Abstract
In BMI’s Business Environment Ratings (BER) for Q409, Hungary remains
ranked 11th, out of the 20
major markets within Central and Eastern Europe
(CEE), its position having worsened in recent months.
Despite stronger
dynamics than in previous times, a negative regulatory environment and
consequent
poor market performance are leading to an increasingly poor
outlook for multinationals. Such factors, in
addition to the deteriorating
macroeconomic climate have led BMI to further adjust its forecast for
Hungary’s pharmaceutical market. From being valued at HUF613.9bn
(US$3.57bn) in 2008, the market is
expected to rise by a negligible
compound annual growth rate (CAGR) of 0.9% in local currency terms
through
to 2013, when its value will reach just HUF642.2bn (US$3.20bn).
In fact,
market recovery is not expected until 2011 at the earliest, although even this
time period is in
question, given the deficit accrued by the
country’s national health insurance body (OEP). In July 2009
local
press announced that the OEP’s deficit in H109 topped HUF52.8bn
(US$307mn), some HUF48.4bn
over its original target. The revenue achieved
in H109 fell short of expectations by 4.5%, with
reimbursement spending
overshooting the target by some 10%. The only positive result was achieved
through the much-contested 12% tax contribution collected from pharmaceutical
companies and
distributors, which topped the target by 28.8%.
Around
the same time, the government debated amendments to the controversial 12% tax
– applicable to
company revenues from state-subsidised drugs –
which has already severely hampered foreign direct
investment (FDI) in
Hungary. The potential changes would allow drugmakers to deduct up to 20%
of
research and development (R&D) costs from the tax, rising to 100% in
2010. BMI believes that if
approved, the legislation may have some
positive effect on pharmaceutical FDI, but we note that much
more would
need to be done in order to result in a major influx of investment into the
country, given the
drastic effects of reimbursement cuts in recent
years.
In the meantime, the news from the pharmaceutical industry was of a
mixed nature. One of the leading
local companies, Egis, unveiled that its
revenue growth in 2010 should increase as a result of focusing on
exports,
particularly to Turkey, as Hungarian companies increasingly prioritise foreign
markets. The other
major Hungarian drugmaker, Gedeon Richter, announced
that it expects flat domestic and Romanian
sales, and lower sales in all
of its other markets, bar Poland and the US. The state has recently secured
a
25% plus one share stake in Richter after the government chose to pay
off EUR639mn (US$886mn)
worth of convertible bonds at expiry, instead of
converting them into shares. The move will considerably
limit the chances
for a takeover of Richter, which could have been viewed as a possible target
for Big
Pharma, although potential foreign backing during the current
challenging times could have been seen as
beneficial to the local
stalwart.
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