Portugal Pharmaceuticals and Healthcare Report Q1 2013

BMI View: Portugal's pharmaceutical and healthcare sector has been transformed since the interventionof the EU, IMF and ECB as part of the country's EUR78bn economic rescue package approved in May2011. The latest review states that Portugal has already made considerable savings in the healthcaresectors, with changes such as the introduction of e-prescriptions and prescribing by active ingredients,changes to reference pricing, reductions in pharmacy margins and price cuts just some of the measures inplace. The impact on the market has been widespread. Spending has been slashed and both domestic andmultinational pharmaceutical firms have seen their profits shrink. Data recently published by Infarmedshow that Portugal has dropped from hosting 138 clinical trials in 2008 to just 87 in 2011, suggesting thecountry is losing its appeal as a location for research and development (R&D). Drug shortages inpharmacies are also commonplace, with a study published by Apifarma in October 2012 suggesting thatparallel exports are partly to blame.

Headline Expenditure Projections

Pharmaceuticals: EUR4.47bn (US$6.21bn) in 2011 to EUR4.24bn (US$5.39bn) in 2012; -5.1%in local currency and -13.3% in US dollar terms. Forecast raised slightly from Q412 becauseof new historical data.

Healthcare: EUR19.59bn (US$27.22bn) in 2011 to EUR20.16bn (US$25.60bn) in 2012; +2.9%in local currency and -6.0% in US dollar terms. Forecast raised from Q412 because of newhistorical data.

Medical Devices: EUR740mn (US$1.03bn) in 2011 to EUR763mn (US$0.97bn) in 2012;+3.1% in local currency and -5.8% in US dollar terms. Forecast unchanged from Q412.

Risk/Rewards Rating: Portugal's score of 58.6 in Q113 places it at the bottom of the PharmaceuticalRisk/Reward Ratings (RRRs) table for Western Europe. The impact of cost cutting and austerity measuresas part of the EU/IMF/ECB's three-year economic adjustment package, which was approved in May2011, is taking its toll on the pharmaceutical and healthcare sector and, while Portugal is on target to meetits healthcare sector goals, we are not forecasting a return to growth in terms of pharmaceutical sales untilthe end of our 10-year forecast period.

Key Trends & Developments

Apifarma published a study in October 2012 that claims that parallel exports are one of the maincauses behind drug shortages in pharmacies; it believes that wholesalers prefer to export drugs asthis generates greater revenues.

One of the few growth areas in Portugal's pharmaceuticals market is the sale of OTC drugs inmass market outlets. Data from Infarmed for H112 show that sales increased by 6.1% y-o-ycompared to H111, climbing to EUR15.3mn.

In October 2012, Portugal's Doctors' Guild claimed that the introduction of obligatoryprescribing by active ingredient has not led to an increase of the market share of generic drugs inPortugal, which remained stable at around 25%.

BMI Economic View: We forecast the Portuguese economy to contract by 3.4% in 2012 and by 1.7% in2013 in real GDP terms. The country's aggressive fiscal consolidation drive as part of its EUR78bnIMF/EU bailout package will keep domestic demand under significant pressure in the coming years. Theonly positive contributor to economic growth will emanate from the net exports component of GDP byexpenditure. We also highlight balanced risks to our economic growth forecasts in Portugal.

BMI Political View: Portugal's government voted on its 2013 budget at the end of October 2012. Thegovernment has committed the country to additional spending cuts and increases in taxes - a move that isvery unpopular with voters, but is essential if the government is to keep to the terms of its economicbailout package.