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Romanian pharmaceutical market, report by Roland Berger Strategy Consultants - Doing Business | DOINGBUSINESS.RO

  |  08.11.2012

Romanian pharmaceutical market, report by Roland Berger Strategy Consultants

The local pharmaceutical market is one of the few economic sectors least affected by the economic crisis, with 2009 marking the only decrease in recent years

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Between 2002 and 2007, the market was shaped by the general economic growth period, which resulted in a double-digit compound annual growth rate (24.5%).

2007 marked the beginning of a slow-down trend, which was further impacted by the 2008 economic downturn and by the introduction and repeated modifications of the claw-back tax starting with 2009. The 6.7% sales growth (in EUR value) of the pharmaceutical market in 2008 as compared to 2007 came as an anticipation of the inflection point reached in 2009, when a market contraction of approximately 2% (in EUR value) corroborated with a strong depreciation of the national currency affected the industry.

The growth of pharmaceutical market value in 2010 (19.6% in EUR value) was accompanied by an actual decrease in volumes sold (-2.0%), resulted mainly from the diminished public support for the acquisition of prescription drugs and negative margins that encouraged parallel exports.

In 2011 total pharmacy sales reached EUR 2.55 bn, showing a growth of 11.7% in EUR compared to 2010, supported by a strong 28.2% advance in Q4 2011.

In local currency, sales increased in 2011 by 12.4% compared to 2010, reaching RON 10.8 bn. Growth rates are however still limited as compared to previous periods, with significant expansion due to parallel exports, which become more sophisticated and are estimated at 20-25% of sales (market analysts estimated parallel exports at EUR 500 m in 2011, from EUR 400 m in 2010, with projections of EUR 700 m in 2012).

In 2012 prospects are positive, with a forecasted growth of 8-9% in EUR value. Data available for the first two quarters display steady growth in Q1 2012 as compared to same period in 2011 (18% in EUR), followed by a decrease of 2.5% in EUR in Q2 2012 as compared to same period in 2011. The inflection point in the second quarter seems to mark the tendency to focus on profitability rather than on sales on behalf of all players, in the light of recent legislative modifications. Nonetheless, the impact in 2012 of regulatory issues such as the claw-back tax and the new Health Law on the market evolution is still hard to assess, due to the low predictability of further legislative changes.

According to the National Statistics Institute, the pharmaceutical imports in Romania in 2011 amounted to EUR 2.3 bn. Germany, France and The Netherlands represent Romania's main trading partners in the sector. Exports account for only EUR 0.7 bn, with main destination markets being Germany, UK and Denmark. Notable is the 25% increase in EUR of exports compared to 2010, which reflects the increasing trend of parallel exports.

Given the import-intensive nature of the local pharmaceutical market, exposure to variations in exchange rates is very high and considering the significant recent depreciation trend of the RON (up to 4.6 RON/EUR) in 2012, a negative impact on the market and players' profitability is expected. In previous periods, the depreciation of the local currency as of summer 2007 severely affected importers and distributors, further leading to an erosion of profit margins for retailers, ultimately resulting in temporary suspension of drug deliveries by distributors.

Market Structure

The two distribution channels in the pharmaceutical market, hospital and retail, account for disproportionate fractions of the market. The retail channel covered 87% of the market in terms of value in 2011. While having a significantly lower market share, hospitals nonetheless witnessed a significant growth rate in 2011 – 39% in EUR compared to 2010, mainly driven by authorities' decisions to transfer back several subsidized drugs from pharmacies to hospitals. Available data for the first half of 2012 indicate further growth compared to the same period of 2011 of both retail (4%) and hospital segments (8%).

Over the last years, retail was the main driver for the overall market growth, with 2011 value growth of 8.4% as compared to 2010, whereas the similar rate for 2010 growth compared to previous year was situated at the higher value of 21.7%. Repeated price augmentations in the prescription drug segment, as well as the reduced governmental support for drug acquisition were among factors that lead to this development. In 2010, retail sales also benefited from the complete or partial transfer of drugs pertaining to several National Health Programs from hospital pharmacies to retail pharmacies, as was the case for oral anti-diabetics and insulin, oncology, post-transplant or HIV/AIDS drugs.

On the other hand, hospital pharmacies have been until 2011 severely affected by deficient management and financial blockages in the system, as reflected by the massive 14.1% decrease in volume and by the slight 4.3% increase in value in 2010. In 2011, hospital sales accounted for around 13.1% of the total market value.

Rx drugs currently hold a market share of around 84.1% of retail sales in value terms, corresponding to EUR 1.86 bn in 2011. Analysis of previous evolution indicates a continuous increase of Rx drugs share in retail sales occurred (from 79% in 2005). Rx drugs are comprised of both patented drugs and generics, and the growth is mainly driven by generics, that for most medical conditions compete with the more expensive original drugs. The introduction of electronic prescriptions in H2 2012 (with a maximum of 7 drugs per recipe) is aimed at increasing the transparency degree of the medical system (affected in recent years by numerous fraud accusations) and on providing patients with better healthcare assistance on the midterm. On the other hand, OTC drugs maintained a share of approximately 14% of the total sales in 2010 and reached a retail level of EUR 0.35 bn in 2011, 8.6% higher as compared to 2010.

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