The Outlook for Pharmaceuticals in Central & Eastern Europe

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The pharmaceutical market of Central & Eastern Europe is estimated at US$63.6 billion at retail prices in 2011; it is expected to reach US$104.2 billion by 2016. The market is expected to expand by a moderate CAGR in US dollar terms between 2011 and 2016, as the region's economies recover from the global economic crisis.

Dominance of generic medicines

Generic medicines represent around half of the total CEE pharmaceutical market in value terms and almost three quarters in volume terms. Generics have retained their strong position in the region due to the demand for affordable drugs and the fact that some governments favour generics when selecting products for reimbursement, as they are usually cheaper than imported products and help to keep costs down. Although rising incomes have led to increased sales of branded products, recent financial difficulties are likely to have forced patients towards purchasing cheaper generics.

Central and Eastern Europe is home to a large number of generic companies, including Krka, Gedeon Richter, Polpharma and Zentiva, which have traditionally focused on the production of generics. Pharmstandard, Russia's leading generic company, has a small number of original drugs in its portfolio, but many companies lack the funding that is required for extensive R&D. Branded generics are particularly common in Central and Eastern Europe, especially in Russia, due to the tradition of self-medication which has encouraged companies to produce pharmaceuticals with recognisable names and the erroneous belief that pure generics are unsafe.

Different IP protection levels

Much of the pharmaceutical legislation within the region has been harmonised with that of the EU. However, the level of IP protection remains an international concern. Problems that are commonly raised include a lack of transparency in IP procedures and the lack of effective enforcement.

Health Expenditure

The countries of Central & Eastern Europe are projected to spend an estimated US$335.9 billion on healthcare in 2016, equal to 6.8% of GDP. At present, only 39.6% of spending in the region is private, but over 87.0% of this is composed of out-of-pocket payments. Several countries in the region are taking steps to reduce the growth of health expenditure, by passing on a greater proportion of costs to patients, and in some cases to pharmaceutical companies. For instance, in Poland, new legislation coming into force in January 2012 will limit drug reimbursement expenditure to 17% of total public healthcare spending, introduce fixed retail prices for reimbursed medicines and force pharmaceutical companies to cover 50% of any reimbursement overspend.

In Hungary, drug manufacturers have been required to contribute a percentage of their turnover to the Health Insurance Fund since 2004. Additionally, the Romanian Health Insurance House (CNAS) has approved a new method of calculating reimbursement for partially reimbursed prescription-only drugs, which could lead to patients paying on average 40% more for their medication, and the Czech government is preparing a number of healthcare reforms that could see patients pay almost US$900 million more for their medicines every year. There are widespread concerns that many patients will not be able to afford to spend more on pharmaceuticals and certain pieces of legislation have been deemed unconstitutional.

POLANDIn May 2011, President Komorowski signed a controversial Drug Reimbursement Act into law, which is designed to curb the growth of drug reimbursement expenditure. The measures in the Act, which are to take effect from January 2012, include limiting drug reimbursement expenditure to 17% of total public healthcare spending, forcing pharmaceutical companies to cover half of any drug reimbursement overspending, applying fixed retail prices to reimbursed medicines, introducing fixed margins for wholesalers and requiring certain physicians and wholesalers to sign contracts with the NFZ, agreeing to prescribe and sell medicines at the official, fixed price. There are concerns that the elderly and those on low incomes will not be able to afford the new official prices and the Office of Competition and Consumer Protection has stated that fixed prices and margins on reimbursed drugs contravene free market principles.

ROMANIA

The Romanian pharmaceutical market will be the fourth largest in Central & Eastern Europe by 2016. It is expected to expand at a moderate CAGR between 2011 and 2016, although growth may be affected by slow economic recovery. Imports constitute a large proportion of the market. The expansion of the Romanian pharmaceutical market is largely driven by import growth; the value of imports increased by a double-digit CAGR between 2006 and 2010. Whilst the large population creates demand for pharmaceuticals, the low GDP per capita means that patients are unlikely to be able to afford the more expensive drugs and will settle for the cheaper alternatives.

RUSSIAThe presence of foreign manufacturers is increasing in Russia. A number of agreements have been made in 2011 between domestic and foreign companies that will benefit the Russian pharmaceutical market. These include a joint venture between India's Aurobindo Pharma and Russia's OJSC Diod; a licensing agreement between Norgine and Nycomed that gives the latter exclusive rights to commercialise MoviPrep in Russia; investment by Rusnano, Russia's government investment company, in Cleveland BioLabs' new subsidiary, Panacela Labs, which will develop a portfolio of new preclinical drug candidates in Russia; Pfizer and ChemRar High Technology Centre signing a memorandum of understanding to explore a collaboration focused on the research, development and commercialisation of innovative drugs in Russia; and the launching of Pro Bono Bio as a new international pharmaceutical company as a result of a three-year Anglo/Russian project.

UKRAINE

In June 2011, the Cabinet of Ministers adopted the state target scientific-technical programme for the development of new technologies to create domestic pharmaceuticals, which is designed to meet the human and veterinary medicinal needs of 2011-2015. State funding will account for almost half of the budget for the programme. A quarter of state funding will be used for the research & development of molecular and cellular technologies for creating biologically active substances. Investment funds will be used primarily to purchase modern equipment for the production of innovative medicinal substances, including immunological agents, vaccines and recombinant proteins.

To order this report:Drug_and_Medication Industry: The Outlook for Pharmaceuticals in Central & Eastern Europe

Nicolas Bombourg

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