Hellen Berger

Brazil's generic-drug market grew last year more than twice the total average of the country's pharmaceutical sector in terms of units sold. Market analysts predict the sector will continue to grow although percentages of share growth may drop slightly as the local pharmaceutical industry consolidates.   

In 2009, Brazil's domestic pharmaceutical sales totaled 1.8 billion drugs in units compared with 1.6 billion in 2008, an increase of 8.2%, according to IMS Health. Sales totaled R30.2 billion ($16.8 billion) in 2009, and 15% of drugs sold in 2009 were generic. 

In fact, the country's generic-drug market grew just over 19% last year with strong third- and fourth-quarter sales that totaled R4.5 billion ($2.5 billion) for the entire year, 24% higher than in 2008 when sales totaled R3.6 billion ($2 billion). In units, generic-drug manufacturers sold 330.9 million drugs, compared with 277.1 million in 2008, according to IMS Health. 

"The strong growth of generic drugs in Brazil [and globally] is due to the combination of equal quality products with prices around 50% lower than brand products," Odnir Finotti, president of the Brazilian Generic Drugs Industry Association (Pró Genéricos), told 

The state of Brazil pharma sector: facts and figures 

According to Alexandre Galotti, market analyst for the São Paulo-based consulting firm Tendências Consultoria Integrada, it is natural for sales to grow at an increasing rate in a relatively new market (Brazil's generic-drug market took off in 1999). In consolidated markets around the world, however, market shares continue to be high, while growth patterns tend to decrease over time.   

"As the sector grows older, the market will continue expanding in terms of volume and sales, but at lower percentages," Galotti explained in Portuguese. The good news, he added, is that Brazil's market still has plenty of space to develop. "The current expiration of patents, for example, could boost the development of new generic drugs."  

Another reason for Brazil's significant generic-drug growth may be the global economic crisis that began in 2008. "During times of insecurity, patients search for lower-priced drugs to continue their treatments or even start a treatment that otherwise would not be started if generics were not available," explained Galotti.     

Similar global factors are likely to shape the generic-drug sector in the future, according to analysts. For example, approximately $35 billion in blockbuster patents will expire worldwide in the years to come. At the same time, health costs are expected to increase each year.    

In Brazil, patent expirations could lead to the transfer of approximately R800 million ($444 million) to the generic-drug market between 2010 and 2011, according to São Paulo based PróGenéricos, whose members include large generic-drug laboratories operating in Brazil. The association aims to help increase access to generic drugs by promoting the expansion and consolidation of the market in the country.  

Association data show that around 25 blockbuster-drug patents will expire by the end of 2011, leading to optimistic 

generic-drug industry projections. Finotti, for example, highlights an estimated market-share growth in units for 2010 at more than 20% based on the production of new generic drugs following innovator-drug patent expirations.  

The domestic generic-drug market to date has been driven by several factors, including strong political backing. Challenges remain, however, including the availability of cheaper "similar drugs," which are not true generics in terms of bioequivalence; fewer prescriptions for generic drugs possibly due to lack of knowledge from private practitioners; and limited support from Brazil's overall private sector. 

Still, the market is changing, says Galotti. "Brazilians undoubtedly trust generic drugs more than before, and private health practitioners now prescribe those drugs more constantly."   

In addition, according to Carlos Grabois Gadelha, vice-president of production and health innovation for Brazil's Oswaldo Cruz/FIOCRUZ Foundation, Brazil has been thriving thanks to the country's newfound macroeconomical stability, stable growth rates, and controlled inflation.   

Gadelha spoke at the Valor Económico trade seminar in São Paulo in March. The vice-president added that as demand for health products and services explodes in the near future, the industry may face a lack of production capacity and slowed innovation.  

To help solve the potential problem, Brazil's government aims to increase public production of drugs, restructure its official laboratories, and support local manufacture of relevant drugs, said Nelson Brasil de Oliveira, vice-president of the Brazilian Fine Chemical and Biotechnology Industry Association (Abifina), at the Valor Económico seminar.   

Looking ahead, trade officials expect generic drugs to account for more than 22% of Brazil's overall market share by 2011. In this case, the country could become one of the largest generic-drug markets in the world, according to the Pró Genéricos.   

Hellen Berger is a business writer based in São Paulo, Brazil.

Articles

The growth of Brazil's generic-drug market is on a fast track, but what are the projections for the sector's future?

Report from Brazil May 2010

According to most analysts, the global pharmaceutical industry is going through a consolidation phase. Major moves were reported throughout last year, including the high-profile acquisitions of Wyeth (Madison, WI) by Pfizer (New York) for $68 billion, Schering-Plough (Kenilworth, NJ) by Merck & Co. (Whitehouse Station, NJ) for $41.1 billion, and Genentech (South San Francisco, CA) by Roche (Basel, Switzerland) for $46.8 billion. But is Brazil's pharmaceutical industry following the trend?   

 PHOTO: ADALBERTO RIOS SZALAY/SEXTO SOL / GETTY IMAGES 

"Yes, Brazil is definitely following the trend, aiming at cost-cutting goals and diversifying portfolios," says Alexandre Gallotti, a pharmaceutical sector economist for the São Paulo-based consulting firm Tendências Consultoria Integrada.  According to Gallotti, one major acquisition involving a local company could set the pace for the industry's next steps. In April, Brazilian São Paulo-based generic-drug manufacturer Medley (São Paulo) was acquired by French major sanofi-aventis (Paris) for R$1.5 billion ($798 million). The third largest pharmaceutical firm in the country, Medley held 5.7% of the overall pharmaceutical sector domestic share and reported 2008 revenues of R$458  million ($244 million).  

Before the deal, sanofi-aventis already had a strong presence in the Brazilian pharmaceutical industry, with its largest plant located in Suzano, São Paulo. sanofi's sites also include administrative and research offices located in the city of São Paulo. But with the move, the French company now accounts for 12% of Brazil's pharmaceutical market in terms of sales, according to Tendências Consultoria figures, and leads the generic-drug sector, not only in Brazil, but also in Latin America as a whole. In October 2009, the company announced plans to build a $45-million plant in Brasília to produce generic contraceptives with a target operational date of 2012.  

"There is no doubt that the consolidation here too is being driven by the expiration of major drug patents.... which makes generics producers a potential target for acquisitions," explains Gallotti.  

According to a recent Tendências Consultoria report, the development of new drugs could revert the projected drop in earnings of drug-producing laboratories. The problem is that research and development (R&D) units have had limited success in developing new drugs to be patented as results have not come out as expected, while operating costs have been very high. Also, to apply for patents and comply with the strict rules imposed on sales of prescription drugs, companies have had to risk large sums.   

After completing a merger or acquisition, companies may be in a better position to cut production costs. Lower costs could lead to reduced drug prices for consumers, according to Gallotti. But citizens in Brazil, and throughout Latin America, may not see any real benefits for some time. "Those moves would increase companies' market strength in the region and hold prices from falling," says Gallotti. "Companies would probably keep the extra profit," he adds. On the other hand, economists from Tendências Consultoria note that larger companies should have financial resources to conduct additional R&D in niche areas such as oncology. "Brazilians and others would benefit from feeling a greater sense of well-being, with easier access to drugs and treatments," explains Gallotti.        

Alexandre Geyer, president of the National Pharmaceutical Laboratories Association (Alanac), and owner of a small pharmaceutical company in Porto Alegre, Rio Grande do Sul, agrees that  mergers and acquisitions in Brazil's pharmaceutical industry are on the rise but, more important, he notes that the trend may bring to light the unique advantages of this particular emerging market.  

Most drugs sold in Brazil have controlled prices, but certain drugs made from natural products, as well as vitamins and fruits found in Brazil, do not have price controls. Because Brazil has so much biodiversity, there is significant investment opportunity in biotechnology and natural-drug products. The country's ecosystem could also open the doors for smaller firms to compete, says Geyer.   

According to Alanac, Brazil is among 10 countries that hold the largest share of the global pharmaceutical market in terms of sales. In Latin America, Alanac considers Brazil the most developed in terms of its regulatory processes, sanitary measures, and IP laws.  

On Sept. 22, 2009, Moody's Investors Service announced an additional upgrade on Brazil's foreign and local-currency government bond ratings to Baa3, granting the country investment-grade status (Standard & Poor's [S&P] granted Brazil the upgrade on Apr. 30, 2008, while Fitch Ratings did so on May 29, 2008). S&P reiterated Brazil's investment-grade status Dec. 8, 2009, and reaffirmed its BBB- long-term and A–3 short-term foreign currency sovereign credit ratings, adding that the outlook remained stable. The upgrade is expected to increase foreign investment and indirectly improve the financial status of the population, according to Daniel Gewehr, a healthcare analyst for Santander Bank. Gewehr notes that Brazil has nearly 200 million inhabitants, and according to a Santander report, nearly 50 million people will be over age 65 by 2050. "A growing, ageing, and wealthier population would certainly need developed and consolidated healthcare services and drugs," says Gewehr.  

Brazil has come a long way from a three-digit inflation rate in the 1990s (currently around 4.3%) to investment- grade status in 2008. As millions of Brazilians step away from poverty and start spending, not only on cellphones and televisions, but also on insurance and pharmaceuticals, companies such as sanofi-aventis are eyeing Brazil's potential. Analysts forecast Brazil's GDP growth to round out at 5.0% in 2010 (from an estimated 2% in 2009), when the worst effects of the global crisis are expected to be over. "Brazil's industry tends to grow in line with the GDP.... I am very optimistic," adds Gewehr.   

 Hellen Berger is a business writer based in São Paulo, Brazil

Is Brazil's pharmaceutical industry following the consolidation trend?