According to Hospodarske noviny daily, the domestic consumption of drug packs fell by 5% y/y in the 9M06 period while in terms of value the drugs consumption is only slightly below the same period last year.
Our view: We believe that the y/y drop in the 9M06 period has been caused by a rather turbulent 1Q06 when drug consumption fell by almost 17% y/y due to several factors including an appointment of new healthcare minister which meant uncertainty regarding newly introduced budgets to GPs, lower reimbursements and degressive margins at pharmacies. The situation has been however stabilizing in the 2Q and 3Q, nevertheless we believe that the domestic drug consumption will show a contraction year-on-year for the full year 2006. As a result, Zentiva’s domestic sales should also show a single digit negative development for the full year 2006, however, we note that it is mostly Zentiva’s low margin – large volume drugs, which are effected most. This should effectively allow the company to restructure its portfolio and increase the share of high margin drugs in its domestic portfolio.