subject: Brazil Pharmaceuticals and Healthcare Report Q3 2010 [print this page] Brazil Pharmaceuticals and Healthcare Report Q3 2010
Since the last quarter, we have revised our forecast slightly downward for Brazil as a result of concerns over the persisting fiscal slippage and the increasing role of politics in the economy in the run-up to October's elections. However, perhaps the most significant risk for Brazil's impressive sovereign rating credentials is the economy's high reliance on Chinese demand. The Asia team have been highlighting the possibility of China's asset bubble bursting in the near term, which would significantly affect Brazil's pharmaceutical market.
However, the sector's resilience in light of the worst economic performance realised since 1998 means that we maintain our pharmaceutical sales forecast of double digit growth whilst monitoring closely the Chinese economy. We are currently projecting a compound annual growth rate (CAGR) of 14.37% through to 2014 in US dollar terms reaching a value of US$34.64bn.
In the new Q310 Business Environment Ratings (BERs), Brazil is ranked fourth after the US, Canada and Puerto Rico in the Americas region, which has been expanded with the addition of countries such as Nicaragua and Honduras to cover 17 markets. Globally, it has slipped down two places from 15th to 17th, equal with China. While we maintain healthy optimism for the patented drug sector, we have noted that the generic drugs sub-sector is the fastest growing in Brazil. The market grew by 24% in local currency terms during 2009, marking yet another year of rapid market share gains for the industry. The result was within 1.4% of projections, which stood at 22.6%. A study by the Foundation for Consumer Defence and Protection (Fundao Procon) show price variations as high as 1,415% between reference drugs and their generic equivalents, as well as wide differences within their respective groups. Such disparity should continue to drive greater use and competition in the sector.
In our view a similar market dynamic, if not slightly more accelerated, will prevail going forward. We forecast that the generic market will reach a value of BRL13.73bn (US$8.22bn) at a CAGR of 25.31% in US dollar terms over the next 5 years. In two separate transactions in Q110, US-based Valeant Pharmaceuticals acquired two Brazilian pharmaceutical companies for BRL97mn (US$55mn) and approximately BRL51mn (US$28mn). The companies, which specialise in branded generics and over-the-counter (OTC) medicines, had recorded annual sales of approximately US$28mn and US$19mn respectively, in 2009. Similarly, both companies posted revenue growth at a CAGR of nearly 15% over the past five years.
The Brazilian government's commitment to supporting its domestic pharmaceutical industry was one of the major factors to be put in the spotlight over the previous quarter. We expect this mentality to continue as long as it is not to the detriment of lowering drug prices. The government is also tackling the growing problem of counterfeit drugs by introducing serialisation for all medicinal packs. We note that if foreign companies manage to penetrate the Brazilian pharmaceutical market now, they will benefit from significant commercial advantages.
