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BRAZILIAN MARKET FAVOURS ENTRY OF FOREIGN GROUPS - MULTI-INDUSTRYMULTI-INDUSTRY

Brazilian Market Favours Entry of Foreign GroupsIn order to be successful, it is imperative to know the

singularities of the market

Much has been said about the Brazilian market and the significant conquests its health sector has recently made compared with past decades. As the seventh largest in the world, it is a

promising and consolidated market, and one that is very competitive. The improvement of the population’s acquisitive power, the growth of formal employment, the aging of the population, and the introduction of generics more than a decade ago, have allowed increased access to healthcare services and have contributed to a higher per-capita consumption of medication and health services by the population. This growth is reflected in high occupation rates in hospitals, specifically privately-owned facilities.

According to IMS Health data, the accumulated growth in the last five years of the prescription and purchase of medication is approximately 16% in Brazil. This rate is 2 or 3 times higher than the global average. The estimated world sales accumulated growth projection for 2015 is 5% in the most developed countries, making it 12.6% for Brazil.

The State’s roleEven with Brazil’s already significant victories, there is a lot to be done. There is still limited access to healthcare by Brazilians, with approximately 60 million people on private medical plans or insurances, and the rest, about 130 million, using the public system. The public healthcare system is efficient in some aspects, but has some considerable flaws. The early detection of diseases in the population is still lacking, as well as structural matters relating to poor allocation of public budgets, and frauds in public bids - all of which jeopardize the population’s care.

The Farmácia Popular do Brasil Program (Brazilian Popular Pharmacy Program), which has already accumulated 5 million registered users, is a clear example of how the government is acting to solve these problems. Through this program, the government makes low-cost drugs available for some therapeutic classes. It acts as a distribution regulator, acquiring medication for public pharmacies for up to 90% less than those provided by non-registered pharmacies. This program attends to the population that suffers from diseases such as

hypertension, diabetes and Parkinson’s disease, among others. It is a praiseworthy government operation to increase the population’s access.

Although there is still the need for free competition in the healthcare services area, there are some sectors in which the government does need to have a stronger presence. For certain industries, such as the pharmaceutical industry, state-run regulation can be beneficial to ensure safety and accountability.

Brazilian challenges and particularitiesThe Brazilian health market and its high added-value sectors strongly depend on imports, while research still depends on external investments. It is a segment in which the commercial balance is unfavorable. The segment with the most growth - generics - depends on the expiration of patents on medications.

Biotechnology products represent a vacant opportunity for Brazil. Of the few initiatives that have involved high-technology transference, none of them offered a real transference of technology, nor induced significant innovation in the country.

Recently, two large private companies have formed a group, with the government’s support, in order to become a biogenerics conglomerate. Brazil is just starting in this market, but regulatory movements in this arena have already been implemented in the United States and Europe. This is an exciting opportunity for Brazil, but will certainly require massive investments and a change to its pharmaceutical market.

Before now, Brazil has not been the producer of active principles. Ready raw materials were imported, transformed and then commercialized. Only a select few in the industry

were able to synthesize them and therefore an important knowledge basis of infrastructure and technology was not developed. In the biotechnology case, considerable efforts will be necessary so that it becomes stable in the country and not abandoned as in past instances, like synthetics.

New law in 2014The Brazilian market relies heavily on similar or “branded” generics that are found on drugstore shelves and depend

exclusively on medical prescriptions. These kinds of singularities are nonexistent in other, more developed, markets of the world. These products will suffer the impact of a new law that will be implemented in 2014 which will demand bioequivalence between drugs.

They will most likely be interchangeable in drugstores, in the same way it is done today between reference and generics medications. With this, the influence of the sales counters is maintained, especially the large groups that are consolidating, thus benefiting the product segment that is believed to be the most profitable.

Many opportunitiesStudies have shown that generics are the most profitable products for drugstores going through consolidation. The industry is being modernized and now has the expansion capabilities and resources to make the change.

It is an ideal moment for companies to extend the benefits of private health plans to larger sectors of the population, as well as to build hospital beds outside

large population centers that are better able to attend to the existing demand. There needs to be more access for those who are not covered by private plans and the availability of new products, mainly OTC and nutraceutics - segments still underdeveloped in Brazil.

The Brazilian market at this time favors the entry of foreign groups who recognize that eventual assets will be directly related to what they offer, the results they generate, and the sustainability of their business before the changes take place.

Entering the Brazilian market depends on a thorough understanding of the industry, including knowledge of Agência Nacional de Vigilância Sanitária, commercial, accounting, financial, and juridical practices. It is fundamental to know all particularities and subtleties of the market you are entering and to count on executives who “speak the local language”.

Wolney Alonso is partner director at Entregga (www.entregga.com.br), Brazilian Consultancy, Management and Investments Company focused on the Healthcare sector. Along with a group of experienced executives led by businessman Omilton Visconde Jr., he participated in last decades of two of the most

important asset acquisitions in the Brazilian Healthcare sector (Biosintética and Segmenta). wolney.alonso@entregga.com.br

To enter Brazil, it is necessary to count on deep knowledge on the Brazilian market...

And if the sales’ accumulated growth projection until 2015 is of 5% in the most developed countries, it is of 12.6% for Brazil,

ratifying the optimism felt in the segment.

by Wolney Alonso

August 2012