The potential sale of Neuca S.A., a prominent player controlling over 30% of Poland’s pharmaceutical wholesale market, to Chinese investors has captured global attention.
Poland’s pharmaceutical landscape is facing a seismic shift with the introduction of the “Pharmaceutical Law” (also known as “ADA2”) and the “Drug Reimbursement Act”. These newly enacted laws have sparked intense debate, as they appear to favor one major player, Neuca S.A., while potentially inflicting significant harm on the broader pharmacy industry.
However, a cloud of controversy looms over a potential transaction, as allegations of Polish government corruption and tax evasion by Neuca’s founders raise critical questions about a potential deal’s feasibility.
Within the confines of the Palace, political circles are abuzz with concerns about the procedural aspects of these fresh regulations claiming the amendments are unconstitutional. Furthermore, the absence of complementary regulations to address the changes has become a notable point of contention.
Poland’s President Andrzej Duda and his close associates have expressed significant reservations regarding the recently approved pharmaceutical law amendments, with insiders claiming a Presidential Veto is on the table.
Allegations of Polish Government Corruption:
In a Parliament meeting intended to pass the Treasury Guaranteed Export Insurance Act, MP Adam Gaweda suspiciously added last-minute amendments to pharmaceutical laws without prior consultation. This has prompted industry insiders to raise corruption allegations.
According to legal experts, the recently amended pharma laws, engineered by the Polish Minister of Development and Technology Waldemar Buda, and Mr. Gaweda, both members of the ruling political party “Law and Justice”, are deemed to be unconstitutional.
Waldemar 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, has many questioning the source of his income. These glaring disparities raise concerns about potential corruption influencing the legislative process.
Adding to the complexity are allegations waged by Jakub Kulesza, a member of the libertarian Wolnościowcy party. Kulesza vehemently opposes the pharma law changes and actively investigated the Pharmaceutical Law amendments’ known as ADA2 legislative process.
In a Polish Parliament speech before the ruling party who passed the legislation, Kulesza brandished a folder labeled “Scam,” asserting evidence of corrupt companies and politicians participating in illegal lobbying to shape the ADA2 regulations.
Subsequently, Kulesza formally issued multiple complaints to the Central Anti-Corruption Bureau (CBA) and the Polish Supreme Audit Office (NIK). The allegations are now under investigation.
Tax Evasion Allegations Surrounding Neuca’s Major Stockholders:
Until recently, Neuca’s founders, Kazmierz Herba and his wife Wiesława Herba, currently owning 53.14% of the public company’s stock, used a Cypriot company named Abrasco Ltd.
This Cypriot corporate structure, seemingly designed for tax-related advantages, allegedly allowed the Herba family to circumvent paying the 19% capital gains tax in Poland for nearly three decades.
However, a sudden transfer of controlling stock from the Cypriot corporate entity to a Polish corporation named Altea ASI has raised eyebrows. This maneuver hints at an impending sale to the Chinese, with an underlying motive to evade government and public scrutiny. Potential ties to tax evasion further complicate matters.
Potential Ramifications on Neuca’s Sale:
The allegations of government corruption and tax evasion surrounding Neuca’s founders could pose significant hurdles to the company’s sale to Chinese investors. If charges were to be filed against the Herba family for tax evasion, their 53.14% controlling stock shares could be seized by authorities, potentially preventing the sale to a foreign entity, especially one with ties to the Chinese government.
Moreover, the allegations of government corruption and legislation deemed unconstitutional surrounding the newly passed pharmaceutical law legislation may result in a Presidential veto. Should this occur, Neuca’s stock value and market control would reduce the company’s value.
Poland’s Pharmaceutical Laws Favor Neuca S.A.:
Neuca S.A. has long been a dominant force in the Polish pharmaceutical sector, controlling over 30% of the country’s pharmaceutical wholesale market. The new ADA2 pharmaceutical laws, however, seem tailor-made to further solidify Neuca’s position in the market.
Curbing Pharmacy Chains: One of the key aspects of the ADA2 amendments is the restriction placed on pharmaceutical franchise chains. These changes effectively prevent companies from establishing expansive chains of pharmaceutical franchises or owning more than five branches. This limitation directly benefits Neuca, as it curtails the expansion plans of potential competitors and secures its market dominance.
Ownership and Sale Restrictions: The ADA2 amendments also take a firm stance against the transfer of ownership or the sale of existing pharmacies. This poses a challenge for potential corporate exit strategies or mergers within the pharmacy industry. It’s worth noting that Neuca’s already substantial market share becomes even more significant when competitors are unable to grow or consolidate.
License Revocation Powers: Perhaps the most alarming provision in the Pharmaceutical Law legislation grants the Polish Provincial Pharmaceutical Inspectors the authority to retroactively withdraw existing pharmacy licenses. This puts established pharmacies on the brink of closure, with significant implications for the pharma industry and employment.
Amended Pharma Laws – Negative Impact on the Pharmacy Industry:
While Neuca benefits from these new laws, the broader pharmacy industry faces several challenges:
Reduced Bargaining Power: With limitations on the expansion of branches and clientele, pharmacies find themselves unable to negotiate favorable bulk deals for essential medicines and medical devices. This results in higher costs for both pharmacies and consumers. The only viable route to secure better pricing for medicines lies in forging long-term service agreements with Neuca S.A., further strengthening Neuca’s grip on the market.
Implications for Smaller Players: Smaller, independent pharmacies, which make up a significant portion of the industry, are hit hardest by these laws. Their inability to expand or form alliances puts them at a distinct disadvantage, potentially driving many out of business.
Why Poland’s President Should Veto the ADA2 Pharma Laws:
President Andrzej Duda, as the leader responsible for the health and welfare of his citizens, holds the legal right to veto the newly amended laws. Several compelling reasons support the case for vetoing the ADA2 pharmaceutical laws:
Lack of Consultation: The ADA pharmaceutical amendments were introduced without sufficient consultation with stakeholders in the pharmacy industry, a critical oversight that has drawn criticism.
Anti-Competitive Nature: The laws reek of anti-trust and stifle competition within the pharmaceutical sector, which can ultimately lead to higher prices and reduced accessibility for essential medicines.
Unintended Consequences: The potential closure of pharmacies and the loss of thousands of skilled pharmaceutical jobs due to these laws could have severe economic and social consequences.
Suspicion of Corruption: Allegations of corrupt practices and political influence surrounding these amendments have further eroded public trust in the legislative process.
Anti-Constitutional: Legal advisors on behalf of the Marshal of the Senate examined the bureaucratic process involved in passing the Pharmaceutical Laws and concluded, “The amending law was passed in violation of the basic requirements of the legislative procedure. The principle of proper legislation, the principle of trust in the state and the law (Article 2 of the Constitution), and the principle of legalism (Article 7 of the Constitution)”.
While the government and corporate aspects of the story continue to evolve, professionals within the industry and keen observers are maintaining a vigilant watch over each unfolding event. They are eagerly awaiting to ascertain whether Poland will, in fact, embark on the path of exporting its pharmaceutical wholesale sector to China.
