61 MARTINDALE CENTER FOR THE STUDY OF PRIVATE ENTERPRISE Introduction Zrno po zrno pogača, kamen po kamen palača— grain by grain a loaf, stone by stone a palace: this Croatian saying captures a national understanding of progress as cumulative, achieved through persistence and resilience. This region’s pharmaceutical sector presents a strategic paradox. With a legacy of genuine innovation (crowned by the discovery of azithromycin), support from EU membership, and a prime geographic location, the industry is widely regarded for its manufacturing expertise. At the same time, it is increasingly challenged (Brezinščak et al., 2023). Although domestic production is competitive, it is concentrated in generics, leaving Croatia systematically reliant on imported, high-value, innovative medicines (Croatian Pharmaceutical Industry…, 2017; International Trade Administration, n.d.). Croatia is left with a structurally limited model that prioritizes the affordability of medicines today over investment in innovation that would reduce its dependence on imported therapies tomorrow. These pressures reflect a broader EU reckoning with declining R&D investments, fragile supply chains, and growing dependence on non-European manufacturers (Chaffin, 2025; Charles River Associates…, 2025). For Croatia, this shift represents both a warning and an opening. The vulnerabilities the EU is now addressing—supply fragility, import dependence, and declining R&D—are ones Croatia already embodies. But the resulting policy momentum creates conditions under which a well-positioned smaller member state can selectively upgrade. Croatia’s pharmaceutical sector, once among the most globally innovative, now suffers from major challenges. Decades of ownership changes and EU regulatory alignment have locked it into a generic manufacturing model. The nation needs a deliberate production-upgrading strategy to reclaim higher-value capabilities. This article argues that Croatia can regain pharmaceutical value via sequential upgrading, from active pharmaceutical ingredient (API) integration through complex generics to biosimilars (off-patent biological medicines), leveraging its competitive manufacturing base and EU policy momentum. This article analyzes the Croatian pharmaceutical sector through three lenses. First, the sector’s evolution is traced from early institutional foundations to the PLIVA era and to post-1990s privatization, consolidation, and EU accession, showing how Croatia gained world-class manufacturing credibility but lost much of the strategic autonomy associated with frontier innovation. Second, how the loss of PLIVA’s independence alongside Croatia’s accession to the EU reshaped industry incentives and produced a set of structural challenges is examined. Third, the article evaluates current market dynamics, what Croatia has done, and additional steps needed, drawing on economic frameworks and lessons from comparator countries to evaluate how the sector can move toward higher-value activities. How Croatia became a pharmaceutical innovator Croatia’s pharmaceutical sector evolved from artisanal medicine, through the establishment of the world’s first Department of Pharmacognosy in 1896, to industrial scale production by the end of the nineteenth century (Inić & Flegar, 2021). After the Austro-Hungarian Empire’s collapse in 1918, expanded From breakthrough innovation to generic dependence: Croatia’s pharmaceutical paradox Hashem Al Hattab Croatia has a strong history of pharmaceutical innovation, yet today it relies on imports for many essential medicines. This article looks at how changes in ownership, policy decisions, and regulations have weakened local research and shifted the industry toward generic drug production. By comparing Croatia to similar countries, the article suggests steps the country can take to rebuild advanced capabilities and strengthen its role in European life sciences through expansion of its pharmaceutical manufacturing capacity. doi:10.18275/pbe-v044-009
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