Economic turmoil in Venezuela is plaguing the country’s pharmaceutical sector, leaving its medicine manufacturers struggling to meet market demand. Strict price controls and a shortage of foreign currency are contributing to empty shelves in pharmacies across the country, as manufacturers are dependent on imported inputs and lack the hard currency to pay for them.
‘It’s become increasingly difficult to complete our social duty,’ said Ángel Márquez, Executive Vice President of the Venezuelan Chamber of the Pharmaceutical Industry (CIFAR), which represents mainly Venezuelan-owned manufacturers. Although authorities have recently taken steps to address the industry’s troubles, drug makers are still struggling to fulfill the country’s needs.
It’s become increasingly difficult to complete our social duty
Venezuela’s exchange controls are a central issue for its pharmaceutical sector. CIFAR reported recently that this year the government had accumulated a US$350m debt in outstanding orders with its pharmaceutical suppliers. And while CIFAR’s members make the smallest share of Venezuela’s medicines – about 21% – the Venezuelan Chamber of Medicines (CAVEME), largely representing the local arms of international pharma players, said the sector at large is strapped for cash. Private companies, worth an estimated $6.5bn, produced about 6.7 million units of medicine last year, but it is anyone’s guess how much will be made in 2013.
‘We all have the same [dollar] problem,’ said a representative from CAVEME, whose affiliates manufacture nearly 50% of the country’s medicines and operate some of Venezuela’s largest laboratories, including those run by Merck, Novartis and Pfizer. CAVEME estimates its affiliates’ debt with their suppliers of manufacturing inputs reached a staggering $1.8bn in hard currency at the beginning of 2012.
Access to hard currency critical
Because Venezuela’s pharma sector lacks important elements of a comprehensive medicine manufacturing sector, access to hard currency is critical. Whether it is capsules, chemicals or pill containers, ‘all medicines here are made with imported products,’ said the CAVEME representative.
Even if they had been paid by the government health services, industry officials complain of a maze of bureaucracy in getting approvals for imports and clearance for obtaining foreign currency to purchase inputs, with delays lasting on average 60 days for CAVEME companies. More complicated still is actually paying international suppliers when they reach Venezuelan ports. Dollar offerings have dropped off on official exchanges after heavy spending to re-elect the late Hugo Chávez last year. New York-based risk-consultancy Eurasia Group estimates that foreign currency made available to all businesses was only about $100m per day at the end of May, compared with $170m per day in Q1 of 2012.
While the government of Nicolás Maduro, elected in March, has moved to ease the pharma sector’s debt burden – paying roughly 20% of CIFAR’s dues and 44% of CAVEME’s – these companies are still deep in the red. With outstanding orders continuing to pile up, CIFAR’s affiliates are currently $307m in debt, while CAVEME owes $1.3bn.
‘We’ve yet to see the government offer a comprehensive plan to address the problems in the pharmaceutical sector,’ added Márquez, complaining about the inconsistent dollar offerings and the persistence of rigid price controls.
We’ve yet to see the government offer a comprehensive plan to address the problems in the pharmaceutical sector
In an effort to combat the country’s rampant inflation – currently among the world's highest at just under 43% – about a third of the country’s medicine prices were frozen in 2003 and the remainder in 2011. Despite OTC sales rising by 76% since 2007 – totalling $1.7bn in 2012, according to international research group Euromonitor – price fixing has prevented many firms from filling prescriptions.
‘The frozen prices are de-capitalising businesses, forcing downsizing,’ said the CAVEME representative. CAVEME estimates shortages in 35–40% of products. And while there is an abundance of available alternatives for non-prescription drugs such as aspirin and allergy medicines, treatments for more serious conditions such as diabetes, cancer and multiple sclerosis are often very hard to come by.
Easing of controls has not materialised
Inheriting a faltering economy, many observers had anticipated that Maduro would pursue a more moderate course after his predecessor’s hardline approach. But while the new president has initiated dialogues with much of the private sector to address business needs, the easing of controls has not materialised.
It seems that the government does not grasp the concept that producers won’t produce if they can’t cover costs
‘Quality medicines are expensive in any country,’ said Dr Miriam Regnault, former Director of Graduate Studies at the University of Central Venezuela’s pharmacy faculty. ‘It seems that the government does not grasp the concept that producers won’t produce if they can’t cover costs.’ Still, some remain optimistic. ‘There wasn’t such discussion under Chávez,’ said Márquez.
Stressing the importance of pharmaceuticals over many other imported goods, the CAVEME representative is concerned: ‘They [the government] are paying us back little by little – when they can. We just don’t know when that will be.’
