13 October 2011
Latin America: Excellent long term market growth potential for drug companies
Latin America continues to be a region of promising opportunities for the pharmaceutical sector. Trade is booming, the population is growing and democracy is improving political stability. However, social inequality, weak patent enforcement, cost containment and a political drift to the left all threaten the long term prospects for the pharmaceutical industry.
Many observers are predicting strong economic growth for Latin America over the next decade. Companies that had the courage to invest early in the region and stay the course now have a chance to reap the rewards of their efforts.
The current estimated regional population of 560 million is tipped to grow to 687 million by 2020 which represents a significantly growing consumer base for the pharmaceutical industry. As in other emerging markets, the number of people in Latin America living near or in a major city is rising to about three-fourths of the population. This trend has important consequences for the pharmaceutical industry and other companies in the healthcare sector. Rapid urbanisation transforms the environment as people compete for limited natural resources and space, leading to overcrowding and poor hygiene. Lifestyle and disease trends in these countries are changing and the incidence of chronic diseases, such as cardiovascular diseases, malignant tumours, and mental disorders is on the rise. The demand for medicines to tackle diseases has seen the Latin American pharmaceutical market surge to nearly US$45 billion. Multinational companies now consider success in Brazil and Mexico as essential to achieve their corporate growth targets, as they represent over 60% of the regional market.
Patent protection is weak
One of the continuing worries for international pharmaceutical companies wishing to establish themselves in Latin America is that the legislation for patent protection remains weak or is not enforced in a number of countries. This has led to a number of cheap illegal or legally ambiguous products appearing on the market and competing with branded products. They must also be aware that countries in the region will not simply pay out for expensive products and are likely to want evidence that companies are offering a ‘fair price’ for their products. “Irrespective of major reforms, governments are likely to implement different types of cost containment policies,” says Nathan Jessop the author of the URCH report Healthcare & Pharmaceuticals in Latin America. “The access to essential medicines debate in Brazil has already seen the government take a hard line with multinational companies over their pricing and companies may find that local governments allow generic products onto the market which will compete with their branded products effectively undercutting their prices,” adds Jessop. This recently happened in Brazil where Pfizer’s Viagra is set to face competition from a generic. Brazil’s Supreme Court dismissed Pfizer’s claim that its patent had validity to mid-2011, and chose an earlier date from which to calculate Brazil’s 20 year patent term.
For domestic pharmaceutical companies there is much to be gained from expansion of the regional market, but the competition from other regional players is fierce. Eurofarma in Brazil is an example of a company with an ambitious regional strategy, aiming to complete at least one acquisition per year in order to achieve a presence in 95% of the Latin American market by 2015. An increasing number of Latin American companies are breaking into the markets of neighbouring countries and to Caribbean nations, but their presence in other regional markets is not always welcome.
As Latin American countries attempt to redress social inequality and reform their healthcare systems in order to expand coverage, generics will continue to find themselves in favour. To encourage the use of high quality products and boost consumer confidence, regional governments are making serious attempts to tighten the legislation concerning generics. In the past, the term bioequivalence was interpreted differently across countries and therefore the procedure required to classify a product as a generic was not the same. As the regulations in these areas improve, international generics companies have increased their regional investment. In particular, Indian generics companies have made considerable inroads into the major Latin American markets. Multinational companies are also venturing into this area. Pfizer has already entered the generics market in Brazil and is now looking at Argentina, to introduce branded generics that would complement its existing cardiovascular portfolio.
Political shift to the left
Some international companies have held back their efforts due to ongoing concerns about the economic and political stability of certain countries. As a region, Latin America has experienced a marked shift to the left in its politics, but the nature of this change is not the same in each country. In reality, there have been two political shifts in the region – one that is overtly populist and will occasionally publicly target big business as the “villain”, while another has similar radical origins, but has a more moderate approach in dealing with big business. Perhaps the former describes the current situation in Venezuela, Ecuador and Bolivia, but the latter is more representative of Argentina and Brazil.
The fact of the matter is that all Latin American countries need vibrant businesses to drive their economies and support their healthcare systems. Therefore they will need to find a way of dealing with international pharmaceutical companies. Companies have opportunities to work in these markets, but they must research the markets they enter and keep fully informed of the local political situation and what its implications could mean for them. The region offers companies excellent growth potential and while they should carefully monitor sudden political criticisms by the more populist governments and economic uncertainties, they should not have a knee jerk response to abandoning their investment in Latin America.
