With its huge market of 186 million people; its current position as the largest pharma market in Latin America, with strong growth projected; the influx of foreign and local investment into its pharma market; its reputation for conducting high-quality clinical research; and its incredible biological diversity, Brazil seems poised to become pharma’s next giant. However, Brazil must overcome several challenges to assume this mantle.
“Between our business and our health, we are going to take care of our health.” Re-elected President Lula da Silva, long an outspoken advocate for the welfare of Brazil’s marginalized citizens, spoke unambiguously this spring about one of the most vexing problems facing his country: lack of access to healthcare and medicines for most citizens.
According to his predecessor, former President Fernando Henrique Cardoso, “Brazil is not a poor country, it is an uneven country.” Indeed, Brazil ranks tenth among the world’s leading economies but 74th in terms of social development. The main reason for this discrepancy is the concentration of wealth in the hands of a small percent of the population:. “This discrepancy is what is making us lag behind. Brazil needs to improve its income distribution and its healthcare system,” says Luiz Eduardo Violland, country manager for Nycomed Pharma. A whopping 49 percent of the population have no access to medicines and another 36 percent have only limited access to pharmaceuticals. “These numbers are the evidence that we need to improve our healthcare system and put together a new healthcare model. Although these figures are not, what we could call, very motivating, the recent positive aspect is that our new Minister of Health, Jose Gomes Temporão, is very willing to work hard and improve the situation. He has already presented 22 projects aimed at reforming the healthcare system, and this really encourages us,” Violland added.
The Plea for a Universal Health System Although Brazil’s constitution guarantees access to health care for all citizens, thus any patient today can go to court and ask a judge to legally force the government to pay for a certain treatment or product. But in fact this process is very inefficient in its application, inadequate from a public healthcare point of view, and probably subject to abuse. “Our industry and the Ministry of Health are working on a more efficient process to include new technologies, new products in the government’s existing access programs. By doing so, we will hopefully avoid patients having to go to court in order to obtain their treatments,” says Philippe Crettex, CEO of Pfizer in Brazil. “The dialog between the authorities and our industry is not always easy but I think that at the end we both have the same objective, to improve healthcare for all,” he added. Wealthy individuals with purchasing power in cities like Sao Paulo, Rio de Janeiro, and other major urban centers may be interested in innovative products but the rest of the population craves basic medicines. “There is so much need for basic medicines that this overshadows any selling of innovation in this country,” Volker Bargon, general director of Boehringer Ingelheim Brazil commented. “It is nice to have innovation, but we still have high infant mortality. I think we are, quite honestly, a bit disconnected from the market reality, being innovators and being solely focused on innovation.” Controlling the indiscriminate dispensing of all types of medicinesat the country’s more than 56,000 pharmacies is also a great challengefor Brazil’s healthcare system. In response, Anvisa (Brazil’s FDA) has launched a program called Farmacias Notificadas and Hospital Sentinela. It also announced plans to conduct a survey of the country’s 56,000 plus pharmacies and drug stores to deal with the sale of “black label” controlled substances and cut down on illicit trafficking. The move is significant as it represents a major effort to exert control over Brazil’s sprawling retail pharmacy industry and could put poorly run players out of business. In the long run, instilling greater order in this sector would not only make statistics on sales more reliable but also help deter the illegal and unregulated trade that presently distorts the market.
Government Price Controls From 1994 until 2001, government price controls for pharmaceuticals were lifted. Then in 2001 the government re-imposed a strict policy of price controls for prescription drugs. Prices are revised every year, usually with insignificant increases, by the Chamber of Drug Market Regulation or CMED. This new regulatory body, which falls under Anvisa, was established in October 2003 to regulate prices and establish regulatory guidelines for the pharmaceutical industry. This development followed a change in the law in June 2003 when the Ministry of Health and Anvisa took over full responsibility for drug pricing and industry regulation from the Ministry of Justice. The first annual price adjustment occurred in March 2004; in calculating the price adjustment, the government considered the competitive climate and prices in the domestic sector.
According to Luiz Milton, president of Cmed, from 1992 to 2000 as price controls were lifted, drug prices increased 250% in real terms. Consequently, drug sales dropped and production declined considerably. During the same period imports skyrocketed from around U$100 million to U$2.6 billion. “Such measures had an important role in monitoring the price increases and limiting the prices of new technologies arriving in the country considering that Brazil has strong issues with access to medication”, Milton says. Pharma companies maintain that price controls are not the way to increase access to medicines. “I believe that prices should be something that we need to agree with in respect to the market conditions,” says Gaetano Crupi, president and general manager of Eli Lilly do Brasil. “Regarding our own experience with the diabetes care business, we have learnt that, in a place where price controls are not in existence, competition and the market place dynamic by its own will dictate prices. Therefore, when the government talks about price controls and free market, what we need to understand is that you must allow the dynamic of the market- place to play a role. You are going to have a better price if you have a higher volume.” “I believe that price control is maybe the most delicate and difficult issue,” Ernest Egli, president of Roche Brazil added. We always argue that the government should be more flexible, giving us better prices for the private market, because if we have reasonable prices on the private market then we can give bigger discounts to the government sector.” Some important developments have taken place, though. For instance, Government purchases, are now tax-free. And, in the OTC market, which is accounts for about 15% to 20% of the total market, there is not 100 percent price control. “Nevertheless,the government argues that four years ago ,when they started to give us free prices for OTC products, some companies increased their prices by 60% to 70% so this created a difficult situation. These kinds of practices by some companies make it more difficult to gain the trust of government. No doubt, the economic stability of Brazil would favor a more generous pricing policy, ” he notes.
The Market : 186 Million Strong
Despite the country’s structural constraints including lack of API manufacturing, governmental price control, administrative red tape and ever-changing regulations, Brazil is the place to be for the pharmaceutical industry these days. “There is one fact about Brazil that you can never deny; we are big. 186 million people make up a huge country, and it is a huge market. That is the bottom line. No company in the world, on an international basis, can afford not to be in Brazil,” says Lilly’s Crupi. For him, the Brazilian pharmaceutical industry’s number-one asset is its people. “We have talented people at work and to circumvent all of the country’s challenges. What amazes me is how committed and resilient the Brazilian professionals at Lilly Brazil and also those elsewhere in the industry are.”
Despite tough competition from Mexico, the Brazilian pharmaceuticals market is now the largest in Latin America, valued at U$9.2bn in 2005. In recent months, growth in US dollar terms has been strong, largely due to favorable currency rates and rising consumer demand. IMS Health’s May 2006 retail market data puts the year-toyear growth rates of the Brazilian pharmaceutical industry at about 42%; however, industry sources estimate the current expansion rate at about 10.8% annually in local currency terms. The market is presently dominated by “similares” or branded generics, which continue to account for almost 89% of pharmaceutical sales, by value, despite strenuous government efforts to promote the use of non-branded generics. “Today, we have 15 companies competing in the same segment, and the only differentiation between them is the price of their products,” notes Nilton Paletta, country manager of IMS Brazil. Paletta adds: “Nowadays, the larger companies, such as EMS and Medley, have very large portfolios and have therefore been able to meet our clients’ needs. Smaller companies have not been able to compete, price wise, due to the discounts and commercial situation of the larger organizations. In Brazil, there is no incentive to buy large amount of prescription drugs, due to the availability of cheap generics brands.”
The Industry and Consolidation The Brazilian pharmaceutical industry is organized around three main categories of players: multinational corporations (MNCs), often innovators; local companies that manufacture “similares” or branded generics; and local companies that produce non-branded generics. The country also has 11 state owned laboratories-most of which are obsolete, with old manufacturing facilities and small production capacity. Five of these labs produce most of the government’s drug supply; the two leading state owned labs are FURP and Farmanguihos.
In Brazil government purchases comprise a significant portion of overall pharmaceutical purchases. Anti-AIDS is a major area for government purchases; the government has procured these drugs for free distribution to the public, which has led to a decrease in the number of AIDS-related deaths over the last three years. Other top therapeutic areas for product sales include cardiovascular, CNS, analgesics, anti-diabetic, hypertension, and anti-cancer.
Although operational conditions remain challenging, foreign direct investment is increasing. Brazil is thus becoming an attractive regional base for multinationals, including, most recently, US manufacturer Bristol-Myers Squibb. MNC investments in Brazil are aimed at minimizing their exposure to smaller, less well-regulated markets in the region, while also developing the country’s potential as an export base. Meanwhile, Brazil’s indigenous pharmaceutical industry is consolidating with the encouragement of the country’s economic development agencies, and the nation’s private sector is reportedly investing heavily in drug marketing and product development Nevertheless, risks remain for those investing in Brazil’s pharma research sector. Although this sector is clearly a priority for foreign investment, the country’s healthcare reform initiatives are focused not on innovation but on providing affordable medicines to low-income citizens through the use of government price controls on prescription drugs and some OTC products.
Meanwhile, foreign firms continue to complain that the government is changing regulations too abruptly and too often. A Complex Regulatory System When describing the regulatory system in Brazil, many sum it up in one word: unpredictable. “Regulations change from one day to the other,” Crupi says. “Hence, the cost of doing business is very high.”
He mainly blames the structure of the country’s tax system, with its many layers and taxes. In addition, he cites Brazil’s complex labor laws and the Brazilian legal system, one of the world’s most complex. “I spent five years as president of Eli Lilly in Canada and I don’t recall having as many labor- and tax-related cases that I needed to deal with as I have had in one year here!” “Well, you have surprises everyday,” adds Volker Bargon, director general of Boehringer Ingelheim Brazil. “The working environment changes rapidly, and you can wake up and have a new legislation on the table. Then you need to understand where this comes from and why it was promulgated. In Brazil, there is no real story line you may anticipate. Things change from one day to the other, which is something you will not see in well-established markets.”
Ciro Mortella, president of the Brazilian Pharmaceutical Industry Federation (Febrafarma), concurs: “The Brazilian industry is very moody. It could be extremely good or extremely bad.” Among its several missions, Febrafarma closely watches issues relating to the production and consumption of medicines; tries to increase access to medicines within the country; seeks fair drug prices and taxes to stabilize the country’s economy; and attempts to stimulate R&D while protecting intellectual property.
Mortella adds: “Brazil is a very aggressive pharmaceutical market and therefore companies have to learn how to thrive in a market of low growth. Areal issue is that Brazil does not know where it wants to be when it grows up. There is a saying: ‘Brazil is the country of the future and it will always be like that.’But the future is now and there is a lack of strategic vision for the country and its health system.” Sindusfarma, another industry association, works to improve conditions for both workers and manufacturers.
Its executive vice-president, Professor Lauro Moretto, who is also director of Febrafarma responsible for the good manufacturing practices (GMP) and quality regulations, has a different view: “We have moved upward to a considerably higher level. The most important reason for such changes was a new GMP standard issued by World Health Organisation (WHO) in 1992 and implemented in Brazil in 1995.” Moretto believes Brazil’s regulations are in line with those of some of the most developed countries in the world. In fact, many manufacturing facilities in Brazil have been inspected by reliable regulatory agencies from other countries.
Generics on the Go
Despite the traditional consumer preference for branded and branded generics products, and the key role played by doctors as market gatekeepers, the non-branded generics sector remains the market’s fastest-growing segment. The generics sector’s share of the Brazilian market reached 10.26% in the 12 months ending May 2006, with annually adjusted growth estimated at 31.3%. The government has launched a number of high-profile initiatives to promote off-patent, bioequivalent medicines in recent years-not all of which have been successful, largely due to the continued presence of so-called ‘similar’ medicines (non-equivalent copies of local origin). The Hegemony of “Similares” Indeed, despite government efforts and the growth of the generics segment, sales of similares still top those of branded drugs and branded generics “Similares” sales represent almost 90% of the total market for locally manufactured drugs. Meanwhile, the branded market witnessed negative growth in 2002 but has experienced slow growth over the last few years.
Branded pharmaceuticals continue to benefit from being the first choice of medical professionals but in recent years generics manufacturers’ targeting of pharmacies has affected branded pharmaceutical sales to some extent. Similares manufacturers claim that generics manufacturers use unfair competition policies that are hurting the similares industry.
Brazilian law requires generics prices to be at least 35% lower than reference drug prices, and the prices must be preapproved by CMED. However, due to market competition, generics price reductions are in fact higher-45% on average and reaching 70-80% in some cases. Such price reductions have been an important driver for consumer purchases; it’s estimated that generics were responsible for saving U$1.3bn for Brazilian consumers over the last five years.
A noteworthy achievement, especially considering how most of the country’s low-income population doesn’t receive any reimbursements for medicine purchases. Generics have started to impact access to medicines in Brazil, especially in the treatment of chronic diseases. Market data show that the total sales for substances such as atenolol, metformin and sinvastatin-for hypertension, diabetes, and cholesterol control-have increased up to 150% over a four-year period. “The generics business is a very exciting one,” says Odinir Finotti, president of Pro Genericos. “I just regret that the Government is not doing enough work to promote it.” He says that the government had done good work in promoting generics use in earlier years but not of late. “The government should advertise more to the public as to make them understand generics are cheaper and as efficient as branded products,” Finotti notes.
According to Carlos Alexandre Geyer, president of Alanac, Brazil’s oldest stateowned pharmaceutical company, and a strong supporter of “similares,” drug counterfeiting and falsification had become serious issues by the end of the 1990s, resulting in the establishment of the Federal Parliamentary Investigative Committee. The committee has had a two-fold effect; on the one hand, it has helped to identify and solve these critical problems and on the other hand, it helped draft a generics legislation.
“Nevertheless, the path chosen by the government was a wrong one. It decided to discourage the use of copy medicines (similares) in order to promote generics,” Geyer notes. “Hence, the strong Brazilian campaign for generics created a discomfort about copies.” In Geyer’s view, there is no future in Brazil for small and medium-sized companies that produce non-branded generics: “The Brazilian scale is very big and demands big companies. The only way for smaller companies to survive would be to consolidate a brand. The same phenomenon occurs in sophisticated markets where smaller companies look for business niches.
Generics: the Players Brazil’s generics market is exceptionally concentrated, with 10 companies accounting for 98% of the market. And 80% of the market is dominated by only four players: EMS, Eurofarma, Medley, and Ache Biosintetica.
EMS, generics pioneer. The distinction between generics and branded medicines is of no real consequence to EMS, Brazil’s number-one pharmaceutical company. “I believe that there are no issues in acting in both segments because we have bioequivalence, which proves that we produce safe and quality drugs.
Generics are very new in Brazil. At the beginning, it was difficult to position generics because there were a meaningful number of doctors that didn’t want to prescribe generics. Today, resistance to prescribing generics has diminished but, still, branded generics or similares medicines are far much stronger than generics,” says Telma Salles, international affairs manager of EMS. Although generics have helped EMS achieve its position in the marketplace, their branded products have been highly successful as well.
The choice of generics, if it helped achieving this outstanding progression of EMS, was not the only key for its success. EMS is indeed increasing in both segments. One of the highlights of EMS’s brand portfolio is its line of branded products from the Sigma Pharma lab, which ranks sixth in doctor preferences; in all, EMS offers a portfolio of 1,500 medicines that are very popular among doctors. Moreover, the company is considered the leading pioneer of the generics market; EMS’s state-of-the-art R&D center employs approximately 200 scientists who are constantly working on drug development and allow EMS to launch five new products per month. “We bet on our position of pioneers in the generics segment.
As you know, in thegeneric segment, to be the first in is essential for success,” says Salles.
In 2007, President Lula de Silva inaugurated EMS’s new facility; EMS invested U$50 million in the facility. “This new extension gives us the possibility to considerably increase our production capacity.
As the market grows and EMS continues its healthy performance, we will have the production capacity to supply the national demands and other markets,” Salles says. The technology we use to manufacture our products is exactly the same that is used in developed countries such as the US and Germany. We are able to demonstrate that our products are safe and efficient.”
Medley, a reliable partner. One company that may be able to challenge EMS’s market dominance is Medley. Medley has jumped from 28 in 2000 to third place in 2006, has grown an average 25 to 30 percent annually, and has beaten production records in the generics sector. “We have a very good production capacity, an excellent portfolio and sales team. All these factors put together make us a successful company,” notes Jairo Yamamoto, CEO of Medley. “As for our last year’s performance, we had very good results thanks to Sibutramine. We launched this product six months before the patent expired since we had an agreement with Abbott, and this launch was an absolute success and helped us achieve fantastic results.”
The company has just secured a co-marketing agreement with Bayer to launch Vivanza, highlighting its status as a reliable partner for MNCs. Yamamoto explains: “Even though we are in the generics business, we absolutely respect patents. In our case we believe that we do a very good job at co-marketing innovative products, and, at the same time, we can also perform very well in the generics segment.
Being in both businesses shouldn’t be a conflict. Large pharma companies like Sandoz are recognizing that there is room for both products in the same house, and that is exactly what we are doing here.”
While Medley is currently focusing on the Brazilian market, it also seeks to penetrate other Latin American markets. For example, the company exports its products to Mexico, where some are licensed to local partners who market them there; Medley is following the same strategy in Peru. Regarding its future development, Yamamoto emphasizes the company’s core values: “In our industry, it is very important to build a good image because we are looking after the health of the people.
We want to grow but at the same time, we want to be sustainable. Being sustainable summarizes our motto ‘Proudly Medley’”. Eurofarma started in 1972 by producing drugs for both local and multinational companies. Then, it bought a small lab and started to produce and sell drugs. According to Maurizio Billi, president of Eurofarma: “The generics law was very beneficial for local producers like us, because it forced the companies to improve the quality standards. It made us learn how to develop quality products. Moreover, the Brazilian generics law is very rigorous, therefore the companies that wanted to succeed in this segment had to force themselves to upgrade and get equipped to make generics. This was a big learning step.”
The company has moved forward: Today it is in both market segments, generics and branded, producing both types of products for the same indication. Billi says, “We see generics as a necessity. Our company needs to be present in the generics segment and do all the necessary efforts to be competitive. Nevertheless it is very important for us to be present in the branded generics segment. Our principalfocus it to market our branded products to doctors.”
Determined to continue forging ahead, Eurofarma is also building a new industrial complex in Sao Paulo that is expected to be one of the most modern facilities of its kind in Latin America. Billi believes the new state-of-the-art facility will enable the company to have both a production and export hub within Brazil. And to further their research capabilities, Eurofarma haspartnered with Biolab to establish a new company, Incrementha. “We had three main objectives: join our capacities to develop new products, divide costs, and in the future get stronger,” Billi explains.
Grupo Castro Marques (Biolab). Cleiton de Castro Marques, CEO of Biolab has this take on his company’s partnership with Eurofarma: “This deal was a great idea because, with this company Incrementha, we are fully focused on constant research and development.This focus has given results, and over the one-year period of time since its establishment, we have already registered three products to undergo clinical trials and we are looking forward to their approval in the near future. From 2008 onwards, we will be able to launch around 15 products per year, always improving.” Marques believes innovation is the key to success: “We believe R&D is a must to keep our growing pace because if you are not able to invest in R&D and offer the market products with aggregated value, you will certainly lag behind. Our position is to emphasize developing products with aggregated value, and we want to offer differentiated products.”
Biolab is currently the leader in ‘similares’ for cardiology, with more than 13 percent market share; has strong and sustainable performance in the OBGYN area, ranking sixth in Brazil in this market segment and operates one of the most modern plants in the pharmaceutical industry today. Ache Biosintetica. Number-three ranking Ache holds the distinction of having the only 100-percent-made-in-Brazil drug product, Achelan, which is made out of herbal ingredients. Ache, like Biolab, is more focused on similares than generics; however, the company bought Biosintetica in 2002 to enhance its generics business.
“The success story of the company has been built through acquisitions. Now that we are going listed, we are planning to buy more companies here in Brazil and really consolidate our success in the country,” explains Jose Ricardo, president of Ache. In Ache’s case, consolidation efforts do not exclude international expansion through partnerships. Ache now ranks number one company in Mercosur (an economic community that includes Brazil, Argentina, Paraguay and Uruguay). “We have just partnered with Mexican Silanes for R&D synergies. We also have as a partner the biggest company in Argentina and one in Venezuela. We will soon try to enter the European and the US markets, always through partners,” he adds. Germany’s Merck may be the only multinational to date to have succeeded in Brazil’s competitive generics field. In 2002, the company decided to introduce its generics portfolio in Brazil, which proved to be a good decision. “We are very pleased at our results because today we rank seven among the overall industry, and the most important thing is that we managed to position ourselves in the generics market despite the fact the four main players are national. Our seventh position is not bad at all in a market where national players are getting very strong,” notes Gerd Bauer, president of Merck Brazil.
The Cost of Innovation
Another challenge to Brazil’s pharmaceutical industry is the lack of R&D activities and the low expenditures that companies currently designate for R&D. Companies need to enhance their R&D but at the same time are under pressure to reduce costs. “Innovation is very important, the Brazilian people like innovation,” says Gabriel Tannus, executive president of Interfarma, the association representing pharma research-based companies.
“Usually, people look at the concept of nominal price. Sometimes, you will have a product that appears to be more expensive, but if you reduce the time of treatment it has its advantages. If you look at the case of AntiRetroViral/ HIV drugs, they used to be a lot cheaper in the past