Boston, MA -- (SBWIRE) -- 07/30/2013 -- While we remain of the opinion that Latvia's economy will continue to recover in 2013 and beyond, we are relatively cautious regarding the performance of its pharmaceutical market. For example, elevated unemployment will have a negative effect both on private and public (through lower tax revenues) spending on healthcare in general, particularly impacting services and treatments not covered by reimbursement. We note that private spending - of which the majority comprises out-of-pocket payments - accounts for over 40% of the total healthcare expenditure in the country.

Headline Expenditure Projections

- Pharmaceuticals: LVL218mn (US$391mn) in 2012 to LVL226mn (US$400mn) in 2013; +4.0% in local currency terms and +2.4% in US dollar terms. Forecast unchanged from previous quarter.
- Healthcare: LVL948mn (US$1.70bn) in 2012 to LVL997mn (US$1.76bn) in 2013; +5.2% in local currency terms and +3.5% in US dollar terms. Forecast down from previous quarter, on account of macroeconomic factors.

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Risk/Reward Rating: Having been ranked 13th in Q213, Latvia now occupies a less favourable 17th position out of the 20 countries surveyed in the Central and Eastern Europe (CEE) region. The new Risk and Reward assessment tool is more transparent and more sensitive in regards to potential rewards. Latvia's new composite Reward score is considerably lower than previously, indicating the country's limited potential in terms of its pharmaceutical market opportunities.

Key Trends And Developments

- In a bid to increase efficiency and reduce costs, Latvian pharmaceutical company JSC Olainfarm inaugurated its natural gas-based cogeneration plant, Olainfarm Energy in April 2013. The plant will be used for the production needs of Olainfarm Pharma (factory heating and hot water), in addition to revenue-generation through the sale of electricity under the AS Latvenenergo brand. In 2014, the company also plans to use the plant for cooling. The investment in the plant totalled around EUR2mn, of which 80% was provided by SEB Bank financing. Olainfarm Energy is 50%-owned by JSC Olainfarm.
- Latvian pharmaceutical company Grindeks registered a 5% year-on-year (y-o-y) rise in turnover during January-February 2013. The company's turnover reached LVL82.7mn (US$150.8mn) in 2012, up 18.8% year-on-year (y-o-y) from LVL13.1mn (US$23.8mn) recorded during 2011. The company also posted a 43.3% y-o-y rise in net profit related to its shareholders to LVL9.6mn (US$17.5mn) in 2012. The company is hoping to achieve LVL100mn (US$23.8mn) and LVL12mn (US$21.8mn) in turnover and profit respectively in 2013, which does not appear to be easily achievable on the basis of its most recent results. Nevertheless, Grindeks is reportedly negotiating the construction of a new manufacturing facility in Russia, which will operate as a subsidiary of Grindeks Rus.

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