4G Delay Confirms Risk Outlook

Pharmaceutical Sector

The Portuguese pharmaceutical industry employed just over 10,000 people in 2008; and the 15 leading companies employ nearly 30% of the workforce. According to Infarmed, there were 130 pharmaceutical companies operating in Portugal in 2010. While this figure is stable compared to 2009, it marks a decline from 136 firms in 2008 and 141 firms in 2004. The industry is dominated by multinationals, most of which import finished pharmaceuticals into Portugal. In 2011-13, the pharmaceutical industry contributed 38 per cent of the financial adjustment in the health sector, making the sector increasingly challenging, according to Pfizer. The pharmaceutical sector's debt in June 2012 exceeded $238bnm, according to the National Association of Pharmacists

According to data published by RCM Pharma on the Top 50 pharmaceutical companies operating in Portugal (citing IMS Health), Merck & Co was the leading pharmaceutical company in value in August 2013, followed by Novartis, domestic player Bial, Pfizer and AstraZeneca. Other Portuguese players appear further down: Generis ranks 10th (with Portuguese sales of EUR46.9mn in the 12 months to March 2012); Medinfar stands in 15th position (EUR42.5mn); Lusomedicamenta stands in 38th place; and Labesfal Genericos is 48th. It is significant that many of these domestic drugmakers produce generic drugs.

Pharmaceutical Sector

The Portuguese pharmaceutical industry employed just over 10,000 people in 2008; and the 15 leading companies employ nearly 30% of the workforce. According to Infarmed, there were 130 pharmaceutical companies operating in Portugal in 2010. While this figure is stable compared to 2009, it marks a decline from 136 firms in 2008 and 141 firms in 2004. The industry is dominated by multinationals, most of which import finished pharmaceuticals into Portugal. In 2011-13, the pharmaceutical industry contributed 38 per cent of the financial adjustment in the health sector, making the sector increasingly challenging, according to Pfizer. The pharmaceutical sector's debt in June 2012 exceeded $238bnm, according to the National Association of Pharmacists

According to data published by RCM Pharma on the Top 50 pharmaceutical companies operating in Portugal (citing IMS Health), Merck & Co was the leading pharmaceutical company in value in August 2013, followed by Novartis, domestic player Bial, Pfizer and AstraZeneca. Other Portuguese players appear further down: Generis ranks 10th (with Portuguese sales of EUR46.9mn in the 12 months to March 2012); Medinfar stands in 15th position (EUR42.5mn); Lusomedicamenta stands in 38th place; and Labesfal Genericos is 48th. It is significant that many of these domestic drugmakers produce generic drugs.

The recession is affecting drugmakers' competitiveness in Portugal. Press reports in July 2012 claimed that Merck KGaA was considering pulling out of its investments in the country because of excessive delays in payments; one hospital in Porto suspended the purchase of Merck drugs in October 2012 because the pharmaceutical firm had reported it for late payments, while in February 2012 Roche suspended the sale of medicines on credit to 23 public hospitals because of payment arrears. Merck & Co announced that it was cutting 30 jobs in Portugal between April and May 2011, as a direct consequence of government politics. The firm's move followed job cuts by Roche, GlaxoSmithKline (GSK) and AstraZeneca in 2010. In October 2011, Bayer also revealed that it had cut 40 jobs from its Portuguese workforce, as a result of the economic downturn. On the upside, Bluepharma did reveal plans to recruit 80 more staff in September 2012, to support its increased drug production and export plans, and it was recruiting sales staff in its Mozambican subsidiary in January 2013. It participated in a major trade fair in the country in August 2013. In December 2013, Portugal-based pharmaceutical company Bial and UAE-based medicines supplier Propharma Medicines signed a EUR4mn (US$5.5mn) pharmaceutical agreement to promote and distribute medicines in the UAE. The three-year agreement concerns a maternity product that Bial was set to launch in the country, according to Paulo Ribeiro, the director of international operations of the company. The agreement, which will involve a number of other products, will increase Portugal's exports of domestically produced medicines to a pharmaceutical market with a higher purchasing power, according to Deputy Prime Minister Paulo Portas.

However, the sector is seeing an increasing investor interest. In Feb 2014, the Portuguese private healthcare firm Espirito Santo Saude (ESS) raised EUR130mn (US$177mn) in an initial public offering (IPO), pricing shares at the bottom of its target range, but with enough demand to encourage more listings, reports Reuters. The IPO, which represented a 42.6% stake in the company and can be increased to 49%, was the second in as many months in the country. The sale was jointly coordinated by Banco Espirito Santo de Investimento and Credit Suisse Group. ESS owns and manages a number of hospitals, outpatient clinics and retirement homes.

Eli Lilly also expanded its operations in Portugal in May 2013, with the opening of new offices.

According to Diário Económico, Tecnimede plans to strengthen its international presence with the construction of one or two new factories to expand its generics portfolio. The news portal reports Tecnimede plans to invest between EUR15mn and EUR40mn, with work having started in 2011. In March 2010, Tecnimede's generics division Farmoz lost a patent dispute over Pfizer's Lipitor. Farmoz had launched a generic dosage of cholesterol-lowering drug atorvastatin in December 2010, but following the court's ruling, it was forced to withdraw it and respect Pfizer's patent for Lipitor, which expired in 2012.

One new entrant in Portugal is the Indian drugmaker Aurobindo. Launching 10 generic drugs in mid-2011, the firm planned to launch further new generic drugs so that by the end of 2011 it would have up to 50 presentations of 20 molecules. Aurobindo expressed its intention to gather sales of up to EUR7mn by mid-2012, and aspired to be a top-10 player in the market before 2013. In Feb 2014, Actavis Plc (ACT) agreed to sell its generic drug operations in seven western European countries to India's Aurobindo Pharma Ltd. (ARBP). Aurobindo will buy Actavis's generic products, marketing authorizations and dossier license rights in France, Italy, Spain, Portugal, Belgium, Germany and the Netherlands, the Dublin-based drugmaker said in a statement. The purchase, expected to cost about 30 million euros ($41 million), will be funded with Aurobindo's own cash, the Indian company said in a separate statement.

Sanofi is also a new player on the Portuguese generic drug market, with the launch of its Zentiva division in October 2011. Hikma also expanded its presence in Portugal, with the opening of a new production facility near Lisbon in the same month.

Company Developments

  • Aurobindo acquired Actavis's generic drug operations in Feb 2014.

  • In October 2013, Hovione's local manufacturing plant in Loures has cleared a good manufacturing practice (GMP) and post-market approval inspection carried out by the US Food and Drug Administration (FDA).

  • Bial launched an iodine supplement in September 2013.

  • Hovione received a patent for its XCaps dry powder inhaler from the European Patent Office in September 2013.

  • In August 2013, Bial announced that it will develop anti-allergy vaccines in the north of Spain, in Bilbao. Bial aims to launch the vaccines in 2017.

  • In May 2013, Eli Lilly opened new offices in Portugal.

  • Bial signed an agreement with Japan's Ono in April 2013, that will see Bial granting Ono a licence for the development and marketing of Opicapone, a drug to treat Parkinson's disease that is currently in Phase III clinical trials.

  • In April 2013, Hovione announced that it had entered into an agreement with US biotech firm Ligand for the collaboration over Captisol, a product that helps optimise the solubility and stability of drugs.

  • In January 2013, Bial announced that it was postponing the development of a Parkinson's Disease treatment for two years, because of reductions in revenues.

  • Portugal's Hovione signed a partnership deal with Swiss firm Solvias in December 2012, for the development and GMOP supply of pharmaceutical co-crystals.

  • Bluepharma revealed in September 2012 that it is in the process of recruiting 80 new staff, as part of its expansion plans.

  • In July 2012, Bial announced its goal of exporting 60% of its drug production by 2015, an increase on the 40% of exports reported in 2011. Spain is Bial's most important export market.

  • According to reports in Financial Times Deutschland, Merck KGaA says that delays in payments by hospitals to pharmaceutical firms is a deterrent to investment, and that it will only be able to invest in R&D in the country once the public healthcare system's finances are healthier.

  • Bluepharma was awarded a prize for being the most entrepreneurial firm in Portugal by the European Institute for Business Administration in July 2012.

  • In May 2012, Medigene announced that it has selected Bial as its marketing partner for the dermatological treatment Veregen in Spain and Portugal. Medigene announced that it plans to launch Veregen in the Iberian Peninsula in Q212.

  • Bluepharma opened a wholly owned subsidiary in Mozambique in March 2012 which will import and export drugs, register drugs and offer consulting and marketing services.

  • In February 2012, Hovione revealed that it had received the approval of the US's Food and Drug Administration (FDA) for three products: one for treating liver infections; an antibiotic; and a treatment for a generic lung deficiency. Hovione calculates that US sales of these products will generate EUR40mn in revenue.

  • Roche announced in February 2012 that it was suspending the sale of medicines on credit to 23 public hospitals that had payment arrears of 500 days or more. The firm said that the National Health Service owed it a total of EUR135mn.

  • After considerable delays, Portuguese pharmaceutical company Bial has postponed its US launch of antiepileptic drug Zebinix until 2013, as the firm does not expect to gain FDA approval until Q412. In February 2012, Bial's CEO, António Portela, revealed that the additional trials requested by the FDA will cost Bial EUR12mn.

  • Bluepharma, in collaboration with the University of Coimbra, announced in February 2012 that it was developing a new photodynamic cancer drug. It aims to begin clinical trials in 2013, with a proposed launch date of 2015 or 2016.

  • The generics arm of Sanofi, Zentiva, entered Portugal in October 2011 with the aim of becoming a 'top 10' player in the generic drugs market.

  • Hovione announced in October 2011 that it had entered into a non-exclusive, cooperative relationship with Bend Research. The partnership will give Hovione access to Bend Research's oral drug delivery expertise, and Bend Research will have access to Hovione's drug manufacturing facilities.

  • Bayer announced in October 2011 that it had cut 40 jobs in Portugal because of the economic crisis.

  • Hikma opened a drug factory in Sintra, near Lisbon in October 2011. The Jordanian drugmaker has been present in Portugal since 1989, and exports 90% of its production.

  • Bluepharma announced, in late October 2011, that it planned to develop and launch 10 generic drugs between 2011 and 2016, in a move that will see the company invest EUR50mn and creating 100 jobs.

  • Indian pharmaceutical company Aurobindo launched 10 generic drugs in Portugal in July 2011, and the firm planned to offer 20 drugs in 50 presentations before the end of the year. The firm aimed to build up its revenues of EUR7mn by June 2012, and to be within the top 10 of pharmaceutical companies operating in Portugal within three years.

  • In June 2011, Bluepharma announced that it was in negotiations with two Chinese pharmaceutical companies with a view to outsourcing the production of part of its range of generic drugs. The move aims to cut costs and increase production volumes.

  • Government cost-cutting measures are taking their toll on multinationals operating in Portugal. In April 2011, Merck & Co announced that at least 30 of its 591 employees in Portugal would lose their jobs before the end of May. In a press release, Merck attributed the job cuts in part to government actions. Merck's decision comes after GSK cut its workforce by 15 people in 2010 and the firm has already warned that more job losses may occur depending upon the scope of austerity measures. Roche and AstraZeneca also reduced their Portuguese workforce in 2010, by 30 and 20 employees respectively.

  • A new medical research centre in Lisbon - the Champalimaud Centre for the Unknown - opened to patients in April 2011 after being inaugurated in October 2010. The centre, built thanks to a EUR500mn legacy from António Champalimaud - Portugal's richest man when he died in 2004 - aims to be one of the world's top cancer research sites, employing up to 500 researchers, 100 doctors and with the capacity to treat up to 300 patients a day. BMI considers this is a very welcome boost to Portugal, a country with limited influence on the global R&D scale.

Pharmaceutical Distribution

The gross wholesaler margin is 8% of the Pharmacy Selling Price excluding tax (PSP) and the pharmacist margin is 20% of the PSP. From July 1 2010, VAT rates were increased in Portugal as part of government austerity measures. As a result, VAT on medicines is at the reduced rate of 6% while the standard rate was raised to 23% in January 2011. It must be noted that 0.4% of the PSP goes to Infarmed.

In 2009, Infarmed reported that there were a total of 347 medicine wholesalers serving a total of 2,879 pharmacies across the country (pharmacy data are from 2010). The authorities opened up a tender for the opening of 14 new pharmacies in the country in September 2013; at the closing date, in late October 2013, the government had received 3,407 applications.

In its September 2011 review of Portugal's Economic Adjustment Programme, the EU/IMF called for a regressive mark up and a flat fee for wholesalers and pharmacies, as is the case in other EU member states, a move that the EU calculates should generate EUR50mn worth of savings. This legislation was approved as Decree-Law 112/2011 on November 29 2011, and from January 1 2012 the new pricing and mark-up regime came into effect. Pharmacists and wholesalers had until the end of March 2012 to sell drugs with the old prices printed on their packaging.

Pharmaceutical Retail Sector

Decree Law No. 307/2007, published on August 31 2007, established a new pharmacy regulatory environment in Portugal, enforceable on October 30 2007. Key measures include:

  • Pharmacy ownership is no longer restricted to pharmacists. Pharmacy ownership is reserved to individuals and commercial societies, with a maximum of four pharmacies, directly or indirectly.

  • Pharmacy management is reinforced, due to the disassociation between pharmacy ownership and pharmacists. There must always be a pharmacist in the pharmacy.

  • Pharmacy personnel must include two pharmacists to guarantee correct pharmacy management, when the main pharmacist is out of the pharmacy.

  • New pharmacies will be subject to public tenders.

  • Pharmacy licensing will be modified, based on how many pharmacies each interested party has, respecting the maximum of four pharmacies.

  • Pharmacy transference is possible within the same municipality, independently of a public tender or licensing, based on the principle of free installation.

  • Pharmacies - including other establishments selling non-prescription medicines (MNSRM - Medicamentos Não Sujeitos a Receita Médica) - can dispense medicines via the internet.

  • Pharmacies can acquire medicines through tenders - this was prohibited under the previous legislation.

  • Pharmacies can provide pharmaceutical services, whose definition must be established by the government.

  • Pharmacies must have a complaints book available to customers. Complaints are likely to be made via the internet as well.

The government had previously announced a new agreement with the National Association of Pharmacies (ANF - Associação Nacional das Farmácias) on May 26 2006. Key measures included:

  • Health professionals who are prescribers cannot be pharmacy owners, either directly or indirectly. Establishments in the pharmaceutical distribution chain, including producers, wholesalers and private entities providing health services, cannot own pharmacies either. An individual owner or commercial society will not be able to have more than four pharmacies, directly or indirectly.

  • A pharmacy must serve a population of at least 3,500 inhabitants. There should be a minimum distance of 350 metres between pharmacies. It will be possible to open a pharmacy, independently of the number of inhabitants, if there are no other pharmacies within 2km. Most importantly, pharmacy discounts are now allowed.

  • Retail pharmacies will also be operational in hospital establishments to dispense drugs prescribed by public health services. They must be open 24 hours a day, 365 days a year. These services will be franchised; preference will be given to pharmacy owners within the same area.

Under Decree-Law No. 134/2005, issued on August 16 2005, non-prescription medicines (MNSRM) that are not reimbursed by the government can be sold in establishments different from pharmacies.

During September 2008, the European Commission (EC) made a formal request that Portugal review its laws on the ownership of pharmacies. The request came after the EC found that current legislation was in conflict with the freedom of establishment, enshrined in Article 43 of the EC Treaty. Pharmacy ownership laws across Europe are being scrutinised by the commission in an effort to liberalise a sector that is currently heavily regulated in many member states.

Portuguese legislation states that a maximum of four pharmacies may be owned, with wholesalers directly prohibited from owning or managing pharmacies. The EC believes that these requirements are disproportionate to guaranteeing the protection of health.

The pharmacy sector has been negatively affected by worsening economic conditions, and changes permitting the sale of drugs over the internet and the liberalisation of the over-the-counter (OTC) market, with Apifarma reporting losses from early 2009. The ANF claimed in May 2012 that pharmacies saw their sales decline by 17% between 2010 and 2012 and, with pharmacists' margins targeted by the EU/IMF austerity package, these declines are likely to continue. In June 2012, ANF claimed that up to 600 pharmacies are under risk of closure. Data from the ANF claims that while in 2010 191 pharmacies were at risk of closure because of financial pressures, this figure climbed to 1,210 pharmacies in 2011 - by the end of 2012, ANF calculated that this figure would climb again, reflecting the economic difficulties of the sector. In October 2012, it launched a 'pharmacies in mourning' campaign, to inform users of the impact austerity measures are having on pharmacies. In December 2012, ANF calculated that around 1,600 pharmacies were behind on their payments to wholesalers, and that pharmacies had experienced an 18% decline in sales year-on-year. The decision to create a third category of drugs: non-prescription medicines that are sold in pharmacies, and under a pharmacist's supervision, should help support the pharmacy sector and reinforce the role of pharmacists as healthcare professionals in the public's eyes.

Pharmacies are also suffering as more and more patients are unable to pay their co-payments up front and are asking their local pharmacy for credit. These payments stem not only from final customers, but also from the government. Pharmacists' insolvency problems are worsened by drug shortages, as - according to Apifarma - an increase in parallel exports is affecting domestic supplies of key drugs, with 120 out of 121 pharmacies included in their study reporting shortages in the past month. This situation may improve following Infarmed's November 2013 proposal to oblige drugmakers and distributors to obtain permission before exporting a list of key drugs.

The latest data for pharmaceutical exports supports claims that parallel exports are increasing: according to Portugal's national statistics body, pharmaceutical exports climbed by 12% in 2012 compared to 2011, with key markets including the UK and Germany. A study by Deloitte, commissioned by Apifarma and published in May 2013, found that 33% of pharmacists have to substitute prescribed drugs for alternative medicines because of stock shortages, but only 9% of patients accept pharmacists' recommendations. The study also found that 61% of pharmacists interviewed perceived that drug shortages had increased over the past six months, out of a total of 121 pharmacists interviewed.

In the case of OTC sales, pharmacies have experienced declines on two fronts. First, by permitting the sale of OTC drugs in other retail outlets pharmacies have lost their exclusive hold on this sector. Secondly, the fact that the price of OTCs has been liberalised since 2005 means that pharmacies have been forced to lower the retail prices of these medicines in order to compete. OTCs do not have printed prices on their packaging, meaning retail outlets can change prices to stimulate demand.

Yet despite these changes, the number of pharmacies across Portugal has changed only slightly over recent years. Infarmed's João Cordeiro believes that these figures do not reveal the entire picture, and that a high percentage of pharmacies are on the brink of closure as competition from supermarkets makes their business unsustainable - claims that a report in Portuguese newspaper Expresso corroborated. Pharmacies have, in accordance with the 2007 law governing their location, moved within their municipalities to capture more clients. Correio de Mahnã reported in July 2010 that 255 pharmacies have relocated since 2007, a practice that the Pharmacists' Order considers to be 'mistaken' as the purpose of pharmacies is to serve the interests of citizens. The National Association of Portuguese Municipalities (ANMP) disagrees with their criticisms, claiming that pharmacies should respond to the market, like any other sector.

Infarmed figures indicate that mass-market outlets account for a low proportion of sales of OTC drugs. Figures from January to November 2010 show that 13.8% of OTC sales were made outside of pharmacies; this climbs to 15% according to Infarmed data from 9M12 remaining stable at 15% in H113. In volume terms this figure climbs to 15.2% (11M10) or 16% (9M12 and again in H113), implying that mass-market outlets can buy in bulk - something pharmacies cannot do - receiving lower priced drugs from wholesalers. Mass-market competitors for pharmacies include parapharmacies, such as Pharmacontinente and CotaPharma, and supermarkets, such as Companhia Portuguesa de Hipermercados and Modelo Continente Hipermercados.

New legislation could help give pharmacies a competitive edge. From January 2011, pharmacies were permitted to open 24 hours a day, seven days a week, although a year after the legislation came into force, RCM Pharma reported in February 2012 that only 11 pharmacies had opted to open 24 hours a day. Also in February 2012, the Ministry of Health proposed that, in order to cut the running costs associated with pharmacies, it reduce the minimum number of hours that a pharmacy is obliged to be open - from 55 hours per week to 40 hours per week. The Pharmacists' Guild objected to the proposals, claiming that it would mark a drop in the quality of service available to the population.

Number Of Pharmaceutical Companies, Wholesalers, Pharmacies, Pharmacy Extensions And Drug Stores In Portugal
2006 2007 2008 2009 2010
Pharmaceutical Companies 137 137 137 130 130
Wholesalers 334 343 345 347 na
Pharmacies 2,666 2,666 2,664 2,803 na
Pharmacy Extensions 240 241 241 na na
Drug Stores 346 598 751 838 na
na = not available. Source: Infarmed

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