Industry Trend Analysis - High Inflation Masks Drugmaker Challenges - OCT 2017

BMI View: Argentina will remain a key market in the Latin America region ; however , the outlook will be masked by the implications of the high inflation environment. Medicine accessibility will be reduced and the potential for further price controls may repress sales growth. While economic reforms will reduce these issues, access to innovative medicines will remain supressed due to regulatory issues, compounded by changes to reimbursement.

Argentina's pharmaceutical market is forecast to expand by 21.0% in 2017 in local currency terms, reaching ARS97.1bn (USD6.52bn). By 2021, the market is forecast to reach ARS159.2bn (USD12.25bn) at a five-year local currency compound annual growth rate (CAGR) of 14.7% (17.7% in US dollar terms). Over the extended 2016-2026 forecast period, it will grow at a CAGR of 12.3% in local currency terms and 12.6% in US dollar terms to ARS257.1bn (USD19.44bn).

With a per capita expenditure of USD124 in 2016, Argentina's pharmaceutical market is one of the most advanced in the Latin America region. We note that this level of expenditure is negligible relative to developed markets, reflecting the country's emerging market status; however, per capita spending is forecast to increase to USD406 by 2026, indicating significant growth opportunities. We note that the high inflation environment in Argentina will be a primary driver of this growth, largely masking a less positive outlook for the market. Argentina's pharmaceutical market is forecast to expand at a CAGR of 4.73% between 2016 and 2026 in real terms.

Inflation Driving High Market Growth
Argentina: Pharmaceutical Market Outlook
f = BMI forecast. Source: AAPM (Associacion Agentes de Propaganda Medica), AESGP, BMI

We have previously highlighted the impact of high inflation on Argentina's pharmaceutical market, principally the introduction of price controls by the Mauricio Macri government, as well as the rise in black market activity in the commerce of medicines. While BMI's Country Risk team highlight that the government's liberal reform agenda will improve the macroeconomic environment in the country, we note that the potential for further price controls will create additional challenges to drugmakers ( see ' Pharmaceutical Outlook Contingent Upon Liberalist Reforms ' , June 22).

Over the short term, the high-inflation environment will continue to place pressure on medicine affordability. This will be compounded by cost-saving measures imposed by the Programa de Atencion Medica Integral (Comprehensive Medical Attention Programme, PAMI). PAMI has terminated its contract with pharmaceutical firms and proposed a new arrangement in order to reduce the monthly deficit between its budget and expenditure; its annual deficit currently stands at ARS900mn (USD51.89mn) according to the head of PAMI, Sergio Cassinotti. In order to reduce this deficit, PAMI will restrict full reimbursement of medicines to the elderly, which will affect approximately 5mn citizens who will be left without coverage for high-value innovative medicines. We note that the cost of many innovative medicines in Argentina is particularly high and pharmacies have already reported severe shortages of medicines due to a lack of payments from healthcare payers. These issues are likely to be exacerbated by the reduction in access to medicines for elderly citizens, posing downside risk to our growth outlook.

Over the longer term, multinational drugmakers will be challenged by historical deficiencies in the regulatory environment, principally affecting market access. Legislation protecting intellectual property and regulatory data is weak and ineffectual, while there are severely restrictive limits imposed on the patentability criteria of novel medicines. A preferential reimbursement system for the well-developed domestic pharmaceutical industry specialised in generic and biosimilar medicines poses further challenges. These issues, repeatedly highlighted by the Pharmaceutical Researchers and Manufacturers of America (PhRMA), have been primarily blamed on the agenda of the previous Kirchner government (2007-2015). We note that the Macri government's agenda bodes positively for the Argentinian pharmaceutical market, given proposed enhancements of intellectual property protection and the resumption of bilateral dialogue through the Trade and Investment Framework Agreement with the US ( see ' Macri Presidency Poses Upside To Poor Pharmaceutical Sector Regulatory Environment ' , March 17).