BMI View: Slovenia, similar to most Central and Eastern European (CEE) countries, currently has limited capabilities in managing its rare disease population and we expect that EU authorities will push the country into accelerating its implementation of the necessary infrastructure to manage this patient subgroup. While Slovenia has adopted a national strategy and has a more progressive attitude towards orphan drug reimbursement than many of its CEE peers, it cur r ently lacks crucial elements needed to manage these populations. It i s an area where Slovenia's healthcare system will need to expand coverage to deliver better patient outcomes.
Headline Expenditure Projections
Pharmaceuticals: EUR675mn (USD896mn) in 2014 to EUR671mn (USD738mn) in 2015; -0.6% in local currency terms and -17.6% in US dollar terms. Forecasts unchanged compared to previous quarter.
Healthcare: EUR3.22bn (USD4.27bn) in 2014 to EUR3.23bn (USD3.55bn) in 2015; 0.4% in local currency terms and -16.8% in US dollar terms. Forecasts unchanged compared to previous quarter.
BMI Risk/Reward Index
Slovenia scores 50.4 out of a total of 100 in our Pharmaceutical Risk/Reward Index for Q415 - down from 51.6 in the previous quarter. This places the country 10th in our index of 20 countries and above the average for the region, which is 49.3.
Key Trends & Developments
Krka's revenues in Q115 fell by 10% compared to Q114, coming to only EUR289mn (USD330mn). Nevertheless, Krka's net profits rose by 30% y-o-y to EUR55.1mn (USD62.7mn), primarily due to net foreign exchange gains in Q115, driven by the appreciation of the Russian rouble against the euro in the first three months of the year. Discounting this net financial gain, Krka's underlying financial performance from pharmaceutical sales deteriorated significantly in Q115. Operating profits fell by 32% y-o-y to EUR43mn (USD49mn). Krka's first quarter revenues for 2015 were primarily impacted by the company's exposure to Ukraine and Russia.
Krka's focus on Europe and lagging penetration into ex-European markets will hurt its growth outlook in 2015. The company will need to seriously consider a strategic shift towards markets in Asia, North America and Latin America if it is to achieve meaningful growth over the long-term. We expect this process of geographic diversification to occur slowly, and as a result, we see Krka's growth prospects as moderate.
Tapering economic growth expectations for Central Europe and worsening dynamics in Russia and the CIS markets will hit pharmaceutical sector growth. We see regional drugmakers being particularly affected by the fallout of this shift and believe they will see topline pressures in the next year.
BMI Economic View
Slovenia is still only part way through its external deleveraging process, with the corporate and banking sector still suffering from excessive leverage. The government's heavy borrowing in 2013 to fund the recapitalisation of the banking sector has led to a further deterioration in the net international investment position. A respectable current account surplus should aid a gradual improvement in the external position, but the pace will slow as the recovery in domestic demand picks up.
BMI Political View
Slovenia's political outlook is improving as uncertainties surrounding the government of Miro Cerar decline, and the administration pushes ahead with fiscal consolidation and privatisation plans. Nonetheless, numerous hurdles remain, including pension system reform and further efforts to revamp the insolvency system to tackle residual corporate and banking sector legacy issues.