More optimistic outlook for pharmacy market

The Polish pharmacy market is poised to grow faster in the years 2017-2019 than seemed likely two years ago, thanks to factors such as persistently high incidence of respiratory infections, rapid GDP growth in 2017, and the coming into force of the “Pharmacies for pharmacists” law, according to a new report from PMR “Pharmaceutical distribution in Poland 2017. Market analysis and development forecasts for 2017-2022”.

Market growth driven by OTC segment

The primary driver of pharmacy market growth in Poland in 2016 were over-the-counter sales. Several factors contributed to the strong OTC segment performance, notably a marked rise in respiratory infections and new product launches and Rx-to-OTC switches.

Sales of prescription drugs, and especially reimbursed drugs, grew at a more modest pace over this period, held back by a government policy focused on extracting selling-price reductions from pharmaceutical firms.

This trend continued in the first months of 2017, with pharmacy market growth driven by OTC product sales fuelled by further increases in respiratory infections levels.

In terms of distribution channels, pharmacy market growth was concentrated in chain pharmacies, which enjoy a number of advantages over their independent peers: they are able to extract better price terms from wholesalers, tend to have larger marketing budgets, and are in many cases more attractively located.

“Pharmacies for pharmacists” law to aid pharmacy market value growth

In mid-2017 a Pharmaceutical Law amendment came into effect – commonly referred to as the “Pharmacies for pharmacists” act – that restricted further expansion of pharmacy chains, however. In our view, the change could lead to faster pharmacy market value growth in a several years’ perspective by making it easier for drug manufacturers and pharmaceutical wholesalers to raise prices. Pharmacy chains, by virtue of their scale, have been exerting strong downward pressure on their suppliers’ prices, but the new regulations will stop their ascendancy, whereas the market position of independent pharmacies – which are (not) always able to extract rebates – will improve to an extent.

With respect to macroeconomic factors, GDP growth in Poland is projected to accelerate to about 3.8% in 2017, and while growth will ease back in the subsequent years, the economy will keep expanding by around 3% throughout the remainder of the forecast period. The robust economic growth will be driven by strong household consumption underpinned by positive labour market conditions (i.e., low and falling unemployment and rapidly rising wages). We also predict a gradual acceleration of inflation, which is likely to move close to the central bank’s target rate in 2019. The demographic factor, i.e. the shrinking working-age and pre-working age populations and the expanding post-working age population, will also be important.

The strong macroeconomic fundamentals, i.e. high household consumption growth, good labour market conditions, and rising disposable incomes (additionally supported by the Rodzina 500+ programme) will have a significant positive influence on pharmacy market value.

The rate of consumption and wage growth, though, will soften gradually over the forecast period, according to our projections. The downward trend in the jobless rate will level off and the number of people in employment will start to decline.