Burgeoning populations, infrastructure advancements and ramped-up government spend on healthcare mean the pharmaceutical markets in Latin America are thriving. While Brazil is leading the way, new alliances such as the US-Peru free trade agreement see the smaller economies fighting back with sparkling growth of their own. Less exposure to credit squeeze fundamentals and conditions ripe for outsourcing mean that the slowdown seen in the rest of the world is taking a backseat in the region.
Access to medicines in the public sector has increased – particularly among the least well-off populations – with the help of government initiatives. Alongside this, private pharma sales are surging in Brazil, Mexico and Venezuela where there are levels of higher disposable income and a climate of macroeconomic stability.
Frost & Sullivan’s pharmaceutical analyst Daniela Putti says that the strong participation by the Latin American governments is helping the sector’s development. “The governments in all countries throughout Latin America have been increasing their investment in the healthcare sector,” she explains. “With these policies and additional laws regarding the regulation and reporting of drugs there is a push to decrease the timelines for R&D and bring drugs to the region.”
Argentinean exports, Peru’s similares and Brazil’s funding
For international firms looking to diversify their portfolios, Putti says that Latin America holds a lot of promise. Understanding the very different fundamentals in each of the countries, however, is critical to international businesses wanting to make inroads into thriving local markets. In Argentina, for instance, the export market is beginning to take off.
In addition, a report by Espicom in June 2008 says: “Small copycat producers, which have traditionally served the public sector, are shaking up the industry.” Meanwhile, an attitude of protectionism characterises the domestic industry in Chile and until Cuba becomes a democracy trade embargos still impact any international trade.
Peru’s pharmaceutical market remains small but according to a Business Monitor International report released in November 2008, the low per-capita spend on drugs masks the number of opportunities in the market. It says that the existence of companies engaged in the production of low-cost similares – non-bioequivalent copies of patented medicines that do not infringe process patents – is threatened by the tightening of intellectual property regulations.
Combined with the now-ratified US-Peru free trade agreement, these fundamentals should provide a major boost for US firms looking to export their wares. An early adopter of this was US-based Vanguard Pharmaceutical, which signed a contract to sell the generics portfolio of India’s Arbro Pharmaceutical in Latin America and the Caribbean. In January it established a permanent Peru-based team to ensure success in the local oncology market.
Putti says a number of localities present potential opportunities for international investors. “Venezuela, Columbia and Equador are all emerging regions with good potential for growth as these countries are undergoing great development in terms of R&D.” However, with a population of over 200,000 million and more than 300 pharmaceutical marketing and manufacturing companies, it is Brazil that dominates the region’s pharmaceutical production and consumption.
The Brazilian pharmaceutical market experienced growth of about 15% in 2008, down from 2007’s figure of 21.4% but still a massive leap from the more established US and European markets. “The pharmaceutical market in Latin America has faced a great period of prosperity for the past four to five years,” Putti adds.
“This has been mainly in Brazil which is responsible for almost 50% of the total market. In Brazil the major market is related to cancer drugs because the incidence of the disease is increasing so much.”
Another expanding market is treatment for lifestyle diseases such as obesity and smoking. Brazil also has an ageing population and Putti estimates that by 2020 more than 28 million people will be over 60 years old. This puts pressure for the tax collection garnered from the younger population to be used efficiently, but also provides an opportunity for firms marketing drugs targeted towards this age group for conditions such as Alzheimer’s disease and rheumatoid arthritis.
To really attract international investment, however, uncertainty over patent applications needs to be resolved. This issue was highlighted when, in 2007, Brazilian President Luiz Inácio Lula da Silva bypassed a patent on an AIDS drug manufactured by US giant Merck to allow an Indian-made generic of Efavirenz to be imported. Then, in September 2008, the Brazilian Patent Office rejected an application by Gilead Sciences for its antiretroviral Viread, despite the government declaring it to be of public interest earlier in the year.
A further worry is the threat by the government that it will break the patents of US companies in retaliation for the US refusing to adhere to a World Trade Organisation ruling on cotton subsidies. But Putti says that the general outlook is a positive one. “Local production has had high levels of investment in the country, not only in the local facilities but also in the promotion of alliances and acquisitions in order to increase profitability and portfolio diversity.”
Opportunities for internationals
Technological developments and research standards are keeping pace with those being witnessed in competing emerging markets such as China and India. Combined with a plentiful sum of volunteers, this means that international firms are increasingly turning to Latin America for the location of their clinical trials. “Good labour and infrastructure means that Latin America’s R&D sector is just as good as China’s,” says Putti. “We have a mixture of ethical backgrounds and there is a certain lack of access to healthcare, which means there is a good amount of volunteers to participate in clinical trials.”
Although it is largely shielded from the economic woes causing pain to nations around the world, Latin America’s pharmaceutical market is experiencing one crunch from the credit squeeze. Despite investment from the government, medical care is largely funded by employers. If unemployment rises, this could have a negative impact on drug suppliers. Putti says that 26% of Brazil’s population now has health cover and although this is not the majority the numbers have been soaring in recent years.
“There are millions of people who have acquired a private insurance plan but this is usually through their employer,” she says.
“So if rates of unemployment increase, more people will not have access to the private system. Going forward, this will be the main concern.”
Investment declined slightly towards the end of 2008 and many approached 2009 with a wait-and-see attitude. Putti expects a new round of M&A activity in the coming months with companies looking for increased stability and portfolio diversification. As global economies continue a downward spiral nowhere is a safe haven, but the fundamentals of Latin America’s pharmaceutical sector hold promising potential.