Argentina Pharmaceuticals and Healthcare Report Q3 2012

BMI View: The attractiveness of Argentina’s pharmaceutical market to drug companies is deteriorating due to the country’s unsustainable macroeconomic trajectory and the resurgence of nationalism. The double-digit growth rates forecast over the five years through to 2016 are mainly driven by inflationary pressure, even though demand continues to grow. The intellectual property (IP) regime’s shortcomings and especially the government’s support for state-operated domestic drugmakers remain a threat to multinational pharmaceutical companies.

Headline Expenditure Projections

Pharmaceuticals: ARS37.91bn (US$7.58bn) in 2011 to ARS45.35bn (US$7.75bn) in 2012; +19.6% in local currency terms and +2.2% in US dollar terms. The US dollar forecast has increased since Q212 due to exchange rate fluctuations.

Healthcare: ARS161.41bn (US$32.28bn) in 2011 to ARS187.77bn (US$32.08bn) in 2012; +16.3% in local currency terms and -0.6% in US dollar terms. Absolute historical numbers have decreased slightly from Q212 due to new data.

Medical devices: ARS3.85bn (US$769mn) in 2011 to ARS4.65bn (US$794mn) in 2012; +20.9% in local currency terms and +3.3% in US dollar terms. Forecast up slightly from Q212 due to macroeconomic factors.

Risk/Reward Rating: Argentina again remains eighth in BMI’s Pharmaceutical Risk/Reward Ratings (RRRs) for the Americas in Q312 out of the 17 countries surveyed in the region. The country’s composite score of 52.2 out of 100 is mostly propped up by its favourable rewards profile, including the forecast steady annual growth of the pharmaceutical market’s value. Argentina’s risks will remain elevated on account of the persistent shortcomings of its IP regime and pharmaceutical pricing and procurement environment. Argentina has a quickly deteriorating business environment and there has been a resurgence of nationalism, which are factors that will deter interest in the market. The value of Argentina’s pharmaceutical market is expected to grow at double-digit rates through to 2016 in local currency terms, though this is largely due to inflationary pressure.

Key Trends And Developments

In March 2012, Corporación Farmacéutica Recalcine invested US$20mn in a facility at the Pilar Industrial Park in Argentina. The new manufacturing plant will have initial capacity to produce 50mn units of injectable oncology drugs a year. The products, which are 20% cheaper than those from multinationals, will be distributed in Argentina and abroad. They will generate estimated revenue of US$20-30mn a year.

In February 2012, the National Administration of Drugs, Food and Medical Technology (ANMAT) proposed a national pharmaceutical traceability scheme. This would allow full tracking of the medicine supply chain, from production to dispensation, to tackle the issues of counterfeit, stolen, unlicensed and other illegal medicines.

In February 2012, the Minister of Health for Santa Fe province, Miguel Angel Cappiello, said Laboratorio Industrial Farmacéutico (LIF) will produce over 9.5mn paracetamol 500mg tablets to supply the Remediation Programme of the Nation. The production target aims to cover the entire needs of the province and is intended to provide relief from dengue fever symptoms. BMI believes the government’s plan will have limited success as a similar resolution for more public production was not enforced by the Ministry of Health in 2008. In addition, the new law will further prevent the market from arranging resources efficiently and will actually prevent low-cost drugs from reaching consumers, as competition between state-run and private pharmaceutical companies has been distorted.

In January 2012, French supermarket chain Carrefour completed the sale of its five pharmacies in Argentina to a group of independent pharmacists, four years after entering the market. The company’s ambitious plan of having a network of pharmacies and playing a significant role in the Argentine retail pharmacy sector was hindered by local laws and policies, which prevent pharmacy concentration in terms of geography and market share. BMI Economic View: Argentina’s unsustainable macroeconomic trajectory will continue to pose moderate risks to the country’s commercial banking sector. While low levels of penetration suggest financial institutions have great potential for growth in the country, we believe double-digit inflation and the government’s interventionist policies will continue to undermine the industry’s performance in the short term.

BMI Political View: Over the past few months, we have consistently highlighted that the government’s interventionist economic policies pose a significant risk to companies operating in strategic industries in the country, particularly in the oil and gas sector. While much of the attention so far has been focused on oil company YPF following reports that the authorities were discussing outright nationalisation of the company, we reiterate our view that risks remain elevated across the sector and the government could expand its reach to other players as well