Report from Latin America

September 2, 2011
Hellen Berger
Pharmaceutical Technology

Volume 35, Issue 9

Growth and change in Brazil and Mexico offer key opportunities for the region's pharmaceutical industry.

Opportunities for growth as well as favorable regulatory measures within the pharmaceutical market in Latin America are making the region more attractive than ever. According to IMS Health, the entire Latin-American region is expected to grow to $51.3 billion by 2014.

Photo: Joseph Sohm-Visions of America / Getty

"Latin America's pharma market in general has shown a growth trend similar to Asian markets in terms of sales, around 12% to 16%," says Carlos Kiffer, operations director for GC2, a pharmaceutical R&D company based in São Paulo, Brazil.

Demand for pharmaceuticals and other products is increasing across the region, despite the global credit crisis, according to the Economic Commission for Latin America and the Caribbean (ECLAC), a United Nations organization with headquarters in Santiago, Chile. As a result, Latin American countries are expected to grow in total approximately 4.7% this year, projects ECLAC. In 2010, the region grew 5.9%.

This economic performance is attracting global attention. Trade and manufacturing practice are also playing a role in the region's success. For example, the seven largest Latin American countries—Brazil, Mexico, Venezuela, Argentina, Colombia, Chile, and Peru—have all become signatories to international trade treaties such as the Trade-Related aspects of Intellectual Property Rights (TRIPS) treaty. Brazil and Mexico have been applying GMPs in their pharmaceutical industries for years. These practices are positive factors for investors, according to Carlos Kiffer, who also works as a researcher for the Federal University of São Paulo.

Brazil increases healthcare access

Brazil, in particular, has the largest pharmaceutical market in Latin America and "leads in terms of gross sales with an average of $12 billion per year," according to Kiffer. The country's R&D market represents approximately 5% of total gross sales, he adds.

This year looks good so far. IMS Health projects the pharmaceutical industry in Brazil alone will grow approximately 10% and report total revenues of $25.6 billion in 2011. By the year 2015, the market is projected to reach $32.8 billion, according to Business Monitor International (BMI).

Brazil's potential lies in its population of nearly 200 million inhabitants, many of whom are just gaining access to private healthcare and generic drugs. During the past decade, the government has put controls into place to end sky-rocketing inflation, consolidated its economy, and opened the door to goods and services for millions of Brazilians, many of whom had been living in poverty. As a result of the changes, private healthcare firms based in the southeast of Brazil—the most developed region of the country—have reported double-digit growth in profits in the past few years.

Government measures regarding fiscal adjustments have increased Brazil's competitive edge and boosted investments from the private sector as well. According to BMI, imports of goods produced outside South America, including pharmaceuticals, are expected to drop due to legislation passed in 2010 (Law number 12.349/2010). The new law gives preference to goods and services provided by domestic or foreign companies installed within the Mercosur economic bloc. Mercosur, also known as the Southern Common Market, is made up of Argentina, Brazil, Paraguay, and Uruguay. Bolivia, Chile, Colombia, Ecuador, and Peru have associate-member status in the bloc.

"We therefore expect growth in the generic-drug sector to outpace the rest of the industry, especially in terms of sales volume," according to a February 2011 BMI report titled, Industry Trend Analysis.

Generic-drug sales in Brazil represented 17.2% of the pharmacy sector by value and 21.3% by volume in 2010. The sector is expected to increase to around 25% by 2015, according to industry data.

Market consolidation is underway as well. Recent acquisitions of domestic firms by giant multinationals have changed the local market considerably. And despite growing market share by foreign investors, growth and opportunities for smaller biotech firms are still expected, primarily because of the country's rich biodiversity, according to Brazil's National Pharmaceutical Laboratories Association.

Mexico strengthens regulatory measures

Mexico has the second largest pharmaceutical industry in Latin America, with average gross sales around $9 billion per year, according to Kiffer. The R&D market in Mexico, like Brazil, corresponds to approximately 5% of the country's total gross sales, he explains.

Looking ahead, Mexico's annual growth rate for the pharmaceutical industry is projected to be 11.7% between 2009 and 2014, and will likely reach close to $14.9 billion, according to BMI.

According to Kiffer, Mexico's pharmaceutical market plays a relevant role in Latin America because it is located in North America and is closer to the US than any other Latin American country. The proximity allows Mexico to do business with the US and use the logistics infrastructure available in the region, adds the researcher.

"Mexico has been developing its infrastructure and logistics for research, while good quality universities and [recently] improved pharma regulations offer opportunities," says Kiffer.

The country's business environment has indeed become more competitive, according to IMS Health. The Mexican government, for example, abolished requirements for pharmaceutical companies to establish a local plant in order to obtain import permissions. As a result, public and private customers are no longer forced to purchase medicines from drug manufacturers that have plants operating in the country.

In addition, according to Espicom Business Intelligence, the number of people accessing public healthcare in Mexico is expected to increase as the country implements universal healthcare coverage. The change could slow down growth in the private pharmaceutical sector, but will likely increase the sale of generic drugs. In fact, generic-drug spending is projected to comprise 7.5% (by value) of the total drug market in Mexico by 2014, according to BMI.

To prepare for this growth, the country lowered its import tax rate and is supporting generic-drug company license deals with multinational firms. The government is also collaborating more with the US FDA, including by simplifying authorizations for imported products into Mexico. Additional improvements include the introduction of regulations aimed at controlling the quality of generic drugs in the country.

Although Mexico is technically trailing behind other countries in Latin America with regard to the generic-drug sector, it is expected to continue to outrank overall pharmaceutical markets in many other countries in the region.

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