BMI View: Strong Q113 results underpin our expectations for further growth in Estonia's pharmaceutical sales in 2013. An improving macroeconomic picture, real wage growth and higher employment figures point to a rise in state tax revenues. We therefore expect funding for healthcare to rise, particularly in light of the country's ageing population. Nevertheless, on an absolute basis, the Estonian pharmaceutical market remains relatively small in comparison to regional markets in Central and Eastern Europe. Despite its transparent regulatory policies, business-friendly operating environment and strong pharmaceutical sales in 2012, the country continues to present drugmakers with limited opportunities.
Headline Expenditure Projections
- Pharmaceuticals: EUR262mn (US$330mn) in 2012 to EUR276mn (US$370mn) in 2013; +5.3% in local currency terms and +10.2% in US dollar terms. Local currency forecast somewhat lower than in Q313, due to new market data and macroeconomic expectations.
- Healthcare: EUR1.13bn (US$1.43bn) in 2012 to EUR1.16bn (US$1.55bn) in 2013; +3.4% in local currency terms and +8.3% in US dollar terms.
Estonia scores 52.1 in BMI's adjusted risk and reward assessment Pharmaceutical Risk/Reward Rating (RRR) tool, putting it in 11th place out of the 20 key markets covered in the Central and Eastern Europe (CEE) region. BMI notes that Estonia's Industry Rewards are still the weakest part of its pharmaceutical profile, mainly negatively influenced by above-average scores in the urban/rural split and pensionable population. As the population ages, the dominant types of disease will shift with the emergence of many more long-lasting chronic conditions, cancers and degenerative illnesses. 30% of urban residents and 31% of people living in rural areas reported to have health problems. This will tip the ratio of working people to dependants further towards the latter, increasing the pressure on overall funding for the healthcare system. Nevertheless, these factors also present potential rewards in this particular pharmaceutical market.
Key Trends And Developments
Positive tailwinds from the country's improving macroeconomic situation, falling unemployment and real wage growth have supported increased expenditure on pharmaceuticals in 2013. Coupled with the country's specific disease burden, ageing population and expanding life expectancies, we expect pharmaceutical consumption to grow in 2013 by 5.3% in euro terms to EUR276mn (US$370mn). In June 2013 a study of Europeans aged 50 or above containing data on health, work life, income and social networks for the elderly in 16 states in post-crisis Europe showed that economic recession is significantly affecting the health of people aged over 50. The study concludes that the amount of dependants will increase in most countries of Europe with the worst affected being women with poor health, and low education and income. More than 40% of unemployed elderly people in Estonia have four or more symptoms of depression.
In July 2013 Grindeks secured US Food & Drug Administration (FDA) approval to increase its presence in the US. The newly issued certification paves the way for Grindeks to cooperate with US partners in developing its business activities in the market. It allows Grindeks to start exporting its manufactured xylazine, xylazine hydrochloride and droperidol to the US. Grindeks will continue to supply oxytocine and detomidine to its US partners.
BMI Economic View: We have revised down our forecast for real GDP growth in Estonia in 2013 to 2.1%, from 3.2% previously, due to a sharp contraction in fixed investment in Q113. However, real GDP will accelerate in the remainder of the year as strong private consumption continues to drive economic activity, and a gradual recovery among Estonia's main trading partners will see growth reach 3.2% and 3.0% in 2014 and 2015 respectively. While our core view on Estonia's balance of payments has not changed, trade and income deficits will drive the overall current account deficit higher in coming years. However, foreign direct investments will ensure stable financing dynamics. This means that even with a fiscal belt tightening in progress, strengthening private consumption should support the further development of the country's pharmaceutical market volumes.
BMI Political View: Public support for Estonia's ruling Reform Party remains in a sustained downtrend, and is unlikely to recover substantially in coming years. With parliamentary elections in 2015 likely to see the Reform Party lose its majority status, this would cloud Estonia's political outlook, with potentially negative implications for the business environment. Nevertheless, we do not foresee any major changes in Estonia's political landscape in the short term.