Argentina Pharmaceuticals and Healthcare Report Q3 2008

BMI has upgraded its 2008 growth forecast for the Argentine pharmaceutical market slightly, with an 8.6% US dollar and 10.0% local currency growth forecast and total market value predicted to reach US$3.23bn. Going forward, BMI's updated and improved five-year forecast sees 10.1% average annual growth in local currency and 9.99% average annual growth in US dollar terms through 2012. While we have upgraded our long-term market valuation in line with our improved forecasting model, we see a number of critical factors holding back the market's growth potential.

The strength of the broader Argentine economy has been crucial in lifting the pharmaceutical market in recent years, despite continued price controls on medicines under President Cristina Fernndez since she took office in December 2007. But in the first half of 2008, the economy showed signs of overheating, with the peso weakening and inflation surging. A damaging and ongoing strike by the nation's farmers threatens growth, which BMI now forecasts at 6.0% in 2008, slowing markedly to 3.9% in 2009.

Meanwhile, spiking energy prices and some shortages are pushing up costs for both consumers and local pharmaceutical manufacturers. Some analysts now say that real 2007 inflation could be as much as double the official 9% rate reported by statistic bureau INDEC. Adding to these woes are demands for wage increases by public health workers as well as some local work stoppages.

As the economy slips, the structural and regulatory flaws in the Argentine market will become even more apparent. According to INDEC, the domestic industry increased exports by 32.7% year-on-year (y-o-y) in 2007, with industry group COOPERLA reporting a 62% jump, as local manufacturers took advantage of the relative weakness of the peso versus other regional currencies. But while the domestic market grew by 14.2% in final retail price terms in 2007 according to BMI - and by 18.8% in manufacturers prices according to INDEC - poor intellectual property (IP) protections and the continued use of 'voluntary' price control mechanisms by the new administration limit the ability of multinational drugmakers to benefit from the current growth momentum.

In early May, a senior manager at US firm Eli Lilly was quoted by local media as saying that it was looking elsewhere for growth in the absence of robust patent laws and tolerance of copy drugs by the Argentine authorities. Among those few foreign companies committing to the markets is smaller Spanish generics and contract drug maker, Q-Pharma, which reportedly plans to build a new facility.

Unsurprisingly, Argentina features as one of the nine countries on the US Trade Representative's Priority Watch List published in April 2008, and the market continues to rank seventh out of the 10 major pharmaceutical markets in the Americas in BMI's latest Business Environment Rankings (BER).