BMI View: The Brazilian pharmaceutical market will remain the most attractive to multinationals in Latin America. As the Brazilian government continues to expand its advanced medicine coverage and become increasingly interested in acquiring practical biotechnologies to equip its domestic pharmaceutical industry, Novartis' expansion strategy in Brazil is well set to succeed. It will secure steady revenue streams for many of its innovative medicines in the potential PPPs. However, in long term, it will lose market share and technologies to local drugmakers. Novartis' branded generic drugs will remain competitive in Brazil, especially in the private healthcare sector.
Novartis has planned to invest BRL1.5bn (USD645mn) in Brazil during 2014 to implement its expansion strategy in the country and eventually double its size in five years. The funding will be primarily directed to expand its presence in the biological medicine and vaccine sectors. Novartis plans to leverage its strong portfolio of diverse pharmaceuticals and close relationship with the Brazilian government to increase its local presence.
'Over 30% of sales in Brazil are generated from new products launched in recent years. We plan to bring more innovative medicines to treat diseases that have not been attended,' said the president of Novartis Brazil, Adib Jacob. 'We will launch five to eight products per year in Brazil, primarily to meet the demand from local government.' According to Jacob, sales of the generic brand Sandoz grow more than 30% per year in Brazil and account for about 20% of its total revenue.
|Significant Emerging Market Presence|
|Novartis' Sales In Canada and Latin America & Emerging Market Performance (US$mn)|
We highlight that in line with its global business diversification strategy, Novartis has already established significant presence in Brazil. Since early 2000s, Novartis has been committed to the long term growth in Brazil:
In 2004, Hexal's state-of-the-art plant in Paraná state opened; during the same year, Novartis also invested BRL104mn (USD35.9mn) to upgrade its production sites in Resende, Rio de Janeiro state and Taboão da Serra facility to manufacture generic medicines previously imported from the US and Austria;
In early 2006, Novartis re-introduced its Sandoz brand to Brazil after a 10-year absence;
In 2007, Novartis launched a BRL223mn (USD108mn) expansion of its two main plants to increase its export potential and Sandoz output;
In 2010, Novartis built a vaccine plant in Goiana in Pernambuco state as a result of tax incentives provided to foreign investors funding activities in the state;
In 2012, Novartis planned to build a USD500mn biotechnology manufacturing facility in Pernambuco state, which is expected to start operations in 2014.
We note that Novartis has also developed close relationship with the Brazilian government, the country's major medicine buyer, to further strengthen its local presence:
In 2011, Novartis started to provide the Brazilian government with a discount on its oncology therapeutic Glivec (imatinib) - from BRL42.50 (USD26.61) to BRL20.60 (USD12.90) per 100mg and from BRL170.00 (USD106.45) to BRL82.40 (USD51.60) per 400mg. In 2009, the Brazilian Ministry of Health spent around BRL260mn (USD162mn) on Glivec, accounting for 4.15% of the drug's global sales.
In 2012, Novartis entered a public-private partnership (PPP) deal with Bahiafarma, a Brazilian public pharmaceutical manufacturer, to transfer technology from Novartis to Bahiafarma to enable the national production of mycophenolate sodium and everolimus - the two of the most widely used drugs to prevent kidney and heart transplant rejection in Brazil.
By January 2013, the Brazilian government has been able to produce its first generic version of imatinib through state-owned drug producer the Institute of Drug Technology (Farmanguinhos).
We believe that as the Brazilian government continues to expand its advanced medicine coverage and become increasingly interested in acquiring practical biotechnologies to equip its domestic pharmaceutical industry, Novartis' expansion strategy in Brazil is well set to succeed. Novartis will secure steady revenue streams for many of its innovative medicines in the potential PPPs. However, in long term, it will lose market share and technologies to local drugmakers. On the other hand, Novartis' branded generic drugs will remain competitive in Brazil, especially in the private healthcare sector, where its strong brand is broadly recognised by physicians, pharmacies and patients. In addition, Novartis' diversified product portfolio enables its sale force to promote its products in many particular disease areas. Novartis can also leverage its local production sites to cut down production costs and improve the profit margin for its generic medicine branch.
We highlight that the Brazilian pharmaceutical market remains the most attractive in Latin America for multinationals. it will maintain the high growth rate in 2014 (8.1% in local currency terms); however, drugmakers' profits may be reduced due to the increasing drug pricing pressure, costs for labour and production, as well as local currency depreciation. In 2013, pharmaceutical sales in Brazil reached a value of BRL57.0bn (USD26.4bn), making Brazil the eighth largest market globally. From a multinational perspective, growth in 2013 was affected from an exchange rate perspective. The depreciation of the Brazilian real against the US dollar means the medicine spending in Brazil calculated in US dollar terms decreased in 2013. However, over 2013-2018, we forecast the pharmaceutical market will experience a CAGR of 7.7% in local currency terms and 7.6% in US dollar terms.
|Growth Remains Strong|
|Brazil's Pharmaceutical Market Outlook|