Issue Date: July 30, 2012
Pharma Companies Head To The Emerging Markets Of Latin America
Although geographically close, Latin America’s countries are miles apart when it comes to doing business. Multinational pharmaceutical companies are drawn to the region by the overall double-digit rate of market growth. But before executives move business into any one country, they carefully weigh the opportunities against the economic, regulatory, and political risks.
Latin America is unlike the European Union, where many countries adhere to the same standards, explains Laura Hamill, vice president for Latin America at Amgen. “When you look at Latin America you really have to understand and have a deep knowledge of each country,” she says. “The biggest challenge is making sure that you are familiar with the specifics around regulations, intellectual property, and the reimbursement process for each country.”
These factors can affect timing, pricing, and even what products to offer. As a result, many drug companies will enter a country first with a local distributor. Once products are established, Hamill says, “we may have enough mass and scale to consider whether we would go in locally on our own.”
In April 2011, Amgen took that step in Brazil. It spent $215 million to acquire the privately held firm Bergamo, gaining a slate of generic drugs and manufacturing capabilities in the state of São Paulo. Amgen also used the opportunity to reacquire Brazilian sales rights it had granted to a distributor.
With a stable political environment and good economic growth, Brazil is the largest and fastest-growing pharma market in Latin America, accounting for 38% of regional sales, according to a recent report from Deutsche Bank Securities. The overall Latin American market in 2011 was worth about $67 billion, or 7% of global drug sales.
Whereas drug sales in the U.S. and Europe increase just a few percent per year, many Latin American markets are expected to grow more than 10% annually between 2011 and 2015. Brazil and Mexico already rank seventh and 14th in the world, and Argentina is likely to be among the top 20 by 2015, Deutsche Bank analysts predict.
The different countries vary significantly in market size and attractiveness, the analysts point out. In general, growth is being driven by more affluent and aging populations, in particular an expanding middle class in Brazil. Although consumers make a majority of purchases out of pocket, economic growth in some countries is increasing the public funding of health care.
The suppliers are extremely diverse as well. Deutsche Bank estimates that Latin America has 2,000 pharmaceutical companies, most of which are small and privately owned. Only three companies are public: Chile’s CFR Pharmaceuticals and two hybrid drug and consumer product companies, Hypermarcas in Brazil and Genomma Lab in Mexico.
“No one pharmaceutical company dominates the region, as the markets are fairly fragmented between a mix of multinationals and strong local manufacturers,” the Deutsche Bank report says. Given that a significant portion of drug industry growth will occur in the region, “local manufacturers will be well positioned to capitalize on this opportunity, and the region will be an important contributor to growth for many multinational companies.”
In recent years, several major drug firms have acquired companies in Latin America. In February, Merck & Co. took a 51% stake in a joint venture with Brazil’s Supera Farma Laboratorios. The new business is starting with 30 innovative pharmaceuticals and brand-name generics. In Brazil, as in other countries, as much as 80% of the market is off-patent drugs and branded generics.
Expanding in generics and over-the-counter drugs, Takeda Pharmaceutical agreed last month to acquire Multilab Indústria e Comércio de Produtos Farmacêuticos in Brazil for about $250 million. Takeda says the purchase will make it one of the top 10 drug companies in the country. The Japanese firm already manufactures prescription and over-the-counter products in Brazil, which is its second-largest emerging market after Russia.
The biggest multinational player in Latin America is Sanofi, according to Deutsche Bank. In 2011, the French firm had $4.2 billion in sales, or 9% of its total revenues, in the region. Sanofi has a 13% market share in Brazil, which is the firm’s leading emerging market, surpassing even China.
In 2009, Sanofi expanded its position by acquiring Brazil’s Medley for $665 million. Family-owned Medley was the third-largest pharma company in Brazil, with two-thirds of its sales in generics. Around the same time, Sanofi bought Laboratorios Kendrick, a Mexican generics firm. It has since started selling Medley products in Mexico.
“Unlike many multinationals, Sanofi manufactures the vast majority, greater than 90%, of its products locally at four sites in the state of São Paulo,” the analysts write. The company has more than 5,000 employees in Brazil and sells more than 150 brands.
Meanwhile, Pfizer has done business in 23 Latin American markets for more than 55 years. It has manufacturing facilities in four of them: three in Brazil, two in Mexico, and one each in Argentina and Venezuela. The Argentinian site has product development labs. Some sites supply other regional markets, and some are the global source of key drug, vaccine, and animal health products.
Latin America is the largest revenue contributor within Pfizer’s emerging markets business unit, representing 31% of the unit’s $9.3 billion in revenues last year, according to Adele M. Gulfo, Pfizer regional president for Latin America. Four of the unit’s top 12 countries are in Latin America.
Brazil is Pfizer’s number two emerging market after China. Active in Brazil for 60 years, the company expanded its presence in 2010 by purchasing a 40% stake in the generics firm Laboratório Teuto Brasileiro. It spent about $240 million on the deal, which includes the option to acquire the rest of Teuto beginning in 2014. The Brazilian company sells about 250 products.
The acquisition “will help Pfizer reach the emerging middle class in Latin America and respond to the health care needs of the region,” says Victor Mezei, president of Pfizer Brazil. The partners have exchanged 43 medicine dossiers, introduced generic and branded generic versions of Viagra and Lipitor, launched the anti-inflammatory Cicloxx, and added six products to Pfizer Brazil’s portfolio.
Local partnerships allow Pfizer to broaden its medicines portfolio, expand its distribution network to reach patients in rural areas, and integrate key operations such as sales, manufacturing, and finance, Mezei says. In the near term, “Pfizer plans to use Teuto’s portfolio regionally, delivering dossiers to other countries in Latin America,” he adds.
Teuto and Pfizer have a presence in about 65,000 pharmacies across Brazil. “Because a great number of Latin American patients lack health insurance that covers prescription drugs, they are extremely sensitive to prices,” Gulfo says, “and there lies the importance of being competitive in the generics market.”
Among the fastest-growing multinational players is the Canadian specialty drug firm Valeant Pharmaceuticals, which has made five acquisitions in Brazil and Mexico during the past four years. Talking to analysts in June, Valeant executives said their success has made them excited about doing more deals in Brazil and Mexico, as well as Colombia and possibly Peru and Chile.
Brazil and Mexico are the most attractive countries for multinationals, followed by Colombia and Peru, according to Deutsche Bank. Others, such as Venezuela and, increasingly, Argentina, are viewed as risky because of protectionist policies and high levels of economic uncertainty. Even so, the analysts say that many of these countries could provide the “next wave of growth beyond Brazil.”
In June 2010, GlaxoSmithKline spent $253 million to buy the Argentine pharmaceutical firm Laboratorios Phoenix. The acquisition gave GSK a portfolio of generic drugs and a manufacturing facility near Buenos Aires. The British firm is now the third-largest drugmaker in the country.
In 2011, GSK had $2.1 billion in Latin American sales—25% of its emerging markets business and about 6% of its overall sales. “We suspect it is looking for an acquisition candidate to propel its market position into the top 10” in Brazil, the Deutsche Bank analysts suggest.
Amgen, meanwhile, has distributors in Argentina and other countries and hopes to “slowly but surely increase its presence within the region through affiliates,” Hamill says. In general, Colombia and Peru “look like they have a good potential for growth,” she says, whereas Venezuela and Argentina are two countries that the industry “will watch and look at in terms of what is the right time to enter in ourselves.”
Some of the potential depends on government attitudes toward innovation and specific health care areas, Hamill explains. Amgen plans to bring three newer biologic drugs to Brazil: the cancer drug Vectibix, the parathyroid disease treatment Mimpara, and Nplate, which is under review in Brazil for treating a blood disorder.
Indeed, multinational companies are bringing innovative drugs into Latin America, either directly or with local partners, according to the Deutsche Bank report. Most of these drugs have been approved first in the U.S. or Europe. “It is not clear to us if the Latin American regulatory agencies have the expertise to evaluate completely new medicines at this point,” the analysts say.
With the exception of Brazil and possibly Mexico, they add, “the regulatory standards in Latin America are significantly lower than those in the U.S. and Western Europe.” Latin American regulators primarily handle copies, or maybe altered or improved formulations, of originators’ drugs developed by local manufacturers and usually marketed as branded generics.
In the U.S. or Europe, developers would be required to demonstrate that such products are bioequivalent to the original drug. But bioequivalence studies for drug registration are not required in all countries in the region, the analysts note. Even where they are required, as in Brazil and Mexico, they are a relatively new practice.
Given customer preference for products from reputable companies, more local firms are conducting bioequivalence studies, even if not required, according to the analysts. But these studies add costs. “Continued tightening of the regulatory environment and consolidation in the supply chain should benefit the larger, more established players,” they add.
Looking ahead, multinational firms see opportunities in the region beyond just selling drugs. “A lot of the countries are really starting to want to attract innovation,” Amgen’s Hamill says. “Governments are looking at how they can transition to more innovative economies.” Amgen has sites for clinical trials in Brazil and Mexico and works with clinical research groups across Latin America.
Pfizer also has R&D activities in Latin America. “The company recently established an R&D office in Brazil, which will develop important relationships with Brazilian academia, scientists, and other pharmaceutical companies,” Gulfo says. “It is an opportunity to build local capabilities, innovation in high-priority areas, research on regional priority diseases, and access to Pfizer assets, expertise, and funding.”
Gulfo sees “huge” opportunities to continue building long-term collaborations in Latin America. “It is clear that Latin America understands this innovation model,” she says. “Therefore, in most countries, there have been tremendous improvements in the protection of intellectual property [IP]—yet there is still room for improvement.” In many countries, the lack of data confidentiality, ineffective IP enforcement, and uncertainty around the registration of generic biologics are still challenges.
When it comes to IP protection, according to Deutsche Bank, “Latin American standards are substantially below international standards.” Mexico offers the best patent protection for innovators. Although Brazil’s patent laws are relatively strong, the country has been slow in awarding patents, they say. Venezuela appears to have the lowest IP standards in the region. The country hasn’t granted any drug patents since 2003, and in 2008 it reinstated an old law that prevents the patenting of medicines.
Navigating Latin America successfully will require coping with IP, regulatory, political, economic, and societal changes. Latin American countries also aren’t immune to global economic factors that could slow down growth in the region. But in the meantime, multinational drugs firms are turning to southern climes to expand their emerging markets businesses.
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