Venezuela Pharmaceuticals and Healthcare Report Q3 2012

BMI View: Multinational pharmaceutical companies will benefit from Venezuela’s increasing reliance
on imported medicines to meet local demand due to the government’s attempts to regulate the country’s
pharmaceutical sector and foreign currency control, which have undermined the profits and capacity of
the domestic pharmaceutical industry. Basic medicines in the country are mainly imported from emerging
market-based suppliers, while innovative drugs are from developed states.
Headline Expenditure Projections
􀂃 Pharmaceuticals: VEF33.26bn (US$5.46bn) in 2011 to VEF41.15bn (US$6.06bn) in 2012;
+23.7% in local currency terms and +11% in US dollar terms. US forecast up due to new
macro data.
􀂃 Healthcare: VEF64.44bn (US$10.57bn) in 2011 to VEF77.90bn (US$11.47bn) in 2012;
+20.9% in local currency terms and +8.4% in US dollar terms. US forecast up due to new
macro data.
􀂃 Medical devices: VEF9.62bn (US$1.58bn) in 2011 to VEF11.66bn (US$1.72bn) in 2012;
+21.2% in local currency terms and 8.8% in US dollar terms. US forecast up due to new macro
data.
Risk/Reward Rating: BMI’s average Business Environment Rating for the Americas markets has been
reduced from 50.1 out of the maximum 100 points to 49.6 in Q312. Venezuela is ranked as the 15th most
attractive market, scoring 38 out of 100, below the regional average score of 49.6 and above only
Nicaragua and Honduras.
Key Trends & Developments:
􀂃 In May 2012, the Venezuelan Association of Distributors of Medical, Dental and Laboratory
Equipment (AVEDEM) said imports of medical device were frozen for three weeks because
local importers cannot purchase US dollars at the right time and foreign suppliers have
discontinued credit to Venezuela. Since the authorisation of US dollars for the companies
affiliated to AVEDEM stopped in early 2012, the debts accumulated are estimated to be
US$150mn. This has affected 97 companies in the sector and caused a significant shortage of
products in the market.
􀂃 In May 2012, Venezuela’s National Institute of Statistics reported that in the first quarter of 2012
medicine imports rose by 25% year-on-year to US$548mn. The majority of imported drugs were
from Cuba, Mexico, France, Brazil and the US. The government has imported the most
medicines from Cuba to cover the shortage of products for diabetes, thyroid conditions and other
Venezuela Pharmaceuticals & Healthcare Report Q3 2012
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basic therapeutic areas. The total value of drugs imported from Cuba was US$80.7mn, among
which were antibiotics, vitamins, penicillin and medicines for hypertension, thyroid, diabetes,
cancer and HIV. Mexico, ranking second, supplied US$61mn worth of medicines to Venezuela
in Q112. It was followed by France (US$44mn), Brazil (US$39.8mn) and the US (US$38.8mn).
Anti-cancer drugs and anti-retroviral medicines with a value of US$19.8mn were imported by
Venezuela in Q112, mainly from the US, India and Germany.
􀂃 In May 2012, the Venezuelan government took control of Orpin Farma Laboratories, which
manufactures concentrates for dialysis and haemodialysis, according to a decree published in the
Official State Gazette. The decision, which came from President Hugo Chávez and was endorsed
by the council of ministers, ends a process that began in October 2011 following an application
from pharmaceutical workers. The owners of the company filed for bankruptcy and sacked
workers following administrative problems that began in 2008. The Ministry of Health cancelled
the licence of the company after some of its products were found to be contaminated.
􀂃 In April 2012, German pharmaceutical firm Bayer secured a 31% growth in the Venezuelan
market, especially in its HealthCare division in 2011. Meanwhile, Bayer HealthCare will post
total turnover of 11% to more than EUR1.89bn (US$2.5bn) from Latin American nations,
including Venezuela. Additionally, the pharmaceutical industry recorded a growth of 12% and
concluded with sales of more than EUR1.15bn (US$1.5bn) in the region. The growth was
followed by a rise in consumer products or prescription medications with EUR516mn
(US$676.5mn) billed, EUR136mn (US$178.3mn) in the animal health field, EUR74mn
(US$97mn) in healthcare and EUR11mn (US$14.4mn) in other areas.
BMI Economic View: We are revising up our 2012 real GDP forecast for Venezuela from 2.5% to 3.5%
on the back of a very strong Q112 real GDP reading of 5.9%. Despite this revision, we maintain our view
that Venezuela''s current economic trajectory will not be sustained much beyond the October 2012
presidential election. Even the best case scenario – a smooth transition to power by the opposition
followed by a shift to more orthodox economic policy, both of which we see as unlikely – would imply a
painful economic adjustment process for Venezuela.
BMI Political View: Rising crime in Venezuela, combined with a potential deterioration in President
Hugo Chávez''s health, has increased the probability of an opposition victory at the ballot box. However,
we believe Chávez is still the favourite for October''s vote, and even if the opposition were to win the
elections, a shift to more orthodox economic policies remains very unlikely given the massive political
resistance in place.