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Puerto Rico Pharmaceuticals and Healthcare Report Q1 2012
Business Monitor International, Dec 2011, Pages: 83
Business Monitor International's Puerto Rico Pharmaceuticals and Healthcare Report provides industry professionals and strategists, corporate analysts, pharmaceutical associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Puerto Rico's pharmaceuticals and healthcare industry.
BMI View: Puerto Rico has long held a reputation as a hotspot for foreign pharmaceutical investment, due to its low cost base and affiliation as a US territory with commonwealth status, offering investors US regulatory standards with offshore tax benefits. However, the performance of its drug-manufacturing sector will continue to suffer due to introduction of unfavourable tax legislation, and also due to widely publicised issues pertaining to manufacturing standards. Additionally, given that the government covers only 40% of the island’s total healthcare expenditure, the development its pharmaceutical market is closely tied with the state of its economy, which is already struggling against headwinds from the US
Headline Expenditure Projections
- Pharmaceuticals: US$2.75bn in 2010 to US$2.81bn in 2011; +2.0% in local currency terms. Forecast unchanged from Q411.
- Healthcare: US$10.90bn in 2010 to US$11.27bn in 2011; +3.4% in local currency terms. Forecast slightly up from Q411, due to macroeconomic factors.
- Medical devices: US$528mn in 2010 to US$536mn in 2011; +1.7% in local currency terms. Forecast unchanged from Q411.
Business Environment Rating: Puerto Rico remains third in our Q112 proprietary Business Environment Rating (BER) matrix for the Americas, coming in after the US and Canada. However, its composite score stands at 68.6, which represents a 7.0% quarter-on-quarter (q-o-q) increase, on account of new population data showing increased per capita spend on drugs. Puerto Rico’s Reward and Risk profiles are evenly balanced. In the longer run, however, its high matrix placement will be challenged by its small population, uneasy economic prospects, and competition from emerging markets in Latin America.
Key Trends & Developments
- Former head of the Puerto Rico police department (PRPD), Miguel Pereira, recently described the US commonwealth as a 'narco-state.' Nevertheless, the former PRPD superintendent said that, despite the worrying period through which the island is passing, the situation can be changed, citing Colombia as a successful example of a country formerly besieged by drugs that has improved its image. Pereira is running in the 2012 elections, using the war on drugs as a key policy objective. However, he is planning to tackle the demand side, promoting the provision of medical treatment for drug addicts as a means to combat trafficking and narcotic consumption.
Given that most Caribbean countries have achieved limited success in attacking the supply side of narcotrafficking, we believe Pereira's policy stance could be popular with the electorate, while also providing an upside for pharmaceutical companies.
?? A research study published in September 2011 claimed a substantial difference between the quality of drugs developed in offshore manufacturing plants, and drugs manufactured in the mainland US.
The study added that the drugs pose higher quality risks, which in turn damage the reputations of companies manufacturing offshore to cut costs. After examining 30 pairs of regulated manufacturing plants in the USA and Puerto Rico, the author of the study concluded that difficulties in the transfer of knowledge from US headquarters to plants in Puerto Rico may be responsible for the high incidence of quality problems. The researchers have claimed that cultural differences are the primary reasons for differences in quality.
BMI Economic View: Recently released fiscal data for July to September 2011 (Puerto Rico's fiscal year's first quarter) show government expenditure was within budget, reinforcing our view that Puerto Rico is committed to its austerity plan for 2011 and 2012. However, stubbornly high unemployment and unanticipated health costs, as well as potential for additional spending on the back of rising social unrest, will make life difficult for the government over the next 12 months. Healthcare expenditure came in 8.2% higher than budgeted in the July-September period, due to unanticipated operational reforms to Medicaid. BMI Political View: Puerto Rico residents will have the chance to vote in a non-binding referendum in 2012, on whether to pursue a change in the island's political status as a US territory. A bill recently approved by the Puerto Rico legislature would allow voters to say whether they want to keep their current territorial relationship with the US or seek change. In the event of a majority 'yes' vote, the second half of the referendum would offer three options: statehood, independence or a 'free associated state.' We note that US Congress would have to act for any change to take effect, and we are not convinced that even in the event of a 'yes' vote, Congress would do so - especially given that four million Puerto Rican's living outside the island will have no say in the referendum.
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