BMI View: We expect growth in Estonia's healthcare expenditure to decelerate over the long term given the country's fiscally conservative nature, the limited capacity of the national health insurer to accommodate further healthcare spending growth and BMI's outlook for the country's economy over the long term. Drugmakers can expect to see constrained revenue growth in the country as pricing pressures and restrictive drug reimbursement will be employed by the Estonian health insurance fund to restrict healthcare expenditure.
Headline Expenditure Projections
Pharmaceuticals: Sales will rise from EUR292mn (USD391mn) in 2014 to EUR310mn (USD341mn) in 2015, up 6.3% in local currency terms and down 12.8% in US dollar terms. Forecast revised upwards from last quarter.
Healthcare: Spending will rise from EUR1.15bn (USD1.54bn) in 2014 to EUR1.21bn (USD1.34bn) in 2015, up 6.0% in local currency terms and down 13.0% in US dollar terms. Forecast revised upwards from last quarter.
Estonia scores 52.1 out of 100 in BMI's Pharmaceutical Risk/Reward Index for Central and Eastern Europe in Q415, down from 7th to 9 th out of the 20 markets covered in the region. Estonia's Industry rewards score is still the weakest link in its pharmaceutical profile, at 12.8, below the regional average of 16.7 , a reflection of its subdued absolute market potential. The tiny population of 1.29mn (which is not growing) creates constraints on growth and limits the scale of any firm's operations in the market.
Key Trends & Developments
Grindex, the largest local pharmaceutical manufacturer in neighbouring country Latvia, released its Q1 2015 report in the end of May. Sales were EUR22.4mn, up 19.1% compared to Q1 2014. Net profit was EUR1.4mn, up by EUR0.9mn (183%) versus Q1 2014. According to the company, the focus was on diversifying the distribution to new markets in the context of problematic geopolitical situation in the CIS region.
In August, the State Agency of Medicines released an analysis of the Estonian medicinal products market in Q2 2015. The market increased by 7.4% compared to Q2 2014 reaching EUR71.2mn. Sales to general pharmacies constituted 67% and sales to hospital pharmacies came in at 32% of the total medicinal products market. The proportion of prescription sales was 86% compared to over-the-counter sales of 13%. Antineoplastic and immunomodulating drugs had the greatest market share of 20%, followed by anti-infectives with 14% and cardiovascular drugs with 12%.
In May, Grindeks announced that it had developed a final dosage form (capsule) of Ursodeoxycholic acid (UDCA) and had already started its export to Russia and Georgia. The company expects that the sales volume should reach up to EUR1mn or 75 thousand packages in 2015 alone. The drug treats cure bile formation and secretion disorders.
BMI Economic View
Estonia will run small but manageable current account deficits over the coming years. Estonia's strong services export industry will offset its growing goods trade deficit. Robust economic growth will ensure FDI inflows are large enough to finance its current account deficits.
BMI Political View
We expect an increasingly difficult political atmosphere in Estonia over the remainder of 2015 and into 2016 as the appointment of new party leaders points to growing disagreement between coalition partners over policy direction, which is largely driven by the Reform Party.