Poland Pharmaceuticals and Healthcare Report Q3 2012

BMI View: Despite numerous challenges, we continue to believe Poland is the most attractive pharmaceutical market in Central and Eastern Europe (CEE). While the long-awaited Drug Reimbursement Act introduced in Q112 faced fierce opposition from the public and members of the healthcare profession, and also resulted in volatility of pharmaceutical spending, we maintain our view of positive growth for 2012, projecting 1.6% year-on-year (y-o-y) expansion. Headline Expenditure Projections

Pharmaceuticals: PLN33.37bn (US$11.26bn) in 2011 to PLN33.91bn (US$10.72bn) in 2012; +1.6% in local currency terms and -4.8% in US dollar terms. Local currency forecast unchanged since Q212.

Healthcare: PLN111.08bn (US$37.51bn) in 2011 to PLN117.00bn (US$36.99bn) in 2012; +5.2% in local currency terms and -1.4% in US dollar terms. Local currency forecast slightly higher since Q212 because of new historical data.

Medical devices: PLN6.60bn (US$2.23bn) in 2011 to PLN6.85bn (US$2.16bn) in 2012; +3.8% in local currency terms and -2.7% in US dollar terms. Local currency forecast broadly unchanged since Q212.

Risk/Reward Rating: While Poland retains its top spot in our Q312 Pharmaceutical Risk/Reward Ratings (RRRs) assessment of the CEE region, its composite score fell by 2.3% quarter-on-quarter. Poland’s pharmaceutical market growth is facing significant challenges in the coming months, largely because of the Drug Reimbursement Act, though we continue to view the country as a regional outperformer over the longer term, supported by large and growing population and healthcare provision improvements. Globally, Poland is 14th out of the 95 markets surveyed in our quarterly assessments, below the Netherlands and above China.

Key Trends And Developments

In March 2012, Bayer released plans to build a financial and accounting centre for CEE in the Tri-City region of Poland (the three close coastal cities of Gdansk, Gdynia and Sopot). Hiring for the centre, which Bayer aims to complete within 2012, is expected to generate more than 200 jobs. The opening of the regional headquarters is part of Bayer’s strategy that also includes establishing joint-service centres in China and the Philippines and an international accounting office in Leverkusen, Germany.

The need to contain costs has led to calls by the Polish Federation of Hospitals in March 2012 urging of public and private hospitals to make joint purchase orders for medical equipment, drugs, energy, gas and insurance. The policy is designed to eventually establish a group purchasing organisation to reduce procurement costs by 10-50%. Declarations of accession have been received from 70 hospitals. It is hoped the joint procurement of medical devices and other supplies will enable smaller hospitals to compete with larger hospitals’ purchasing power.

Hospitals in Poland are facing huge shortages of cancer drugs due to the issues related to procurement. The buying issues developed after Austrian production facilities belonging to Sandoz, the generic pharmaceuticals division of Novartis, had problems at the beginning of April 2012. Sandoz, which is upgrading facilities on a regular basis, purchased the oncology portfolio of Ebewe Pharma for EUR1.1bn (US$1.46bn) in 2009. The upgrading process is causing some difficulties at production facilities, which are feeding into the procurement system.

A new decree on reimbursed drug prescriptions allows doctors to use the Latin names of drugs or any other applicable names, including trade or chemical names in Polish and English, the Ministry of Health said in April. The statement came after the Porozumienie Zielonogorskie union and the Doctors’ Trade Union of Poland said the ordinance forces doctors to specify the trade name. The ordinance still requires doctors to indicate the level of reimbursement, which applies to specific products rather than a class of products.

BMI Economic View: We forecast Polish real GDP growth to slow from 4.3% in 2011 to 2.5% this year, which is substantially below consensus expectations. Fiscal consolidation and slower investment growth will make Poland more vulnerable to a contraction in the eurozone.

BMI Political View: The government will continue fiscal consolidation despite growing opposition and strains within the government. However, despite some setbacks, Civic Platform (PO) remains the most popular party in the country and the opposition is too divided to attract the majority needed to force a change in administration. PO and its main rival, the Polish People’s Party (PSL), have a history of compromise from the government they formed between 2007 and 2011.