ERNST & YOUNG SRL

 | 

ATENA MITUCA

 | 

BOGDAN TENU

  |  12.11.2013

The pharmaceutical retail battlefield

Despite past predictions describing a totally bleak future, based on specific features of underfunding and a much disputed claw-back mechanism, local pharmacy retail kept the upward trend in 2012, increasing by 2.6%.

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ERNST & YOUNG SRL

ATENA MITUCA

ATENA MITUCA

CONSULTANT – TRANSACTION ADVISORY at ERNST & YOUNG SRL


BOGDAN TENU

BOGDAN TENU

SENIOR MANAGER - TRANSACTION ADVISORY at ERNST & YOUNG SRL

MARKET OVERVIEW - PHARMACY RETAIL KEEPS ON CLIMBING

Amongst noticeable trends observed in the previous year, we can note the continuous growth of the over-the-counter (OTC) segment (6.5% in 2012 compared to 8.4% in 2011) and the constant, long-term issue encountered by retail players: payment terms causing severe lack of liquidity. The slower growth was based on the decreasing consumer purchasing power, whilst the latter issue is currently dealt with. Otherwise, the local pharmaceutical market is rather fragmented, largely import-oriented, in search for high returns and continues to rank below the average for European countries in terms of investments in R&D, with EUR 218 million in 20111.

 
 
Last year was rather one of stagnation for the pharmaceutical sector in Romania, as the increase was more tempered than those recorded in the past. 2013 is forecasted to bring brighter prospects, as the removal of some of the claw-back tax inefficiencies would reduce costs incurred by the industry - specifically, the computation principle according to which the tax was applied to a post-VAT price was eliminated based on its unconstitutional nature.
 
 
 
 
When it comes to identifying a pattern within the local market, it helps to look at the Central and Eastern European (CEE) Pharma industry, as value growth in Romanian retail is, similar to countries in the region, mainly driven by the OTC segment.
However, when looking to the value of medicines sold, the prescription-drug segment accounts for approximately 84% and was increasing at a rapid pace until 2011 (i.e. 31.6% in 2010 compared to only 8.3% in 2011), when it was surpassed in growth rate by the OTC section (namely, 8.4% compared to 8.3%).
 
 
According to a PMR analysis, accelerated development of the local market is forecasted for 2013 – 2014, the main potential drivers being: a lower OTC spending per capita within the CEE countries, revealing a considerable growth potential, government policy focusing on cheap medicines and expansion of pharmacy chains.
 
 
The local pharmacy retail is comprised of large chain groups, highly dependent on price regulated operations for RX products, with 83% of total sales being generated by the prescription business in 2012. In line with the entire sector, the pharmaceutical retailers did not undergo any significant transformations during 2012, except for already long-term struggle with public  administration in order to combat long payment terms and continuing the classic battle for market share. The first issue has somehow been tackled as the Directive 2011/7/EU, which reduces payment terms to 60 days, was transposed into national law starting with March 2013 (enforcing Law no.72/2013). However, it appears to be a long road ahead for public and local authorities to comply with this task, taking into consideration the past difficulties in respecting the payment terms valid before March 2013, which could go up to 210 days.
 

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