Follow the leader: biopharma growth in Latin America

As mega-mergers of pharmaceutical firms come to an end, companies are searching for smaller investments to increase the volume of their pipeline projects and penetrate new areas. Such an investment strategy is proving to be more effective in R&D productivity. In this scenario, Brazil and the Andean region (Bolivia, Colombia, Ecuador, Peru and Venezuela) have emerged as areas with major opportunities for big, small and generic pharmaceutical companies looking to acquire regional biotech firms with initial R&D studies, and place them in a global context.

The healthcare sector is currently taking advantage of the Andean biodiversity, enabling a vast development of pharma R&D. Not surprisingly, major pharma firms, such as Abbott, Bristol-Myers Squibb and Eli Lilly, have participated in this development for the last 50 years.

Presently, Latin America does not have a well-developed R&D industry. For this reason, regional commercial treaties with Mercosur and NAFTA provide the region with opportunities to expand their trade and attract new foreign investments; however, the emerging local pharma companies oppose the idea of opening up to foreign investments, as these will come with foreign regulations about intellectual property, thus potentially decreasing their market size. But intellectual property regulations will ensure R&D foreign investments, position the region as a strategic location to place manufacturing facilities and, ultimately, expand the whole market potential for the region. In this context, M&A is the main tool; local and big pharma companies need to get together, pull their core competencies and exploit the promising future of this industry.

Big earner

The Brazilian pharmaceutical market is among the world's ten biggest earners, with revenues of $26.1 billion in 2011, estimated to reach $41.3 billion in 2015. It is the largest in Latin America, growing at a compound annual growth rate (CAGR) of 12.1% from 2011 to 2015. This market is driven by branded and non-branded generics, which will be strengthened by patent expiries of blockbuster drugs such as Cialis, Cymbalta, Diovan, Nexium and Zyprexa. Within this scenario, a significant number of acquisitions and strategic deals on branded and non-branded generics is expected to be maintained.

Major worldwide companies in this market have started to show interest by selling their products in Brazil, and are considering installing factories in the local market. Total investment in Brazil's generics sector, in terms of constructing and modernising industrial plants, has already surpassed $170 million. In 1999, ANVISA launched legislation approving and regulating generic medicine, and the government has since greatly advocated the use of generics, which were disseminated to the Brazilian population.

Generics success

In 2010, Brazilian generics grew 33% in terms of sales, while globally, it increased by only 11%. Generics represent more than 20% of units sold in the Brazilian pharmaceutical market. The great success of generic drugs in Brazil is basically driven by the affordability of these medicines, which cost around 50% less than brand-name drugs. The generics segment still has great growth potential, especially in the short and mid-term.

Brazil's four major national brands of biologics are Biosintética, Blausigel, Laboratorio Bergamo and Meizler. Although not as relevant as the multinational brands in terms of market share and brand recognition, Brazilian laboratories are already present in important segments such as erythropoietin, G-CSF, interferon, vaccines and insulin.

In 2010, the total Brazilian biologics market was worth $1.8 billion. It is at the development stage and is likely to grow at a CAGR of 19.1% from 2010 to 2017, reaching $6.1 billion. Public programmes, such as the National List of Essential Medicines (RENAME) and Farmacia Popular, are important market drivers. For some biologic segments, such as insulin and blood agents, the government provides the population with free biologic drugs, which ensures demand, because most of the population cannot afford the expensive biologics without this assistance.

Big-names monopoly

The Brazilian biologics market is dominated by large multinational companies including Abbott, Eli Lilly, Novo Nordisk, Pfizer, Roche and Sanofi. Their brands and drugs are already well established, and they have the largest share in all segments. However, only a few have a broad portfolio that covers multiple biologic segments. Monoclonal antibodies are the most lucrative segment, with revenues of $767.7 million in 2010 and a CAGR of 25% to 2017.

Local production for biotech drugs is still very low. Of the 26 main brands of biologics, only eight are Brazilian, and their products do not have the same market penetration as the multinational companies. The key domestic companies are Bergamo, Biosintética (Aché), Blausiegel, Cristália and Meizler.

Dispensing control

Controlling the indiscriminate dispensing of different types of medicines is a great challenge for Brazil's healthcare system. In response, the government programme Farmácia Popular (Popular Pharmacy) was launched in 2004. This represents a major effort by the government to exert control over the country's sprawling retail pharmaceutical industry and help deter unregulated trade.

The market is also driven by an aging population, and the percentage of the elderly population (60 years and older) will significantly rise to 13.5% in 2015 from 10.1% in 2005. With the growing older population, there will be a significant rise in traditional pharmaceuticals segments like cardiovascular diseases, pulmonology, neurology and oncology, and non-traditional areas such as cosmetics, plastic surgery and nutrition. Brazil's over-the-counter drug market has an estimated growth rate of 15%, covering nutritional supplements, multivitamins, dermocosmetics, analgesics and cold/flu treatments.

Governmental influence

The key issues for local companies are focusing their efforts on the quality of their scientific data (results), and identifying the right company to merge with in order to develop their products. Foreign pharma companies, however, will search for opportunities in unfulfilled markets with a sustainable internal demand.

The link between these two is the government. Government institutions can help find the correct alliances, promote the direction to the development of human resources and, more importantly, prepare the legal ground for the industry to develop with clear and stable legislation. Big, small and generic pharmaceutical players in Latin America are constantly searching for M&A opportunities.