Market Report, "Slovenia Pharmaceuticals & Healthcare Report Q2 2016", published

Krka's exposure to Eastern European markets will continue to act as a drag on revenue growth. However, strong sales growth in Western Europe will mitigate the impact of revenue declines for the short term. We expect a continued focus on cost containment by European healthcare payers to moderate Krka's growth outlook over the longer term, unless the company looks to geographically diversify its exposure.

Headline Expenditure Projections

Pharmaceuticals: EUR671mn (USD745mn) in 2015 to EUR645mn (USD690mn) in 2016; -3.9% in local currency terms and -7.3% in US dollar terms. Forecasts revised downwards compared to previous quarter.
Healthcare: EUR3.22bn (USD3.58bn) in 2015 to EUR3.25bn (USD3.48bn) in 2016; 0.9% in local currency terms and -2.8% in US dollar terms. Forecasts revised slightly downwards compared to previous quarter .

Full Report Details at
- http://www.fastmr.com/prod/1130994_slovenia_pharmaceuticals.aspx?afid=301

BMI Risk/Reward Index

Slovenia scores 56.0 out of a total of 100 in our Pharmaceutical Risk/Reward Index for Q216, up to 9th place from 11th place in the previous quarter. Slovenia scores above the average for the region, which is 52.6.

Key Trends And Developments

Krka has reported its total sales for 9M15 of EUR863.3mn (USD962.7mn), ended September 30 2015, were flat compared to 9M14. The firm commented that sales increased by 6% in terms of quantity of products sold, but the smaller increase in revenues was the result of declining prices of pharmaceuticals and depreciation of certain key currencies. Despite the lacklustre sales performance, Krka's profit for the period rose by 4.7%, from EUR127.4mn for 9M14 to EUR133.3mn (USD148.7mn).

In December, Swiss drugmaker Novartis' Slovenian subsidiary Lek stated that high labour costs in Slovenia are reducing the competitiveness of the business within the international company. 'We urgently need a serious tax reform that will reduce labour costs in a way that will stimulate the employment of top experts,' Lek said (Reuters). In 2013, the government increased personal income tax on annual net wages of above EUR71,000 (USD76,740) to 50% from 41%.

In November, Krka's Notol 2 solid dosage forms production plant has been opened at the firm's main location in Slovenia. The investment in the plant is worth EUR200m (USD215.7mn) and provides Krka with new capacities that will enable it to control the entire production process from development to production of raw materials and finished products.

BMI Economic View

Falling oil prices will help to increase Slovenia's already large current account surplus. Although the surplus in part reflects the weak state of domestic demand, it will help to reduce the large negative net international position accrued across the last decade.

BMI Political View

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