Sylvia Miriyam Findlay, Industry Analyst, Pharmaceutical and Biotechnology - Healthcare EMEA

The Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovak Republic and Slovenia are the new Central and Eastern European (CEE) countries. The pharmaceutical market in these countries has been relatively small when compared to the Western European countries. In 2006, the pharmaceutical market in CEE countries has been estimated to be $9.20 billion. It has grown rapidly over the past few years and is likely to reach around $14.00 billion by 2010.

Strengths…

Central and Eastern European countries are becoming hot-spots for pharmaceutical research. Countries such as the Czech Republic and Hungary have many universities and research institutes focussing on life sciences. In addition, numerous local biotechnology companies such as Clone star biotech, Exbio and global pharmaceutical companies such as Baxter are targeting the hidden market potential. The pharmaceutical R&D structure in the CEE is likely to improve in the coming years mainly because of the low cost manufacturing in these countries. At present, labour costs are very low when compared to the other EU countries. This situation is expected to attract foreign investors in pharmaceutical research. CEE countries boast qualified medical practitioners who are willing to conduct clinical studies. Patient recruitment for clinical trials is yet another positive factor for the CEE countries. The homogenous patient base coupled with the high treatment compliance rates of patients makes it easier to recruit patients for clinical trials. As the clinical trial results comply with the EU regulations, more pharmaceutical companies are now focussing on conducting research in the CEE countries. The quantity of research that was conducted in these countries has increased dramatically and currently Poland, Hungary and Czech Republic host around 950 studies altogether on an annual basis.

Healthcare reformations are under way in the CEE countries. Healthcare expenditures still remain lower compared to the Western European countries. Though the epidemiology and demography are similar to Western European countries, it has been observed that infant mortality, and general mortality rates from major diseases and agerelated diseases are higher in CEE countries. The rising healthcare burden is currently weighing down the government and urgent healthcare reforms are required to meet the demands. Moreover, efficient healthcare financing is the prime challenge facing the healthcare market in CEE. These countries are dominated by public healthcare financing and they are yet to strike a balance between the public and private funding.

Opportunities…

The pharmaceutical market in the CEE is dominated by three countries – Poland, Hungary and Czech Republic. The cardiovascular market is today the most significant therapy area in the CEE. Frost & Sullivan believes that the Baltic States have a high potential for registering growth in this therapy in the coming years. The increase in demand for cardiovascular treatment due to increasing mortality rates is the prime driving factor for this market. However, high levels of genericisation reduce the market growth in this therapeutic area.

For now, the Central Nervous System (CNS) represents the second largest therapeutic area. The higher incidence of CNS disorders provides the impetus for growth in this sector. Cancer therapeutics has also been noted to have experienced strong growth in the CEE. The increased demand for innovative medicines has propelled the growth of the cancer, respiratory and anti-infectives market segments. The cardiovascular and the CNS markets, coupled with the cancer segment, are likely to experience considerable growth in the coming years. By 2011, it estimated that these three therapeutic areas are likely to constitute around 60.0 per cent of the pharmaceutical market.

The pharmaceutical market for generic drugs is likely to dominate over the branded drugs in the CEE. Although the demand for branded drugs is increasing, generics have been estimated to account for 70.0 per cent of the prescription sales in most of the CEE especially Poland, Hungary and Czech Republic. The CEE countries encourage the use of generics to curb rising healthcare costs. As domestic generics are widely available in the CEE countries, generic substitution is likely to gain popularity.

However…

Doing business in CEE countries has its own risks. Not all countries have implemented all the EU rules and regulations, especially the rules governing intellectual property.

Corruption is still a major issue in these countries and it is essential for new entrants to thoroughly analyse potential business partners before venturing into any business deals.

Pharmaceutical expenditure has been curtailed because of price and reimbursement controls. Stringent reference policies and reimbursement lists prevail in all the CEE countries that regulate the pricing of pharmaceuticals and thereby reduce co-payments from patients. Pharmaceutical companies entering the CEE have to obtain marketing approval through the mutual recognition procedure (MRP) and the centralised procedure. This is a major obstacle for the new entrants or generic players. In addition, the threat of parallel importing is a continuing issue and is likely to undermine the growth of the pharmaceutical market in the CEE.

The Future

Central and European countries such as Poland, Hungary and the Czech Republic are thought to hold a promising future. The pharmaceutical industry is likely to grow in these countries mainly driven by the demand for innoavtive drugs and the increasing patient base. Increasing R&D costs are driving big pharmaceutical  and biotechnology companies to look for cost-effective destinations and it is for sure that CEE countries figure on top of the list. Though it is likely to take some time to iron overcome the challenges in Eastern Europe, the pharmaceutical industry in these countries is anticipated to experience significant growth in the future.

This article originates from Frost and Sullivan