A Besieged Drug Market With Long-Term Potential
BMI View: Cuba's pharmaceutical consumption is surprisingly high despite its faltering economic system, which entered a protracted period of decline after the collapse of the Soviet Union. Long-term isolation from world's major developed economies has compounded the situation in the communist country. In short-to-medium term, it offers little commercial potentials for multinationals due to its relatively competitive local pharmaceutical industry and the strict trade embargo imposed by the US since the 1960s. However, in long-term, especially in the post-Castro era, a more pragmatic Cuba will offer revenue generating-opportunities for foreign drugmakers. This has already been seen in China and Russia, which have moved away from strict communist ideals.
It is difficult to evaluate Cuba's pharmaceutical market, as there is no active drug market in the country. As a typical communist state, Cuban government takes ownership of all means of production and distribution of pharmaceutical products in the country, and Cuba's relatively competitive domestic drugmakers, mainly producing biological medicines and generic drugs, supply over 80% of medicines used in the country. The National Formulary Commission (CFN - Comisión de Formulario Nacional), under the Ministry of Health (MINSAP), is responsible for the inclusion, withdrawal or modification of essential medicines every year.
|Cuba's Pharmaceutical Market|
According to the latest data available from Cuba's National Bureau of Statistic (ONE, Oficina Nacional de Estadísticas de Cuba), the country's drug expenditure in terms of hospital consumption, pharmacy distribution and other social consumption sectors reached CUP1.16bn (US$1.25bn) in 2010, accounting for 18% of its healthcare spending and 1.7% of GDP. We believe that the figures reported at wholesale price level (around four times of ex-factory price level) reasonably reflect Cuba's medicine consumption, due to the following reasons:
Despite its decades-long isolation, Cuba is traditionally committed to improving its healthcare standards and has relatively strong local production force. According to World Health Organization (WHO) database, Cuba's per capita healthcare spending in 2011 (US$617) was above Mexico's (US$602), therefore it is not unreasonable that Cuba's per capita pharmaceutical spending reached the similar level as Mexico's (US$110) during the same year.
Cuba's National Bureau of Statistic has reported its pharmaceutical trade data for recent years. The absolute numbers and the patterns of pharmaceutical export fluctuations between 2002 and 2010 were in line with data reported by other sources such as UN Comtrade. We note that after 2006 UN Comtrade stopped reporting Cuba's pharmaceutical trade data; however, Venezuela's pharmaceutical imports from Cuba, which accounted nearly 80% of Cuba's total exports, were also very consistent with what Cuba's National Bureau of Statistic has reported.
The pharmaceutical consumption between 2007 and 2010 reported by Cuba's National Bureau of Statistic at wholesale price level was also in line with the drug consumption calculated from Cuba's pharmaceutical imports, exports and local production values reported at ex-factory level.
We note that with total medicine consumption at CUP1.28bn (US$1.28bn) in 2012, Cuba's pharmaceutical spending is surprisingly high despite its faltering economic system, which entered a protracted period of decline after the collapse of the Soviet Union. BMI's Country Risk team believes that it is very unlikely that Cuba will rapidly shift to more open economic policies even after President Raul Castro's end in office in 2018, as the Partido Comunista de Cuba (PCC) has firmly grasped on government institutions.
Because the country's traditional commitment to healthcare improvement, Cuba's drug spending expansion as calculated by BMI will outpace its GDP growth between 2012 and 2017, delivering a compounded annual growth rate (CAGR) of 5.9% in local currency and US dollar terms, and reach CUP1.7bn (US$1.7bn) by 2017. Over the extended 2012-2022 forecast period, we project that drug consumption will reach a value of CUP2.3bn (US$2.3bn), experiencing a CAGR of 5.9% in local currency and US dollar terms. By 2022, spending as a proportion of GDP is forecast to increase to 1.85%, while per capita spending is forecast to reach US$204.
|Source: Cuba's National Bureau of Statistic (Oficina Nacional de Estadísticas de Cuba), BMI|
|Pharmaceutical sales (US$bn)||1.52||1.25||1.24||1.28||1.35||1.43||1.52||1.61||1.71|
|Pharmaceutical sales (US$bn), % chg y-o-y||4.0||-17.9||-0.4||3.1||5.1||6.1||6.1||6.1||6.1|
|Pharmaceutical sales (CUPbn)||1.41||1.16||1.22||1.28||1.35||1.43||1.52||1.61||1.71|
|Pharmaceutical sales (CUPbn), % chg y-o-y||2.1||-17.9||5.4||5.1||5.1||6.1||6.1||6.1||6.1|
|Pharmaceutical sales at constant exchange rate (US$bn)||1.44||1.18||1.24||1.31||1.37||1.46||1.55||1.64||1.74|
|Pharmaceutical sales, per capita (US$)||134.79||110.74||110.32||113.74||119.65||127.04||134.94||143.32||152.20|
|Pharmaceutical sales, % of GDP||2.26||1.72||1.71||1.70||1.70||1.72||1.73||1.76||1.78|
|Pharmaceutical sales, % of health expenditure||19.26||17.64||17.88||17.51||17.19||17.04||17.21||17.37||17.53|