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The pharmaceutical
industry in Brazil
Market overview and trends Overview of the
for labor began to stabilize in 2013 and started to lose some of its vigor and there is a feeling among specialists that the market will tend towards a rise in unemployment.
Therefore, some reduction in salary levels can be expected in the local market, also to accommodate the strong increase in recent years. The growth in gross income contributed For almost two decades, Brazil has decade. For this to happen, however, to the increased consumption, a fact experienced an important cycle of it will have to address important made possible by a government policy economic and political stability internal challenges, especially the strongly supporting the increase in which has generated a positive greater availability of more efficient available consumer credit together effect on the country's economic and less costly infrastructure, with reduction in interest rates and development. It is important to point particularly for transportation and lower tax rates on durable goods, out, however, that this expansion has logistics channels, but also in sectors namely household appliances, cars not been continuous and, at certain such as telecommunications and and civil construction. In 2013, this times, growth rates have been lower energy, in addition to promoting fiscal set of factors, together with the than those observed in other adjustments to make the state more worldwide trend of dollar revaluation emerging countries.
efficient and allow for improvements and the devaluation of the Brazilian in the domestic tax regime, which Real, raised fears of increased Brazil was one of the last countries to is considered as complex, costly to inflation, which led the Brazilian enter the global financial crisis in 2009 comply with and which represents one Central Bank to resume increasing and one of the first to overcome this of the world's highest tax burdens. basic interest rates in the economy. negative period. However, particularly Another front which the country needs Nonetheless, there is currently no sign in the last two years, it can be noted to address is education, recognized of any lack of control over inflation that the Brazilian economy is still as being of poor quality and a key in Brazil, with the intervention of the strongly tied to the global economic element in holding back monetary authorities only necessary to environment, and shows a close local productivity.
keep rates "on track".
connection to the performance of emerging economies, principally The recent Brazilian economic Other factors regarding the Brazilian to economic activity in China, but expansion has also been accompanied economy can also be highlighted as also related to developed markets: by the social class improvements: it is Brazil was significantly impacted estimated that more than 40 million • Second largest agricultural by the economic slowdown in the Brazilians joined the middle class producer in the world; United States and Europe. Even so, and entered the consumer market in the business environment in Brazil is less than six years. In 2012, domestic • Self-sufficient in petroleum with favorable and particularly in relation consumption of Brazilians represented significant offshore oil and gas to the performance and development 61% of the country's GDP and, even reserves (pre-salt layer); of the pharmaceutical industry in though it was a year in which the general, although there are still world was still recovering from the • Largest global supplier of mineral significant challenges which need to effects of the global financial crisis, be addressed and overcome by the most heavily felt in Europe, Brazil was Brazilian market.
the principal recipient of foreign direct • Robust and highly qualified investment in Latin America, receiving financial system; a total of US$ 65.3 billion.
• Diversified industrial base; and Fifth largest country in terms of both This development affected the labor land area and population, with 8.51 • Excellent geographical market as a whole. For over two million square kilometers and close location for trade with all years the national unemployment to 200 million inhabitants, in 2012 South American countries.
rate has hovered around 5% of the Brazil recorded a Gross Domestic Economically Active Population, Product (GDP) of US$ 2.2 trillion, which is deemed to represent full the world's seventh largest. Market employment, in the opinion of several estimates point to the possibility that specialists. On the other hand, it is the country could already become the important to stress that the demand world's fifth largest economy in this The pharmaceutical industry in Brazil In addition to the economic aspects, Health care in Brazil
Another form of financing and another factor inducing Brazil's expanding public health services development lies in its demographic Therefore, considering the already operating in Brazil is the profile. For the first time, the country abovementioned data, the health implementation of Public Private surpassed the 200 million inhabitants care industry in Brazil is undergoing Partnerships (PPPs), which has mark in 2013, 10.8% of whom are profound transformations and significant grown recently. These senior citizens (age 60 and up) and experiencing new business dynamics, contracts are currently concentrated 35.26% whom are young people up making the domestic market one of in hospital construction and operation to age 14. The economically active the most promising and attractive in and outpatient service facilities. population, therefore, is 53.93% of the world, despite being extremely the total. In other words, every group SUS is a vital structure for health care of 100 inhabitants is supported by the in Brazil, as a significant portion of One striking aspect is the fact that the work of just 54 people.
the Brazilian population is unable country is the only one in the world to to access the private health system. The so-called "demographic bonus", have a universal and free public health However, with the growth in income the period in which the working care system- in other words, taxes and expansion of the labor market, age population exceeds that of paid by Brazilians cover all kinds of more and more people have joined non-working age should last until services and treatments offered by the private health plans as they believe 2041, when the proportion of inactive national health system ("Sistema Único the services offered are of higher people will finally surpass that of the de Saúde (SUS)") without charging quality than those provided by the working age population, reaching any additional amounts to the user. government system.
50.15% of the forecasted population At the same time, Brazil has higher of 228 million at that time. The expenditures in the private health Participation rates in health plans in Brazilian Government's statistical system than in the government system. Brazil are still relatively low compared agency Instituto Brasileiro de Geografia In 2010, health care expenditures in to the total population. According e Estatística (IBGE) estimates that Brazil totalled US$ 193.09 billion, to data from the Agência Nacional the total number of senior citizens according to the World Bank and the de Saúde Suplementar (ANS), the will grow faster while the number of World Health Organization (WHO). Of government organ responsible for young people will decrease by 2037 this total, 47% of the revenues came regulating private health plans, close when senior citizens will represent from the public sector, through SUS, to 48 million Brazilians, or less than 24.15% of the population and young and the other 53% from the private 25% of the population, had health people, 23.76%. In 2041, the elderly plans at the end of 2012.
population will represent 27.0% of the SUS's share of industry expenditures, total and young people, 23.08%.
which include Federal, State and This transformation is the result of Municipal governments, has grown important Brazilian achievements, over the years. These have grown from such as the sharp drop in infant 41.7% in 2006, to the current level of mortality in recent years, which 47%. In addition, starting in 2013, the decreased from 23.5 deaths for every country has determined that at least 1000 births in the period from 2005 12% of state and 15% of municipal to 2010, to close to 19 deaths for resources available for investment be every 1,000 births from 2010. Life applied to health care.
expectancy in Brazil also increased over the same period: from 72.2 between 2005 and 2010, to 74 as of 2010 and should reach 75.1 in the period between 2015 and 2020, according to data from the United Nations (UN) and the World Bank.
Dynamics of the
Despite having increased over the past From 2007 to 2011 retail drug few years, the Brazilian population's sales increased by purchasing power is still relatively The pharmaceutical industry has low. This factor, together with the shown significant progress in the popularity of generic and similar country, benefitting from the growth drugs, ensures a leadership position in health care expenditures as a for local manufacturers in drug sales.
whole, and specifically by the increase The so-called "demographic in household income. From 2007 On the list of the best-selling bonus" will last until to 2011, retail drug sales increased medication in Brazil are those to 82.2%, from R$ 23.6 billion to reduce cholesterol and control R$ 43 billion according to an high blood pressure, in addition to Interfarma report based on IMS a significant portion of drugs not Health data.
requiring prescriptions and others Of the US$ 25.8 billion in related to lifestyle, such as Cialis and pharmaceutical retail sales According to another study Viagra, for example. Close to 80% of performed by Scrip Insights, of medication expenditures are for the total retail pharmaceutical low-cost products, which is a sales of US$ 25.8 billion in 2011, phenomenon related to the low US$ 18.3 billion represented purchasing power of the local prescription drugs and population as compared with US$ 7.5 billion over the counter. refer to prescription drugs developed markets. In addition, In the group of prescription drugs, although the profile of illnesses in 25.2% of the prescriptions were for Brazil is getting closer to that found generic products, a 42.5% increase in more developed countries, like over the previous year. Similar the United States, diseases common products accounted for 18.8% of in underdeveloped countries are prescription drug sales, a 33.8% still prevalent, such as dengue fever, increase. Although leading the yellow fever and Chagas disease.
prescription market with 40.8% of sales, brand name medication showed a smaller growth rate, 7.6% in 2011, over the prior year.
The pharmaceutical industry in Brazil Marketing and sales
while only 25-35% goes directly to beneficiaries to obtain access to retailers. Retail chains also have innovative and higher cost medication The drug market in Brazil is also started to attract interest from which, are still not offered by the characterized by an important set of domestic and foreign companies public health system nor have they peculiarities. For example, there is aiming to consolidate the industry. been included on the list of mandatory price control, a regime administered In August 2011, Drogasil and Droga medication provided by the private by the Câmara de Regulação Raia announced a merger of their health system. The large number of do Mercado de Medicamentos operations followed, in the same legal actions to obtain medication and (CMED) (the "Drug Market month by a similar transaction treatments is known in the market Regulation Chamber"). It is CMED's between the Drogaria SP and Drogaria as "Judicialization of Health Care", responsibility to define maximum Pacheco chains. In February 2013, one of the chief risks to the country's product prices, define the annual the American group CVS bought the health care system.
price adjustments and ensure that operations of the Onofre the pharmaceutical industry complies drugstore chain. Regulation and investments
with these determinations.
SUS is also responsible for the sale The regulatory agenda is another Prices of new drugs are defined and distribution of medication in point which has deserved attention based on overall reference values. Brazil, especially those requiring from the government and concerns The cost in Brazil may not exceed continuous use and for low income companies operating in the local the lowest price charged in nine consumers. There are three market. Although Brazil has made different markets (United States, New national programs for the sale and some important adjustments in recent Zealand, Australia, Greece, Portugal, distribution of medication, but years, there are still fragilities which Italy, Spain, France, Canada, and, these drugs must appear on the need to be addressed.
possibly, the country where the drug Relação Nacional de Medicamentos comes from). In this case, the price This is the case, for example, of the Essenciais (Rename) ("National List control and freeze system applies long period required for the approval of Essential Drugs"). For purchases for one year. It is the pharmaceutical of new drugs by the Agência Nacional made by SUS, continuous use drugs industry's responsibility to negotiate de Vigilância Sanitária (Anvisa) must include a 35% price discount, discounts with the retail trade.
(‘National Sanitary Vigilance Agency") which is the result of applying a and recognition of intellectual An important challenge in Brazil "price adjustment coefficient". This property on some new drugs. Making is related to the generic drug includes, for example, drugs used for this situation worse, there is also industry. With tighter margins, several kinds of cancer treatment, HIV a dispute between Anvisa and the many companies have revised their infection and chronic diseases, such as Instituto Nacional de Propriedade aggressive discount policies, which schizophrenia, rheumatism Intelectual (INPI) ("National in many cases went as high as 90%. and arthritis.
Intellectual Property Institute") as to The increased product costs and Another government drug distribution which of the two organs is responsible resultant reduced margins have led initiative is the Programa Farmácia for recognizing drug patents.
some companies to lessen discounts Popular, (the "Popular Pharmacy granted on medication. By law, Frequently there is also concern Program") aimed essentially at generic drugs are 35% cheaper than about potential risks related to brand supplying low cost generic and similar the corresponding reference drug. protection and an environment which drugs to the low income population. But average discounts on these combines excessive bureaucracy This attempt, however, has not products exceed 50%. and a complex tax regime. These succeeded due to the difficulty people adversities are obviously reflected in An important aspect in the have in accessing this system: less than Research and Development (R&D) domestic market is the high market 10% of the market is supplied expenditures: local pharma labs concentration in the hands of a few by this program.
received only US$ 140 million of the regional and national companies: At the same time, there has been US$ 40 billion invested worldwide in between 65% and 75% of medication an increase in the number of claims this area in 2009.
is delivered by local distributors, by SUS patients and medical plan

Despite these challenges, there is no question that Brazil appears as an emerging market and a key one for pharmaceutical companies interested in offsetting the slowdown in sales in developed markets. Thus, many multinationals have chosen to acquire local companies as a strategy to enter the Brazilian market. In 2009, according to IMS Health, the local industry had 378 players controlled by 45 laboratories who received 91.7% of total industry sales.
The local pharmaceutical industry is dynamic and growing and there are a large number of initiatives aimed at developing biotechnology projects. Additionally, the government has attracted new investment in the area through its program to support the development of a Health Care Industrial Complex (Profarma), of Foreign companies, instead of manufacturer, and, in May 2012, UCB the National Economic and Social deactivating operations which they acquired Meizler, another local player, Development Bank (BNDES). The have done in developed markets, are just to mention some examples of main objective is to substitute making important investments to imports with local products and form expand activities in Brazil. In April partnerships between foreign and Also in this context, several state and 2009, Sanofi acquired Medley for domestic companies. Thus, several municipal governments in Brazil are US$ 680 million. Novartis invested organizations have strengthened promoting incentive programs for US$ 500 million in its operations their presence in Brazil through investment in the pharmaceutical to establish a vaccine plant close to mergers and acquisitions, expansion of industry, in order to construct Recife, while the Japanese company operations and new product launches.
industrial manufacturing centers. Takeda announced in February These special regimes have ensured 2010, that it was investing in a new In 2009, the Brazilian company improvements in infrastructure as well subsidiary in Brazil, based in São Hypermarcas acquired Neo Química, as manpower training, two factors Paulo. This is the company's first a local generic drug manufacturer. which are still deficient in Brazil. Many incursion into Latin America. In Eurofarma, a Brazilian company of the projects also include special October 2011, Takeda announced concentrated in the generic drug fiscal and tax regimes to stimulate new a merger with the Swiss company segment, has expressed its intention to investment in the industry.
Nycomed, creating the world's 12th expand regionally by taking control of largest pharma laboratory. In March Laboratórios Gautier, with facilities in 2012, the group assumed control Uruguay, Paraguay and Bolivia.
of Multilab, a local generic drug The pharmaceutical industry in Brazil The expected growth in the Principal trends of the supplementary health market also
makes these activities attractive for industry in Brazil
investors, especially foreign investors. In the short term, there is great expectation of new acquisitions of health plan operators by foreign companies, similar to the operation led by UnitedHealth when purchasing Amil, an almost R$ 10 billion deal, which took place in 2012. With the Even though there have been entrance of this new management, an momentary variations in the environment of greater competition is performance of the Gross Domestic expected in the supplementary health Product (GDP),the Brazilian health care industry, in addition to effective care market has shown itself to be economies of scale and greater robust and strongly resilient, even in productivity among the companies periods of lower economic activity.
A large part of this phenomenon This combination of actions can be explained by the strong cycle becomes a very relevant aspect to be of expansion of the middle class, considered by the pharmaceutical the result of the income growth industry. This is true because and a labor market still technically recently, the Agência Nacional de considered to be at ‘full employment". Saúde Suplementar (ANS), ("National In this case there is a strong Supplementary Health Care connection between the domestic Agency"), the regulatory agency labor market and supplemental health covering health plans published a care plans, as most of the industry's standard allowing operators to sell contracts are collective corporate health plans which also include plans and this represents one of the coverage for medication. However, benefits most valued by employees.
the standard, announced in 2012, has not yet affected the market to Therefore, as long as the country is the point of making this type of plan able to maintain economic stability available or changing existing plans.
and, chiefly, the level current of employment, continued new contracts Precisely for this reason, many for health plans and maintenance professional, especially among health of current plans can be expected. In plan operators and health insurance addition, the local news media has companies, believe that, in the near given wide coverage to the fact that future, coverage of medication will the Federal Government is studying, be made mandatory by the ANS for together with health plan operators, a all health plan contracts, new or old. possible financial subsidy, in addition Some signs to support this belief to tax benefits, to create health plans have already been given, such as, for at lower cost and, consequently, example, the recent ANS resolution become more accessible to the low which determined that certain oral income population.
medication used in cancer treatments be covered by health care operators at no cost to plan beneficiaries. If this is confirmed, it would not In April 2011, through the state-owned be a surprise if the new format of laboratory Instituto Vital Brasil, the the market makes health plans a Brazilian government announced relevant source of drug purchases in an agreement with PharmaPraxis, a Brazil, surpassing the government Brazilian pharmaceutical conglomerate and disputing leadership with retail to develop a biosimilar version chains. Even so, the pharmaceutical of Humira (adalimumab, Abbott retail trade remains the fundamental Laboratories). The purpose is to market entry point. With mergers reduce the impact of the cost of this among major companies and the medication in Sistema Único de Saúde recent entrance of the American (SUS) purchases. Abbott, for its part, company CVS into the Onofre chain, denies reaching any agreement with further consolidation of operations as the Brazilian government, but, as the a result of the strong growth in drug Humira patent is protected in Brazil sales is expected.
until 2016, it is not clear at this moment if the biosimilar version of the product This whole debate takes place in an will enter the Brazilian market before environment of high health care costs 2016, which would represent breaking with no signs of reduction or, even, Abbott's patent. In addition to Humira, slower rates of increase. Some stopgap SUS has included another 25 drugs on measures have been implemented by the list which could be produced locally the federal government to reduce this in the coming years. cost pressure.
While, on one hand, the government Recently, a new electricity pricing is trying to contain and stimulate policy was implemented to reduce competition in the health care area and, the costs of this input. On another by extension, also in the pharmaceutical front, the BNDES launched a program industry, there is clear recognition to grant financing for new projects of the need to increase SUS funding. and ventures in the health care area, Since the beginning of 2013, the state also including the pharmaceutical and municipal governments increased industry. This initiative is expected budget allocations earmarked for health to result in a reduction of input and care expenses. It is expected that, with drug imports in the medium or long the current growth in government term, which will result in lower costs expenditure in this area, very soon in the domestic market. On the other public expenditure will equal those in hand, in the search for innovation the private health care market in Brazil.
and facing the need to cut expenses, a market niche of bio similar drugs has begun to evolve, and will tend to grow more in the coming years. With the support of the BNDES and financing from the National Council of Scientific and Technological Development (CNPq), the intention is to develop the production of bio similar products, taking advantage of countless current initiatives throughout the country in the field of biotechnology and maintain the governmental focus on producing "essential drugs" locally".
The pharmaceutical industry in Brazil

Much of this impact also comes from In the case of Brazil, some regulatory As already indicated in some editions the end of the so-called "demographic risks still persist which should be of the series "Pharma 2020", bonus" and, as of 2020, the aging of overcome after further interactions published by PwC, it is estimated that, the Brazilian population, which is between government and industry. by 2020, companies will become more expected to peak in 2030, when the There is a clear priority from the dependent on emerging markets, country will have more senior citizens government on this subject. In 2012, where between 30% and 55% of their than the Working-Age Population within the scope of the Productive revenues will be generated. In the (citizens between ages 15 and 64). In Development Partnership Program case of Brazil, revenue on the sale of addition to the growing demand for (PDP), the Health Ministry signed 20 patent medication will be less than medication brought about by aging, it new partnerships with private- and that of generics: US$ 8.8 billion vs. should also be considered that public state-owned laboratories, in addition US$ 15.3 billion.
and private administrators have to scientific institutions, with the given greater emphasis to programs objective of transferring technology This situation, like the rest of the which promote good health, in and establishing local production of production and market structure order to increase population medication and vaccines to be offered in Brazil, represents a paradox longevity promoting a better quality by SUS. Estimated investment is in for pharmaceutical companies. of life. The significant increase in the order of R$ 5.7 billion, promoting The market potential is large, but obesity registered in the Brazilian savings on drug purchases of up to obtaining a return is difficult, and population in the past few years is US$ 2.7 billion in 2014. It is expected the dispute between competitors is also of concern. Greater demand that 30 million doses will be supplied very strong. Operating in this market for medication related to people's to SUS by next year. The government can represent risks, whether or not lifestyles and the promotion of greater also guarantees exclusivity for the the corresponding share of company well-being among the population can purchase of medication at prices revenues is material. Each company, be expected.
lower than those quoted on the global therefore, has the challenge of market for five years. deciding whether or not to invest in emerging markets, to what extent, where it plans to apply funds and which strategies to use.
How we can help
We are a global network of firms We have a multidisciplinary team, Every day we are involved in solving with over 180,000 professionals with a broad experience in large strategic problems and looking for in 158 countries. We have close to hospitals and health care operators, unique solutions for our clients' 9,000 specialists in the health care expertise in negotiations with current problems based on a combination area alone who are integrated with and potential suppliers, credibility of knowledge of the pharmaceutical our other areas of excellence, always with financial institutions and good industry, technical training, proven focused on generating value and relations with industry methodology and experience in the tangible and sustainable results many diverse areas we deal with, both for our clients.
in Brazil and all over the world.
Clients hire as to together with our solve strategic and operational issues.
clients to develop Through our international winning business network of experts, supported by our deep knowledge of industry issues and best practices, we offer unique solutions that bring concrete benefits to each clients' challenges.
Our goal is to support our clients in designing, executing beneficial and The pharmaceutical industry in Brazil Our principal services are: We audit local financial statements and standardized We offer support all the way from the preparation of a plan formats for the purpose of group consolidation, in to enter the Brazilian Market to expansion to other regions. accordance with the professional and ethical standards Among other services, we also assist in defining plant related to independent audits applicable in Brazil and locations and structuring business plans, tax consulting, with the International Auditing and Assurance Standards strategic management and process restructuring focussed on Board (IAASB). We also review HR, purchasing, legal gaining in efficiency.
department, controllership, technical provisions, treasury and commercial processes, as well as process mapping, Our principal Consulting activities include: tests, identification of control deficiencies, alignment • Tax compliance.
of recommendations, support in defining action plans and follow-up of the implementation of these plans, • Tax planning.
in addition to designing and implementing the budget management system.
• Strategic planning.
Included among the principal audit activities are: • Implementation of "go to market" strategies.
• Statutory financial statement audits.
• Budget planning.
• IFRS financial statement audits.
• Evaluation and improvement of the finance function.
• US GAAP financial statement audits.
• Structuring of shared service consolidation.
• Consolidation package audits.
• Merger, acquisition, sale and restructuring processes.
• Internal controls audits (US-SOx, J-Sox, etc.).
• Post-merger integration.
• Systems audits.
• Governance, Risks and Compliance (GRC).
• Market regulation.
• Development of risk management models.
• Compliance monitoring programs.
• Due Diligences including the FCPA.
• Technology.
• Outsourcing.
• Human resources.
• Organizational development.
• Efficiency and cost reduction.
• Supply chain.
• Sustainability.

An example of this work is "Pharma 2020: which path will you take?", a series of publications exploring In addition to having an exclusive website dedicated to fundamental questions for the future of pharmaceutical health care, which represents one more communication companies, such as productivity, R&D, marketing and channel open to clients on a full-time basis, PwC works sales, supply chain management and tax planning, to generate constantly in generating knowledge by amongst other topics.
performing relevant research and studies annually for the pharmaceutical industry and the health care area as To make this work possible, PwC has three a whole. These studies address issues such as accounting, centers of excellence: tax legislation, risks, regulations, sustainability, strategy and growth, governance, operations, innovation and • PwC Health Policy Economics (HPE)
technology, talent and changes.
A unit specialized in applying economic analysis and statistics to a broad group of issues related to health care. Using quantitative analysis and focused research, the HPE helps clients to study and become acquainted with the impact of changes in legislation and regulations on organizations and the other stakeholders in the value chain.
• PwC Global Best Practices (GBP)
This center offers the best market practices and sources for benchmarking to help companies evaluate their performance, mitigate risks and learn new ways to perfect their processes. The GBP data base is continually updated with proven practices by leaders in each segment and provides clients with detailed information on a variety of business processes which can make all the difference for the success of your operation.
• PwC Health Research Institute (HRI)
This institute develops relevant and innovative publications, in addition to research for our clients on important problems in the pharmaceutical industry and health care sector as a whole. The HRI is part of a major PwC initiative in industries related to the health care area which brings together experience and resources to allow for collaboration among all actors in the market, to provide intelligence and analyses on the industry.
The pharmaceutical industry in Brazil 11
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