Industry Trend Analysis - High Generic Medicine Growth Potential In Central & Eastern Europe - MAY 2017

BMI View: The growing pressure on healthcare payers acro ss Europe will lead to an outperformance of generic medicine sales with respect to the wider market. The Western Europe generic market will remain significantly larger in value terms over our forecast period; however , the Central and Eastern European market represents higher sales potential given the emphasis on the expansion of healthcare access.

Across Europe, multinational pharmaceutical firms will face challenges due to increasingly aggressive cost-containment measures from healthcare payers. Medicine consumption will continue to rise as demographic trends drive up the prevalence of chronic disease and healthcare access expands in Eastern Europe, placing a growing burden on limited healthcare budgets. Consequently, we have noted a rising trend of cost-efficiency in medicine expenditure, exemplified by generic substitution policies. Here we analyse the generic medicine market in Europe and assess opportunities for pharmaceutical firms.

As previously highlighted, the markets of Western Europe are far more receptive to patented medicines than those in Central and Eastern Europe (CEE) on account of higher purchasing power ( see ' Patented And Generic Drugmaker Prospects Vary Across The Region ' , February 28 2017). In addition to an inability to afford large quantities of high-value innovative drugs, the regulatory development of CEE markets is inferior to that of their Western European counterparts and is therefore less attractive to patented drugmakers. By consequence, generic medicine uptake is significantly higher in the CEE region.

Preference For Generic Medicines In CEE
Generic Medicine Sales Market Share (%)
Note: Red = Western European markets; Navy = CEE markets. Source: BMI

We note that Greece, Romania, the Netherlands and the UK are outliers to this general trend. The high usage of patented medicines, on account of a lack of trust in non-branded generic medicines, is a long-standing issue that continues to undermine the Greek healthcare system. Despite repeated attempts to increase generic medicine uptake in place of innovative drugs (generic substitution), the rate of patented medicine prescription remains very high. While Romania has a rate of patented medicine uptake similar to its other Central European counterparts peers, its non-prescription drug market is considerably larger, leading to a repressed generic medicine market. The government has sought to address this high rate of self-medication through the restriction of over-the-counter (OTC) medicine advertising.

The UK and the Netherlands have the highest levels of generic medicine use in Western Europe (26.3% and 27.1% respectively). Both of these countries have for many years implemented generic substitution policies whereby patients are dispensed a generic equivalent medicine wherever possible, leading to significant cost-saving for healthcare payers.

High Growth Prospects In Emerging Europe

The CEE pharmaceutical market is considerably underdeveloped compared to Western Europe. This is highlighted by the high levels of generic medicine use as well as pharmaceutical expenditure per capita ( see map below). By consequence, the region holds a high degree of potential for multinational pharmaceutical revenue growth. Pharmaceutical legislation will advance towards the standards seen in Western Europe as governments seek to increase access to higher quality medicines ( see 'Pharmaceuticals & Healthcare Outlook For 2017: Central And Eastern Europe', November 23 2016); however, purchasing power will be the limiting factor for patented medicine sales growth. Given the region-wide efforts to expand access of healthcare services beyond urban areas to the entire population, generic medicines will increase their dominance of market share in volume terms. The total pharmaceutical market of the CEE region is forecast to expand from EUR56.0bn (USD61.4bn) in 2016 to EUR80.6bn (USD80.6bn) in 2021 with a local currency five-year compound annual growth rate (CAGR) of 7.6% (5.6% in US dollar terms). The CEE generic medicine market is forecast to expand with a five-year CAGR of 8.7% in local currency terms (6.7% in US dollar terms) between 2016 and 2021, from EUR21.2 (USD23.2bn) to EUR32.1bn (USD32.1bn). As such, generic medicines will account for 39.9% of total medicine sales by 2021, up from 37.8% in 2016.

Expenditure Disparity Highlights Growth Potential
Total Pharmaceutical Expenditure Per Capita (USD)
Note: Grey = no data available. Source: BMI

Repressed Growth Yet Significant Market

Cost-containment initiatives within pharmaceutical expenditure will be particularly prominent in Western Europe, posing headwinds to drugmaker revenues, exemplified by aggressive pricing controls in Germany that have led to a number of medicines being pulled from the market ( see ' Pharmaceuticals & Healthcare Outlook for 2017: Western Europe ' , November 29 2016). Growth of Western Europe's pharmaceutical market is therefore anticipated to be sluggish over the coming years, rising from EUR227.2bn (USD243.1bn) in 2017 to EUR249.4bn (USD249.4bn) in 2021, with a five-year local currency CAGR of 1.9% (0.5% in US dollar terms). Given the effectiveness of generic substitution policies in reducing pharmaceutical expenditure without lowering the availability of medicines, the generic drug sub-sector will outperform, growing with a five-year local currency CAGR of 4.0% (2.6% in US dollar terms) between 2017 and 2021. Generic market share will increase from 18.1% to 20.1% over the same time period.

We note that while the Western European generic market will remain more lucrative in absolute terms, the CEE generic market represents far higher growth potential. The generic market size difference will narrow over the coming years, from EUR19.9bn (USD20.8bn) in 2016 to EUR13.0bn (USD11.8bn) by 2026.