Dec 1, 2010

„Increased export will be the key factor in the future growth of Alkaloid”

Zhivko Mukaetov
CEO and President of the Management Board of Alkaloid Joint Stock Company – Skopje

Of all the managers who run the major Macedonian companies Zhivko Mukaetov is one the youngest. At the age of around thirty, he took the helm of Alkaloid Joint Stock Company, which was previously managed by his father Trajče Mukaetov, who established it as one of the most successful firms in the country. Mukaetov junior says he is grateful that he developed as a manager beside a remarkable mentor, under whose expert guidance he became acquainted with the manner of operation in Alkaloid and developed a vision regarding the focus of its further development. Nowadays, four years after he assumed the leadership position of Alkaloid, the company remains one of the most successful businesses in Macedonia, whose annual sales figures have reached hundreds of millions euros, of which the exports’ share is constantly increasing.

It is precisely in the increased export that Zhivko Mukaetov sees the future growth and development of Alkaloid, because, as he put it, they decided "to turn to their advantage the handicap that we, as a country, are a small market ". To achieve that goal Alkaloid continuously invests in strengthening its sales teams on its key markets - those of former Yugoslavia and more recently, the Russian market, which is defined as one of the priority markets in the Company strategy for 2011. It is anticipated that in the next two years this market will become one of the key export destinations of Alkaloid.

"Since 1998 the company has invested almost 100 million euros in state-of-the-art technology, standards, laboratories and facilities. Thus, it is no wonder that Alkaloid has a market position that is absolutely competitive anywhere in the world," Mukaetov said. All these efforts for greater competitiveness led to the continuous growth in the sales of the company, even during the past two or three years of crisis, when the average revenue growth rate was about 15%.

We discussed many issues with Zhivko Mukaetov – starting with the current activities of Alkaloid, the specific plans for market expansion, his managerial principles, all the way to his views on what Macedonia should do to achieve a faster economic development. 

"We need to show that we know how to work, and we should not have an inferiority complex. I think that Macedonian managers are not worse than Serbian ones, Croatian ones or any others for that matter. Perhaps they lack the courage to try their luck abroad and understand that they can be just as competitive abroad as they are at home," Mukaetov advised.

K: The crisis seemed to have no impact on the operation of Alkaloid: from a quarter to a quarter, the company has achieved increasingly better results - both the sales and the profits have risen. What is this continual success of the company due to?

Z.M: There is this quite wrong perception - that even in conditions of crises, pharmaceutical companies are bound to achieve positive results in their operations. The success of the operation of Alkaloid in the past years of global economic crisis, and even before that, is primarily due to the quality of its products, the quality of the staff working at the company, the Alkaloid brand and the individual brands we have, which were being built for years, as well as the proactive marketing concept, which implies struggling for each of our sold products. I can most responsibly say that Alkaloid has products of the highest caliber, which are equal to those of the competitors, and in some cases even better.

The success is also due to the standards we have applied in the production process, which are also superior, because, if we have invested nearly 100 million euros from 1998 to the present day in production facilities, laboratories, the Institute of Development and Technologies – it is only natural that it provides us with a starting market position that is absolutely competitive.

Undoubtedly, the development strategy of the management has a large share in the success of the company and I am pleased to say that we are close to fulfilling our objective of continuous double-digit annual growth, which I believe is on the right track to becoming the internal creed of the company.“Our products are competitive and modern, they follow the trends and may compete with any product in their category in the world. The standards applied in the production process also are superior because, if we have invested nearly 100 million euros from 1998 to the present day in production facilities, laboratories, the Institute of Development and Technologies – it is only natural that it provides us with a starting market position that is absolutely competitive anywhere in the world."

K: Following the recent expansion of your production facility in Serbia, you announced a more aggressive approach on some other markets in the region. Does this mean that export is the major asset for further development of the company?

Z.M: We decided to turn to our advantage the handicap that we, as a country, are a small market. Although we are regarded as a large company in Macedonia, if we consider the sales of nearly 100 million euros on an annual basis and the number of more than 1,000 employees, globally speaking we are still a small pharmaceutical generic company, and we are striving to join the group of medium-sized pharmaceutical manufacturers. We realized that the focus on export is the way to our growth and development.

Ten or even more years ago, when the plans for strategic development of Alkaloid were being made, we realized that we could strengthen our positions primarily in the region - where we are recognized as a brand; we are culturally similar to those countries and we had to use this as an advantage. We conducted a detailed scan of the markets in the region, after which we discovered that we should increasingly invest in marketing, create bigger teams that would be involved in fieldwork, refine our drugs portfolio, and focus on those products where we have a competitive advantage. You can not be good at everything.

For example, we have a factory for cephalosporins, i.e. antibiotics, which are not produced by many manufacturers in the world. We decided that we should be strengthening this segment. We have developed an outstanding cephalosporins portfolio, which makes us competitive everywhere. Not only do we sell them as our products, but we also have cooperation with other manufacturers, such as the Croatian Belupo, for which we produce a particular group of antibiotics. And that, of course, is another proof that our products are good and of high quality.

K: What are the key foreign markets for Alkaloid?

Z.M: Alkaloid has traditionally been present and perfectly positioned on the regional markets. Currently Serbia is our greatest export market. Having operated at first through our four regional representative offices in Belgrade, Novi Sad, Kragujevac and Niš, we reached the stage of production, first in Zemun, and then it was transferred to Belgrade. In the beginning, this was only secondary production, i.e. just packing the medications, but later we also invested in primary production. You simply must monitor the market situation and constantly be one step ahead of others, because the Balkans are the Balkans and there can always be something to surprise you.

Then, we strengthened our position in Croatia, by offering the production lines we previously hadn’t placed on their market massively, such as the cardiologic drugs. Nowadays our export to Croatia amounts to almost 10 million euros.

Alkaloid has also strengthened its positions on the market of Bosnia and Herzegovina, a market that was unjustifiably underestimated by other manufacturers. We decided to invest there too, in people of high quality, and also in marketing...

Another segment is the European Union. We decided that we should obtain, at any cost, all the necessary standards and created a team responsible for drugs registration, which underwent extensive training so as to become able to perform this process. Through our office in Ljubljana, which is our center for the entire EU, we started to work on the registration of drugs. First we strengthened our position on the Bulgarian market, where we have had an increase of 40% this year, then in Slovenia, we also launched Caffetin in Romania and have registered drugs in the Czech Republic, Slovakia, Poland and Hungary, where we still have no sales, but we are building a decent portfolio, because you cannot enter a market with one drug only. Simply, you will not be taken seriously.

If you ask me where Alkaloid can experience the greatest growth, it would, of course, be the Russian market. We established a compact team of about sixty people in Russia, led by an experienced management staff and have allocated substantial budget for marketing.

There is a huge Caffetin advertizing campaign that is currently in progress in Russia, which in our opinion, being a leading brand, can pull our entire portfolio of products. In the Strategy of Alkaloid for the year 2011, the Russian Federation is defined as one of the priority markets, which we expect will become one of our key export destinations in the next two years.

K: Caffetin, as one of the leading brands of Alkaloid, has experienced several extensions lately. What are the experiences of these business moves?

Z.M: Caffetin, according to many criteria, is one of the leading Macedonian export brands. In some markets the Caffetin brand is better known than the Alkaloid brand. Therefore, we have decided to work on expanding the Caffetin portfolio so as to make use of its market position to the greatest extent possible.

We established an OTC Division (an acronym for “over the counter”), something that did not previously exist in our system organization and that literally "covered" all pharmacies in the Balkans. We conducted detailed analyses of the markets in the region, based on which we started with brand extensions. First we introduced "Caffetin Cold", then "Caffetin menstrual" and for the time being the last extension is "Caffetin Cold Plus”, with natural Vitamin C.

In cooperation with a renowned German company we have worked together for three years to develop the so-called. "sachets" (bags with powder that dissolves in water) and starting from December "Caffetin Cold Max” will be available on the market, and we expect it to be a blockbuster in the next 20 years. The OTC segment deals with commercial sales that are not related to the health insurance funds, and thus we intend to further strengthen this segment in the future. Besides the OTC line, the cardio-preparations, the drugs that affect the central nervous system - CNS, as well as the cephalosporin antibiotics are the four basic lines the strategy for growth of the company is based on. Therefore, in every single market we have an OTC manager, a CNS line manager, a manager for cardiac drugs and a manager for antibiotics within our teams.

K: It is interesting that Alkaloid has opened companies in specific foreign markets through which it markets its drugs, rather than exporting them through agents. What were the reasons for this?

Z.M: In the markets such as Serbia or Russia, where the devaluation of local currencies is a common phenomenon, there are situations in which the importer who buys directly from you in euros or dollars suffers a loss due to a change in the exchange rate. Later this becomes reflected in the mutual partnership. In these markets, few would take the risk to buy from you in a convertible currency and then sell in the local one.

Moreover, you have a minor market share and simply are not interesting. Secondly, if you are not present on the market with your own resources, it is very unlikely that you could achieve the desired result. If we do not do our homework ourselves, there cannot be any prospects for long-term results and positioning as a brand.

K: To what extent is it a "mission impossible" for a Macedonian pharmaceutical firm to conquer markets such as Serbia or Russia, which are still not members of WTO and can apply stricter mechanisms to protect their domestic companies?

Z.M: Following the commencement of world economic crisis, the state health funds and the relevant ministries started taking measures to protect the domestic companies. Given that most of the countries are already members of the WTO, the protection mechanisms can not be formalized, so it is done in a variety of informal ways, e.g. controlling each imported lot of drugs that will last longer than it should, and it would take a lot of energy, nerves, and money, in addition to time.

There is another category of countries, such as Serbia and Russia, which are still not members of the WTO, which openly declare that their domestic pharmaceutical industries will be protected, particularly in times of crisis. In Serbia, for example, a formal measure has been introduced whereby the Health Fund made a decision that if there are two parallel registered generic drugs by a domestic producer available on the market, the state will not cover imported drugs.

Consequently, foreign companies have to sell them commercially, the patient will have to bear the costs, which is really difficult if we take into account the decreased incomes of the patients and the awareness for spending money.

K: And what is the situation in this regard in Macedonia? Does our country use some informal mechanisms for protection of domestic pharmaceutical companies?

Z.M: From that aspect, our system is just like the systems in all the other member states of the WTO and the state has established equal rules of play. I have to express my satisfaction with the great administrative operation of the system: the Drugs Bureau within the framework the Ministry of Health and the Customs Administration. The procedures go quickly. This is very important for us because we do not lag behind in the preparation of documentation, permits for export, import of raw materials and so on. There is evident progress in this respect.

K: Some time ago there were some attempts for counterfeiting certain Alkaloid brands. How did it all end?

Z.M: Some so-called domestic manufacturers have sought to counterfeit the Caffetin brand. They copied the recognizable gold foil, they used the same font of the letters, the name of their "new product" started with "C", they even inserted “ff”.... We initiated appropriate procedures at the competent bodies and won in the dispute. But it all proceeded slowly. This year again there was an attempt by a company to counterfeit our products, i.e. to register a product with a name that was a coinage of two of our protected and recognizable brands. They were already at a fairly advanced stage of the registration of the product at our Ministry of Health, but we reacted and in the nick of time the name of the medication was changed.

K: There have been several acquisitions of pharmaceutical companies in the region in recent years. Were there any offers for the acquisition of Alkaloid and what are your views regarding the future of the company as a part of a larger regional or world group?

Z.M: Globalization is an inevitable process. Alkaloid and Macedonia are parts of this global system of operation. Several acquisitions took place in the Balkans - the acquisition of Slovenian Lek by Novartis, Sandoz was the first one, Pliva was acquired by Bar, and then by Teva, prior to that Actavis bought Zdravlje, Leskovac, and there were also some other acquisitions.

There has always been an interest in Alkaloid, but based on our own evaluation we are currently functioning great. Being independent, we are flexible and much faster, which is our competitive advantage, because the flow of information in our company is faster compared to the companies that have become parts of larger systems in which the decision making process has to go through many levels. In such a situation, our independence is an advantage, and not a weakness. The brand, its recognizability, the trust in it, are all very important, just as the medical marketing is important.

The most important thing is not the price, but the quality of the drug is above all.

In times of crisis I feel better as a hunter rather than being hunted. Definitely, the prices of companies are currently underestimated in all parameters. The price of the Alkaloid share is currently terribly undervalued. The two key parameters for measuring acquisitions in our business are: sales and EBITDA (earnings before interest, taxes, depreciation, and amortization). In the good times, before the crisis, acquisitions ranged from 12 to 15 multiplied by EBITDA, and then the quotient fell to 7 to 10 multiplied by EBITDA.

If at that time the sales ratio was sales multiplied by 2.5 to 3, now it is sales multiplied by ca. 1.5 to 2. If you calculate our parameters you will see that our share is undervalued by far. The Alkaloid strategy is to be “in offensive”, to open manufacturing facilities abroad and to strengthen our market positions. In the next 3 to 5 years I see Alkaloid as a company that will grow and position itself on the markets even more firmly.

That does not mean that we are not aware of the globalization. In some better, future times, we see Alkaloid as part of a large pharmaceutical system, through which we shall conquer new markets with our name, but in the near future I think that the most realistic and the best option is for us to act independently.

K: On a global level there is currently a burning issue for the large multinational pharmaceutical companies with the increasingly small number of newly developed drugs, while at the same time the expiration date for the validity of the patents for the original formulae is drawing near. As a generic company, do you see your chance precisely here, in conquering most of the generic drugs market?

Z.M: Absolutely. Let me first explain in greater detail these trends to your readers. Large multinational companies that develop new drugs have an ever smaller number of new blockbusters of patented molecules in their production lines. This means that they are slowly coming to a stage when they are still making big money from their patented drugs, but the time of their validity is slowly running out. With the expiration of these deadlines, the generic industry penetrates deeper into the story and these molecules are slowly becoming part of the portfolio of the generic companies. Just like the big generic companies do it, so do we. We analyze the world market and we have accurate data as to which molecules are interesting, and consequently slowly develop the generic versions of these drugs.

There is another new aspect here. The multinational companies, so-called originators, precisely because they have no more new patents, started buying generic companies and making alliances with them to conquer new markets. Until last year the logic was that a big generic company should buy a small one, or a small generic company should locate sources of funding and buy another generic company. This was exemplified in the Icelandic Actavis, which, being small, grew enormously. However, after the crisis the situation has changed. Now all the cards are open, everyone is playing with everyone, so as to secure a better market position. An interesting point in the large multinational companies is that when they have no growth and results, they buy someone. It is the principle of operation of the large systems, not only in our industry.

As a generic manufacturer, in Macedonia we have the privilege that the law (up to 2017) gives us the right to develop molecules, even for the duration of the patent right and the exclusivity of the data for them. And that is a great advantage for us as a company. The day when the patents these molecules are no longer valid, we would be prepared to market the generic versions of the drugs we are currently developing.

K: Let us turn briefly to the cosmetics range of Alkaloid. Bekutan as a leading brand in this segment has great popularity even in some foreign markets, such as the Serbian and the Croatian markets. What do you plan for the further development of the Bekutan brand?

Z.M: Just like with Caffetin, we also decided to develop extensions of the Bekutan brand. We carried out extensive research in the region and concluded that in the markets of former Yugoslavia Bekutan is among the top three brands in the field of children's cosmetics. We came to the conclusion that we lack certain forms of products that can be offered. So far, we came up with the following extensions in this portfolio: wet wipes, diapers, new forms of shampoos, foaming bath products, various creams. The redesign of the collection and a big promotional campaign that are planned for the coming year are in the process of preparation.

Simply, the brand is competitive, there is tremendous consumer loyalty to this brand, as well as an emotional bond, and all of this shows that we can cope quite well with multinational brands that spend billions of dollars on research, development and marketing.

K: And what about the teas? You have become popular with the current program of organic teas, which are exported to several markets...

Z.M: The range of Good Nature Teas underwent its remake last year, something that it lacked in order to come a step closer to the renowned brands of this type. The organic teas from this range of products are certified by international institutions for the European, the U.S. and the Japanese market. The Good Nature brand is the leader on the Macedonian market, above all due to the quality of the products, their recognizability and tradition, but I will also emphasize that in our country teas are treated as a kind of "seasonal products".

We also produce tea for Aveda, which is part of the Estée Lauder group, which is another proof of their high quality. They visit us once a year to review the tea production process, in order to check it all the way through - from the collection of herbs on the Macedonian mountains, to the actual production, packaging, etc. The whole process is environmentally friendly, and uses herbs that grow in healthy, organic environments.

It is a great pleasure to see Aveda tea, made in Macedonia, product of Alkaloid Joint Stock Company in London or Miami stores. In the most luxurious department store in London, Harrods, Aveda tea produced by Alkaloid costs eight pounds per tea box.

K: The commitment to social responsibility is becoming one of the main features of successful companies nowadays. What are the activities undertaken by Alkaloid when it comes to sharing part of the earnings in the interest of the community?

Z.М: Social responsibility is part of the tradition of Alkaloid. In our company we believe that through our social responsibility we could contribute to the improvement, promotion and development of the community in which we operate. We simply support and will continue to support all that is the best from Macedonia, be it cultural projects, sports, science, art, the needs of the young people ...

For the Alkaloid employees the commitment to social responsibility is considerably important. To this end, this year we have promoted two strategically important documents for us: "Social Responsibility Policy of Alkaloid Joint Stock Company” which won the second prize in the category "Investment in the Community” in the open competition issued by the Ministry of Economy for awarding national awards to socially responsible companies for the year 2009 and our "Code of Ethics and Business Behavior" which won the first prize in the category of "Ethical Governance".

We express our commitment to social responsibility through substantial support in the field of healthcare and pharmacy. I would stress the partnership with the Macedonian healthcare and pharmacy sector which is constantly being upgraded and deepened. Alkaloid continuously helps and supports them in a variety of ways: by donating equipment and apparatus, supporting research projects or staff education.

In order to ensure long-term action in these two segments, Alkaloid established the Trajče Mukaetov Foundation, which, starting from 2007 has regularly awarded scholarships to young, ambitious staff that have devoted their careers to these activities, and which has hitherto awarded scholarships to 140 students from Ss.Cyril and Methodius University in Skopje. A dozen of them have already become employees of Alkaloid. In a way, this Foundation is a kind of an "incubator" for new future members of the Alkaloid family.

I am a big sports fan, and therefore the Alkaloid logo and the motto "Health above all”, are often present on the jerseys of the national teams. The Alkaloid Chess Club has been at the top in Macedonia for years, and last year it was among the top 10 in Europe. In the field of culture, as a characteristic example, I would like to point out the initiative by several local businessmen and the Norwegian Embassy in Macedonia for purchasing a new piano for maestro Simon Trpčeski. In addition, we shall also be among the sponsors who announced their willingness to participate and to make possible the concert of our piano virtuoso together with the London philharmonic orchestra.

K: You're one of the youngest chief executive officers of the major Macedonian companies, i.e. you were very young when you accepted the great responsibility of taking the helm of Alkaloid. How did you feel in those moments? Were you apprehensive of the challenge that you were faced with? What were the biggest dilemmas faced by an executive manager in those times?

Z.M: The pressure was great as I had to be focused to the maximum. I had the honor and pleasure to learn from the former head of Alkaloid, Trajče Mukaetov, and it was beside him that I discovered the secrets of management, but I also got to know the company itself. This was a process of incremental development, because first I worked in the marketing department, then I ran the marketing communications department, after which I ran the medical marketing of the pharmaceutical part, the sales in the pharmaceutical segment - so gradually I got to know the essence of the company, so as to understand the culture of its operation and to make a good estimate of its inner resources.

Pharmacy is one of the most dynamic sectors, an area in which there are major breakthroughs, where year by year the regulations and market conditions change and become even stricter. This is why you must have educated people at hand to respond to all those changes. I am a kind of a manager who wants to rely on his management team. I try to motivate them, to stimulate the flow of information, and minimize the risk of unnecessary delays in certain processes as much as possible.

I prefer small working teams where tasks are finished by a specific deadline, to collegiums with a large number of people, whose meetings last 3-4 hours, and still have no effect. Probably my engineering streak becomes evident in this segment, because engineers in general are more focused on concrete figures – which means more concretization, less philosophizing. I want to have stable associates, dedication on their part and I am glad that we have made a base of 50 managers, some of whom are in Skopje, and others in the subsidiaries, who are trained to successfully deal with the business challenges. Team spirit is very important to me. I want to hear my associates’ opinions before bringing a decision. I also want to energize people, to stimulate their thinking processes, to work together and contribute to the growth of Alkaloid.

K: In terms of your education, you are a mechanical engineer, and you obtained your MA in Marketing Management in London. How does this combination help you manage a pharmaceutical company?

Z.M: I think it is a very good combination. On the one hand, there is engineering, which is very specific, and on the other hand, there is a segment which is business related. I became educated from the business aspect, and I think that your character is pretty much shaped in circumstances when you are abroad and alone.

On the other hand, it is a good combination, especially as it is not related to the two primary activities of our business - pharmacy and medicine. I do not want to be misunderstood, but it is much harder if you are a doctor or pharmacist to be neutral in some situations where you need to make business decisions.

K: Do you have your managerial role models from the world business, people whose management principles and results were your inspiration in the management of Alkaloid? What are your favorite authors of business literature?

Z.M: In the course of my studies I read Kotler a lot, and thanks to "Kapital" I had the opportunity to attend his lecture and personally meet him in Skopje. Lately, I’ve had a book by Jim Collins, From Good to Great, under my skin. It is an exceptional work, in which Collins together with thirty of his associates analyze the best American companies, more precisely those that have been experiencing growth for 20 straight years, and compare them with companies in their business, which had a better start, higher rates of growth but failed to maintain continuity.

It also analyzes the profiles of the top-managers of these companies, their strengths and weaknesses. In any case, it is a wonderful book, I wholeheartedly recommend it.

K: Finally, let us move on briefly to the field of politics and economics. Recently, the Chamber of Commerce issued a new set of proposed measures to support the real sector, with an emphasis on stimulating exports. What are your personal observations on this subject? What should primarily be done in the field of economy?

Z.M: As a vice president of the Chamber of Commerce I also participated in the preparation of the draft measures of this association. I am glad that the economic issues have again become a priority after a long time, and that debates and discussions have been restarted.

As a businessman, I believe that the priorities are investments in the fields of infrastructure and energy. The businesses that can make Macedonia competitive on the foreign markets need to be defined. The companies should act in synergy with the state to achieve their economic success.

We need to show that we know how to work and should not have an inferiority complex. I think that Macedonian managers are not worse than Serbian ones, Croatian ones or any others for that matter. Perhaps they lack the courage to try their luck abroad and understand that they can be just as competitive abroad as they are at home. I will say it again, everyone should be aware that the Macedonian market is small and that this handicap of a small domestic market should make us stronger and focused towards abroad. The Israeli example should be a lesson for all of us.

K: What are your projections about what is going to happen in the Macedonian economy in 2011, and of course in Alkaloid?

Z.M: Having seen the first version of the budget for next year, I am pleased to say that more money has been allocated to investment in infrastructure. Macedonia must take a step forward in that direction, and through investments in the fields of infrastructure and energy to use its geographic position and to become part of the most important corridors. It is of utmost importance that the budget resources intended for infrastructure projects and energy are used for that purpose to the last penny, with the most rigorous discipline. As for Alkaloid, there are no doubts.

We strive to keep up our continued growth. We are going further, to invest both home and abroad, in staff and marketing, in equipment ... This year only we have 65 new employments in Macedonia, plus people employed in Russia, Serbia and other key markets for us.