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Estonia Pharmaceuticals and Healthcare Report Q2 2009
Business Monitor International, April 2009, Pages: 73
Estonia Pharmaceuticals and Healthcare Report provides independent forecasts and competitive intelligence on Estonia's pharmaceuticals and healthcare industry.
In BMI’s Business Environment Ranking matrix for Q209, Estonia fell from fourth to seventh position out of the 20 regional markets surveyed, although it is still better placed than its Baltic neighbours, namely Latvia and Lithuania. While Estonia’s overall pharmaceutical score remained virtually unchanged from the previous quarter, as well as above average for the region, its attractiveness is severely constrained by the small population, high out-of-pocket expenditure on drugs (which is threatened by the current economic conditions) and the cost-containment leanings of its public healthcare system.
Nevertheless, the demand for drugs will rise over the forecast period owing to an increased need for modern medicines and healthcare service improvements, while the recent increase in the VAT on pharmaceuticals should also serve to boost values. In fact, Statistics Estonia recently revealed that retail sales of pharmaceutical goods and cosmetics increased 12% year-on-year (y-o-y) in December 2008, despite a 9% y-o-y decline in retail sales.
In the light of the above, we forecast that the country’s pharmaceutical market, valued at US$280mn in 2008 at consumer prices, will grow at a compound annual growth rate (CAGR) of 5.1% in US dollar terms - or 8.1% in local currency terms – through 2013, to reach US$359mn. Generics presently represent less than 34% of the total market value, although the need for cost-containment will likely boost their share to 37% by the end of the forecast period. Over-the-counter (OTC) medicines will be negatively impacted by the current economic conditions, although the latter parts of the forecast period should see some improvements, despite strong price competition in the retail sector.
In the meantime, the government continues to implement measures to reduce the expenditure by the country’s Health Insurance Fund (HIF). In February 2009, the authorities announced that the system of sick leave compensation would be changed, with the aim of saving EEK465mn (EUR29mn) through the elimination of compensation for the first day of sick leave. Around the same time, The Baltic Times reported that the government agreed on an EEK8bn (EUR5.1bn) total budget reduction package across ten of its ministries.
The above situation will be compounded by the expected negative real GDP growth forecast (of -6.4% for the year), which will mark the worst recession since 1992. We expect widespread deleveraging throughout the economy to plunge private consumption growth to -6.0%, while the destruction of external demand will also send export growth into negative territory. Over the long term, a marked recovery is not likely until 2011 and, from then on, we forecast Estonian economic growth to settle at a trend average of 4.0-5.0%. In fact, industrial output growth collapsed to -21.7% in December 2008, its lowest point since at least January 1995. The pharmaceutical industry seems to, however, mostly been immune to such difficulties, with the production of pharmaceutical products increasing by 8% y-o-y in January 2009, although imports continue to meet much of the local demand. Exports remain of basic generic and active pharmaceutical ingredients (API) varieties, which are increasingly in demand across the cash-strapped European public healthcare systems.
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