OTC in CEE: A way out of the regulatory jungle
Central and Eastern Europe (CEE) is often seen as a challenging regional market in terms of regulation, and, in general new innovative medicines approved centrally tend to arrive considerably later into the reimbursement systems of CEE countries than their counterparts in Western Europe.
However, another segment of the pharmaceutical market - over-the-counter (OTC) medicines - is growing dynamically, consistent with a global trend for OTC sales to grow faster in developing markets, as disposable income increases.
Pharma sees the opportunity
As well as this socioeconomic impetus, pharmaceutical companies operating in these countries have turned their focus to the OTC market segment in a strategic way. This is, to an extent, a response to the genericisation of many top-selling molecules, leading to considerable price cuts, and more generally, it is a response to an increasingly challenging regulatory environment. Major P&R reforms have been the norm in CEE countries in the past five years, and this has led some producers to step up their investment in their OTC offering, avoiding the stricter price controls and marketing restrictions.
Polish OTC sector developed early
The development of Poland's OTC sector (including dietary supplements) has been more accelerated than other countries in the region. Double-digit growth in OTC drug sales towards the end of the previous decade, however, came to a halt; although when the country's retail pharmaceutical market took a huge dive in 2012, as the Reimbursement Act came into force, the OTC sector continued to grow.
Poland is a major OTC market, not just in the CEE region, but in Europe as a whole. Polish market research organisation PharmaExpert reported that the value of the sale of all OTC preparations in 2014 amounted to PLN11.552 billion (USD2.925 billion; growth of 2.6% year-on-year), in retail prices, making it the largest single market segment in the retail sector, ahead of reimbursed prescription drugs (but not all prescription drugs taken together).
OTC growth outstrips pharma market growth in Hungary
In Hungary, OTC sales increased by 11% y/y in 2013, according to data from market research group Nielsen, reaching a value of HUF147 billion (USD511.455 million), and in 2014, according to IMS Health figures, they went up by 9.7% y/y. The overall pharmaceutical market in Hungary grew by only 3.7% y/y last year (and by just 2.1% y/y in 2013). The introduction of blind-bidding for public tenders in both of Hungary's reference-pricing systems has definitely been a factor in some producers' decisions to move more resources into OTC.
Romania's OTC sector shows spectacular growth in 2014-15
In Romania, growth in the OTC sector has been even more impressive in recent years. While in 2014 the Romanian pharma market grew as a whole by 6.8% y/y, to RON12.285 billion (USD2.990 billion), according to data from pharmaceutical market research company Cegedim, the value of the OTC market grew by 13.7%, to RON2.025 billion. Cegedim figures for the first three quarters of 2015 show that while the market as a whole declined in value by 1.2% y/y, sales of OTCs were up by 18.1% y/y.
Czech and Slovak OTC sector trends
Growth in the OTC sector in the Czech Republic is far from the spectacular levels seen in Romania, but as the overall value of the market declines, the OTC sector remains an outpost of growth. In 2013, sales of OTCs increased by 4.67% y/y according to data from the Institute of Health Information and Statistics of the Czech Republic, to CZK7.623 billion (USD309.457 million), while the overall pharmaceutical market declined in value in that year by 1.8%; in the period between 2010 and 2013, OTC sales increased by 10.04%, while the overall market increased by just 3.69% y/y. In neighbouring Slovakia, growth in OTC sales in 2013 was dynamic - up 17.7% y/y at EUR148.788, according Slovakia's National Health Information Centre; in 2014, however, OTC growth in Slovakia slowed to just 0.5% y/y.
Bulgaria's OTC market shows reasonable growth in spite of price freeze
Bulgaria has seen dynamic growth across the whole pharmaceutical market in the last few years; in 2014, it grew by 8.2% y/y to BGN2.7 billion (USD1.5 billion), while the OTC sector grew by 5.2% y/y. However, this should be seen in the context of a price-freeze imposed on a wide range of OTCs by the Bulgarian authorities, with the purpose of ensuring ongoing access to essential, commonly-used medicines. If and when this price freeze is lifted, the sector's value could grow more dynamically.
A strategic option
Generally, with the exception of the current situation in Bulgaria, prices of OTCs in CEE countries are unregulated, and they can be advertised freely, within defined boundaries. Increased levels of spending on advertising for OTCs can be seen across CEE markets, as producers seek to instil awareness of their brands in the populations of countries that are traditionally branded generics consumers. There are both multinationals and domestic producers getting involved - from Bayer, Sanofi and Egis in Poland, to domestically-owned PharmaS in Croatia. The market access environment is likely to remain challenging in these countries for the foreseeable future, and while this is the case, OTCs remain an attractive strategic option.
Brendan Melck is a life sciences analyst for IHS
Posted 21 December 2015
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