The production of pharmaceuticals and raw materials for drugs in Hungary fell 3.6% year-on-year in the first eight months of 2005, according to official data. Output has been affected by structural pressure, as the country attempts to rapidly modernise its drug manufacturing industry. Part of the problem, according to market sources, lies in the fact that Hungary did not opt to have a "transitional" period, in which to harmonise pharmaceutical regulations with EU directives.

Fluctuating demand for exports is also having an effect, with overseas sales falling by 9.7%. This is set to cause further problems in the near future as Russia implements new legislation, terminating subsidies on imported pharmaceuticals. As a result, some leading drugmakers in Hungary are considering switching a portion of their annual production to Russia.

Overall sales for Hungarian drugmakers, through to August, declined by 6.4%, although domestic sales increased by 3.3%. The end of Hungary's drug price freeze in early 2005 has been responsible for the up-turn, although growth has been restricted by government cost-containment measures. These have included the introduction of retail and wholesale margins for expensive drugs in order to discourage over-prescribing. Under a new industry agreement, drugmakers will also help finance the government deficit for pharmaceutical spending.