Romanian Pharmaceutical Industry
 |
Aprilie 2009 |
 |
IOANA FILIPESCU - Managing Director
RAIFFEISEN INVESTMENT ROMANIA S.R.L. |
Adresa
Bulevardul Carol I, Nr. 26
020921 Bucureşti, Sector 2
Telefon
+40-21-312.03.10
Fax
+40-21-312.03.08
Website
www.raiffeisen-investment.com
Key market drivers in 2008
For the first time in the last several years, the general opinion on the progress of the Romanian pharmaceutical market is somewhat pessimistic, primarily due to the significant influence of the last year regulatory decisions on the local players’ financial results, to the unpredictable political behavior before and after the general elections, but mostly due to the recent influence of the general financial turmoil on the local economy. The enthusiasm of the recent years concerning the potential of the Romanian industry and the generous forecasts reflecting a double digit market growth have been replaced by a gloomier perspective for the years to come.
For the first time in the last several years, the general opinion on the progress of the Romanian pharmaceutical market is somewhat pessimistic, primarily due to the significant influence of the last year regulatory decisions on the local players’ financial results, to the unpredictable political behavior before and after the general elections, but mostly due to the recent influence of the general financial turmoil on the local economy. The enthusiasm of the recent years concerning the potential of the Romanian industry and the generous forecasts reflecting a double digit market growth have been replaced by a gloomier perspective for the years to come.
In such a conflicting environment, the quarterly evolution of the pharmaceutical sector in 2008 was sinuous. After a modest increase of only 4% y/y in the first quarter, the following two quarters posted an encouraging growth of above 20% y/y in local currency (i.e., 21% y/y in Q2 and 23% y/y in Q3). Before Cegedim’s recent release of the final data for 2008, the volatility of the market environment raised uncertainties regarding the sector’s growth rate for the whole year, mostly because of the amplified burst of the local pharmaceutical market crisis in October and the late influence of the global financial crisis on the local economy, in the last quarter of 2008. According to Cegedim, the total pharmaceutical market value in 2008 was around EUR 1.95 bn (RON 7.16 bn), posting an increase of 6.6% y/y in EUR terms and approximately 18% y/y in RON terms. The double digit increase of the pharmaceutical sales came as a positive surprise, as it indicates that market managed to recover in December, posting a 23% y/y in Q4 2008.
In terms of effective consumption, there was a decline of 2.3% in the number of the pharmaceutical units sold in 2008 as compared to 2007. The sector’s increase in value is related to either a raise in the OTCs prices or the entrance on the market of new and more expensive molecules, be they originals or branded generics. Again, we are facing an unusual development of consumption, since the Romanian drugs’ spending per capita is already three or four times lower compared to neighboring Hungary, the gap becoming wider as we move to the Western part of the Europe.
In the second half of the year, the appetite of international players for acquisitions in the local pharmaceutical market has dropped due to problems faced on their home markets. Several deals were put on hold or have been delayed due to the global financial crisis. Local media reported a potential sale of Ozone Laboratories, indirectly controlled by A&D Pharma shareholders, and also the prospective sale of a leading retail chain to an international strategic investor. Moreover, the intention to resume the privatization of Antibiotice in September or October 2008 has not been implemented due to the expected elections in November and to the unfavorable evolution of the company’s share price on the Bucharest stock exchange. Earlier in March 2008, AVAS suspended the tender process for Antibiotice, following a court ruling in favor of the company’s trade unions, which invalidated the government proposed open bidding method for the privatization. In February 2009, the company’s market capitalization was of EUR 40 mn, down by almost 80% as compared to the previous year.
Regulatory regime developments
Regulations regarding pricing and reimbursements
One of the major factors to influence the pharmaceutical market development was the local currency depreciation and the widening gap between the evolution of the RON/EUR exchange rate and the fixed rate used to calculate the regulated prices for the RX drugs. Both wholesalers and retailers profit margins were seriously hurt, as the first reduced discounts granted to the latter or refused to continue delivering drugs below acquisition price. The loss amplified as the Ministry of Health repeatedly postponed the decision to update the prices. The crisis culminated at the beginning of October with the distributors’ protests and their unanimous decision to stop the drugs delivery in pharmacies, having a direct impact on the producers’ annual balance sheet. Consumers were less affected by this dispute due to the existing pharmacy stocks.
At the end of October 2008, the Ministry was forced to come up with a temporary solution and update the exchange rate used to calculate the medicines prices from a 3.32 RON/EUR to 3.6 RON/EUR. The agreement was valid until the end of December 2008 only for the imported drugs, with the condition to further discuss and settle for a longer term solution meant to avoid further blockage due to RON depreciation. The decision was not reflected in the final prices as the distribution mark-up was diminished for some products.
The use of an exchange rate of 3.6 RON/EUR was later extended until the end of January 2009, due to the parliamentary elections and the appointment of a new Minister of Health. In the meantime, the exchange rate exceeded in January 4.2 RON/EUR, causing more losses to the distributors. The losses from the currency depreciation surpassed 30%, as the wholesalers were still trying to collect the money for the products sold 6 months ago, at an exchange rate of 3.2 EUR/RON.
The regulatory authorities eventually reacted. A new resolution adopted in January and applicable starting 1st of February readjusted upward the prices for RX drugs using an annual fixed exchange rate of 4 RON/EUR. The prices would be calculated directly in local currency in order to avoid future influence of the exchange rate. The distribution mark up has been unified both for imported drugs as for the local produced drugs and it varies from 10%-14% applied to the level of the producer’s price. For drugs with prices more than RON 200, the mark-up is fixed to RON 20.
The temporary increase in prices would be offset by a new resolution which is currently under discussion aiming at cutting prices again. The authorities’ intention is to change the methodology of calculating the reference price for the generic drugs using the minimum existing price for the specific drug out of an extended basket of 12 reference countries, which should not be higher than 65% of the originator price. The measure is viewed to encourage parallel trade, as some companies could take advantage of the opportunity to buy drugs from Romania at a lower price and sell them to other EU countries with a higher price. The current motion will impact also the domestic manufacturers mainly focused on the production of generics drugs, generating more pressure and instability on the market.
Pharmacy ceiling for RX drugs
In an attempt to stimulate sales, the Ministry of Health decided to suspend the pharmacy ceiling for the reimbursed drugs, starting with October 2008. Previously, due to shortage of the public health care funds, the pharmacies had a monthly reimbursement cap imposed by MoH, which was anyway insufficient, being used up rapidly in the first half of the month. Some distributors announced that the measure has already led to increase in demand by at least 30%, in the last quarter of the year.
The local players are skeptical regarding the real benefits of this measure, as most of them do not believe in the system’s capacity to financially sustain the implications of a dramatic increase in the prescription of reimbursed drug. The limited funds of the National Health Insurance House cannot sustain the implementation of such a measure. There is a high chance to create additional blockages on the market due to further delays in reimbursement, especially in the context of the overall economic crisis. Furthermore, the increase in layoffs and the delay in the tax payments by the companies affected by the market turmoil could trigger a contraction of the National Health Fund’s income. Therefore, the newly appointed Minister favors the reintroduction of the reimbursement caps in the pharmacies in the coming future.
The pharmacy law
The pharmacy law (no. 266/2008) has finally been approved and published in the Official Gazette no. 765/13 in November 2008 and was enforced after 60 days from the publishing date. Romania was the only country in the European Union not to have a pharmacy law, the sector been regulated partially by a number of decisions issued by the Ministry of Health and partially by an older law which stipulated a series of reforms on the Romanian healthcare system.
Among the novelties brought about by this law, there is the waiver on the demographic rule regarding the functioning of a pharmacy, starting with 2011. Also, the operational license for a pharmacy will be subject of approval from the National Medicines Agency, based on certifications issued by the Public Health Ministry and the National College of Pharmacists from Romania, which are not tradable.
The project of the pharmacy law raised controversies when it was firstly presented in 2005, as it proposed either to forbid the existence of a pharmacy chain or to limit its number of units to a maximum of four units in a city with 400,000 inhabitants. Also the possibility to run a pharmacy was conditioned by the presence of a pharmacist shareholder with a 50% weight in total number of shares.
Regulations regarding prescription rules
Beginning with April 2008, the regulatory authorities have shifted from INN to brand prescription rule. The decision favored the large companies with considerable marketing budgets to promote their drugs to physicians, the main decision making factor in this new equation.
Thus, expensive originals and the well-known branded generics have increased their market share, while cheaper unbranded generics or less-known branded generics were disadvantaged. Essentially, the prescription of newer and more expensive medicines constitute one of the key drivers for the market growth in the general context of the drugs distribution crisis.
On the other hand, local producers which are not backed by the financial strength of a multinational and by a powerful medical representative’s team were the ones to suffer from this measure. At European level, both prescription systems (by INN and brand) are used.
The new appointed Health Minister, Mr. Ion Bazac sustains the INN prescription system and has announced the intention to move back to this rule. As a result of the often changes in the prescription rules, most of the local companies have tried to adapt by developing a mixed portfolio, of both branded and unbranded products, or by sustaining an umbrella brand, which is easier and cheaper to promote than individual brand names.
