The economic downturn and limited domestic market growth have forced Chilean drugmakers to seek better returns abroad. Chile's regional leading business environment has ensured local companies enjoy favourable external financing resources to support their international expansions. Chile's open economy, efficient legal framework, business-friendly environment and local drugmakers' strong regional presence have also attracted foreign pharmaceutical companies to invest in its local drugmakers to capitalise on the strong growth in the Latin American pharmaceutical market. We believe that Chilean companies will continue to be active in M&A both at home and abroad.
Headline Expenditure Projections
- Pharmaceuticals: CLP1,605bn (US$3.3bn) in 2012 to CLP1,724bn (US$3.5bn) in 2013; +7.4% in local currency terms and +5.1% in US dollar terms.
- Healthcare: CLP9,825bn (US$20.2bn) in 2012 to CLP10,633bn (US$21.4bn) in 2013; +8.2% in local currency terms and +5.9% in US dollar terms.
Risk/Reward Rating: Chile's RRR score for Q114 stands at 54.3 out of 100, with the company ranked eighth out of the 18 markets in the Americas matrix. This figure is reduced from Q413, due to demographic data changes. We recently re-weighted the RRR components to improve the tool, and adjusted scores for all markets in the Pharmaceuticals and Healthcare reports. BMI's proprietary system ranks pharmaceutical markets according to their attractiveness to multinational drugmakers.
Key Trends And Developments
- In September 2013, the Chilean Economic Development Agency (CORFO) chose US-based multinational pharmaceutical company Pfizer, together with GDF Suez, Emerson and Telefonica from the energy, technology and telecommunication sectors respectively, to give support through its InnovaChile programme ('Start-up' Chile). CORFO is planning to invest US$25mn in three years' time to facilitate these multinational companies in building research centres in Chile.
- In September 2013, Grunenthal, the Germany-based, family-owned pharmaceutical company, reached certain agreements with two major shareholders of Laboratorios Andromaco, a Chilean drugmaker, to launch a public tender offer for all outstanding shares of Andromaco in H213. Grunenthal intends to pay CLP330 (US$0.65) per share for Andromaco.
- In August 2013, Chile's House of Pharmaceutical Innovation (CIF) criticised seven laboratories in Chile, which issue their own medicine bioequivalence certifications.
BMI Economic View: We believe that weaker fixed investment amidst mounting external headwinds - namely, cooling external demand from China for copper - will negatively affect real GDP growth in Chile in 2014. That said, we expect that expansionary fiscal and monetary policies by the Chilean government will provide some support for the economy, underpinning our forecast for headline growth of 4.2% in 2014, only slightly down from estimated growth of 4.3% in 2013. However, we note that the risks to our forecast lie primarily to the downside.
BMI Political View: Michelle Bachelet's return to the Chilean presidency in 2014 will pave the way for a highly ambitious reform agenda, which seeks to raise taxes and introduce higher-quality free education in the country. However, due to an insufficient parliamentary majority, we believe that the centre-left coalition will need to compromise on reforms, ensuring that Chilean politics do not veer too far left over the coming years.