BMI View: Our opinion that industrial action in Israel would result in an increase in public healthcare expenditure has played out. The government is promising an additional ILS2.7bn (US$764mn) a year for doctors’ salaries and public health in general. This is a significantly larger increase than we had forecast (US$106mn) and we have adjusted our forecasts accordingly. Some doctors have resisted the new agreement, saying it does not go far enough, but BMI does not expect the government to make any significant further concessions.

Israel Pharmaceuticals and Healthcare Market Report Q1 2012

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Headline Expenditure Projections

Pharmaceuticals: ILS6.72bn (US$1.80bn) in 2010 to ILS6.98bn (US$1.98bn) in 2011; +3.9% in local currency terms and +10.0% in US dollar terms. This is down in US dollar terms from Q411 due to a downward revision to macroeconomic figures.

Healthcare: ILS59.77bn (US$16.01bn) in 2010 to ILS62.42bn (US$18.31bn) in 2011; +4.4% in local currency terms and +10.5% in US dollar terms. This is up from Q411 in local currency terms, due to government concessions to medical staff. However, in US dollar terms the forecast is down because of a downward revision to macroeconomic figures.

Medical devices: ILS3.66bn (US$980mn) in 2010 to ILS3.81bn (US$1.08bn) in 2011; +4.2% in local currency terms and +10.2% in US dollar terms. This is down in US dollar terms from Q411 due to a downward revision to macroeconomic figures.

Business Environment Rating: In our latest regional BERs, Israel ranks fifth, out of the 30 markets surveyed in MEA. This is down from third in Q411 due to a downgrade to the country’s currency forecast for 2011-2013. This consequence of this reduction is a slowing in the market’s growth in US dollar terms, which is a key component of the country reward score.

Key Trends And Developments:

In an effort to control an increasingly hostile domestic political situation, the government signed a new pay deal with the country’s doctors that includes an average pay increase of 49% on their hourly wage, a promise to hire and train 1,000 more doctors to alleviate shortages, and incentives for doctors who work outside of the main population centres and in specialist medical areas with staff shortages. The changes to the terms of their contracts are to be applied retroactively to July 2010 and remain in place until 2019, so the doctors can probably expect a cash windfall that will also increase public healthcare expenditure in 2011.

Israel is in the process of aligning its good manufacturing practice (GMP) and good distribution practice (GDP) legislation with EU directives 2003/94/EC and 2001/83/EC. The result of these changes will be an increasing onus on pharmaceutical importers to assure the quality of their products and their supply chains. This will be partnered with an increase in system oversight, including an authorisation process for importers and the introduction of a three-year maximum jail term for people that break the new rules.

BMI Economic View: The Bank of Israel (BoI)’s decision to cut its headline interest rate from 3.25% to 3.00% on September 26 2011 came in response to growing concern over global growth. Given declining inflation rates and expectations, we see potential for further rate cuts over the medium term and consequently we have revised down our 2012 headline rate forecast from 4.00% to 2.75%. BMI Political View: The announcement on September 15 2011 of the Israeli reform committee’s recommendations for dealing with public unrest will not appease protestors. Most of the measures are not enough to bring about the change that protestors demand and we anticipate a resurgence in large demonstrations.

The possibility of an Israeli air strike on Iran should not be underestimated. Rumours about potential Israeli military action have were reported in the media in November 2011 and while we still believe the costs of an air war would outweigh the benefits, Israeli decision makers may decide otherwise. We reiterate that a military confrontation between Israel and Iran would create a new global crisis, threatening to spiral into a regional war, which would in turn drive up oil prices.