Iran Pharmaceuticals and Healthcare Report Q3 2012

BMI View: The increasing international pressure on Iran as the country gets closer to obtaining nuclear capabilities means the latest round of financial sanctions is unlikely to be revised, even if they prevent Iran from receiving humanitarian products such as medicines. Specifically, new financial sanctions on Iran – including a ban on the interaction with Iranian ‘blacklisted’ banks – are severely inhibiting the country’s ability to pay for essential humanitarian goods. In the meantime, elevated inflation, which we forecast to come in at 26% at the end of 2012, continues to put downward pressure on purchasing power across the board.
Headline Expenditure Projections 􀂃 Pharmaceuticals: IRR35,045bn (US$3.26bn) in 2011 to IRR40,863bn (US$3.51bn) in 2012; +16.6% in local currency terms and +7.6% in US dollar terms. Forecast broadly unchanged from Q212.
􀂃 Healthcare: IRR284,277bn (US$26.44bn) in 2011 to IRR327,668bn (US$28.13bn) in 2012; +15.3% in local currency terms and +6.4% in US dollar terms. Forecast broadly unchanged from Q212.
􀂃 Medical devices: IRR9,688bn (US$901mn) in 2011 to IRR11,231bn (US$964mn) in 2012; +15.9% in local currency terms and +7.0% in US dollar terms. Forecast broadly unchanged from Q212.
Risk/Reward Rating: In BMI’s regional Pharmaceutical Risk/Reward Ratings (RRRs) for Q312, Iran remains 17th out of the 30 countries surveyed in the Middle East and Africa (MEA). Its composite score was 44.0 out of 100 again. The country’s risk profile remains elevated, negating some of the theoretical advantages offered by its large and growing population, most of which has adequate access to healthcare services.
Key Trends And Developments 􀂃 The latest financial sanctions could have a major impact on pharmaceutical trade if the lack of payment for medicines stops companies from importing pharmaceuticals to Iran. Representatives from US drugmakers Merck & Co and Pfizer told Reuters about problems in getting paid for supplies delivered to Iran, though the US exposure to the Iranian pharmaceutical market is relatively limited. European drugmakers, on the other hand, are likely to need to deal in larger sums and will therefore find it even harder to extract money from the country. The companies that will suffer most are the small and medium-sized enterprises (SMEs) that do not have the capital to absorb the cash flow problems.
􀂃 IRNA reported in March 2012 that production of anti-cancer drug paciltaxel has started in the northern city of Rasht. This is the first location in the Middle East to produce the drug. The production of paciltaxel, a mitotic inhibitor used as drug for chemotherapy, is expected to save Iran more than IRR140bn (US$11.5mn) a year.
BMI Economic View: Due to international sanctions negatively affecting oil revenues, which accounted for 53.0% of total revenues in FY2010/11, we project Iran’s economy to contract by 1.6% and 0.3% in 2012 and 2013 respectively. In addition, we do not see the government hiking taxes. President Mahmoud Ahmadinehad’s plans to raise value-added tax (VAT) in 2010 triggered protests and a repeat would be a dangerous manoeuvre at this stage. We estimate consumer price inflation (CPI) in Iran was 24.5% in FY2011/12 (fiscal year running from March 21 2011 to March 20 2012) and we forecast it to come in at 26.0% in FY2012/13. Sanctions and currency depreciation will trigger more pronounced imported inflationary pressure, while the government’s expansionary fiscal policies will also add to the upside price pressure.
BMI Political View: Although Iran’s Islamic regime has been resilient in the face of tremendous domestic and external pressure, we believe it cannot continue indefinitely. We expect regime change by 2020, either through gradual reform or a popular uprising. This change is very likely to lead to economic liberalisation, which could boost real GDP growth over the long term. For the time being, our core view sees Ahmadinejad becoming increasingly isolated until his term expires in 2013, paving the way for a candidate from Supreme Leader Ali Khamenei’s camp to win the next presidential election, though this could lead Tehran to adopt a more hardline foreign policy in the years ahead.