Croatia Pharmaceuticals and Healthcare Report Q3 2012

BMI View: We stand by our negative forecast for the Croatian pharmaceutical market in 2012, on the back of the weakening economy and wide-ranging cost-containment measures that will affect public sector funding. Generally speaking, the performance of Croatia’s pharmaceutical, healthcare and medical device markets is increasingly tied to the country’s challenging economic outlook. This dependence will render Croatia one of the least attractive regional markets, despite the country’s gradual convergence with EU legislation and standards, as part of its accession aspirations.
Headline Expenditure Projections ?? Pharmaceuticals: HRK7.16bn (US$1.34bn) in 2011 to HRK6.90bn (US$1.26bn) in 2012; -3.7% in local currency and -5.8% in US dollar terms. Forecast down slightly from Q212 because of worsening macroeconomic outlook.
?? Healthcare: HRK26.33bn (US$4.92bn) in 2011 to HRK25.18bn (US$4.61bn) in 2012; -4.4% in local currency and -6.4% in US dollar terms. Forecast down from Q212 on account of new historical data and worsening macroeconomic outlook.
?? Medical devices: HRK1.41bn (US$264mn) in 2011 to HRK1.38bn (US$252mn) in 2012; -2.5% in local currency and -4.6% in US dollar terms. Forecast significantly down from Q212 on account of new trade data and worsening macroeconomic outlook.
Risk/Reward Rating: Croatia fell by two places to 17th in our Q312 Pharmaceutical Risk/Reward Ratings (RRRs), as we anticipated. While Croatia has made concerted efforts to meet its EU membership requirements, facilitating market access for foreign players, its longer-term demographic and pharmaceutical market dynamics are considered to be subdued.
Key Trends And Developments ?? In line with the wide-ranging cost-containment initiatives, the Croatian Institute for Health Insurance (HZZO) created a classification system for medical devices, based on the Universal Medical Device Nomenclature System (UMDNS). The implementation of the new system, which also requires input and comments from hospitals, will enable close monitoring of the costs of individual medical devices, which will be given specific codes. Once operational, the scheme is expected to result in savings of at least HRK100mn.
?? In March 2012, the HZZO urged the government to include guidelines for determining a monthly budget and drafting new contracts for hospitals as part of the hospital financial and development master plan. Minister of Health Rajko Ostojic said the ministry is considering limiting the increase in spending on prescription drugs and encouraging the development of private insurance to improve the country’s healthcare system.
?? An explosion at a plant belonging to pharmaceutical company PLIVA in Zagreb on March 16 was caused by a static electricity spark, Zagreb Police said. The Croatian firm is part of the Teva group. The explosion happened after a mixture for the production of Plivadon caught fire due to the spark. The fire injured nine people, who were hospitalised, two of which sustained severe injuries. One of the men died later in hospital. The fire was contained and put out by the company’s fire-fighting unit. The explosion caused no threat to the environment or the wider population, an environment protection inspector said after examining the site. In April, it was reported that the weighing room of the plant in Zagreb was being reconstructed with more safety features. Minor supply issues for solid oral dosages are likely to occur in the next few months until the plant restarts full production capacity, PLIVA communications director Tamara Susanj Sulentic said.
?? In early 2012, GlaxoSmithKline (GSK) announced its intention to provide its Orange Card to Croatian patients, mirroring the programme already available in some other European countries, including Latvia and Romania. The Orange Card will be used by eligible patients to secure discounts on medicines included on the HZZO’s supplementary lists, which incurs patient copayments.
However, the card will have to be approved by competition authorities, which would ideally promote the scheme to all companies operating in the country. BMI Economic View: Our outlook for Croatia’s economy in 2012 remains dour and we forecast a fullyear contraction of 1.5% in real terms, revised from our previous expectation of 0.1% growth. A combination of dampened household consumption and the start of fiscal measures austerity by the Kukuriku coalition government will return the Croatian economy to recession following flat growth in 2011. In the meantime, we have revised up our forecast for Croatia’s average consumer price inflation in 2012 to 3.5%, from 3.0% previously. This was largely predicated on the government raising the valueadded tax (VAT) rate to 25% from 23% since March 1 2012 and the sustained rise in global energy prices at the start of the year, which will boost imported inflationary pressure.
BMI Political View: We believe the Kukuriku government is well placed to maintain its parliamentary majority and push through with necessary fiscal consolidation and economic restructuring. However, we warn of potential flashpoints – including issues such as the privatisation of shipyards and rising popular discontent – which could undermine the cohesion of the coalition in the coming years and stall the economic reform process.