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Estonia Pharmaceuticals and Healthcare Report Q4 2008
Business Monitor International, Dec 2008, Pages: 65
Our Estonia Pharmaceuticals and Healthcare Report provides independent forecasts and competitive intelligence on Estonia's pharmaceuticals and healthcare industry.
In our revised Business Environment Rankings for the 17 major markets of Central and Eastern Europe (CEE) for Q408, Estonia retains its respectable sixth position, alongside the much larger markets of Greece and Hungary. Key drawbacks to the involvement in Estonia’s pharmaceutical market are the country’s small population and a restrictive reimbursement environment, which has resulted in high out of-pocket spending on pharmaceuticals.
Consequently, the market is vulnerable to economic shocks, which would reduce patient purchasing power. In fact, the outlook for the Estonian economy and political risk profile is not looking favourable over the medium term, owing to spiralling inflation, rapidly decelerating household consumption growth and a forecast eurozone slowdown. We stress though, that the long-term outlook remains largely favourable, with euro adoption expected by 2012. Nevertheless, the pharmaceutical market continues to perform well, despite the overall fall in retail sales over the past months. In fact, while overall retail sales in July 2008 fell by 3% year-on-year (y-o-y), Statistics Estonia reported that retail sales of pharmaceutical goods and cosmetics increased by 6% y-o-y.
The July situation mirrors that of previous months, giving credibility to our forecast of a 13% increase in pharmaceutical values for 2008 as a whole. By 2012, the author forecasts that the market will grow by a 7.7% compound annual growth rate (CAGR) in US dollar terms, to US$344mn, or 9.2% in local currency terms, to EEK4.2bn. However, in July 2008, the government raised value-added tax (VAT) on medicines from 5% to 9%, despite concerns that patients will be unfairly burdened with higher costs for treatment. The move forms part of an effort to reduce the government's projected shortfall in fiscal revenues, with some members of parliament also hoping that pharmaceutical companies would assume the majority of the costs.
The author is doubtful that pharmaceutical manufacturers would be willing to make too much of a dent in their revenues, which is reflected in the Health Insurance Fund (Eesti Haigekassa, HIF)’s views that the states drug budget may increase by EEK60mn (US$6.1mn) a year owing to the tax hike, while patient payments would increase by EEK40mn (US$4.1mn).
Faced with an unsustainable spending increase, the government is presently also planning amendments to the Estonian pharmaceutical pricing policy, which would have a severe impact on small, more specialised, wholesalers. The new proposal is to establish standardised mark-up rates for different price groups of medicines, such as a 1% mark-up for the most expensive medicines. This could result in price reductions for medicines costing over EEK100 (US$9.90), while the price of cheaper medicines may rise. The proposal has not been accepted yet, with our holding its current forecasts in the meantime.
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