BMI View: Estonian pharmaceutical sales posted larger than expected growth in 2014, and we have revised our ten year forecast upwards to reflect this new data. We expect pharmaceutical sales growth to decelerate in 2015 as the impact of the Russian slowdown moderates economic activity. With Estonia seeing external tailwinds from the eurozone and Scandinavian countries, we expect a reacceleration of growth in pharmaceutical sales in 2016. Western-Russian relations will continue to present downside risk to our forecasts.
Headline Expenditure Projections
Pharmaceutical s: Sales will rise from EUR292mn (USD391mn) in 2014 to EUR308mn (USD339mn) in 2015, up 5.7% in local currency terms and down 13.3% in US dollar terms. Forecast revised upwards from last quarter.
Healthcare : Spending will rise from EUR1.15bn (USD1.54bn) in 2014 to EUR1.21bn (USD1.33bn) in 2015, up 5.3% in local currency terms and down 13.6% in US dollar terms. Forecast revised upwards from last quarter.
Estonia scores 53.3 out of 100 in BMI's Pharmaceutical Risk/Reward Index for Central and Eastern Europe in Q315, up from 13th to 7th out of the 20 markets covered in the region. Estonia's Industry rewards score is still the weakest link in its pharmaceutical profile, at 14.0, below the regional average of 16.9. This score is a reflection of its subdued absolute market potential. Despite historically limited public sector spending on medicines, the market was growing more rapidly than most others across Europe up until 2008. However, 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
In April 2015, the State Agency of Medicines attended the Drug Information AssociationEuromeeting 2015 and promoted the agency's simple, logical and transparent system for applying for marketing authorisations or clinical trials. The main goal was to introduce to the pharmaceutical manufacturers the procedures for applying for marketing authorisations and clinical trials in Estonia.
In March 2015, the State Agency of Medicines released an analysis of the Estonian medicinal products market in 2014. The market increased by 8% reaching EUR249mn. In 2014 sales to general pharmacies covered 70% (EUR174mn) and sales to hospital pharmacies came in at 29% (EUR73mn) of the total medicinal products market. The proportion of prescription sales was 85% compared to over-the-counter sales of 14%. Antineoplastic and immunomodulating drugs had the greatest market share of 20%, followed by cardiovascular drugs with 13% and alimentary tract and metabolism medicines with 10%.
Also in March, the changes in the medicinal Products Act of Estonia came into force. The main reform affects the ownership of pharmacies. Upon issuing a general pharmacy activity licence to a self-employed person, the self-employed person must be a pharmacist and work as the manager in at least one general pharmacy. Upon issuing a general pharmacy activity licence, more than 50% of the shares and the majority of voting rights must belong to a pharmacist who works as the manager in at least one general pharmacy.
BMI Economic View
The Estonian government will continue to post manageable fiscal deficits over the coming years while keeping well with the Maastricht criteria. Lower borrowing costs brought on by quantitative easing will not tempt the government to borrow on capital markets. Industrial production in Estonia will post moderate growth over the remainder of 2015 on the back of positive domestic dynamics and resilient external demand from Scandinavia. We forecast industrial production to expand by 2.5% and 2.9% during 2015 and 2016 respectively.
BMI Political View
We expect the newly formed coalition government, consisting of the Reform Party, the Social Democrats and the Pro Patria and Res Publica Union will face significant difficulties in deciding and agreeing on policy going forward. While this is partially due to the ideological differences between the parties, we also see the junior coalition parties becoming increasing agitated by the dominance of the centre-right Reform Party. The length and difficulties reported during coalition talks suggest that significant differences regarding desired policy are already present from the offset.