IHS Global Insight Perspective | |
Significance | Hungary's pharmaceutical industry grew by 12.5% year-on-year in 2009, with exports making up as much as 77% of the industry's revenue during the year. |
Implications | The ongoing quarterly system of reference-price tenders for generics in Hungary has resulted in an increase in imports of drugs to the country; at the same time, Hungarian pharmaceutical companies have increased their exports. |
Outlook | In the short-to-medium term, with the Hungarian national health insurance fund faced with an increasing deficit, and the recovery from recession taking longer than hoped, it is unlikely that there will be any great change in the tough pharma regulatory environment in the country; however, the industry is set to continue to grow, with major investment committed by both domestic and international companies operating in the country. |
According to the most recent information from Hungary's Central Statistical Office, the combined revenue of pharmaceutical companies operating in Hungary during 2009 increased by 12.5% year-on-year (y/y) to 565 billion forint (US$2.54 billion), reports Hungarian newspaper Vilaggazdasag. Of this total, exports accounted for as much as 434 billion forint, or 77%. The value of these exports rose by 12.4% y/y. The weakening forint was an important factor in the strong profitability of the Hungarian pharmaceutical industry in 2009.
Growth in a Difficult Environment
This growth was achieved in spite of the continuing tough regulatory environment in Hungary. The country's new right-wing government has adopted a similar line in its pharmaceutical policy to that of its predecessors, reports Vilaggazdasag, and is focused on increasing the use of generics in the country, as well as on reducing the prices of generics. The quarterly generic reference-price tenders organised by the Hungarian national health insurance fund (OEP) for the supply of generics—which most recently saw an average reduction of 2.4% in the price of over 240 drugs (see Hungary: 6 July 2010: Prices of More Than 240 Generics in Hungary Reduced by Average of 2.4%)—are having the effect of increasing imports of drugs into the country, according to the source. There is increasing consensus that the system is no longer sustainable, as once the prices of drugs fall below a certain level, companies will withdraw them from the market. Also, the 12% levy the government collects from the revenues of pharmaceutical companies selling their products in Hungary amounted to 42 billion forint in 2009.
Little Chance of Change
Despite the many complaints and criticisms from the pharma industry in Hungary, there is little chance that there will be a change in the government's stance, particularly in light of the fact that by the end of May, the OEP's accumulated deficit had already reached 43 billion forint. When the faltering nature of the Hungarian economy's recovery from recession is added to the picture, a change in the policy looks even more unlikely.
Hungarian Pharma Industry Set for Further Growth
In spite of this challenging regulatory environment, Hungary continues to attract considerable foreign investment in the pharmaceutical industry, as well as notable investment from domestic concerns. Consequently, reports Vilaggazdasag, the strong growth of the Hungarian pharmaceutical industry—including its export capabilities—is likely to continue in the coming years. Hungary's second largest domestic-owned pharma company, generics producer Egis, opened a new research and development centre in the country in January this year, which was followed by the opening of a new factory and packaging plant by world generics market leader, Israeli firm Teva (see Hungary - Israel: 16 July 2010: Teva Opens US$100-Mil. Pharmaceutical Packaging Plant in Hungary and Hungary - Israel: 27 April 2010: New Factory Opened by Teva in Hungary). Days after Teva opened its new packaging plant, U.S. generics major Mylan announced that it too would be opening a major packaging plant in Hungary (see United States - Hungary: 23 July 2010: Mylan to Set Up US$86.3-Mil. Packaging Plant in Hungary).
Teva Squeezes Hungarian Majors Out of Top Three
Meanwhile, according to data from IMS Health, quoted by Hungarian business news provider Marketing Pirula, Teva overtook Hungary's two main domestic pharma companies—generics producers Gedeon Richter and Egis—in terms of sales revenue in 2009. The largest company by sales on the Hungarian pharma market was Sanofi-Aventis (France), followed by Novartis (Switzerland), Teva, Gedeon Richter, and Egis.
Outlook and Implications
The pharmaceutical industry in Hungary continues to be a significant element of the country's economy, and its 12.5% growth rate should be seen in the context of the economic recession experienced in the country last year. Although the policies of successive Hungarian governments have indeed been challenging for the pharmaceutical industry, there has at the same time been substantial state investment in the industry in the form of subsidies to support the construction of new factories, for both international and Hungarian companies in the country. Additionally, the new Hungarian government has indicated that it intends to introduce policies that favour the two main Hungarian pharma companies, Richter and Egis; however, at this stage, concrete details of these policies are yet to emerge (see Hungary: 2 June 2010: Several New Innovative Medicines Included on Hungarian Drug Reimbursement List As Government Reveals Plans to Favour Local Drug Makers).
The increasing focus of both Richter and Egis on exports—particularly to Russia and the Commonwealth of Independent States—is spurred on by the Hungarian government's policies in the pharmaceutical market, particularly the generic reference-price tenders, which, as indicated above, have resulted in an increase in imports into the country. However, the OEP continues to expand the number of new innovative drugs on its reimbursement list, contributing to its increasing deficit. Generics represented only 46% of the Hungarian off-patent drug market by volume in 2009 though, according to IMS Health data, indicating that there is still a substantial potential for the growth of the generics market in the country.
With Hungary's economy set to improve this year and move out of recession next year, it remains to be seen whether the government will ease the pressure on generics producers, and lessen the impact of the reference-price tender system.