The outgoing Healthcare minister, David Rath, signed a new drug decree, which should come into force as of August 1. The decree should reduce reimbursement charges and is estimated to save cCZK2bn or 3% from the total amount spent on drugs in 2005 (CZK64.6bn). Pharmacies should also introduce so called degressive margin; i.e. higher margin on cheaper drugs and lower margin on more expensive drugs.
Our view: Drug reimbursements are set 2 or 3 times a year. It is not clear yet what impact will the decree have on the drug market and on Zentiva as such as the list of fully covered drugs has not been published yet. From the past experience, in general Zentiva should eventually benefit from lower reimbursement as its drugs are among the cheapest and the decree should be supportive foir generic producers. Also, the degresssive margin at pharmacies should support generic producers and pharmacists would be motivated to sell the cheaper drugs given the higher margin. We reiterate our Buy recommendation for Zentiva.