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The value of Argentina’s pharmaceutical market is calculated to have reached ARS12.64bn (US$3.37bn) in 2009. Through to 2014, we forecast a compound annual growth rate (CAGR) of 14.36% and 9.78% in local currency and US dollar terms, with the market value topping ARS24.72bn (US$5.37bn). The increased usage of generics and volume changes are expected to be the key drivers of market growth, with patented medicines’ share of the total market by value dropping from 56.5% in 2009 to 47.7% in 2014. In regional terms, Argentina remains the seventh most attractive market in the Americas region, with drawbacks including its challenging intellectual property (IP) and pharmaceutical pricing and procurement environments, not to mention the wider economic and political uncertainties.
Despite this, the reduced opportunities and continuing challenges facing pharmaceutical companies in developed global markets are increasingly resulting in acquisition activities in emerging markets. To this end, in June 2010, UK-based major GlaxoSmithKline (GSK) acquired Argentina's Laboratorios Phoenix in a move emphasising the company's aim of increasing its market share of pharmaceutical sectors in developing countries.
The US$253mn cash transaction, the latest in a string of deals in developing markets (GSK also acquired 9.9% stake in South Korea's Dong-A Pharmaceuticals recently), will also enable GSK to expand its regional revenues, as the local drugmaker is among the top ten nationally and is also one of the leading indigenous medicine exporters.
However, local players are also concerned over low levels of achievable profitability and threats this poses to their survival. They expected drug prices to increase by 14.5% during 2010, which is over ten percentage points below the government's forecast of cumulative inflation. Nevertheless, volume consumption of medicines in Argentina has increased significantly over the past decade, which should – to a degree – compensate for the gap between pharmaceutical and general consumer price rises.
On a wider political and economic front – and although we have recently upwardly revised GDP growth for 2010 – we expect the upcoming 2011 elections to be a key factor in shaping the wider economic landscape. While we do not see a reduction in public spending by the administration of President Cristina Fernández ahead of the election – in which her husband, Néstor Kirchner, is widely tipped to be a candidate – options to sustain such loose fiscal policy are fast running out. Having exhausted most of the domestic funding options, the Argentine government is now hoping to return to international capital markets for the first time since the notorious government default in 2001. Overall, Argentina remains a prime example of one of our core regional views, namely that those countries with elevated political risk profiles – especially in the form of prolonged economic mismanagement – are set to underperform their more business-friendly regional peers over the medium term.
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