Czech Republic Pharmaceuticals and Healthcare Report Q3 2012

BMI View: Despite the release of moderately improved data for Czech drug expenditure in 2011, our
weak short-term outlook for the market continues. A drug price eroding policy introduced from the start
of this year is set to be the main reason for 2012''s minor contraction. The government will continue with
measures designed to tighten public expenditure across the board, while the challenging economic
outlook will negatively affect the availability of private funding for medical products and services.
Headline Expenditure Projections
􀂃 Pharmaceuticals: CZK80.69bn (US$4.56bn) in 2011 to CZK79.39bn (US$4.30bn) in 2012; -
1.6% in local currency terms and -6.0% in US dollar terms. Forecast broadly unchanged from
our Q212 assessment.
􀂃 Healthcare: CZK298.26bn (US$16.86bn) in 2011 to CZK301.04bn (US$16.27bn) in 2012;
+0.9% in local currency terms and -3.5% in US dollar terms. Forecast broadly unchanged
from our Q212 assessment.
􀂃 Medical Devices: CZK27.55bn (US$1.56bn) in 2011 to CZK28.14bn (US$1.52bn) in 2012;
+2.1% in local currency terms and -2.4% in US dollar terms. Forecast broadly in line with
Q212.
Risk/Reward Rating: The Czech Republic retains second place in our Q312 RRRs and its score remains
unchanged, continuing to reflect the arrival of contractionary drug policy that we have been monitoring
since early 2011. The Czech pharmaceutical and healthcare market will be under intense pressure in 2012
from a combination of drug policy reforms and a weak economic outlook. The pharmaceutical market is
expected to contract by 1.6%. The prospect of lower prices, impeded market entry and increased generic
substitution are the major contributing factors to our worsening outlook. The key reforms are that since
the start of 2012, maximum prices for medicines are determined by the average of the three lowest prices
of reference in a basket of 21 EU countries; and that coverage of cheaper medicines under public health
insurance has been removed.
Key Trends And Developments
􀂃 Following an update from BMI''s primary source, the State Institute for Drug Control, which
included revisions to previously issued quarterly 2011 data, we have amended our
pharmaceutical expenditure growth figure for the Czech Republic to 0.14% annual growth in
2011. Previously, we reported a 1.0% contraction. We calculate that the Czech drug market was
worth CZK80.69bn (US$4.56bn) in 2011 at final consumer prices and CZK58.93bn
(US$3.33bn) at producer prices. Despite this upward revision, the new figure is hardly more
encouraging than the last and it has not had a positive effect on our outlook for 2012. The
Czech Republic Pharmaceuticals & Healthcare Report Q3 2012
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number of defined daily doses reached 5,872mn in 2011, which was an increase of 1.01% yearon-
year (y-o-y), though the number of units of medicine distributed in Czech Republic continues
to fall, contracting for the fourth year running to 297mn, down from 304mn the year before.
􀂃 In May 2012, the Czech Ministry of Health called on the health insurance company the
Vseobecna Zdravotni Pojistovna (VZP) to stop blocking an agreement on the reimbursement
of selected over-the-counter (OTC) drugs. The reimbursement of OTC medicines has not been
allowed since June 30 2012, with the exception of preselected medicines. The list of exempted
medicines has existed since the start of the year and has been approved by all Czech health
insurance companies, but not the VZP, which submitted a list of OTC drugs based on its own
criteria, which according to the Ministry of Health was not acceptable.
􀂃 Pharmaceutical imports totalled CZK69.07bn (US$3.91bn) in 2011, up by 5.8% y-o-y in local
currency terms and 14.2% in US dollar terms. Import growth was well ahead of local
pharmaceutical expenditure growth, though we note that the transfer of medicines into the
country to domestic production hubs, which are then distributed to other markets, may account
for this difference. Pharmaceutical exports reached CZK24.49bn (US$1.38bn) in 2011, up by
6.8% y-o-y in local currency terms and 15.3% in US dollar terms.
BMI Economic View: We hold to our forecast for the Czech Republic to avoid a full-year recession in
2012 and forecast economic growth of 0.1%, recovering to 1.3% in 2013. Net exports will be the sole
positive contributor to economic expansion this year as import growth eases more than export growth. A
combination of fiscal austerity and uncertainty surrounding the future of the eurozone, to which the Czech
Republic is heftily exposed, will mean government consumption, household consumption and investment
spending pose net drags on growth this year.
BMI Political View: The Czech Republic will remain the most ''Western'' of the Central and Eastern
Europe (CEE) states over the next ten years, with per-capita income set to reach the level of poorer pre-
2004 EU member states by 2021. The country will face some key challenges, namely fiscal pressures
from an ageing population, relations between ethnic Czechs and indigenous and immigrant minority
groups, and potential ructions with Brussels. That said, the Czech Republic will remain among the most
politically, socially and economically stable countries in Europe through the next decade.