BMI View: We retain our negative outlook for the pharmaceutical market in the Czech Republic, expecting a 1.8% contraction in its value in local currency terms in 2012, following the 1.0% year-onyear (y-o-y) decrease calculated for 2011. While the increase in the value-added tax (VAT) will negate the falling values, this will not be sufficient to offset the full decline. The government will continue with measures designed to tighten public expenditure across the board, while the challenging economic outlook will negatively affect the availability of private funding for medical products and services.
Headline Expenditure Projections
?? Pharmaceuticals: CZK79.77bn (US$4.51bn) in 2011 to CZK78.37bn (US$4.13bn) in 2012; -1.8% in local currency terms and -8.5% in US dollar terms. Forecast down from Q112 due to analyst modification, new producer price data and macroeconomic factors.
?? Healthcare: CZK299.80bn (US$16.95bn) in 2011 to CZK301.56bn (US$15.88bn) in 2012; +0.6% in local currency terms and -6.3% in US dollar terms. Forecast down slightly from Q112 due to analyst modification.
?? Medical devices: CZK27.77bn (US$1.57bn) in 2011 to CZK28.38bn (US$1.49bn) in 2012; +2.2% in local currency terms and -4.8% in US dollar terms. Forecast broadly in line with Q112.
Risk/Reward Rating: Despite the worsening outlook for pharmaceutical industry players, the Czech Republic remains in second place in our latest version of the Central and Eastern Europe (CEE) Pharmaceutical Risk/Reward Ratings (RRRs) matrix. The industry rewards score is considerably lower than in the previous quarter, resulting in a 7.0% quarter-on-quarter (q-o-q) decline of the country’s composite score. Nevertheless, the Czech Republic is likely to retain its favourable position in the CEE table as most other regional markets are facing similar challenges.
Key Trends And Developments
?? In another negative development of the pharmaceutical industry, the new reimbursement law stipulates that domestic health insurance companies will be able to request that the State Institute for Drug Control (SÚKL) arranges competitions to lower previously calculated drug reimbursement levels. The competitions will be organised through an electronic auction, which will be carried out if medicines under a specific reference group are offered by a minimum of three different marketing authorisation holders. Companies that want to participate are required to provide a written declaration confirming a commitment to supply the winning product at a price no higher than the maximum reimbursement levels for end customers.
?? In February 2012, the Ministry of Health (MoH) was reported to be drafting a proposal to allow the sale of single pills instead of entire packs of tablets. The ministry aims to ensure complete protection of patients and the safe delivery of single pills before beginning per-pill sales. The sale of drugs by the pill is expected to reduce medicines wastage and decrease the expenditure of health insurance companies. However, the Czech Chamber of Pharmacists has criticised the proposal, arguing that the European market is not prepared for selling individual tablets. Per-pill sales could also lead to a rise in counterfeit products as the medicines control system depends on the original outer packaging.
?? The Ministry of Education has approved the establishment of the Biotechnology and Biomedicine Centre (Biocev). The centre in Vestec, near Prague, will be funded with CZK2.3bn (US$121.3mn) from EU funds. Biocev is a joint venture by the Academy of Sciences and Charles University in Prague that will run projects on the development of new drugs, advanced diagnostics, new tissues for harmed organs and the development of natural antibiotics.
BMI Economic View: Czech economic growth is set to be hit this year by the weakened external environment which will weigh heftily on trade, upon which Czech growth has become highly reliant. We have revised down out expectations for the country’s GDP growth in 2012 from 2.3% y-o-y to 0.8% y-oy. Further compounding the negative outlook is our revised view that consumer spending will be in the doldrums for some time. We also highlight that the risks to this outlook remain firmly to the downside.
BMI Political View: We maintain our view that 2012 will be another challenging year for the centreright coalition government. Despite passing more legislation, and failure to do so would have threatened to topple the government, we see scope for ongoing fiscal consolidation and rising public dissatisfaction with the general state of democracy and institutional legitimacy to undermine the government’s cohesion in 2012.
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