Slovakia Pharmaceuticals and Healthcare Report Q3 2012

BMI View: Despite the formation of new government in Slovakia, our contractionary outlook for the pharmaceutical market has been maintained as key drug policy reforms passed by the legislature in September 2011 prior to the downfall of the previous government will still be in effect. Following the appointment of Zuzana Zvolenská as the new minister of health in April, there has been no sign she will significantly alter from this course, which is bad news for drugmakers.

Headline Expenditure Projections

Pharmaceuticals: EUR1.72bn (US$2.45bn) in 2011 to EUR1.65bn (US$2.28bn) in 2012; -3.9% in local currency terms and -7.3% in US dollar terms. Forecast broadly unchanged since Q212.

Healthcare: EUR5.97bn (US$8.53bn) in 2011 to EUR6.11bn (US$8.43bn) in 2012; +2.4% in local currency terms and -1.2% in US dollar terms. Historic data updated; forecast slightly down from Q212.

Medical devices: EUR384mn (US$550mn) in 2011 to EUR396mn (US$546) in 2012; +2.9% in local currency terms and -0.7% in US dollar terms. The 2011 market data has been revised; forecast slightly down from Q212.

Risk/Reward Rating: Slovakia’s Pharmaceutical Risk/Reward Rating (RRR) score is stable in our latest analysis, with the challenges faced in the drug market in 2012 already well factored into our assessment. Slovakia’s table position has improved in Q312, moving up to eighth from 10th out of the 20 markets we assess in the region.

Key Trends And Developments

We have maintained a contractionary outlook for Slovakia’s 2012 pharmaceutical market since June 2011, when drug policy reforms emerged and were gathering sufficient political momentum to pass through the legislature. This view played out with the passage of key contractionary drug laws on medicines and healthcare assistance in mid-September, prior to the fall of Iveta Radicová’s government in early October. The legislation that has been in action since December 1 2011 is expected to result in price reductions for medicines to the second-lowest level in the EU, as well as allowing the prescription of generic equivalents by doctors and introducing customer loyalty programmes. Savings as a result of this legislation are expected to reach EUR100mn, which will be redirected into other parts of public healthcare provision.

Prime Minister Robert Fico wants to ban private health insurance firms from retaining or distributing profits. He has Zvolenská to find a way to introduce the ban without breaching the constitution. An attempt to impose the ban was first identified as unconstitutional during the first Fico government in 2007. A ban is expected to be supported by opposition parties as they made similar proposals during the last election campaign.

BMI Economic View: A moderately robust export sector remains the solitary driver of economic expansion in Slovakia as high unemployment, tighter credit conditions and fiscal austerity drive private and government consumption towards contraction territory. Despite this, we highlight minor upside potential for our real GDP growth forecast of 1.5% in 2012, if the export sector continues to hold ground.

BMI Political View: Despite numerous unfavourable comparisons in the media to Hungary’s Premier Viktor Orbán, we are taking a relatively favourable stance towards the Fico administration. We believe while fiscal risks remain, the country’s relationship with the eurozone will remain strong. Tax hikes aside, we do not anticipate any major deterioration in the Slovakian business environment.