IHS Global Insight Perspective
Peru's pharmaceutical market faces a downward trend in prices as competition intensifies in the country. The U.S. Free Trade agreement, the rising number of pharmacy chains and the implementation of drug-price information software have played a major role in this trend.
Drug price reductions follow a relatively new trend in the country, where the government is playing a major role in facilitating competition, reducing costs and implementing strategic purchasing techniques to keep costs down.
Looking into the future, major challenges are expected to include the lack of compliance with trickle-down effects of tax cuts and other benefits, the effects of stricter intellectual property (IP) protection rights, the reduction of retail competition and the final incorporation of an even price-control scheme through the market.
Rising competition is influencing a reduction in medication prices in the pharmaceutical market in Peru. Three major factors are contributing to this trend. The first two incorporate the effects of the U.S. free trade agreement (FTA) and the growing number of pharmacy chains, which have expanded the availability of different products, boosting competitive practices, and influenced the offering of cheaper products. Meanwhile, the third factor includes the implementation of drug-price information software that has provided a reliable source to oversee pricing activities and keep customers informed about pricing tendencies when purchasing drugs (see Peru: 1 February 2010: Pharmacies Begin to Publish Drug Prices in Peru and Peru: 5 May 2010: Digemid to Launch New Drug Price Information Software in Peru).
Price Observatory Programme
Today there are 24 pharmaceutical laboratories, 167 drug stores, 127 pharmacy chains, 1,182 pharmacies and 25 public-run services participating in the observatory programme, reports the Ministry of Health. Participants provide up-to-date information on the prices of the products they sell. According to Victor Dongo, director of Peru's drug regulator agency (Digemid), all laboratories and retail businesses in the country are required to adhere to the programme.
The programme is currently in its second version, which provides the average price of each product. This average price includes prices of generic versions, as well as branded generics and branded drugs. The third version is expected to come into place soon and will incorporate specific prices for each type of medication.
U.S. Free Trade Agreement
As reported by minister of health Oscar Ugarte, 70% of medications imported from the United States to Peru have experienced a reduction of 20–60% in their prices. There are a total of 28 drugs imported from the United States, from which 13 are exonerated from international tax rates and pay the rate for national products, in accordance with the FTA terms. From these 13 drugs, nine have reduced their final cost. The reduction in prices has been evident in the private as well as in the public sectors. Corporate purchases are also expected to have influenced this trend within the public sector, which corresponds to 55% of the total national pharmaceutical market.
A growing competition of retail businesses has also become evident in the country. For the month of July alone there were 12 new business sites launched within the market. This tendency has been particularly true for pharmacy chains, which correspond to 60% of the sector. For 2009, pharmacy chains' profitability reached 11% with sales at US$850 million. For this year, sales for July reached 341 million soles (US$122 million) Looking at month-on-month (m/m) growth, March brought the most significant expansion rate in the first half (H1) of 2010, reaching 19.1%. Sales are expected to reach US$980 million by December (Gestion). Looking at m/m growth from June to July, Boticas y Salud experienced the most significant growth, followed by Prop Premix Proteccion and Boticas Arcangel.
Sales Growth from June to July, 2010
Sales Growth (%)
Boticas y Salud Selva
Pro Premix Proteccion
Boticas y Salud
Farmacia La Libertad
Boticas de A Sol del Pueblo (Hospital Solidaridad)
Looking at the number of locations, Inkafarma, which remains the most popular chain in the country, leads the list, followed by Boticas Arcangel and Fasa (see Peru: 7 July 2010: Inkafarma Pharmacy Chain Tops Popularity Rankings in Peru).
Number of Locations
Number of Locations
Boticas y Salud
Source: Encuesta produce
Outlook and Implications
Recent reductions in the prices of drugs sold in Peru follow a relatively new trend in the country, where earlier this year more than 2,000 medications showed a price drop from November 2009 to February 2010 (see Peru: 17 March 2010: More Than 2,000 Drugs Register Price Drops from November to February in Peru). The role of the government has played and is expected to continue playing a crucial role in this process, particularly as the universal healthcare scheme continues expanding and the public sector becomes the major client in the market. As such, in addition to tax cuts and information requirements, joint processes of national purchases of drugs are expected to remain at the core of the government's strategy, which may also include regional corporate acquisitions sometime in 2011 (see Peru: 13 September 2010: Government Plans US$143.4-Mil. Corporate Drug Purchase for 2011 in Peru).
On the contrary to expected outcomes, and looking into short-to-medium term benefits, the U.S. FTA has also played an important role in reducing the prices of specific products sold in Peru. While the trickle-down effect of tax savings has not yet been confirmed for all of these drugs, some of the medications benefitting from tax savings have included insulin and analgesics, whose tax rate has gone from 12% to 0%, as well as erythromycin (respiratory infection treatment) and paracetamol, whose tax rate has gone from 4% to 0%. Meanwhile, rising retail competition reflects the growing attractiveness of the local pharmaceutical market in Peru, where growth rates are expected to remain stable in the following four years (see Peru: 9 October 2009: Pharma Retail Sales to Experience 5% Annual Growth During 2009-14 in Peru).Looking into the future, major challenges to keep prices down include the lack of compliance with the trickle-down effect of tax cuts, the effects of stricter regulatory requirements and intellectual property (IP) protection processes brought by the FTA and the elimination of small and medium-sized retail businesses due to excessive competition from chain firms. Furthermore, the process of market consolidation expected in the following years as well as stricter quality requirements from the government may also reduce competition and ultimately diminish the current dynamism of the sector (see Peru: 1 September 2010: Government Closes 260 Pharmacies and Laboratories in Peru). Looking into the overall market, excessive prices within other sale outlets, such as private clinics, reflects the unevenness of price controls in the country, where general pricing guidelines may be considered for the future (see Peru: 8 September 2010: Drug Pricing Reported to Be Excessive in Private Clinics in Peru).