Lithuania Pharmaceuticals and Healthcare Report Q1 2013

BMI View: We continue to hold our subdued outlook for the Lithuanian pharmaceuticals market duringthe next few years, on account of the changing economic and demographic situation. We expect limitedlow single digit growth in 2012, with the market expected to increase by a local currency margin of 2.5%year-on-year (y-o-y) to reach LTL1.68bn (US$618mn) in 2012 at consumer prices. However, in US dollarterms, the market's value will shrink by 6.3%, indicating the challenges facing companies operating in themarket.

Headline Expenditure Projections

Pharmaceuticals: LTL1.64bn (US$659mn) in 2011 to LTL1.68bn (US$618mn) in 2012; +2.5%in local currency terms and -6.3% in US dollar terms. Forecast slightly up from Q412 onaccount of new macroeconomic data.

Healthcare: LTL6.99bn (US$2.81bn) in 2011 to LTL7.29bn (US$2.68bn) in 2012; +4.3% inlocal currency terms and -4.7% in US dollar terms. Forecast slightly up from Q412 on accountof new macroeconomic data.

Medical devices: LTL679mn (US$273mn) in 2011 to LTL749mn (US$276mn) in 2012;+10.3% in local currency terms and +0.8% in US dollar terms. Forecast slightly up from Q412on account of new macroeconomic data.

Risk/Reward Rating: In our Q113 Pharmaceuticals Risk/Reward Rating (RRR) matrix, Lithuania is15th, out of the 20 markets surveyed in Emerging Europe, below its Baltic peers. Although Lithuaniaboasts a largely risk-free operating environment, its muted rewards prospects will continue to impact itsstanding in the regional matrix. Globally, Lithuania ranks 60th out of 95 markets surveyed.

Key Trends and Developments

In October 2012, Seimas of the Homeland Union-Lithuanian Christian Democrats (TS-LKD)faction George Razma appealed the government to reconsider additional funding of LTL60.0mn(US$22.7mn) for healthcare institutions in the country. Lithuanian patients have to pay extra formedical services that should be available for free, Razma said. The additional funds are expectedto partially solve the issue of lack of funding for treatment services. Razma asked thegovernment to evaluate the proposal after considering the difficult situation of Lithuania'shospital system.

BMI Economic View: We have revised up our growth outlook for 2013 economic growth on account ofimproved financing conditions and signs of a tightening labour market. However, Lithuania's constructionsector remains a long way off from a meaningful recovery, and coupled with a weak external climate, wemaintain a tepid outlook for the economy over the coming years.

BMI Political View: Controversy surrounding an ongoing criminal investigation into key members of amajority newly-elected coalition party means that the incoming administration of Prime MinisterdesignateAlgirdas Butkevicius will be under enormous pressure to acquire political credibility byhonouring its anti-austerity mandate. Although we have long accounted for a looser fiscal policy in ourview that Lithuania would continue to progress towards euro adoption, the risk of major coalitioninstability and a rift with the president's office threatens to force the government into a far moreaggressive policy direction than under our current baseline scenario.