South America: Pharma Market New Horizonts / Shanshan Wang*

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Latin America will become increasingly important for pharmaceutical companies who are seeking global expansion. Demand for advanced medicines from the steadily increasing middle class in the region will continue to drive revenue growth for innovative businesses, while improving local healthcare systems will come to rely on an enhanced supply of medical treatments to address the main health problems. 

We forecast that by 2023, medicine expenditure in Latin America will account for over 11% of the global drug market – up from 6% in 2005.

Brazil: 

Set for Success Brazil will continue to be the most attractive market for drug-makers in Latin America. Sales of pharmaceuticals in the country have been resilient to fluctuations in economic activity, which is strongly influenced by commodity prices. As the Brazilian Federal Constitution dictates that access to healthcare is a social right and independent of financial capacity, the government is committed to improving the national standard of healthcare. The majority of the leading foreign manufacturers have a well-established presence in Brazil – over the past few years, Sanofi, with the largest Latin American sales among its global peers, generated over 40% of its Latin American revenue in Brazil alone.

Mexico: 

Full of Promise Mexico's encouraging macro-economic growth prospects, business-friendly operating environment and improving pharma regulatory regime have made it an increasingly attractive market for multinationals. The ageing population, the increasing incidence of chronic diseases and the government's determination to improve healthcare services are other fundamental factors driving market growth. 

While key issues such as the low healthcare spending, the lack of a unified reimbursement system and the absence of widespread private health insurance have hindered the access of innovative medicines in the country, in the long term, healthier fiscal revenue due to the energy sector reforms will encourage the government to further increase public healthcare spending and improve national standards.

Emerging Interest 

Chile's open economy, efficient legal framework, businessfriendly environment and local manufacturers’ strong regional presence have also attracted foreign pharma companies to invest in its local businesses, capitalising on the strong growth in the broader Latin American market. In May 2014, Abbott Laboratories acquired a major Chilean drug-maker, CFR, to boost its generic drug sales, as CFR has a significant presence throughout Latin America. Abbott has been striving to expand its emerging markets presence after launching its spin-off drug business, AbbVie. We believe that local leading healthcare companies in Latin America will become increasingly attractive to multinationals, as the region has become a key target for market expansion.

Risky Business 

Emerging markets have experienced various levels of local currency devaluation against the US dollar in the past few quarters. With the US Federal Reserve tapering off quantitative easing, investors have discarded their local currency holdings, resulting in capital flowing back into developed states. The Argentine Peso and Venezuelan Bolívar have experienced significant depreciation, which has had an immediate negative impact on the performance of multinational pharma companies. Merck, Roche, Sanofi and Novartis have all booked charges tied to these weakened currencies. 

In Venezuela, after the authorities called an 'economic war' against business owners and foreign influences in November 2013, the government has attempted to depict additional drug price cuts as a fight against opportunistic capitalism – especially on essential drugs – of which price controls have been re-introduced since 2003. Nearly 70% of all essential drugs are produced at a loss. Consequently, many manufacturers have opted to halt the commercialisation of such drugs in order to diminish financial losses, resulting in severe drug shortages and the depletion of inventories. 

In Argentina, due to the devaluation of the Peso, the average price of medicines sold through pharmacies has increased dramatically. Some product prices have risen by nearly 50%, as many medicines and active pharmaceutical ingredients are imported to Argentina. The government has tried to negotiate with pharma companies to have drug prices rolled back, and are planning to impose fines on drug-makers that do not comply with the regulation.
 
Sustained Success? 

As foreign drug-makers deepen their ventures in Latin America, pharma companies are more exposed than ever to local political and macro-economic changes. Sustained success will come from more proactive approaches to understand and embrace local trends and developments in each individual market. (Más)

(*) Shanshan Wang is a Pharmaceuticals and Healthcare Analyst at Business Monitor International, a Fitch Group company. She joined in 2011 and is responsible for identifying market entry and expansion opportunities, assessing operational risk, and analysing global corporate growth strategies.