Strong Growth Forecast For Central & Eastern Europe

According to IMS HEALTH's recently published Pharma Prognosis Central & Eastern Europe (PPCEE), the pharmaceutical markets of the Central and Eastern Europe (CEE) region are expected to see strong growth over the next four years, despite the global economic slowdown.

With a combined compound annual growth rate (CAGR) of 13.5% between 2001 and 2005, the seven countries in the report, namely Turkey and the six CEE countries of Bulgaria, the Czech Republic, Hungary, Poland, the Slovak Republic and Slovenia, comprise a region that will be one of the fastest growing in the world over the next four years.

According to PPCEE, prices will be the main driver of growth in the region, although all seven countries will also see steady growth in the volume of retail pharmaceutical sales. Double-digit retail price growth is expected to outpace volume growth between 2001 and 2005 in every country apart from Turkey, due in part to improving economic conditions and in part to the fact that several of the markets are recovering from a period of static or declining prices.

PPCEE expects the most rapid sales growth to be in Bulgaria and Slovenia, the former as it recovers from a period of economic difficulties and the latter as it continues to build on its existing economic strengths. However, Turkey's pharmaceutical market is predicted to grow by less than 6% a year in US dollar terms. Turkey is generally seen as the country most likely to depress regional growth rates, due to both the precarious situation of its economy and the size and importance of its pharmaceutical market.

PPCEE predicts considerable changes in market share between 2001-2005. Turkey is expected to be the slowest-growing market and could lose more than ten percentage points in regional share. Poland, conversely, is expected to capture a further five percentage points over the period and to overtake Turkey in terms of market size. Hungary, Slovenia and Bulgaria should also see their market share increase significantly.

One of the major fears of leading multinational pharmaceutical companies is that the accession to the EU of the CEE states, with their lower price levels, will spark a huge increase in parallel trade from CEE countries to the rest of the EU. As a result, the multinationals fear they will lose substantial (and profitable) sales in the leading EU markets to parallel traders, who will export branded products at cheaper prices from CEE countries to higher-priced EU member states.

A number of factors will determine whether these fears are realised, including the rate of economic convergence, trends in prices over the next few years and logistical considerations (such as the availability of adequate supplies). If the CEE countries continue on the path of economic convergence with the EU, prices are also likely to converge. Furthermore, some observers believe that multinationals will push for higher prices for their products in CEE markets, in order to forestall the risk of parallel exports. The CEO of Slovakofarma was quoted as predicting that branded product prices would rise by 20-150% in the Slovak Republic between 2000 and 2005.

However, PPCEE believes it is likely that there will still be considerable price differentials between CEE countries and the EU at the time of accession, which will encourage parallel exports. Trade is expected to be strongest across the borders of Poland and Germany and between Hungary and Austria.

Despite their fears over a loss of sales to parallel imports from east to west, the European and US multinational corporations are increasingly dominating the markets of the CEE region, just as they do in the EU. Multinational companies accounted for all top ten places in 2000. Together, these ten corporations accounted for 37% of the total CEE market. Merck & Co was the fastest-growing of the leaders, helped by the strong growth of Zocor (simvastatin) and Fosamax (alendronic acid), while Pfizer and Lilly also enjoyed sales growth well above the 8% increase recorded for the total regional market during 2000. Several of these multinationals have already made local acquisitions.

There are still a number of strong local competitors, such as Eczacibasi and Ibrahim of Turkey, Gedeon Richter of Hungary, Leciva of the Czech Republic, Krka and Lek of Slovenia and Polpharma of Poland. However, these companies cannot compete with the size and reach of the multinationals on a regional basis and they will have problems in retaining market share in an environment that increasingly favours the multinationals.