The Latin American countries are about to host a forthcoming wave of merger and acquisition operations in the pharmaceutical sector, where today local producers in the bio-similar sector are still playing a prominent role. Foreign investments can instead give the industry an additional boost
Roberto Carminati
The multi-national research and consulting company GlobalData has recently released a new report about the Latin American pharmaceutical market and industry. Dubbed Pharmasphere: pharmaceutical and healthcare deal trends in Latin America 2008-2012 the document pointed out how a new wave of merger and acquisition or M&A operation has been shaking the continent all across the last five or six years. Also, other sources reported the increasing importance of the chemical and pharmaceutical industry in South America, especially focusing on the bio-similar segment as a major driver for the entire local market. GlobalData stated that «in recent years» investments in merger and acquisition strategies have soared in the continent to the record peak of 12.7 billion dollars and also reported that «with untapped potential identified in countries across the region, companies are expected to seize upon further opportunities to drive future growth». Leveraging on a merger and acquisition policy foreign companies, and most of all Us-based producers are today expanding into a market which displays huge opportunities but that at the moment is largely dominated by South American companies, mainly serving a local customer base. According to Pharmasphere: pharmaceutical and healthcare deal trends in Latin America 2008-2012 the number of M&A operations in the macro-region increased «by a massive 214% between 2008 and 2012, and accounted for the majority (approximately 70%) of the region’s total deals during this period, followed by licensing agreements. Combined», the consultancy company added, «these two categories remain one of the most popular sources of investment in the Latin-American sector». Underlining the relevance of the emerging Latin countries in the international pharmaceutical arena GlobalData’s senior analyst Aparna Krishnan, specialized in dealing with the Healthcare Industry Dynamics, has also commented: «Mergers and acquisitions in this macro-region have mainly consisted of global pharma firms acquiring local companies, which represents a shift towards emerging markets that will help boost revenue growth». And besides that, Aparna Krishnan also considered that «the largest deal that took place between 2008 and 2012 involved the Minnesota-headquartered multi-national firm UnitedHealth’s acquisition of Brazil’s Amil Particapacoes back in 2012, which cost the Minnesota firm a massive 4.9 billion american dollars».
The pros and cons of a gold rush
Demographic trends and changing lifestyles are nowadays producing a significant impact on the pharmaceutical industry and market, addressing a variety of vendors’ research, development and distribution strategies. In fact, GlobalData noted how a large amount of investments has been addressed in the last five or six years to a small number of segments: «In terms of therapeutic areas», the company wrote, «the Latam region’s oncology sector witnessed the most significant number of deals between 2008 and 2012, which reached approximately the figure of 120 in total. This was immediately followed by areas related to the central nervous system and to immunology». It is thus clear that foreign producers are now entering or planning to enter the Latin-American arena in response to forms of emergency that both regional companies and South American national healthcare management systems showed unable to cope with alone. GlobalData’s report continued: «The high level of investment activity in oncology comes in response to recent studies, which depict a rise in incidence levels and mortality rates that Latin America’s current health systems are unable to handle adequately. As a result, the region’s governments» and public administrations seem to «have increased investments in disease surveillance, embarking on preventive campaigns». To play a prominent role in the emerging Eldorado is nonetheless no easy duty, having the experts warned that there is still a number of barriers that will first need to be overcome if global investors are seriously intentioned to seize upon the opportunities that this market is presently displaying. GlobalData’s senior analyst, Aparna Krishnan, attempted to describe these hurdles more precisely: «In addition to unstable political conditions standing in the way of markets such as Cuba and Venezuela», Aparna Krishnan stated, «various sectorial challenges, including intellectual property rights and the intense impact of a high-volume and small margin-based generics market, are also proving a hindrance. Nevertheless, thanks to low-cost drug manufacturing and clinical trial opportunities, pharmaceutical firms will continue to benefit from having a presence in the region».
Major trends in the South American pharma market
Record-high figures coming from the emerging South American countries show that investments in the area could actually give immediate and satisfying return. The online magazine Latintrade.com pointed out in fact that the total pharmaceutical business in Latin America is today 100 billion dollar worth, as reported in a recent article by Americas Market Intelligence’s managing director John Price. With its constant growth, in Price’s opinion, Brazil is poised to climb up to the fourth place worldwide among the fastest-developing healthcare markets, only outpaced by the United States, China and Japan. In the country, as Latintrade wrote, drug sales rocketed from a 21 billion dollars value in 2008 to 35 billion last year. Americas Matket Intelligence’s John Price forecasted that by the end of 2014 revenues could amount to some 40 billion and is set to reach 45 billion in 2017. Also favored by its belonging to the North American free trade agreement or Nafta area Mexico is steadily growing too, with chances to generate a 20 billion dollars revenue by the end of this year; and the pharmaceutical business is also enlarging in Colombia and Argentina. This latter country is set to become a promised land for generics or bio-similar, due to its favorable copyright and intellectual property-protection regulatory landscape. And generally speaking the Latin American market seems to be dominated by generic vendors and products, that today nearly represent the 70% of the overall share and are attracting wider areas of the population with time, thanks to an aggressive price policy. Back to Brazil, whose drugs are also exported to such countries as China, for instance, John Price described as a major success case the growth of Ems, most powerful national producer, that with a workforce of 5.000 employees has managed through the years to export its solutions to 40 countries worldwide at least. Ultra-liberal distribution policies have proven their effectiveness in Chile as well, where the country’s major provider Farmacias Ahumada can today rely on a 1.000 pharmacies franchising chain covering not just the Chilean territory but also Peru, Brazil and Mexico. An explanation of Latin American’s self-sufficiency in the pharmaceutical arena was given the online magazine Pharmaphorum by Maria Ines Guaia, owner and pharma regulatory affairs consultant at K&G South on pharma in Latin America: «After the 2008 financial crisis», Guaia stated, «more restrictions and protectionist measures were generally imposed or enhanced and that had a negative impact for multinational companies as barriers to international trade were increased. Many countries applied policies to protect and promote the national industry. This move brought creation of local know-how, infrastructure and capability that allowed further growth of the local pharmaceutical industries. Now it is possible to find many local manufacturers, packagers and service providers for the pharmaceutical industries that meet almost all needs», she added, soon afterwards commenting on the major local drivers for the healthcare segment development and trends: «A significant share of the pharmaceutical market», Maria Ines Guaia concluded, «is nowadays managed by national health authorities and social health insurance that didn’t significantly cut expenditure in healthcare due to the crisis. The OTC business and direct-to-consumer market is not as relevant as it is in other countries, such as the US, so the decrease in pocket money didn’t affect the pharmaceutical sales market as much».