Balkan Pharma market overview

by Dragan Cirkovic, MPharm

Email: dragan.cirkovic@gmail.comMobile: +381 62 321 131; https://rs.linkedin.com/in/dragancirkovic

• 10 countries (excluding Greece and Turkey, including Slovenia);• Total population > 50 Million;• Total Pharma market > 7 billion EUR;• Markets still underdeveloped, and growth is to be expected;

What to expect• Development will not happen overnight and not with same speed/intensity on all markets;• Political stability, economic growth and EU integrations, HC system development crucial

factors;

What is the biggest disadvantage:• 10 markets means same number of drug agencies, MA approvals, MoHs, HIFs and other

stakeholders, different legislations, policies, timeframes etc.

Why Balkan?

A. Pharma market Serbia, structure and valueB. What is the situation in the region?C. Health Care Expenditures in the regionD. Pricing and referencing per countryE. WS & Pharmacy MarginsF. ConclusionsG. About me

PHARMA - RX 72.20%

OTC ; 14.80%

CONSUMER ; 13.00%

2015 Market, Rx Vs OTC Vs Consumer products

• Market growth 38% in Volume and 34% in Value in 5 years 2010-2015 • Out of pocket (OTC + Consumer) significantly increased share, jumping from 18.4% to 27.8% of total market in 5 years;• Next big increase expected in the following years with reimbursement restructuring and higher impact of Private

Healthcare Centers & Private Health Insurance.

Pharma market Serbia, structure and value

2010 2011 2012 2013 2014 2015 -

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

192,834 214,177 241,894 248,130 243,212 265,787

537,530

648,068 661,373 739,276 708,528 718,203

Market Value and Volume development 2010-2015

MARKET 000 Units Market KEUR

GENERIC DOMESTIC; 57%

GENERIC FOREIGN; 43%

2015 Generic, Domestic Vs Foreign share

Generic share (out of total Rx) decreased, both in Value (from 54.4% to 47.6% ) and volume (from 81.73% to 78.5% ) in 5 years.

Out of total Generic market, domestic Generics decreased share in volume from 78% to 68% in 5 years;

Value share for Domestic generics went down as well, from 71% to 57% of total Generic market.

2010 2011 2012 2013 2014 20150.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0 81.3 79.7 80.1 78.2 77.5 78.5

54.4 50.5 50.7 49.4 47.3 47.6

Generic share (%) out of total Rx market in Volume and Value 2010-2015

GENERIC Volume Linear (GENERIC Volume)GENERIC Value Linear (GENERIC Value)

Generic Market, Serbia

What is the situation in the region, market structure?

Bulgaria

Croatia

Romania

Slovenia

Serbia

0% 5% 10% 15% 20% 25% 30%

21%

12%

17%

10%

26%

OTC share in market value*

Bulgaria

Croatia

Romania

Slovenia

Serbia

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

36%

43%

30%

25%

35%

Generic share in market value*

*Serbia at WS price, share of generics in total market Sales, source IMS, Others at Ex-Factory price, source EFPIA: Croatia share of generics in pharmacy market sales; Bulgaria & Slovenia share of generics in reimbursable pharmacy market sales; Romania share of generics in total market sales.

*Romania Cegedim data Bulgaria & Serbia, IMS data (OTC + food supp. + consumer goods) Croatia & Slovenia, AESPG data

Population 2015

Total Pharma market 2014

mil.EUR

Local Pharma production,

mil.EUR

Unemployment Rate

Coruption index

Pharma R&D mil.EUR

Employment in pharma industry

(people)Serbia 7,114,393 708 230 14.4% 40 NA 10,000 Bulgaria 7,153,784 879 115 7.4% 41 NA 9,900 Croatia 4,225,316 630 412 12.7% 51 40 5,740 Romania 19,861,400 2,765 665 5.7% 46 180 21,000 Slovenia 2,064,188 537 872 7.6% 60 161 8,946

• Romanian market size is dominating the region but under high pressure because of restricting pricing policy and Claw-back taxes

• Bulgarian market have highest out of pocket share in total HCE.

• Slovenian Market closest to developed EU markets. Private Health insurance high share in Health Care Expenditures.

• Croatian Market is moving very fast toward very well regulated market, especially after Croatia joined EU. High VAT is affecting non reimbursed Rx.

• Serbian market mostly underdeveloped in the region, which is at the same time biggest strength as fast moving forward is expected in the following years. Changes in the reimbursement system, development of private practice and it’s relation with HIF, as well as expected development of private health insurance should have positive influence on the total Healthcare market.

What is the situation in the region?

Total population 2015

GDP per Capita (2015) US$ Nominal

Total HCE, Mill EUR

Hospital, Mill EUR

Ambulatory, Mill EUR

Health expenditure, total 2014 (% of GDP)

Out-of-pocket health expenditure 2014 (% of

total expenditure on health)

Serbia 7,114,393 5,235$ 3,234 1,230 613 10.3% 37%Bulgaria 7,153,784 6,993$ 3,640 1,269 520 8.4% 44%Croatia 4,225,316 11,536$ 2,886 1,054 630 7.8% 11%Romania 19,861,400 8,973$ 7,727 3,295 883 5.6% 19%Slovenia 2,064,188 20,727$ 3,189 1,288 711 9.2% 13%Slovakia 5,426,252 16,088$ 5,256 1,723 889 8.1% 23%Czech Republic 10,520,000 17,548$ 11,841 4,937 2,434 7.4% 14%Hungary 9,804,877 12,364$ 7,473 2,737 1,544 7.4% 27%Poland 38,574,555 12,555$ 25,987 9,118 6,787 6.4% 24%

Health Care Expenditures in the region

• High Out-of-pocket expenditures in Serbia and Bulgaria not related to private health insurance payouts, but to the prevalence of informal payments in the Serbian & Bulgarian healthcare systems, underfunding of healthcare expenditure by the state and transferring these expenses to the private HCE (patient expense);

• In Relative value, as a % of GDP, total HCE is in line or higher than in other EU countries, BUT in absolute values, HCE is still low due to low GDP Per Capita;

• Further increase in HCE should be expected with GDP development and Private insurance share increase (at this moment only Slovenia and partly Croatia have developed private insurance).

Pricing and referencing per country

• International price referencing present on all markets

• Each country have different referencing system:• Different countries in the basket• Different price as benchmark (exF, WS, Consumer)• Different calculation (average, lowest…)

• Romanian pricing policy makes prices in Romania as lowest or among lowest in the EU.• Additional issue in Romania is special rate used for drug price calculation (lower than realistic rate)

• As Bulgaria have Romania in the basket of reference countries, they are following every decrease that comes from Romanian pricing policy.

• OTC drugs are not subject of pricing policy or referencing.

• In Croatia, only reimbursed drugs are subject of referencing, in all other countries all Rx (reimbursed or non-reimbursed) are subject of referencing, with some options in Slovenia for non-reimbursed.

Reference countries basket Reference method Additional comment

Bulgaria Belgium, Czech Republic, Denmark, Estonia, Finland, France, Greece, Hungary, Italy, Latvia, Lithuania, Poland, Portugal, Romania, Slovakia, Slovenia, Spain

Lowest price out of 17 countries in the reference basket

To get reimbursement, product must be reimbursed in at least 5 of the listed 17 countries

RomaniaAustria, Belgium, Bulgaria, Czech Rep, Greece, Germany, Hungary, Italy, Lithuania, Poland, Slovakia, Spain

Minimum price in the reference basket, special rate published for reference price calculation (lower than actual rate)

Additionally internal referencing: Generic must not exceed 65% from the original's price

Serbia Slovenia, Italy, CroatiaAverage of three referent countries, special exchange rate for drugs (lower than actual rate)

Reimbursement price is set as minimum price from 3 referent countries (not average as for non-reimbursed)

Croatia Slovenia, Italy, FranceOnly for reimbursed drugs, 90% of average price. After patent expiration price is decreased to 65%

Non reimbursed drugs are not price regulated

Slovenia France, Germany, AustriaLowest from reference countries, or average from EU (if price is not available in some of 3 ref countries)

NHI can demand further decrease of the price in the reimbursement process via negotiation

Pricing, different referencing systems

* Pharmacy margin scale is valid only for non Reimbursed Rx.** VAT for Reimbursed drugs is 5%

Price approval in all 5 countries is based on national price referencing

procedure

CIP Price, EUR WS margin Pharmacy Margin VAT< 5 EUR 7% 20% 20%5-15 EUR 6% 18% 20%> 15 EUR 4% 16% 20%< 5 EUR 14% 24% 9%5-11 EUR 14% 20% 9%11-22 EUR 12% 16% 9%22-67 EUR 10% 12% 9%> 67 EUR EUR 6.7 EUR 7.8 9%< 2.4 6% 25% 10%2.4-4.8 6% 20% 10%4.8-9.6 6% 16% 10%9.6-65 6% 12% 10%> 65 6% EUR 7.7 10%

< 13.4 8.5% 35% 25%13.4-26.8 8.5% 30% 25%26.8-40.2 8.5% 25% 25%40.2-67 8.5% 20% 25%67-134 8.5% 15% 25%> 134 8.5% 10% 25%

Slovenia 0.5 EUR + 1.127% 20% 8.50%

Bulgaria

Romania

Serbia*

Croatia**

ExFactory

price

WS price

SerbiaCroatia

BulgariaRomania Slovenia

WS & Pharmacy Margins

0%

2%

4%

6%

8%

10%

12%

14%

16%

Bulgaria; 7%

Romania; 14%

Serbia; 6%

Slovenia*11.127%

Croatia; 8.5%

WS Margin, low cost drugs (<5 EUR ExW)

* Slovenia WS margin calculation 0.5EUR + 1.127% of CIP price. Margin in the graph is max margin in case price of the drug is 5 EURNote: only mandatory WS margins are presented

* Slovenia WS margin calculation 0.5EUR + 1.127% of CIP price. Margin in the graph is max margin in case price of the drug is 65 EUR

0%

2%

4%

6%

8%

10%

12%

Bulgaria; 4%

Romania; 10%

Serbia; 6%

Slovenia*; 1.9%

Croatia; 8.5%

WS Margin, medium cost drugs (= 65 EUR WS price)

For drugs with prices above medium level:• WS margin in Romania is fixed (6.7 EUR) and other 4 countries have same WS margin % as in the Medium price

graph

* Ceiling margin for Non-Reimbursed Rx drugs priced in segment 2.4-4.8 EUR** for non-reimbursed Rx

0%

5%

10%

15%

20%

25%

30%

35%

40%

Bulgaria; 20%Romania; 24%

Serbia*; 20%Slovenia; 20%

Croatia**; 35%

Pharmacy Margin, low cost drugs (<5 EUR ExW)

0%

5%

10%

15%

20%

25%

Bulgaria; 16%

Romania; 12%Serbia*12%

Slovenia; 20% Croatia**; 20%

Pharmacy Margins, medium cost drugs (= 65 EUR WS price)

* Ceiling margin for Non-Reimbursed Rx drugs priced in segment9.6-65 EUR** for non-reimbursed Rx.

For drugs with prices above medium level:• Pharma margin changes in Romania and Serbia to fixed values (7.7 EUR and 7,8 EUR) and in

Croatia goes down to 10%

• In Addition to 5 countries mentioned, there are 5 more Balkan countries with 11 mill population in total (Bosnia, Albania, Kosovo, Montenegro and Macedonia). Different strategies can be developed for presence in these countries.

Out of “5 big” markets:• Serbia as market to be developed in the near future and Romania with highest population and market value are two

most potential markets in the region.

• Croatia and especially Slovenia are most regulated markets in the region, potential lies in already developed market and ease of penetration, but as developed markets potential for growth is restricted.

• Bulgaria is somewhere between underdeveloped Serbia and well regulated Croatia, with excellent potential for development and growth but significant changes to be expected, especially in reimbursement system and Healthcare funding.

• OTC and Food supplements share are increasing on all markets, with difference in campaign expenses (from expensive to very expensive). Fast penetration of internet to the broad population is opening lot of opportunities for these segments.

Conclusion

About meDragan Cirkovic, MPharmLatest experience:

Aug 2009- Feb 2017, MEDA Pharma, Regional Country Manager for Balkan region

Establishing and developing representative offices in 5 countries and 3rd party partner business in the rest of the region;

PnL, budgeting and forecasting responsibility for all 10 markets, 46 FTEs;

Developing and maintaining national level distribution network in the region (20+ distributors and WS);

Market access, price referencing and local price approvals, tenders authorization;

Both Rx & OTC/ food supplement management;

Communication with local institutions, HIF, MoH, HC providers, Regulatory agencies;

Marketing & PR agencies cooperation, ATL/BTL campaigns, market research;

Talent development and retention during whole period of 7 years;

Successful business integration and portfolio management, MA’s transfer, stock management (as a consequence of frequent M&A as global development strategy in MEDA)

Net Sales and Margin growth during whole period of 7 years

Mobile: +381 62 321 131; Email: dragan.cirkovic@gmail.com LinkedIn https://rs.linkedin.com/in/dragancirkovic