Latvia Pharmaceuticals and Healthcare Report Q2 2008

Latvia is the second-largest pharmaceutical market in the Baltics, just behind Lithuania, and significantly ahead of Estonia. In 2007, the market was worth around US$454mn, rising by 15% in relation to the previous year. In the coming year, broader economic worries and a lack of traction on healthcare policy will serve to hamper market growth.

The modernisation of the primary sector will continue to relieve pressure on hospitals, which were the key point of healthcare under the Soviet administration. Limited reimbursement coverage will result in higher patient contribution to the cost of pharmaceuticals, which will in turn encourage the use of generics. In addition, the government will continue promoting generics as a means of containing healthcare costs, with the segment forecast to represent some 38% of total market value by 2012, up from around 35% in 2007.

In the BMI Business Environment Ranking matrix for Q208, Latvia is in sixth position, up by three places in relation to the previous period. The country is ranked below Estonia, but above Lithuania, the other two Baltic states, among the 16 key pharmaceutical markets of Central and Eastern Europe (CEE).

Positives include relatively insignificant market risks, given the high degree of patent protection and overall integration into the European Union (EU). On the other hand, the country's small and falling population numbers, relatively low per capita income of the population, corruption and limited reimbursement spending represent key barriers to investment.

Pressure on healthcare resources has been translated into the pharmaceutical field through restrictive reimbursement policies, although the pricing regime remains relatively liberal in comparison to its Baltic peers. In December 2007, however, Latvia's Health Ministry accused some drugmakers of selling their products at prices up to 30% higher in the country than in other EU states, which is likely to lead to stricter price negotiations. While drugmakers highlight the need to keep prices at profit-sustainable levels, the government will likely disregard much of their demands.

In the meantime, Latvian pharmaceutical champion Grindeks posted net profits of LVL7.2mn (US$13.8mn) for full-year 2007, some 8% higher than in the previous year. The group's turnover topped LVL51.5mn, up 9.3% year-on-year (y-o-y), boosted by strong sales of its key product, Mildronate.

Exports remain responsible for the bulk of its sales, with the company also reporting a 22% in the foreign sales of active pharmaceutical ingredients (APIs). Grindeks will continue to focus on exports as a means of circumventing the limitations of a small domestic market, although the company is also planning a launch of a number of new generic products in the country.