greatly reimburse the price of medicine supplies. Of course the state and the Ministry of Health can greatly effect the sector where public resources are used. We often hear opinions being expressed in relation to our company but I must underline, yet once again, that of the public resources spent on medicines the share received by Sopharma is less than 1.8%, which means that the largest Bulgarian company receives only 1.8% of the public resources. Indeed, wherever we withdraw from the market there is an instant and dramatic rise in expenditure. Maybe it is not correct to talk of this from the point of view of one company only, but the government needs to understand clearly that the so-called “pro-generic policy” is the only way to more savings and costs reductions. Host: And why is this policy not followed? Ognian Donev: Well, they are declaring a will to go forward with its implementation. Host: In other words you do see it as possible? Ognian Donev: The issue here is how exactly this will have to be done and as an interested party, playing on the market, I – off course – am giving no advices. There must be rules in place, clear definitions to which we, the companies, must adapt. Host: You know well that European practices include generics as a growing presence on the market. How do you see the situation in Bulgaria? Ognian Donev: And not only in Bulgaria but across southern Europe ... Host: This has been an ongoing debate indeed. Ognian Donev: ... in southern Europe the share of the generics is not what it could be. Host: How do you explain that? Ognian Donev: Colleagues from the innovative industry say that this is due to their innovative marketing. It is true that they allocate huge resources to marketing, advertisements... It suffices to mention the commercial breaks on television, which do cost a lot of money. Host: If you agree we may now say a few words about the new medication policy in view of Petar Moskov’s health reform, which has divided the pharmaceutical industry yet again. Your comment. Ognian Donev: This is quite normal! Years ago, when I joined the pharmaceutical industry, there was a split between Bulgarians and foreigners and that was wrong. The pharmaceutical industry worldwide is divided into multinational companies claiming to be innovative. They are the ones that introduce new molecules on the market, etc. On the other side are the generic companies which, after the expiry of the medicine’s patent, start producing it and as it has no patent protection its price drops dramatically. And the interests of the entity, controlling this process, are clear to me: the aim is to reduce the costs. But how? By using more generic drugs with expired patent rights so as to save the funds necessary for financing the appearance of new, innovative products. Host: It seems logical and fair, doesn’t it? Ognian Donev: Yes, it does seem fair and that’s’ how things should be! You understand, however, that of these two, the more powerful is the innovative industry which tilts the balance to its advantage. And this is also logical. Host: Right! Let's talk a bit about the business climate. What is it like in our country? Describe the environment, please? Can this business be developed? Can you invest safely? By the way, you didn’t say whether you believe in the viability of the health reform? Ognian Donev: The reform can be viable if you also have... Host: Because it affects the pharmaceutical industry too, the pharmacy network, i.e., everything else! Ognian Donev: I think there is a consensus in Bulgarian society that we are not satisfied with the current situation. In other words there will be a reform, but what exactly should it look like, how quickly it will be implemented and will it head in the right direction or not is what is really important. Not that things can’t remain as they are now but I think that all Bulgarians are very well aware of the situation. Host: What other reforms are needed to develop the business? Ognian Donev: The business likes peace and quiet and some stability. Host: And are you seeing peace and stability? Ognian Donev: At this point in time the situation in Bulgaria has become rather tense. A greater part of the blame for this goes to the politicians, the permanent confrontation we are seeing, the instability of the legislative base. Many of the expectations that all of us, Bulgarians, have simply don’t happen. These are the reforms which should be made by the government. Host: You know all too well that the legal reform is crucial for the business. You also know the chambers which have announced that they will back the legal reform. Ognian Donev: In this sense two signals are being sent to society. On the one hand there are the ten different chambers which have sat down and have written something or are trying to articulate the position of the businesses ... Host: Do you support their views? Ognian Donev: Of course! If nothing, our company is a member of the American Chamber and the Bulgarian-German chamber and these two chambers express our own views on these issues. I can neither stand aside nor add anything more and besides, everything has been said exactly as it is! Of course, one shouldn’t exploit this for some political gains and exaggerate the meaning of an objective analysis of the given situation. We are all aware that what is needed are changes, reforms! Our society needs these reforms! And we’re expect them to happen! On the other hand there is a considerable delay and there are political factors who are questioning the very necessity of such changes and reforms. This is not a constructive approach and doesn’t helps the process of pushing things in the right direction. Host: Do you think that the court of law is used for political gains? Ognian Donev: Oh, I couldn’t say that as of yet! Host: Ok! Let’s go back to what we were talking about a bit earlier. You did say what should be done but what must be changed to boost business development? Maybe you’ d like to discuss exports? Ognian Donev: After 2008 it was the Bulgarian exports which served as the locomotive for Bulgaria’s economic development. Bulgaria is a small country with a small market, so that no industry can develop here if it counts on the domestic market alone. In its best years my company, for example, has seen domestic sales volumes of up to 30% and if it were not for the 70% in exports the enterprise could not have developed further. And this a rule which applies to many businesses. In other words, Bulgaria needs a stable governance which should create normal conditions for the running of a business and from there to an increase in the country’s exports. It is Bulgarian exports which provide jobs in the country because on our small market ... Otherwise if we were to produce the quantities needed by the home market we could never keep the present employment rate; this is, indeed, the factor which ensures jobs for the population. Things must be interconnected and synchronized in order to develop in the right direction. Host: About ten days ago you said that "…I'm happy that we have managed to keep the working places in spite of somebody’s efforts to keep harassing our business for nearly four years". It is not an exact quote, but basically that’s what you said. Ognian Donev: Yes, harassment may not be the exact word I used, but the psychological pressure I was subjected to shows its effects. I thank God I have a strong psyche and there are no effects from all this but I have always said that the easiest way to improve the efficiency of a production process, or any other economic activity, is by sacking people. To keep people on the job – and even to employ additional personnel - to ensure jobs for thousands and the livelihood for their families and everything else is sheer art and the way to do it is to develop the business. If we had remained where we were in 2000, today even 200 workers more would have been a large number to keep on the job, but it is through the development of the business through entering on new markets, the development of new products that today we can be proud to have kept the people we’ve been working with on their jobs. Host: So you have no employment cuts, right? Ognian Donev: I have kept this situation for over 16 years now. There is some staff turnover but in general this is no more than… There are no job cuts and, in fact, with the appearance of new companies we’ve even improved some of our in-house records. Host: Tell as of such a record and then I will ask you about the pressure you mentioned? Ognian Donev: Well, I think that 200 000 employees working in our companies is a quite a “proud” number. Of course, to this we have to add about 2,000 of our own employees who work outside of the territory of Bulgaria. Host: And what about the pressure. Who is to blame for it? Ognian Donev: Well, its more psychological kind of... There was a colleague who had nothing better to do all day but to tell untruths about us – he is now in Brussels and represents the entire country. I think, however, that there is no sense in wasting people’s time with his theories. Host: Since we are heading toward the end of our conversation I’d like to ask you: who is to benefit from what is happening. As you said 10 days ago: “I'm not guilty – somebody is trying to press me”. Ognian Donev: In Bulgaria we always tend to destroy what is there and what is good. What I keep noticing is the small number of emblematic Bulgarian companies – I don’t know whether they can be counted on the fingers of one hand or, at the most, on both... Host: Who wants to discredit you? Ognian Donev: It is more than obvious that in Bulgaria this generates envy, to say the least. Instead of supporting the achievers, so that they can tug the entire economy forward, all attempts are being made to… Host: Maybe that’s because the achievers are not that much. Ognian Donev: You’re right. And then there’s the desire to have another business sector which will not be forced to participate in the market competition and I suppose that in the eyes of this sector we are like "a thorn in the eye". Host: So this is it ... Is this how you explain the lawsuit against you? I think the next date is in March. Ognian Donev: This is a complex issue. You know that I had a not particularly successful entry on the media market as a minority shareholder and this was viewed in a way which I can’t accept as correct – I was described as having political ambitions but I have a different education and I do what I am trained for . Host: You’re saying that you have never had political ambitions? Ognian Donev: Never. And I think this is obvious - I am not a member of any party, I never go to any party events, with the exception of the four years of my chairmanship of the Bulgarian Confederation of Employers and Industrialists where, of course, when I was invited somewhere I had to attend although I think that even then I was absolutely impartial because I actually covered the entire political landscape. Host: Then let me ask you again: is the legal system being used for exerting pressure? You said that you were going to see, but considering what you are going through ... Ognian Donev: You mean is it normal for an audit to last three years, is it normal to be submitted to 40 audits all ending with no claims on the part of the National revenues agency against you. Excluding that one cent, which became historically notorious and which my wife owed for 2010. Host: What makes you go on then, under all this pressure you’re talking about, in a situation where we’re the achievers but – saying it simply - there’s always someone trying to stand in our way? Ognian Donev: Yes, but we are not working for the others. I am a Capricorn - my astrological sign is Capricorn - and I'm probably a very typical representative of that sign. Every man has his ambitions, his dreams and the desire to make them come true. My hope is that my dreams fall in line with the interests of our nation. Host: Tell me then about your next ambition. Ognian Donev: To enter some new market in 2016 and to see some more acquisitions. Host: Can you be a bit more specific? Ognian Donev: Well, actually no. When you represent a public company you cannot say anything before announcing it to the Bulgarian stock exchange. Host: So in summary we are to expect a growing "Sopharma", right? Ognian Donev: So far we have not stopped doing just that and we are following a "step by step" policy. We are entering new markets, we are acquiring other companies operating on these markets and we also exploit production facilities in a number of different countries. I hope this process will accelerate and that we’ll see a considerable increase in exports. Host: And finally the legal suite, is that a concern? Ognian Donev: No. Host: I thank you for this interview! Bloomberg TV, "Business Start"