BMI View : We have revised our 2013 sales forecast upwards on the back of new data. Consumer spending on over-the-counter and prescription medicines has increased, albeit from the low base in 2012. The threat of price cuts in 2014 presents downside risks to the Polish pharmaceutical market, especially if the government does not compromise with the industry. Nevertheless, over a long term horizon, we see growth opportunities in the Polish pharmaceutical market.
Sales data released by primary source PharmaExpert in Poland for the first eight months of 2012 indicate that pharmacy sales in the country grew modestly year-over-year. Pharmacy sales from January to August this year rose by 3.1% to PLN15.59bn (US$5.02bn). Considering that pharmacy sales make up the majority of the value of the pharmaceutical market, we have since revised upwards our full year forecast for the Polish pharmaceutical market. We now expect sales to increase by 3.25% in local currency terms and 6.4% in US dollar terms to PLN32.39bn (US$10.26bn).
Stalemate In Price Negotiations Between Ministry and Drugmakers Continues
Drugmakers are threatening to withdraw almost 30% of the medicines registered on the Reimbursement List in January 2014 if the Health Ministry continues to demand price cuts to medicines for next year. According to drugmaker association IG Farmacja Polska, the ministry is asking for double-digit discounts to drug prices; these discounts would effectively force drugmakers to sell specific medicines below cost, subsiding the national health insurer's expenditures.
We view the Ministry's pricing policy as particularly negative, especially in light of the economic contribution that the pharmaceutical sector brings to Poland. Furthermore, it is local drugmakers who primarily manufacture generics that suffer the most from these price cuts, as multinationals are able to absorb price reductions through their much larger supply chains and scales of manufacturing.
If the price cuts are forced through, we believe that drugmakers will withdraw medicines, especially considering the interconnected nature of drug pricing in Europe; accepting cuts in Poland will likely lead to price cuts elsewhere in Emerging Europe or the European Union that uses Polish drug prices to determine the prevailing market price.
And while the impact of withdrawals will not be felt immediately by the state, shortages and panic buying by concerned patients will undoubtedly lead to public pressure on the government to recant its demands. At the same time, the transition state of the National Health Fund (NFZ) following moves to force through its decentralisation and the government's desire to rein in finances suggest there will be outward pressure from the government to maintain their present course.
Nevertheless, we believe that frustration with the state health insurer will boost demand for private healthcare. With most Poles spending a considerable amount on co-payments and hospital visits, we believe that value proposition for private healthcare will become more apparent to middle class Polish consumers, especially if supplementary health insurance policies are formally enabled by the state.
|Long Term Growth Potential Remains Despite Short Term Downside Risks|
|Pharmaceutical Sales, US$bn|