For makers of generic pharmaceuticals, markets in Central and Eastern Europe have presented a compelling story in recent years, growing at a compound annual growth rate (CAGR) of 19 percent from 2003 to 2006. Players have reaped considerable profits, often enjoying operating margins in excess of 20 percent. And these drug makers are not exclusively local; many international pharmaceutical companies that have entered the region have also been highly successful.

But times are changing. Although still attractive, Central and Eastern European markets are becoming increasingly complex. Governments have begun launching health care reforms to reduce costs, and new legislation has started shifting decision-making responsibility for the prescription process from physicians to pharmacies. In some countries, the regulatory environment is becoming protectionist. While the precise scope, magnitude, and timing of these changes remain uncertain, generics companies will soon find it harder to maintain current levels of profitability.

These companies must be prepared to confront the local challenges directly and with quick, decisive action. To survive and flourish in a region in flux, companies must refine their marketing and sales approach by building strong product brands, developing specific knowledge of the decision-making landscape, and applying this and other local knowledge in ways...