BMI View: Hungary's deteriorating outlook for pharmaceutical companies has contributed to its continued placement on the Special 301 Priority Watch List in the Pharmaceutical Research and Manufacturers of America (PhRMA)'s 2013 Annual Report to the US Trade Representative (USTR). Since the implementation of the Hungarian Pharma-economic Law (XCVIII/2006) and the Szell Kalman Plan, pharmaceutical expenditure has been drastically cut in Hungary in an effort to balance the state's budget. Such draconian measures have reduced drug expenditure in Hungary to 2006 levels and this decline is expected to continue in 2013 and beyond, impacting all stakeholders in the pharmaceutical market.
Headline Expenditure Projections:
- Pharmaceuticals: HUF619.15bn (US$2.75bn) in 2012 to HUF578.35bn (US$2.63bn) in 2013;
- -6.6% in local currency terms and -4.6% in US dollar terms. Local currency forecast somewhat lower in relation to previous quarter's projection, on account of analyst intervention.
- Healthcare: HUF2,170bn (US$9.65bn) in 2012 to HUF2,156bn (US$9.79bn) in 2013; -0.6% in local currency terms and +1.5% in US dollar terms. Local currency forecast slightly lower in relation to previous quarter's projection, on account of less favourable pharmaceutical market outlook.
Risk/Reward Rating: The Q413 version of our proprietary Pharmaceutical Risk/Reward Rating (RRR) assessment tool again ranks Hungary eighth out of the the 20 regional markets profiled in the Central and Eastern Europe (CEE) region. While some aspects of its business environment remain positive, Hungarian state's focus on pricing and budgetary discipline will continue to detrimentally impact the development of its pharmaceutical and healthcare markets. While still being amongst the largest markets in the CEE region, a combination of price erosion, large tax liabilities and restrictive market access limits the opportunities for drugmakers.
Key Trends & Developments
- In July 2013, Hungarian independent representative Laszlo Szilagyi urged the incumbent Fidesz government to provide an additional HUF50bn (US$223mn) for hospitals across Hungary, also calling on the government to resolve the financial problems faced by domestic hospitals at least for a short-term period. The politician observed that the medical sector's deficit, for dealing with the scarcity of human resources in the sector, has increased compared with the deficit recorded in 2012. However, according to a written response by the Fidesz government, the poor condition of the country's hospitals has been caused by the previous governments, due to which the incumbent government inherited a medical sector debt of around HUF125bn (US$559mn).
- In May 2013, representatives of pharmacists' associations discussed the situation facing the pharmacy sector in Hungary at a roundtable meeting by the GKI Health Research Institute. According to a survey of the institutions, pharmacies have had to cut back their margins on reimbursed drugs by almost 70-80%, since the implementation of the Szell Kalman Plan. In 2012, pharmacy revenues tumbled by HUF5.1bn (US$22.7mn) to support the government's discounts and due to the imposition of strict margin limits on pharmacies. We expect 2013 to remain challenging for pharmacists, who are also mandated to purchase equity in the business.
- In a measure further worsening the operating environment for drugmakers, in May 2013, Hungary's National Institute for Quality and Organisational Development in Healthcare and Medicines (GYEMSZI) completed the first central public procurement procedure for hospitals. The procurement procedure was used to purchase 11 active ingredients, which will be used in manufacturing drugs for the treatment of certain forms of cancers, infections, haematopoietic disorders and cardiovascular diseases. The drugs are expected to be delivered by September 2013, after which the GYEMSZI will have a 60-day time limit to make payments for the drugs.
BMI Economic View: Hungary's macroeconomic landscape appears to be improving going into H213. However, we continue to stress that there remain significant risks in relation to the country's business environment and government policy. As a result of improving consumer sentiment and rising retail sales we have revised up our end-2013 real GDP forecast marginally, from -0.3% to -0.1%. We hold to our view that a recovery in export and household consumption will materialise in 2014, allowing for positive real GDP growth.
BMI Political View: Our view that the governing Fidesz party will win the April 2014 Hungarian general election remains well-founded, with recent opinion polls recording strong support for Prime Minister Viktor Orban's party among decided voters. However, this support may waver following the release of the Council of Europe Venice Commission's report on recent changes to Hungary's constitution, which according to the report erodes the country's democracy and threatens the rule of law. Regardless of the outcome, we expect few changes to the pharmaceutical industry policy.