Spanish Drugmakers See Austerity Reducing Sales 15% as Rajoy Readies Cuts
Stock Chart for Almirall SA (ALM)
Spanish drugmakers’ sales may drop 10 percent this year and more than 15 percent in 2012 because of government spending cuts amid the nation’s worst economic crisis in decades, the lobbying group Farmaindustria said.
Profit will keep falling until 2015, said Humberto Arnes, director general for the Madrid-based organization. Companies such as Almirall SA (ALM), the biggest Spanish drugmaker by market value, may learn today of further measures that threaten sales when Prime Minister Mariano Rajoy announces his first round of budget reductions since taking office this month.
“The entire industry is in danger,” Arnes said in a telephone interview. “It’s impossible for drugmakers to recover in such a tough environment and many may have to relocate. The effects are devastating.”
As Spain takes on the euro region’s third-largest budget deficit, government moves to cut health-care costs, such as a decision in August limiting doctors’ prescriptions to active pharmaceutical ingredients rather than brand-name drugs, have reduced earnings in the country’s medical industry.
Almirall stock slid 1.7 percent and Laboratorios Farmaceuticos Rovi SA (ROVI) fell 2.8 percent, underperforming Spain’s benchmark IBEX 35 (IBEX) index, which was up 0.2 percent at 11:15 a.m. in Madrid.
Almirall Profit Drops
Almirall, which sells the multiple-sclerosis treatment Sativex, has tumbled (ALM) 22 percent this year in Madrid trading. Nine-month net income dropped 27 percent to 88.8 million euros ($115 million) as sales fell 13 percent, and the company forecast a similar sales trend in 2012. Faes, which makes the allergy treatment bilastine, has plummeted 52 percent this year, making the Bilbao-based drugmaker the worst performer in Spain’s pharmaceutical industry.
“The industry has already slashed its workforce and research and development spending, which may undermine its future,” said Jordi Molina, Almirall’s head of investor relations. “More measures would be very harmful.”
On top of spending cuts, health companies and pharmacists are being strangled by increasing payment delays. Public hospitals owe pharmaceutical companies 5.83 billion euros and the average payment time is 468 days, according to Farmaindustria.
800 Days Late
Medical-device supplier Prim SA (PRM) is suffering payment delays of more than 800 days from regions such as Valencia on the Mediterranean coast and Andalusia in the south, said Carlos Rodriguez, secretary general of the Madrid-based company. He said he expects additional budget cuts that hurt earnings.
Austerity measures and widening payment delays pose a risk for pharmacists and patients, said Daniel Cerdan, a pharmacist from Zaragoza.
“Unless more balanced measures are approved, the industry won’t be able to supply all drugs needed in 10 or 15 years,” Cerdan said. “Before, it was bizarre not being paid by the regional administration and now it’s rare to actually be paid.”
No one at Spain’s Health Ministry was available for comment on when contacted by phone and e-mail.
Maria Victoria Moraleda, a pharmacist in Toledo, in Spain’s Castilla-La Mancha region, has no faith she will get back 140,000 euros of unpaid bills since June. “We’ve had to ask for loans and put our own assets as collateral,” said Moraleda from her pharmacy.
The cutbacks, while painful, are necessary, said Francisco Salvador, a Madrid-based strategist at FGA/MG Valores.
“Spaniards used to go the doctor twice as much as Germans or British and way too much money was spent on the health system,” he said in a phone interview. “During the last few years pharmaceutical spending has been too high and now the entire health system needs to be rationalized, both the number of prescriptions and its use by patients.”
Roche Holding AG (ROG), the world’s biggest cancer-drug maker, is enforcing its payment terms with hospitals to make sure it collects outstanding bills, said Severin Schwan, chief executive officer of the Basel, Switzerland-based company.
Javier Lopez-Belmonte, chief financial officer at Rovi, a Madrid-based drugmaker that gets 65 percent of revenue from Spain, said he expects more reductions in the health system, which could impact sales and profit margins in 2012.
“We’ve gone through two years of cuts and it seems there will be more next year,” he said.
Risk to Companies
The government may avoid further health cutbacks because drugmakers already are in a critical situation and more constraints would force some companies to shut down operations, said Faes General Director Gonzalo Lopez.
Some small drugmakers may be forced out of business because of the spending cuts and the high amounts of debt owed by public hospitals, Ignacio Ortiz de Mendivil, a Madrid-based analyst at Banco BPI, said by phone.
“This has been a really tough year for the entire industry and next year will continue to be a difficult one,” he said. “Spanish pharmaceutical companies will have to survive thanks to new products and patents while bolstering their presence abroad.”
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