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Latvia Pharmaceuticals and Healthcare Report Q1 2011
Business Monitor International, Nov 2010, Pages: 85
Latvia Pharmaceuticals and Healthcare Report provides industry professionals and strategists, corporate analysts, pharmaceutical associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Latvia's pharmaceuticals and healthcare industry.
Economic conditions in Latvia are stabilising, but the economy is still dependent on financial support from the European Union (EU) and International Monetary Fund (IMF). Therefore, the newly-elected government (which has yet to be officially formed) will need to respect loan conditions, with reductions in public sector spending – including healthcare – on the cards. Higher patient co-payments will certainly occur if the newly-elected government opts to maintain other social expenditures while increasing the value-added tax (VAT) rate on medicines. In the meantime, internal devaluation is starting to bear fruit, though it will leave behind an enduring legacy in the form of a lower growth trajectory over the medium term. While we expect a return to positive growth next year, the rate of expansion will remain weighed down by structural unemployment, debt deflation and a relatively uncompetitive export sector.
While the Latvian ruling coalition approved an additional allocation of LVL26.2mn (US$46.65mn) for the healthcare sector, as a result of intense public pressure, this was widely regarded as a pre-election move. However, the 2010 budget had previously been cut by LVL70mn (US$127mn), with the emergency funding thus not even taking budgetary finances back to the original figure. Consequently, we expect healthcare expenditure for the whole of 2010 to once again decline, as it did in 2009. Given the pressures on financing and the difficult economic conditions, Latvia’s position in BMI’s Business Environment Rating (BER) matrix for Q111 does not appear any more promising than previously. Latvia again ranks third from the bottom, having fallen to 18th from 15th, out of the 20 markets surveyed in Q410. The country’s pharmaceutical consumption growth will remain muted, and we expect per-capita expenditure to fall to under US$168, down from US$207 in 2009, although the unfavourable exchange rate is also partly to blame for this massive decline. Other factors contributing to this trend are the lowering of drug prices announced by Olainfarm, the second largest domestic player in turnover terms, by an average of 15% across virtually all of its therapeutic groups. This decision is part of the company's effort to compensate for the possible increase of VAT on drugs, reduction in health funding and drop in the number of visits to health professionals. The devaluation of the lat will also continue to hamper foreign involvement in the country.
On a positive note, however, leading local player Grindeks posted excellent H110 (ending June) financial results. The company is likely to finish the year with revenues similar to its 2008 figure of LVL62.10mn (US$120.2mn), on the back of an increase in exports. The majority of the company's sales are already exports and its largest trading partner is Russia, which accounted for over 43% of total sales in H110. The domestic market only contributed to 4.5% of total sales. Olainfarm is also increasingly focusing on foreign markets. In fact, the company expects to post sales of LVL25.4mn (US$44.4mn) in 2010, on the back of higher exports, penetration of new markets and increased promotional activities.
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