LatinAmerica VENEZUELA_Overview IMS Report2007

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IMS Market Prognosis 2006-2010LATIN AMERICA VENEZUELA UPDATE



IMS HEALTH7 Harewood AvenueLondonNW1 6JB, UKTel: +44 (0)20 7393 5888, Fax: +44 (0)20 7393 [email protected]

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The Information Service contained herein is confidential and provided subject to the IMSHealth Information Services Standard Terms and Conditions. This Information Service isprovided to the client on a personal basis under a non-exclusive and non-transferablelicence for the Client’s own direct benefit and use only, and may not be copied or divulgedto any other party. Whilst every possible care has been taken in the preparation of thisinformation, the publishers do not hold themselves responsible for any expressions ofopinion or error or omission, or any action resulting therefrom.

©2006 IMS Health Incorporated or its affiliates. All rights reserved.

Published: September 2006



IMS Market Prognosis Latin America Venezuela Update 2006

© 2006 IMS Health Incorporated or its affiliates. All rights reserved. 1

VENEZUELA 2006 UPDATE

All values shown are at ex-manufacturer prices and in local currency.

FORECAST METHODOLOGY

The IMS Market Prognosis projections are based upon ten years of volume and pricequarterly sales data. Pharmaceutical volume and price data in each audited market sectorare independently analysed, with respect to macroeconomic variables, using multipleregression techniques. Then an econometric package programme is used to develop twoequations - a demand (volume) equation and a price equation- on which the forecast isbuilt. These equations are used in combination with macroeconomic indicator forecastsprovided to IMS Health by a third party, the Economist Intelligence Unit (EIU), to obtain abaseline extrapolation of actual sales for each audited market sector. The macroeconomicindicator forecasts used to obtain the baseline projection are tabulated below. After thebaseline projection has been optimised, events are applied to obtain a final forecast foreach audited market sector. This final forecast is also summarised below, and the mostimportant events described.

FORECAST 2006 UPDATE

The forecasts below represent an update of the forecasts published in the IMS MarketPrognosis report in March 2006. Updated economic forecasts and IMS Midas data up toQtr I 2006 have been used to develop a new baseline forecast for each audited marketsector. Each event has been re-evaluated and, where necessary, events have been addedor deleted. The updated events have then been applied to the new baseline forecasts toobtain a new final forecast for each audited market sector.

BASELINE EXTRAPOLATIONS

The following table reports the macroeconomic indicator forecasts used to produce thebaseline extrapolations.



Venezuela Update 2006 IMS Market Prognosis Latin America

2 © 2006 IMS Health Incorporated or its affiliates. All rights reserved.

Table 1: Key Macroeconomic Indicators

2006 2007 2008 2009 2010

Real GDP 2000 Bolivar (billion) 96693.2 100479.1 104431.5 108344.9 111734.0

% Change 8.3% 3.9% 3.9% 3.7% 3.1%Nominal GDP Bolivar (billion) 370127.8 418681.6 474757.5 539508.4 606335.4

% Change 26.3% 13.1% 13.4% 13.6% 12.4%

Consumer Prices 2000=100 283.5 318.4 361.5 407.1 453.0

% Change 11.2% 12.3% 13.6% 12.6% 11.3%

Real Private Consumption2000 Bolivar (billion)

60745.1 65286.5 68705.2 71503.4 73955.3

% Change 15.6% 7.5% 5.2% 4.1% 3.4%

Real Government Consumption2000 Bolivar (billion)

14331.1 14116.1 14539.6 14830.4 15127.0

% Change 7.0% -1.5% 3.0% 2.0% 2.0%

Exchange Rate Bolivars:US$1 2147.0 2235.3 2608.7 2994.2 3326.8

% Change 2.7% 4.1% 16.7% 14.8% 11.1%

Source: Economist Intelligence Unit, Qtr II 2006

RETAIL SECTOR BASELINE EXTRAPOLATIONS

Table 2: Baseline Retail Sector (2005-2010)

Sales in StandardUnits

Cost/Unit Sales at Actual PricesYear

SU(million)

Annual %Change

BolivarAnnual %Change

Bolivar(billion)

Annual %Change

2005 9714.4 10.2% 423.1 12.7% 4011.9 32.3%

2006 10984.2 13.1% 508.6 20.2% 5263.2 31.2%

2007 11380.2 3.6% 615.8 21.1% 6528.1 24.0%

2008 11869.3 4.3% 739.0 20.0% 8193.5 25.5%

2009 12318.0 3.8% 872.2 18.0% 10089.0 23.1%

2010 12675.7 2.9% 1017.7 16.7% 12143.5 20.4%

Source: IMS Health





EVENTED FORECASTS

EVENT ANALYSIS

This section contains an analysis of each of the events applied to the baseline forecasts,

based on IMS Health research.

Expansion of the Barrio Adentro programme: The controversial Barrio Adentro ('Insidethe Neighbourhood') programme is at the heart of President Chávez’s healthcare reform. Itis being implemented in three phases. The first phase is now well established and focuseson expanding access to basic, primary healthcare services. Under Barrio Adentro I , 8500primary care clinics (consultorios populares) are being created to provide communities withbasic medical care and preventative medicine. The aim is to treat more than 80% of themost frequent pathologies at a grass-roots level. The second phase of the Barrio Adentro programme commenced in mid-2005 with the introduction of specialised, high-tech medicalcentres which are designated into two types: integral diagnostic centres and rehabilitationrooms. It is hoped that these clinics will help relieve congestion in public hospitals andbridge the gap between primary care clinics and public hospitals. See also: HealthcareProvision

Price rises in the non-regulated sector of the market: Prices for those products in thenon-regulated sector of the market appear to be keeping up with the rate of inflation. Whilethey remain free from pricing restrictions manufacturers operating in this sector of themarket will continue to push through price increases, thereby driving market growth.However, even in this sector price increases appear to be subject to indirect controls as theINH has increasingly refused to authorise price increases over the last year, particularly onproducts manufactured by multinational companies. See also: Pricing

Self-medication to continue: As in many other Latin American countries, the illegaldispensing of prescription-bound drugs is common in Venezuela. It has been thought that

whilst access to pharmaceuticals remains an issue, the government is likely to continue toturn a blind eye to this practice. However, the government has begun to address the issueof illegal dispensing with the introduction in January 2006 of regulations under whichcertain antibiotics can only be dispensed in pharmacies with a prescription and theprescription must be retained by the pharmacy for inspection by the ministry of health. Seealso: Healthcare Provision

Increase in disease prevention and diagnostic programmes: Disease prevention is akey target of the Barrio Adentro programme. Goals include increased vaccination coverageand educational initiatives aimed at the poorest sectors of society. With a significantproportion of the population estimated to be infected with the HIV virus, improvingawareness of the disease remains a primary target of disease prevention campaigns. Misión Mercal is another preventative initiative of the Chávez regime. The aim of this initiative isto meet the National Institute for Nutrition’s guidelines of 2600 daily calories per adult.Under this scheme government-owned Mercal supermarkets sell highly subsidised food and

‘essential’ commodities to the poorer communities. The government is optimistic that thecountry is on track to reach the United Nations (UN) Millennium Development health goalsby 2015. See also: Healthcare Provision

Tightening of intellectual property regulations: The lack of progress towardsstrengthening Venezuela’s intellectual property laws continues to deter some multinationalcompanies from launching new products in the country. Draft legislation, which is based onthe TRIPs agreement, has still not been approved. The 1998 national patent legislationallowed for a five-year data exclusivity term, but has since been suspended (2002). Inaddition, the lack of patent linkage as a result of poor communication between the INH

(National Institute of Hygiene) and the Patent Office means that copy products continue tofind their way on to the market. The industry association representing multinationals,





Cámara Venezolana de Medicamentos (CAVEME) has established a working party to liaisedirectly with government officials in an attempt to move patent protection legislationforward, however, progress has been slow. See also: Regulatory Environment

UPDATED EVENT: Introduction of GMP and bioequivalence standards: Despitepublication of good manufacturing practice (GMP) regulations there has been little

movement in enforcing them and the original deadline for compliance (February 2005) haspassed without a new one being set. While several large companies are moving ahead withupgrading their manufacturing facilities, smaller manufacturers may struggle to meet thestandards required and in this situation several manufacturers may collaborate tomanufacture their products at a single GMP compliant site. As with GMP standards,bioequivalence regulations have yet to be implemented. The government must addressseveral issues (such as identifying approved testing sites and specifying the types of testsrequired) before bioequivalence can be fully enforced. The need to comply with GMP andbioequivalence may force some of the smaller manufacturers out of the market. Those leftin the market will seek to raise prices in order to recoup costs. UPDATE: On 10 August2006, the Ministry of Health issued a resolution for the bioavailability and bioequivalencestandards of pharmaceutical products. Under the new legislation, a defined number of new

medicines seeking registration will be required to demonstrate bioavailability. New genericsand copy products seeking marketing approval must also provide bioequivalence databefore marketing authorization is granted. In addition, products already marketed mustprovide bioequivalence data. See also: Regulatory Environment

Expanding access to antiretroviral therapy: The Latin American Regional Agreement of2003 has seen certain manufacturers of antiretroviral (ARV) products reduce their prices byup to 80%. Combined with the expansion of the Barrio Adentro programme and theintensified educational awareness initiatives rolled-out by the government, consumption ofARV products will significantly increase over the prognosis period. See also: HealthcareProvision

Threat of compulsory licensing: Recent reports suggest that the government may

consider enforcing compulsory licensing on original-brand manufacturers as a means ofreducing prices of highly expensive patented products. It is also possible that a state-owned manufacturing plant may be established in order to manufacture copy products ofsuch original brands. Of particular interest are products indicated for life threateningdiseases, such as HIV/AIDS and cancer. A recent Latin American Regional Agreement hasseen some manufacturers of HIV/AIDS products lower their prices by as much as 80%,however, not all manufacturers have signed-up to this agreement. See also: RegulatoryEnvironment

Further consolidation of the distribution market: Venezuela’s distribution market hasbecome increasingly concentrated in recent years, and three companies with nationalnetworks now account for over 80% of the market. However, with an increasing trend

towards vertical integration only one of these companies is a pure distributor, theremaining two both own pharmacy chains. Competition between leading distributors isintense and trade margins are tight. Distributors are under pressure to rationalise costs andimprove operating efficiency, while increasing customer service levels in order to remaincompetitive. In addition, stronger enforcement of recently introduced good distributionpractice regulations will put further pressure on smaller distributors. Consequently, furtherconsolidation of the market is possible as distributors who cannot meet all of thesechallenges are squeezed out of the market. While the market remains so intenselycompetitive there will be downward pressure on prices, however, if the market undergoesfurther consolidation a lack of competition may result in less pressure to reduce prices. Seealso: Pharmaceutical Business Environment

Demographic changes: The population growth rate over the 2005-2010 period willdecrease compared to the previous five-year period. See also: Economic Environment





Further consolidation of the retail pharmacy market: Two leading pharmacy chains,Farmatodo and Locatel, have grown rapidly over the last year. Independent pharmacies aredisappearing fast as pharmacy chains expand and fight for market domination. However,the inevitable demise of the independent pharmacy is being held back somewhat by theformation of buying groups to increase purchasing power. There are around 300-400independent pharmacies participating in such groups. Increased competition between

leading pharmacy chains could ultimately act to drive down prices. See also:Pharmaceutical Business Environment

Controls on sales and promotional activities: The INH is gradually introducing moreregulations to control the sales and promotional activities of manufacturers, although theextent to which they are currently being enforced is uncertain. In the public sectormanufacturers are now only permitted to distribute product samples for ‘essential’medicines, thereby limiting the reach of original-brand manufacturers who willconsequently be more reliant on sales in the private sector. Promotional activity at thepoint of sale has intensified and manufacturers are increasingly ‘sponsoring’ salesassistants to push their brands by offering commission on the sales that they make.Manufacturers are also introducing customer loyalty programmes, and other such

initiatives, in attempt to instil brand loyalty and prevent patients switching to a cheaperproduct at the point of sale. The introduction of further regulations to restrict unethicalsales activity is possible. These measures will act to drive down volume sales. See also:Pharmaceutical Business Environment

SUMED programme: In conjunction with the Barrio Adentro initiative, the government hasalso introduced the SUMED programme, under which 'essential' medicines are dispensedfrom state-run pharmacies at heavily subsidised prices. The aim is to increase access tomedicine in the poorest parts of the country. Venezuela’s list of 'essential' medicines isbased on the WHO list and incorporates most drugs needed to treat the vast majority ofcommon illnesses in Venezuela. It includes some HIV/AIDS and cancer drugs. Many of themedicines sold under this initiative are low cost, unbranded generics, arguably of dubiousquality. The drugs are being subsidised to the general public at a rate in the order of 30-40% of the retail price. See also: Healthcare Provision

Increased usage of generics: As the government continues to expand access to basichealthcare demand for unbranded generics will intensify, thereby driving volume growth inthe market over the prognosis period. However, demand is likely to be restricted to thoseproducts covered in the list of ‘essential’ medicines, whose prices are capped. In additionintense competition not only between domestic manufacturers but also from foreigngenerics houses in India, China and Cuba will act to contain prices. Domestic manufacturersoperating in the unbranded generics market will need to pursue a strategy of high-volumeand low-price, in order to remain competitive. The government will almost certainly seek tointroduce prescribing controls in the public sector to encourage rational prescribingbehaviour. Consequently an increasing number of prescriptions will be written generically.

However, moves in this direction will be hampered by a lack of GMP and bioequivalencestandards. See also: Pharmaceutical Business Environment

Price controls on 'essential' medicines: The price of 'essential' medicines has beenfrozen since 2003 and despite intense lobbying by manufacturers affected by this regulationno price increases have subsequently been approved for products in this category. Most ofthe drugs included in the list of 'essential' medicines are unbranded or branded generics,and their price is now estimated to be 30-40% below the 'true' value. 'Essential' medicinescurrently account for around 30% of the pharmaceutical market, however, the industryfears that the list may be expanded to include additional molecules, such as those indicatedfor chronic diseases and vaccines. Some experts speculate that 40-50% of the marketcould be regulated by 2006. See also: Pricing

Generic substitution to continue: Low consumer purchasing power has furtherencouraged the trend for generic substitution at the point of sale, despite the fact that it is





not legally permitted in Venezuela. Regulations concerning dispensing of antibiotics wereintroduced in January 2006 and further regulations on good dispensing practice may alsobe introduced. See also: Healthcare Provision

Delays in the drug registration process: The drug registration process has beenplagued by additional delays over the past year, and amendments to existing product

registrations have been particularly affected. The reason for the delays is unclear, however,high levels of bureaucracy and excessive examination of application documents has beenblamed. The situation is unlikely to improve over the prognosis period; Venezuela’sregulatory bodies have made no move to upgrade the registration process, as has been thecase in several neighbouring countries. As a result, new product launches will continue toexperience delays in reaching the market. See also: Regulatory Environment





Table 3: Events Impacting the Market (2006-2010)

Event Title

S t a r t M o n t h

S t a r t Y e a r

P r o b a b i l i t y ( s h o r t t e r m )

P r o b a b i l i t y ( m e d i u m t e r m )

P r o b a b i l i t y ( l o n g t e r m

)

T i m e t o I m p a c t ( m o n t h s )

R e t a i l M a r k e t I m p a c t

( v o l u m e )

R e t a i l M a r k e t I m p a c t

( p r i c e )

Expansion of the Barrio Adentroprogramme

4 2006 90% 90% 90% 57 1.0% 0.0%

Price rises in the non-regulated sector ofthe market

4 2006 90% 90% 90% 57 0.0% 0.5%

Self-medication to continue 4 2006 90% 90% 90% 57 0.5% 0.0%

Increase in disease prevention anddiagnostic programmes

4 2006 45% 55% 65% 57 0.5% 0.0%

Tightening of intellectual propertyregulations

4 2006 20% 30% 40% 57 0.0% 0.5%

UPDATED EVENT: Introduction of GMPand bioequivalence standards

8 2006 70% 80% 90% 53 -0.3% 0.5%

Expanding access to antiretroviraltherapy

4 2006 90% 90% 90% 57 0.5% -0.5%

Threat of Compulsory Licensing 4 2006 20% 30% 40% 57 0.0% -0.5%

Further consolidation of the distributionmarket

4 2006 45% 55% 65% 57 0.0% -0.5%

Demographic changes 4 2006 90% 90% 90% 57 -0.4% 0.0%

Further consolidation of the retailpharmacy market

4 2006 45% 70% 95% 57 0.0% -0.5%

Controls on sales and promotionalactivities 4 2006 45% 70% 95% 57 -0.5% 0.0%

SUMED programme 4 2006 90% 90% 90% 57 0.0% -0.5%

Increased usage of generics 4 2006 90% 90% 90% 57 0.0% -0.5%

Price controls on ‘essential’ medicines 4 2006 90% 90% 90% 57 0.0% -1.0%

Generic substitution to continue 4 2006 90% 90% 90% 57 0.0% -1.0%

Delays in the drug registration process 4 2006 90% 90% 90% 57 -0.5% -0.5%





RETAIL SECTOR EVENTED FORECAST

Table 4: Forecast Retail Sector

Sales in StandardUnits

Cost/Unit Sales at Actual PricesYear

SU(million)

Annual %Change

BolivarAnnual %Change

Bolivar(billion)

Annual %Change

2005 9714.4 10.2% 423.1 12.7% 4011.9 32.3%

2006 10989.9 13.1% 506.5 19.7% 5255.6 31.0%

2007 11405.1 3.8% 609.0 20.2% 6485.8 23.4%

2008 11913.5 4.5% 725.6 19.2% 8095.2 24.8%

2009 12380.9 3.9% 850.1 17.2% 9909.5 22.4%

2010 12756.1 3.0% 984.5 15.8% 11853.0 19.6%

Source: IMS Health

Forecast Retail Sector Sales in Standard Units

0

2000

4000

6000

8000

10000

12000

14000

2005 2006 2007 2008 2009 2010

s t a n d a r d u

n i t s m i l l i o n

evented forecast

base line forecast





Forecast Retail Sector Cost/Unit

0

200

400

600

800

1000

1200

2005 2006 2007 2008 2009 2010

P r i c e / u n i t B o l i v a r

evented forecast

base line forecast

Forecast Retail Sector Sales at Actual Prices

0

2000

4000

6000

8000

10000

12000

14000

2005 2006 2007 2008 2009 2010

B o l i v a r m i l l i o n

evented forecast

base line forecast





SUMMARY OF THE PROGNOSIS

The prognosis for Venezuela has been revised upwards. The overall economic outlook ismore positive than forecast earlier in the year, lifting market growth. Growth of GDP andreal private consumption has been adjusted significantly upwards in 2006, boosting volumegrowth this year. For the remainder of the forecast period, however, GDP growth will slow

to below 4% per annum, thereby lowering volume growth forecasts. The introduction ofbioequivalence requirements for generics, price controls on 'essential' medicines and delaysin the drug registration process will also act as constraints on market growth throughoutthe forecast period.

The final prognosis is based on the forecasts of Tables 4. IMS Health captures the retailpharmaceutical market, which accounts for 86.5% of the total pharmaceutical market.

This prognosis incorporates an estimate of the value of the unaudited sectors (hospitals andprivate clinics, 3.7%; government-owned clinics, 4.5%; and other outlets 5.3%) andassumes that this will grow in line with the rest of the market and hold a market share of13.5% during the forecast period.

The total pharmaceutical market is expected to grow at a compound annual growth rate24.2% in local currency terms during the period 2005-2010.

Table 5: Total Market Sales at Actual Prices (2005-2010) Bolivars (billion)

2005 2006 2007 2008 2009 2010

Retail Sector 4011.9 5255.6 6485.8 8095.2 9909.5 11853.0

Hospital and Private clinics 171.6 224.8 277.4 346.3 423.9 507.0

Government-owned Clinics 208.7 273.4 337.4 421.1 515.5 616.6

Other Outlets 245.8 322.0 397.4 496.0 607.2 726.3

Total Market 4638.0 6075.8 7498.0 9358.6 11456.1 13702.9

% Change 32.3% 31.0% 23.4% 24.8% 22.4% 19.6%

Source: IMS Health

LatinAmerica VENEZUELA_Overview IMS Report2007

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