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Viewing report
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Romania Pharmaceuticals and Healthcare Report Q1 2012
Business Monitor International, Dec 2011, Pages: 111
BMI View: The introduction of a revised claw-back mechanism in Romania has angered drugmakers operating in the market. BMI believes the current form of the legislation is overly simplistic and punishes drug suppliers in excess of their original exposure. Although it is highly unlikely the industry will be able to suspend the new tax, it is possible they will be able to negotiate amendments that would at least improve the predictability and fairness of the law. If no significant revisions are achieved, it is likely that drugmakers will reconsider their exposure to the market. We are considering an unfavourable downgrade to our Industry Risk indicator in BMI's Pharmaceuticals & Healthcare Business Environment Ratings (BERs), which would mean the attractiveness of Romania as a destination for drugmakers dropping from 3rd in Central and Eastern Europe (CEE) to 7th.
Headline Expenditure Projections:
- Pharmaceuticals: RON11.93bn (US$3.76bn) in 2010 to RON12.58bn (US$4.33bn) in 2011; +5.5% in local currency terms and +15.2% in US dollar terms. Forecast down moderately in local currency terms from Q411 due to analyst modification.
- Healthcare: RON27.24bn (US$8.58bn) in 2010 to RON28.09bn (US$9.66bn) in 2011; +3.1% in local currency terms and +12.6% in US dollar terms.Forecast broadly unchanged from Q411.
- Medical devices: RON1.35bn (US$426mn) in 2010 to RON1.45bn (US$498mn) in 2011; +7.3% in local currency terms and +17.1% in US dollar terms. Forecast unchanged from Q411.
Business Environment Rating: Within CEE, Romania remains in 3rd place in Q112, with a stable score of 59.8. The country's high growth potential is balanced out by its challenging operating environment. While our industry risk assessment remains stable for now, it is increasingly likely that this sub-indicator could be revised downwards in next quarter’s assessment, if the new version of the claw-back tax is not suspended or substantially revised. The planned downgrade to the Industry Risk score would mean Romania dropping from its current position of 3rd in our CEE BERs to 7th
Key Trends & Developments
- On October 1, a new version of Romania's pharmaceutical claw-back mechanism came into force. The introduction of the levy was expected for some time. BMI notes the new measures will apply to suppliers of medicines that are partly or fully reimbursed. We see the potential for amendments to the tax in the months to come. We have revised our 2011 and 2012 forecasts in response to our new scenario.
- In October 2011, BMI once again revised down our projections for Romania's pharmaceutical market in 2011 to y-o-y growth of +5.5% (previously +7.5%) in local currency terms, with the market worth RON12.58bn (US$4.33bn) at consumer prices. The revision was due to the continuation of weak sales figures in H111. As BMI has previously highlighted as the main risk in market, drugmakers continue to be confronted with liquidity issues and delays in the reimbursement period of the National Health Insurance House (CNAS).
BMI Economic View: We reiterate our 2.1% forecast for Romanian real GDP growth in 2011 and continue to see the economy accelerating to 3.3% growth next year. Underpinning our forecast for firmer growth next year is the recent tightening of the Romanian labour market, as well as fairly high capacity utilisation, which combined should feed into firmer domestic demand over quarters ahead. That said, external conditions certainly pose a downside risk to Romania's incipient economic recovery.
BMI Political View: Romania continues to face an uphill struggle in tackling widespread corruption, despite tangible improvements that were highlighted in the latest European Commission's Cooperation and Verification Mechanism report. Graft remains one of the key challenges facing Prime Minister Emil Boc's government and we expect it to be on top of his agenda over the next year given the need to restore investor confidence, meet EU commitments, and improve his appearance before the upcoming elections.
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