Poland Pharmaceuticals and Healthcare Report Q1 2013

BMI View: The Polish pharmaceutical market contracted severely in 2012, owing to harsh pricingmeasures and strict margins imposed on wholesalers, pharmaceutical makers and retailers. Moreover,over the course of the year, the burden of pharmaceutical spending has shifted towards the Polishconsumer, as the harsher reimbursement regime has caused private contributions to prescriptionpayments rise. We forecast a return to growth in 2013, driven by private consumption as the Polishgovernment entrenches cuts to drug expenditure. We expect strong growth in the medium to long term asPoland's economy diversifies and aligns with developed countries. The growth of private medicalcompanies is a positive development in the Polish healthcare market, and the possible introduction ofvoluntary health insurance could lead to a greater role for the private sector in healthcare provision.

Headline Expenditure Projections

Pharmaceuticals: PLN33.37bn (US$11.26bn) in 2011 to PLN31.38bn (US$9.62bn) in 2012;-5.98% in local currency terms and -14.5 % in US dollar terms.

Healthcare: PLN112.18bn (US$37.85bn) in 2011 to PLN118.57bn (US$36.37bn) in 2012;+5.2% in local currency terms and -5.5% in US dollar terms.

Medical Devices: PLN6.80bn (US$2.29bn) in 2011 to PLN7.10bn (US$2.18bn) in 2012; +4.5%in local currency terms and -5.0% in US dollar terms. Local currency forecast has risen sinceQ412, while the US dollar forecast has fallen.

Risk/Reward Rating: Poland has been overtaken by Slovenia and Russia in our RRR rankings, owing toworsening market conditions. Strict price controls on drugs in addition to pay-back taxes have seenPoland's ratings dip relative to Slovenia. Poland's RRR score has decreased since Q412, from 58.9 to56.9. The country's Industry Rewards score has dipped from 53 to 47 owing to a severe contraction in thesize of the market this year. The Country Reward score remains unchanged from Q412.

Key Trends And Developments

The number of prescriptions receiving no subsidy at all from the NFZ has increased significantly in 2012.Private healthcare spending in Poland is expected to continue rising as incomes rise. The role of theprivate sector and the potential introduction of voluntary health insurance as a supplement to the NFZsuggest market dynamics will increasingly be driven by private consumption.

There is increasing commercialisation and leasing of hospitals to private healthcare providers by thegovernment, aimed at turning around debt-ridden hospitals back into profitability and introducingefficiency measures.

Owing to the margin limits imposed on reimbursable drugs, retail pharmacy sales have dippedsignificantly, with many individual pharmacy stores closing down. Pharmacy chains have been able toweather the conditions well as they benefit from greater discounts when buying wholesale.

BMI Economic View: We have revised down our long-held below-consensus outlook for the Polisheconomy in 2012. We were forecasting real GDP growth to slow from 4.3% in 2011 to 2.5% in 2012as investment and government spending weakened, but the continued deterioration in eurozone demand,combined with signs of a more aggressive slowdown than we had anticipated, have prompted usto revise down our forecast to 2.3%.

BMI Political View: We broadly expect Poland's political risk profile to improve over the course of our10-year forecast horizon, as the country assumes greater responsibility at the regional and internationallevel and the domestic political environment continues to mature. Our core scenario envisages Polandemerging as a solid 'middle power' of Europe. A strong macroeconomic outlook, coupled with greatermaturity on the part of domestic policymakers, would facilitate this general progression over the yearsahead.