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Spain Pharmaceuticals and Healthcare Report Q1 2012
Business Monitor International, Jan 2012, Pages: 91
It is believed the Spanish government's austerity measures are a necessary and prudent course of action. The country still has the third highest budget deficit in the eurozone and continues to receive negative attention from bond markets. The People's Party (PP)’s focus on cost-containment within the healthcare sector, highlighted by the implementation of health spending cuts in some of the 17 regions, points to the possibility of the pharmaceuticals and healthcare sector again being a target for fiscal consolidation. However, this will not sit well with drug companies – as the austerity measures have a crimping effect on Spain's overall economic growth and cost-containment within the healthcare sector significantly affects revenue-earning opportunities.
Headline Expenditure Projections:
- Pharmaceuticals: EUR16.08bn (US$21.33bn) in 2010 to EUR15.57bn (US$22.26bn) in 2011; -3.2% in local currency terms and +4.4% in US dollar terms.
- Healthcare: EUR103.15bn (US$136.83bn) in 2010 to EUR105.98bn (US$151.56bn) in 2011; +2.7% in local currency terms and +10.8% in US dollar terms.
- Medical Devices EUR4.10bn (US$5.44bn) in 2010 to EUR4.20bn (US$6.01bn) in 2011; +2.5% in local currency terms and +10.5% in US dollar terms.
Business Environment Rating
In BMI’s Business Environment Ratings for Q112, Spain is ranked ninth among the 10 countries surveyed, above Portugal and below Italy. While Spain offers investors positives, such as its large drug market, it also has its problems, such as low population growth, cumbersome bureaucracy, provincial differences with regard to drug regulation and reimbursement, and modest forecast market expansion due to cost-containment measures.
Key Trends & Developments
Spain's outgoing Socialist Workers party (PSOE) promised to guarantee funding for public healthcare if it won the election on November 20 2011. The party stated it would implement a 10% tax hike on tobacco and alcohol (excluding beer and wine) to raise EUR1.0bn (US$1.43bn); abolish tax breaks for companies offering private health insurance to employees to raise EUR300mn (US$429mn); and claim money back from insurers to repay costs incurred to the state due to accidents to raise EUR700mn (US$1.0bn). It expected these measures to eliminate the deficit in the health system, which was estimated to run at EUR2bn (US$2.86bn) in 2012.
US-based pharmaceutical company Pfizer is to eliminate 220 jobs in its administrative, sales and research departments in Spain, due to the financial crisis and cutbacks in government spending on the pharmaceutical sector. Pfizer currently has 2,000 employees in Spain and although the company's plants in Madrid and Olot will be unaffected, there may be job cuts in other European countries. The Spanish government has plans to save US$3.41bn by promoting generic drugs, thus reducing drug subsidy costs for its regional governments.
BMI Economic View
The medium-term outlook for the Spanish economy has worsened considerably in recent months, and BMI has been prompted to downgrade the 2012 and 2013 growth forecasts to -0.5% and 1.0% respectively, from 1.0% and 2.0% previously. Indeed, overall spending growth will remain negligible as the housing market continues its slump, unemployment shows no signs of falling and severe fiscal austerity remains the order of the day. With the external picture also souring given the increasingly poor data coming from the eurozone bloc, we see Spain returning to recessionary territory in the next few quarters.
BMI Political View
Despite its comprehensive victory in parliamentary elections on November 20 2011, the new Popular Party government in Spain faces a deteriorating economic environment which will most likely result in the rapid erosion of its popularity. As the economy looks set to return to recession, the new administration cannot afford any slippage with regard to fiscal tightening, and will need to push ahead with reform of the labour market. Until a more lasting solution to the region's debt crisis is reached by the eurozone authorities, Spain's borrowing costs are unlikely to return to a sustainable level.
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