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Eurozone Debt Crisis: Effects on PIIGS Pharmaceuticals Market
Business Monitor International, May 2010, Pages: 19
“Eurozone Debt Crisis: Effects on PIIGS Pharmaceuticals Marke provides an analysis of the implications of the Eurozone sovereign debt crisis on the PIIGS (Portugal, Ireland, Italy, Greece, Spain) pharmaceutical industries, with a particular focus on the impact of the austerity measures on drug prices.
Client Benefits
While many industries may see only limited downside risks from the Eurozone crisis, the pharmaceutical industry is already facing considerable pressures. The structure of pharmaceutical payments in Europe make the industry more aligned to fiscal austerity measures than elsewhere.
Europe is renowned for having heavily government financed pharmaceutical spending compared with many emerging markets. As a result, governments have a vested interest in tightly controlling pharmaceutical prices, a factor that has been present for many years. However, as predicted by BMI, the dire fiscal situations facing many of these countries have necessitated a major acceleration in the introduction of harsher price erosion mechanisms across Europe. While negative for the industry as a whole, the greatest impact on earnings will be experienced by companies with heavy reliance on European markets.
This 19 page Special Report builds upon BMI’s expert Pharmaceuticals & Healthcare sector analysis to analyse the impact of Eurozone crisis on drug prices in the PIIGS pharmaceutical markets.
Fiscal Deficit Impact Not To Be Underestimated
BMI View: The introduction of government price erosion mechanisms will accelerate across Europe, driven by the need for fiscal austerity and presaged by the actions of numerous governments over the past six months. With government deficit levels of 22 of the 27 EU member states exceeding the bloc threshold in 2009 and many other European countries facing budget troubles, BMI believes that further action against pharmaceutical prices is likely. While negative for the industry as a whole, the greatest impact on earnings will be experienced by companies with heavy reliance on European markets.
Deficits remain a key challenge for the majority of governments across Europe. New fiscal austerity measures in the eurozone in an attempt to calm bond markets reinforce our weak growth outlook, adding to existing problems of over-leverage, unfavourable demographics and rising unemployment. The combination of spending cuts and tax hikes are likely to hammer private consumption, especially around the eurozone’s periphery, reinforcing our view that the eurozone will be the weak link in global demand through the medium term.
In Emerging Europe, the end of the regional recession, stabilisation of currencies and the sharp mitigation of external account deficits have significantly improved the sovereign risk outlook. That said, wide fiscal deficits will come into Widespread implementation of these changes is representative of the need to decrease government spending and the relative ease with which companies can target the pharmaceutical sector, rather than pursuing less politically-friendly cuts such as reducing hospital beds. Assessing the level of fiscal deficits present across Europe, BMI does not expect the introduction of price erosion mechanisms to end now. Other than the countries previously noted, European markets at risk of greater restrictions due to their deficit situations include the UK, Portugal, Latvia, Romania, France and Italy. Of these, the latter Western European countries represent present particular risks as a result of the combination of deficit levels, their previous history of cuts and already-high per-capita and total market spending having a major effect on industry performance. BMI believes the measures will result in deflation for pharmaceutical products across Europe in 2010. In this report, BMI provides an analysis of the implications of the Eurozone sovereign debt crisis on the PIIGS pharmaceutical industries, with a particular focus on the impact of the austerity measures on drug sales.
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