Venezuela Pharmaceuticals and Healthcare Report Q4 2010

Venezuela Pharmaceuticals and Healthcare Report Q4 2010

Original Source : Venezuela Pharmaceutical Market

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BMI forecasts a 3.8% year-on-year (y-o-y) contraction in Venezuelan real GDP for 2010,

owever, contrary to consensus we believe the worst of the recession has passed. Although the consumption and net export outlook remains weak, an uptick in government consumption and investment from China is likely to help push the economy towards our above-consensus projection of 3.2% y-o-y growth in 2011. Our Q410 Business Environment Ratings for the Americas continue to show that Venezuela's pharmaceutical market is one of the most challenging in the region. Venezuela finds itself with the third lowest overall rating as the operating environment for drugmakers remains suboptimal due to weak intellectual property laws and a political regime that regularly speaks out against private enterprise. On a global scale, Venezuela has dropped in BMI's Business Environment Ratings from 76th to 77th out of the 83 countries surveyed this quarter.

On the other hand, the structure of the country, with its fast growing urban population, creates an environment in which strong returns can be achieved, particularly in the generic drug sector. A rapidly growing population and the support for government funded healthcare programmes such as Barrio Adentro suggest positive long-term prospects.

This potential has not escaped the attention of some pharmaceutical companies that are seeking a low-cost base for entry and expansion in Latin America. In particular, mid-cap Indian generic drugmakers such as Glenmark Pharmaceuticals, Natco Pharma and JB Chemicals & Pharmaceuticals have expressed their intention to expand into the Venezuelan market. However, competition in the sector is likely to intensify, as South American drugmakers such as El Grupo Chemo and Eurofarma are already stepping up their presence in Venezuela.

BMI believes the Venezuelan government is likely to continue its policy to promote local pharmaceutical manufacturing to meet internal demand as much as possible, particularly after the recent diplomatic dispute between Venezuela and Colombia that has caused the collapse of the bilateral trade agreement between the two countries, valued at US$7bn per year. Other factors encouraging local manufacturing are the high levels of inflation and the forecast devaluation of the bolvar, which makes imported drugs increasingly less affordable.

The Venezuelan generic drug market was valued at VEB2.33bn (US$1.09bn) in 2009, accounting for 31.3% of the total market. By 2014, the market for generic medicines is expected to reach a value of VEB11.93bn (U$1.19bn), equating to a 38.58% compound annual growth rate (CAGR) in local currency terms or 1.81% in US dollar terms. In 2014, we anticipate that generics will account for 41.8% of the total market in terms of value, rising to 54.7% in 2019.

In contrast, revenue for patented drugs is expected to significantly decline over the next 10 years, reaching US$1.1bn by 2014 and contracting further to US$816mn by 2019, mainly due to high inflation and weakening consumer power. With this in mind, large multinational drugmakers will remain cautious over investments in Venezuela in the short and medium term.

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