BMI View : We continue to view Ukraine as one of Central and Eastern Europe's more promising pharmaceutical markets given the latest pharmacy retail data, but its chronic lack of economic and political stability remains a critical impediment to fulfilling its potential. The restrictions imposed on wholesale and retail margins from 2013 will also bite into market growth as more severe limits have been placed on higher-priced drugs. There is also the possibility that import quotas could be imposed as the government tries to stem outflows of hard currencies. These factors will weigh on foreign drugmakers and continue to affect the attractiveness of Ukraine's pharmaceutical market.
The latest market data compiled by Apteka for the first nine months of 2012 show sales in the retail pharmacy sector of the Ukrainian pharmaceutical market grew by 16.2% year-on-year (y-o-y) in nominal, local currency terms and 15.8% in US dollar terms. Medicine sales in 9M12 were UAH19.2bn (US$2.37bn), an increase of 16.7% y-o-y. Drug volumes sold rose by 4.3% y-o-y to 917mn units shipped in 9M12. The Ukrainian retail pharmacy market is dominated by medicines sales, which account for 84.7% of trade in money terms and 64.2% in volume terms. Medical devices, cosmetics and dietary supplements make up the remainder of the market. Growth was primarily driven by increase in consumption and shifting consumer patterns; they are increasingly shunning generic drugs for more expensive, branded products.
|Retail Drug Sales Continue to Grow|
|Ukraine's Retail Pharmacy Sales In 9M10-12, UAH (LHS) & US$ (RHS)|
These figures highlight the potential of the Ukrainian market for drugmakers, which has experienced double-digit y-o-y growth in dollar terms since 2005. However, we expect the Ukrainian pharmaceutical market to moderate its trajectory for the next five years because of the impending devaluation of the hryvnia and the imposition of further government pricing controls from 2013 on wholesalers and pharmacies. Ukrainian pharmaceutical expenditure is dominated by private expenditure, with government reimbursement schemes covering 15% of total pharmaceutical expenditure. Currency devaluation will undoubtedly cool consumer demand and reduce the purchasing power of wholesalers for imported drugs.
In light of this development, we maintain our growth forecast for the Ukrainian pharmaceutical market. For 2012, we forecast the pharmaceutical market to grow to US$3.75bn (UAH30.79bn), an increase from 2011 of 12.1% in US dollar terms and 15.1% in hryvnia terms. We forecast a five-year (2012-2017) compound annual growth rate of 7.9% in US dollar terms.
|Growth Expected To Cool|
|Ukraine's Pharmaceutical Sales|
In 2013, we now expect growth of 15.6% in local currency terms, though devaluation or at least significant depreciation of the hryvnia will result in elevated inflation, with real growth rates limited. When measured in US dollar terms, we expect growth to be only 3.1% in 2013. This already moderated figure could face further risks to the downside when the extent of expected currency devaluation at the end of 2012 becomes clearer.