BMI View: We forecast deteriorating prospects for drugmakers in Italy because in addition to a decline in public spending on pharmaceuticals (enforced by price cuts on medicines), company revenue streams are under pressure as hospitals are delaying payments worth billions of dollars. Our bearish outlook takes into account the deteriorating state of the economy and the country's enormous public debt burden.
Headline Expenditure Projections ?? Pharmaceuticals: EUR24.90bn (US$34.63bn) in 2011 to EUR23.58bn (US$30.42bn) in 2012; -5.3% in local currency terms (-12.0% in US dollar terms).
?? Healthcare: EUR152.38bn (US$211.92bn) in 2011 to EUR155.76bn (US$200.93bn) in 2012; +2.2% growth in local currency terms (-5.2% in US dollar terms).
?? Medical devices: EUR6.42bn (US$8.93bn) in 2011 to EUR6.63bn (US$8.54n) in 2012; +3.2% growth in local currency terms (-4.3% in US dollar terms).
Risk/Reward Rating: In our Pharmaceuticals and Healthcare Risk/Reward (RRRs) for Q312, Italy is eighth out of the 10 markets surveyed in Western Europe. Despite being a large market, Italy is characterised by low levels of annual growth, largely because of widespread price cuts. Additionally, the Italian economy is one of the most vulnerable economies in an already shaky eurozone. High levels of public debt, poor infrastructure and a lack of competitiveness indicate that the country will remain one of the region’s laggards over the forecast period.
Key Trends And Developments ?? In January 2012, the European Commission issued a formal request to Italy to remove linkage between patents and generic medicines authorisation that ultimately causes delays in generic medicines reaching the market.
?? The decline in spending by the SSN continued in 2011, with pharmaceutical expenditure falling for the fourth year in a row, to EUR10.21bn. This was 8.6% decline in spending compared with 2010, despite a 0.6% increase in the number of prescriptions, according to Federfarma, highlighting the effects of cost-containment measures.
BMI Economic View: Prime Minister Mario Monti has only just begun tackling the structural weaknesses that saw Italian real GDP growth average only 1.1% a year between 2001 and 2007.
However, we do not believe that Italy is in crisis, if the country can maintain market confidence. Although the public sector debt is over 120% of GDP, a decade of stagnation allowed the country to avoid the imbalances that are now violently unwinding across the European periphery. BMI Political View Prime Minister Mario Monti has successfully passed three key law decrees since coming to office on November 18. Aside from shoring up the fiscal accounts, these measures are aimed at boosting the country's medium-term growth outlook. The results of the 'Monti cure' will, however, take years to materialise and could prove detrimental for employment and growth in the short run. We have therefore revised downwards our 2013 real GDP growth forecast, now expected to come in at 0.1%, from 0.6% previously.
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