“Brazil undoubtedly holds great development opportunities for the global pharmaceutical and healthcare industries,” boldly states Minister of Health Ricardo Barros, “and we hope to gain the trust of an increasing number of international investors and jointly work on improving the healthcare products and services available to our 207 million Brazilian citizens.” In its ambition to further strengthen a win-win relationship with the global industry, Brazil holds a precious, eye-catching asset: the remarkable dynamism of its huge pharmaceutical market.
It is by no means an easy market, but it is unequivocally a highly attractive market
Pius Hornstein, Sanofi
“Very few of the world’s largest pharmaceutical markets have been growing at a sustained pace over the past years, and Brazil proudly stands as one of the best performing markets,” highlights Jarbas Barbosa da Silva, director-president of the Brazilian Health Regulatory Agency (ANVISA). “As the second-largest emerging market for Sanofi globally, Brazil is one of the ‘Must Wins’ in the company’s portfolio. It is by no means an easy market, but it is unequivocally a highly attractive market,” adds Pius Hornstein, country chair and general manager Pharma of Sanofi Brazil, the largest international company operating in the country. “Brazil today stands as the sixth largest pharmaceutical market in the world, and recent forecasts suggest that it will likely reach the fifth position in the coming years; naturally, this sheer market size has cemented the crucial importance of the country in the overall operations of all pharmaceutical companies with global ambitions,” confirms Rolf Hoenger, president and general manager of Roche Pharma Brazil, the largest player in Brazil’s non retail market in 2017.
To all who have been following – even from afar – Brazil’s economic and political developments over the past four years, this enduring strength and ever-increasing significance of Brazil’s pharmaceutical market might be surprising, as the country just experienced its worst recession in modern history, coupled with a highly mediatized political crisis that resulted in the impeachment of president Dilma Rousseff and in widespread dissatisfaction with the political system. “In 2017, Brazil has exited a particularly challenging two-year recession period, where our country’s GDP contracted by 3.8 percent in 2015 and by 3.6 percent in 2016,” explains Cleiton Marques, CEO of the domestic powerhouse Biolab and president of the syndicate of the pharmaceutical industry in the State of Sao Paulo (Sindusfarma), which represents around 95 percent of all pharmaceutical marketing in the country and gathers together over 312 associate members overall. In December 2017, Brazil’s Finance Minister Henrique Meirelles indeed announced that the Brazilian economy was expected to grow 1.1 percent in 2017 and 3 percent in 2018. “The country’s recent exit from a two-year period of negative growth despite a troubled political context truly showcases how dissociated economics and politics are from each other in Brazil. In this regard, the country’s economy has undoubtedly benefited from the quality of the policies implemented by Finance Minister Henrique Meirelles and from the active role played by the country’s Central Bank, while some of the reforms and regulatory updates recently implemented have already started to bear fruit,” explains Fraser Hall, country president of AstraZeneca in Brazil.
“In fact, in the wake of the crisis, all the sectors constricted but two, including the pharmaceutical industry. In 2015, at the height of the economic crisis, the pharmaceutical market was the fastest growing industrial sector of the Brazilian economy, growing 8.3 percent while all other sectors were largely declining,” reveals Leandro Safatle, executive secretary of the Brazilian Drug Market Regulation Chamber (CMED), which notably defines ceiling prices, benchmarks for wholesale and retail commercialization, and the minimum mandatory discount for purchases in the public healthcare system. “Our country has indeed been through particularly agitated times over the past few years, but the pharmaceutical industry in Brazil has always accommodated such crises,” adds Nelson Mussolini, executive president of Sindusfarma.
The sustained growth of the Brazilian pharmaceutical market has been nurtured by many different factors, which notably include particularly rapid demographic and epidemiological transitions. “I believe that some external observers still do not fully realize that Brazil is no longer a young country, as its age structure is actually pretty similar to those of European markets,” explains Gaetano Crupi, president and general manager of Bristol-Myers Squibb Brazil, while it is expected that more than 30 million Brazilians will be over 65 year old by 2025. “Furthermore, healthcare stands as a constitutional right in Brazil since the promulgation of the 1988 Constitution, and this specificity has kept our market fully active even during the economic crisis, although we moved from a double digit to a single digit annual market growth” stresses Sindusfarma’s Mussolini. Nevertheless, one should not overlook that the outstanding resilience displayed by Brazil’s pharmaceutical industry over the past few years is directly linked with one of the main shortcomings that still characterizes Brazil’s public health system: a limited access to pharmaceutical products. “In a country where medicines purchasing comes as out of pocket expenses for around 76 percent of the Brazilian population, the recent economic crisis has had no impact on the growth of private pharmaceuticals sales, because patients cannot live without the medicines they need,” adds Antonio Britto, the executive president of Interfarma, the main association gathering together local and international innovators in Brazil.
No More Business as Usual
Nevertheless, a subtler and more challenging reality actually lies behind the unstoppable momentum of the Brazilian pharmaceutical market. “The latter is undergoing rapid and deep changes, and we need to continuously adapt our business approach to the long-lasting consequences of the recent crisis, while seizing new growth opportunities triggered by the long-awaited economic recovery materializing,” explains Alexandre França, CEO of Aspen Pharma Brazil, which in 2017 proudly became the best performing affiliate of the Aspen group despite Brazil’s economic and political turmoil. “When refining our analysis, we indeed see that the recent crisis has affected the retail market growth in terms of units, and the annual volume growth of this market decreased from 8.9 percent in 2015 to only 3.2 percent growth in 2017 (MAT April),” documents IQVIA’s Nilton Paletta. “Furthermore, high inflation in the 2015-16 period contributed to price growth, but – moving forward – inflation under control at the 3-4 percent level will entail that volume and price growth will be more balanced,” analyses IQVIA’s Paletta. “In this context, companies operating in the retail segment will need to follow a demand strategy, which implies a heightened focus on the quality of their treatments, the quality of their indications, the quality of their patient population segmentation, and so on. As the economy should slowly recover and Brazilians’ purchasing power increases, it is expected that this drives further demand on the out of pocket segment. Overall, this situation is by no means “Alice in Wonderland,” but we are seeing a new positive normality, and we don’t expect a return to the difficulties of the past few years,” states Sanofi’s Hornstein. While the latest data from IQVIA indicate that the retail market will increase by 7-8 percent 2018, the latter also forecasts that its mid-term growth should revolve around a CAGR of 7-8 percent between 2018 and 2021 in nominal terms. “While this is lower than the two digit growth we saw in the 2000s, it is still very attractive compared to the global average of two to three percent,” highlights Pius Hornstein from Sanofi.
In the meantime, the Brazilian non-retail market has been growing 11.6 percent (PPP and 2nd level – MAT April 2017) according to IQVIA, through the strengthening of a rather complex set of dynamics. In the public sector, which made up around 57 percent of the non-retail sector, the growth has been mainly driven by new product incorporations and increasing expenditures in high complexity diseases (mostly hepatitis C, HIV, immunology, and oncology). “However, the institutional channel in Brazil remains highly volatile and it is hard to predict if the current growth will be sustainable moving forward. So far, the Ministry of Health’s budget for medicines has increased 12 percent in 2016 and 10 percent in 2017, but a recent legislation has capped public spending’s increasing to inflation rate for the next twenty years. In the meantime, we see that the frequency of incorporation of innovative products into the Brazilian public health system (SUS) has been improving over the past few years, although it is still suboptimal,” adds IQVIA’s Paletta. In this regard, the working of Brazil’s institutional system has so far diminished the negative impact of the economic crisis, as the government could not cancel ongoing multiple-year tenders. “As a result, the Ministry of Health has been mainly focused on reaching a greater level of efficiency across the system and differing the payment of medicine-related bills – but no tremendous changes have yet occurred,” stresses Interfarma’s Britto, before adding that “we nevertheless cannot overlook the fact that the past economic crisis has tremendously decreased budget availability, which naturally casts a shadow on public market’s growth prospects.”
With 25 percent of its 207 million population covered by private health plans, Brazil holds the second largest private health insurance market by population in the world. “In Brazil, the vast majority of health plans are however contracted by employers, which means that the share of the Brazilian population having access to the private health market is directly correlated to the evolution of the unemployment rate. Over the past three years, this aspect has gained a tremendous importance in the eyes of pharmaceutical executives, as the unemployment rate grew from 5 percent to 13.7 percent between 2014 and 2016, and almost three million people lost access to the private health market,” adds Roche’s Hoenger. “Given that unemployment usually impacts entire households, we can moreover extrapolate that at least 45 million Brazilians do not hold the financial means to access products that are only available through the private healthcare system,” further highlights Haig Yeghiaian, country manager of LEO Pharma. “Taking into consideration both public and private channels, we expect that Brazil’s non-retail market will increase by 5-6 percent in 2018,” explains IQVIA’s Nilton Paletta.