PHOTO: ADALBERTO RIOS SZALAY/SEXTO SOL / GETTY IMAGES
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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?
Following the trend
"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.
Jumping R&D hurdles
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.
