BMI View: Pharmaceutical trade within the Czech Republic is expected to rise in the coming years due to a recent pick-up in Eurozone activity driven by Germany. Exports are to see a rise in demand from trading partners based on our expectation of increasing generic penetration throughout Europe and demand for generics in general across emerging markets. We expect imports to be boosted by expanding fiscal expenditure on pharmaceuticals by the Czech healthcare system as positive economic indicators enable the Czech health insurance body (VZP) to boost pharmaceutical expenditure. Investments in Cancer research and diagnosis are also proving successful, bringing closer companies focusing in the lucrative field of oncology.
Headline Expenditure Projections
Pharmaceuticals: CZK76.77bn (USD3.43bn) in 2014 to CZK78.83bn (USD3.58bn) in 2015; 2.7% in local currency terms and 4.6% in US dollar terms. Forecasts revised upwards from last quarter.
Healthcare: CZK280.80bn (USD12.54bn) in 2014 to CZK284.72bn (USD12.94bn) in 2015; +1.4% in local currency terms and 3.2% in US dollar terms. Forecasts revised upwards from last quarter.
Risk/Reward Inde x
In Q3 2015, results for the Czech Republic on BMI's Risk/Reward Index come in with a Reward score of 62.8 out of 100, a Risk score of 64.1, and an overall score of 63.2 - ranking it as the most attractive market in the Central and Eastern European Region. Drugmakers will face challenges in the Czech pharmaceutical market as a result of pricing pressure, poor access to the market and increasing generic substitution. Additionally, adopted and proposed amendments to healthcare and insurance laws have attracted criticism from the pharmaceutical sector. The Czech pharmaceutical market will nevertheless remain relatively attractive and rewarding due to the regionally high pharmaceutical expenditure per capita compared with its neighbours, an ageing population and a favourable urban-rural distribution.
Key Trends And Developments
Favourable external economic conditions in the eurozone will drive demand for Czech pharmaceutical exports, while the combination of low unemployment, inflation, and energy costs will drive domestic demand growth for pharmaceutical imports. We note that parallel trade of pharmaceuticals will continue to impact trade figures given the open economy of the Czech Republic and relative discounted pharmaceutical prices in the country, as well as prices in neighbouring European countries.
Announced in April 2015, one year on from the initiation of cancer screening initiatives, almost 60% of women within the pre-defined risk groups had been screened, whereas screening within the colorectal risk group rose to 32%. Over this period, breast tumours were detected in 6,000 patients, with the majority having early stage disease. Similarly, 4,000 patients were detected with pre-cancerous colorectal tumours, which were subsequently removed through surgery. We believe that the injection of funding into these screening programmes will ultimately make the Czech Republic more attractive to pharmaceutical companies focused on oncology.
In May 2015, in response to new laws and calls for transparency in the industry, several large pharmaceutical firms in the Czech Republic are making changes to their management. In 2015, two major pharmaceutical companies operating in the country have already made changes to senior management; Japan's Astellas Pharma and Swiss company Roche. The country's pharmaceutical industry, which is worth around CZK56bn (USD2.27bn), has stagnated in recent years with growth of just 1% to 2%. The pharmaceutical companies have been affected by the low prices of drugs and a slow market, which according to them hinders health insurance development in the country.
BMI Economic View
The Czech koruna fell 0.9% to CZK28.14/EUR on January 9 amid growing speculation that the central bank will weaken the currency due to the risk of deflation. The decline is the highest level in 14 months. In November 2013, the central bank intervened to boost price growth by selling about CZK200bn (USD8.4bn) in the foreign-exchange market and setting a cap on future gains.
BMI Political View
The crisis between Russia and the West over Ukraine is prompting a major reassessment of geopolitical risks in Eastern Europe. Russia's seizure of Crimea from Ukraine in March 2014 and its subsequent support for separatist rebels in the east of the country have led to Europe's biggest geopolitical shock since the collapse of Yugoslavia in the 1990s. It is too early to say whether the crisis marks the start of quasi-cold war between Russia and the West, or whether relations will return to 'business as usual' within a few years, but for the foreseeable future, a cooler dynamic will prevail.