BMI View: Despite a downgrade in our economic outlook for Serbia, BMI's expenditure projections for the pharmaceutical market for 2012-2015 are up moderately due to revisions to our previous expectation that drugmakers will take action to reduce their exposure in the market because of the unwanted risk of payment delays or incomplete payments. This follows news that on November 10 2011, the German firm Stada was officially informed by the Serbian embassy that the government has issued a letter of comfort for the payment of deliveries from drug manufacturers to government agencies.
BMI believes it is highly encouraging that the Serbian government has so clearly indicated it is willing to settle the liabilities of public agencies, such as the Serbian National Health Care Fund (RZZO), owed to drugmakers operating in the market. While this is positive, firms operating in Serbia will remain cautious until the government's actions match its words and the Ministry of Finance delivers suitable and substantial funds to cover these debts. While the disclosed message was sent to Stada, the language used indicates that the government is taking steps to settle public sector liabilities due to all drugmakers operating in the market.
Headline Expenditure Projections
- Pharmaceuticals: RSD67.07bn (US$860mn) in 2010 to RSD74.78bn (US$1.03bn) in 2011; +11.5% in local currency terms and +20.1% in US dollar terms. Forecast up from Q411 due to analyst modification.
- Healthcare: RSD293.11bn (US$3.76bn) in 2010 to RSD318.96bn (US$4.41bn) in 2011; +8.8% in local currency terms and +17.2% in US dollar terms. Forecast broadly unchanged from Q411.
- Medical devices: RSD15.54bn (US$199mn) in 2010 to RSD16.75bn (US$231mn) in 2011; +7.8% in local currency terms and +16.1% in US dollar terms. Forecast broadly unchanged from Q411.
Business Environment Rating: In BMI's BER matrix for Q112, Serbia's score is stable but its position dropped to 16th , out of the 20 key markets surveyed in CEE, due to moderately improved scores from Lithuania and Croatia, which now rank above the Serbia.
Key Trends & Developments
- To the relief of Stada, on November 10 2011 it was officially informed by the Serbian embassy that the government has issued a letter of comfort for the payment of deliveries from drug manufacturers to government agencies. The translated letter submitted to the firm said: 'The government of the Republic of Serbia guarantees the settlement of financial liabilities and/or outstanding receivables of drug manufacturers from the sale and the deliveries of drugs to government agencies pursuant to the applicable law of the Republic of Serbia in 2011, as well as for receivables from the sale and delivery to arise in the period 2012-2013.'
The letter also indicates that the government intended to start discussions with representatives of the pharmaceutical industry within 14 days to clarify the structure of the liability and the requirements for the settlement of the current outstanding receivables. It said: 'It is moreover confirmed that all government agencies - particularly, but not exclusively, the RZZO, state pharmacies, state hospitals, etc - will settle all financial liabilities and/or unpaid obligations from the sale and delivery of drugs to government agencies in 2011 and for the period 2012-2013 and will fulfil their financial obligations from the supplier-debtor relationship, as will be agreed with the Republic of Serbia.' The government has now commissioned the Ministry of Finance to include the necessary funds for the settlement of the liabilities of drug manufacturers into the budget in the course of consultations.
- In early November 2011, Anglo-Swedish multinational AstraZeneca said it received an indictment in August for alleged bribery in Serbia. Some local employees were accused of offering bribes to doctors at the Institute of Oncology and Radiology of Serbia. The company has filed several pending preliminary procedural objections to dismiss the allegation, an AstraZeneca spokesperson said. The announcement came when the company reported its earnings for Q311.
- Bulgarian pharmaceutical company Sopharma officially inaugurated its new tablet manufacturing plant in Belgrade, Serbia, on September 28 2011. The new plant involves an estimated investment of EUR8mn (US$10.82mn) and will employ 120 people. The company aims to boost its sales and presence across the eastern European region, mainly in the Baltic states, Poland, Belarus, Ukraine, Serbia, and Turkey and Greece, according to Sopharma's CEO and Owner Ognyan Donev.
- In September 2011, Svetlana Vukajlovic, the former director-general of the Republic Institute for Health Insurance (RZZO), along with directors of pharmaceutical manufacturers Jugohemija and Detap, was arrested, according to Serbian Interior Minister Ivica Dacic. Vukajlovic has been detained over suspicion that she abused her position in office during the procurement process of swine flu vaccines, Ivica added. Members of the Department for the Fight against Organized Crime, in collaboration with the Prosecution for Organized Crime, have made the arrest. A police investigation into more suspects in the case is continuing, Ivica said.
BMI Economic View: On the back of a downgrade to our growth trajectory for eurozone growth, we have revised Serbia's real GDP forecasts for 2011 and 2012 to 2.3% and 1.9% respectively, from 3.2% and 4.0% previously. The fundamentals of the economy remain relatively strong thanks to IMF-supervised macroeconomic stability, strong foreign direct investment (FDI) inflows and export competitiveness. However, rising economic headwinds originating in the eurozone are posing downside risks to our forecasts.
BMI Political View: the European Commission's recommendation on October 12 2011, for Serbia to gain EU candidate status is viewed as highly encouraging. The EU accession process is likely to act as a policy anchor and foster stronger FDI inflows over the coming years. We expect candidacy to be granted in December by the European Council, as tensions with Kosovo are expected to ease.
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Serbia Pharmaceuticals and Healthcare Report Q1 2012
