Fiscal Deficit Impact Not To Be UnderestimatedBMI View: The introduction of government price erosion mechanisms will accelerate across Europe, driven by the need for fiscal austerity and presaged by the actions of numerous governments over the past six months. With government deficit levels of 22 of the 27 EU member states exceeding the bloc threshold in 2009 and many other European countries facing budget troubles, BMI believes that further action against pharmaceutical prices is likely. While negative for the industry as a whole, the greatest impact on earnings will be experienced bycompanies with heavy reliance on European markets.Deficits remain a key challenge for the majority of governments across Europe. New fiscal austerity measures in the eurozone in an attempt to calm bond markets reinforce our weak growth outlook, adding to existing problems of over-leverage, unfavourable demographics and rising unemployment. The combination of spending cuts and tax hikes are likely to hammer private consumption, especially around the eurozone's periphery, reinforcing our view that the eurozone will be the weak link in global demand through the medium term. In Emerging Europe, the end of the regional recession, stabilisation of currencies and the sharp mitigation of external account deficits have significantly improved the sovereign risk outlook. That said, wide fiscal deficits will come into Widespread implementation of these changes is representative of the need to decrease government spending and the relative ease with which companies can target the pharmaceutical sector, rather than pursuing less politically-friendly cuts such as reducing hospital beds. Assessing the level of fiscal deficits present across Europe, BMI does not expect the introduction of price erosion mechanisms to end now. Other than the countries previously noted, European markets at risk of greater restrictions due to their deficit situations include the UK, Portugal, Latvia, Romania, France and Italy. Of these, the latter Western European countries represent present particular risks as a result of the combination of deficit levels, their previous history of cuts and already-high per-capita and total market spending having a major effecton industry performance. BMI believes the measures will result in deflation for pharmaceutical products across Europe in 2010. In this report, BMI provides an analysis of the implications of the Eurozone sovereign debt crisis on the PIIGS pharmaceutical industries, with a particular focus on the impact of the austerity measures on drug sales.

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Eurozone Debt Crisis: Effects on PIIGs Pharma Market
Published on May 2010
Report Summary
Fiscal Deficit Impact Not To Be Underestimated
BMI View: The introduction of government price erosion mechanisms will accelerate across Europe, driven by the need for fiscal
austerity and presaged by the actions of numerous governments over the past six months. With government deficit levels of 22 of the
27 EU member states exceeding the bloc threshold in 2009 and many other European countries facing budget troubles, BMI believes
that further action against pharmaceutical prices is likely. While negative for the industry as a whole, the greatest impact on earnings
will be experienced by
companies with heavy reliance on European markets.
Deficits remain a key challenge for the majority of governments across Europe. New fiscal austerity measures in the eurozone in an
attempt to calm bond markets reinforce our weak growth outlook, adding to existing problems of over-leverage, unfavourable
demographics and rising unemployment. The combination of spending cuts and tax hikes are likely to hammer private consumption,
especially around the eurozone's periphery, reinforcing our view that the eurozone will be the weak link in global demand through the
medium term. In Emerging Europe, the end of the regional recession, stabilisation of currencies and the sharp mitigation of external
account deficits have significantly improved the sovereign risk outlook. That said, wide fiscal deficits will come into Widespread
implementation of these changes is representative of the need to decrease government spending and the relative ease with which
companies can target the pharmaceutical sector, rather than pursuing less politically-friendly cuts such as reducing hospital beds.
Assessing the level of fiscal deficits present across Europe, BMI does not expect the introduction of price erosion mechanisms to end
now. Other than the countries previously noted, European markets at risk of greater restrictions due to their deficit situations include
the UK, Portugal, Latvia, Romania, France and Italy. Of these, the latter Western European countries represent present particular
risks as a result of the combination of deficit levels, their previous history of cuts and already-high per-capita and total market
spending having a major effect
on industry performance. BMI believes the measures will result in deflation for pharmaceutical products across Europe in 2010. In this
report, BMI provides an analysis of the implications of the Eurozone sovereign debt crisis on the PIIGS pharmaceutical industries,
with a particular focus on the impact of the austerity measures on drug sales.
Table of Content
Introduction ........................................... 5
Fiscal Deficit Impact Not To Be Underestimated .. 5
chart: Austerity Required ..........................................5
Europe - 2009 General Government Deficits, % of GDP
chart: High Public Reliance In Europe ...................5
Pharmaceutical Spending By Payer Type
chart: Deflation Ahead ................................................6
EU 27 Pharmaceutical Products Consumer Price Index
PII GS .......... 7
Portugal ................... 7
Portugal Pharmaceutical Market Forecast . 7
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Significant Risks To Economic Growth In 2010 And Thereafter ............. 7
chart: At Risk .7
Portugal Pharmaceutical Market
Further Drug Price Cuts A Possibility ........ 8
chart: Further Deflation A Possibility .................8
Portugal Pharmaceutical Products Consumer Price Index
chart: Declining Governemnt Contribution ........8
Portugal Health Expenditure
Public Healthcare Sector Already In Debt .. 8
Ireland ....... 9
Price Cuts Enforced On 300 Prescription Drugs .................................... 9
chart: Under Pressure ..............................................9
Ireland Prescription Drug Market Forecast
Italy ......... 10
State Pharmaceutical Spending Falls Again ........................................ 10
chart: Falling ................................................................10
SSN Net Pharmaceutical Expenditure, %
Pharmaceutical Expenditure Outlook ........11
Economic Outlook: Weaker Growth Awaits In 2010 ..............................11
Greece ..... 11
Mass Price Cuts Spell Doom For Drugmakers ......................................11
From Bad To Worse .................................11
chart: Further Deflation Inevitable ...................12
Greece Pharmaceutical Products Consumer Price Index
Bailout Won't Solve Long-Term Insolvency .......................................... 12
chart: Debt Grinding Higher ...................................13
Greece - Total Government Debt, % Of GDP
Prevailing Debts Could Prolong Price Measures ................................. 13
A True Contagion ..................................... 13
chart: Projections At-Risk .......................................14
Spain ....... 14
Price Cuts Implemented To Make savings Of US$2.0bn ..................... 14
Poor Economic Outlook ........................... 14
No Category Of GDP Is Safe ................... 14
New Reference Pricing Scheme For Medicines ................................... 15
Pressure On The Generics Market .......... 15
table: SPAIN MACRO OUTLOOK ....................................15
indicators: Nominal gdp us$bn, Nominal gdp eurbn, real gdp growth % change y-o-y,
unemployment % of labour force, ave, fiscal expenditure eurbn
More Gloom For Drugmakers .................. 16
chart: Sp ending Threatened .................................. 16
Spain Pharmaceutical Market Forecast
Conclusion ........................................... 17
How Will The Price Cuts Affect Companies' ....... 17
chart: High Exposure = Greater Risk .................. 17
European Pharmaceutical Sales As % Total Revenues Q110
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