From being the 8th largest market in the world to facing a decline in its value for 4 consecutive years resulting in its ouster from the top ten world markets - Brazil has finally recorded an increase in sales of 7.0 per cent in 2003.

The decline in world rankings has also seen a corresponding decline in its erstwhile regional stronghold which eroded from over 44 per cent in 1995 to approximately 28 per cent in 2003. Although growth in the pharmaceutical market has been predicted for Brazil, its share in the Latin American region shall continue to slide downhill as countries like Mexico and Venezuela with stronger growth rates overtake this regional giant and prove to be the next group of rising stars.

While the recovery from the economic crisis and the devaluation of the local currency has been slower than expected in the Brazil's pharmaceutical market, the gradual return to market conditions prior to devaluation looks remote in the light of added pricing pressures.

After liberalizing the price of medicines in 1994, the Brazilian Government re-imposed a strict policy of price controls for prescription drugs in 2001. Additional indicators on the government's plan to keep prices down were provided through the creation of a new regulatory body, CMED, in October 2003, to regulate prices and establish regulatory guidelines for the pharmaceutical sector and continue the price freezing policy for prescription drugs.

The Great Generics Movement

The efforts to curb prices have been further augmented by the government's strategy to consciously pave the way for cheaper generic alternatives as well. From implementing the generics' law in 1999 to issuing the first marketing authorizations in 2000, the country has seen the advent of more regulations designed to facilitate generic market entry into the country -
- A fast track status accorded to generic dossiers of active pharmaceutical ingredients (APIs) with no generic alternative commercially available
- A 45 day abbreviated fast track registration status for approval of new generic imports provided that companies supply GMP certificates issued by authorities in the US, Canada or the EU.

Since the first bioequivalent generics were approved in February 2000, the number of marketing authorizations has risen exponentially as ANVISA (Agencia Nacional de Vigilancia Sanitaria) has given high priority to processing generic applications and conform to the pro-generic government policy. The monthly rate of approval has steadily increased over the last two years, reaching 32 new generic registrations in the recent times as compared with 21 in 2001.

Antibiotics, antihypertensives and anti-ulcerants are the most commonly registered generics. Some of the molecules have as many as 50 registered competing formulations. Whether the market can support so many versions of the same ingredient remains to be seen, particularly when price competition in over-crowded product areas will render sales unprofitable.

Generics Impact
I: Change of Guard in the Industry
The largest market next to Mexico in the Latin American region brings together more than 300 companies, including subsidiaries of most major multinational pharmaceutical laboratories and a fairly large local industry. Much has been said about a thriving domestic industry that is fiercely competing with the global majors, and making inroads through drug copies to impact the stronghold of multinational companies.

Domestic players continue to dominate the Brazilian generic market, with EMS and Medley together accounting for more than half of the generic sales in Brazil. Although the local industry boasts over 150 players in the business of pharmaceutical production and marketing, nearly 80 per cent of sales are achieved by just five leading companies.

As government policies, consumer awareness, and price advantage coupled with quality equip the generic companies both existing and new entrants to take market share away from original brand manufacturers, the industry and its participants are developing strategies to align themselves to the change in preferences.

II: Local manufacturers under the microscope
Brazilian generics are normally known as `similars' or copies and have been the mainstay of the Brazilian manufacturers and their production capabilities. While competencies in formulation development and manufacture are fairly established, the reliance on imported material - bulk actives and materials is still very heavy - putting Brazil on the top of the import-export imbalance charts. An international comparison shows Brazil's urgent need to balance its international trade and integrate itself into the global market in order to achieve 'normalcy'. Added to this reliance on the import of raw materials for formulation production, similars, which have been subject to lenient regulatory regime, are now coming under increasing scrutiny and the National Agency for Health Supervision of Brazil, ANVISA. The regulatory authority is expected to introduce obligatory bio- equivalence tests, pharmaceutical equivalence, certificate of origin for the ingredients and GMP certification for such products which demand a more conscious look at capabilities and investments in the said areas by the local industry participants.

III: Investment Strategies - Project Brazil

In the past three years, investments in Brazil have seen heightened activity in areas such as production facilities, marketing infrastructure, and distribution. The capital flow into the country has been to the count of R$700mn and growing steadily.

Apotex, Canada's leading generic player with a significant global presence. It has also forayed into the Brazilian market via an investment of R$8 million on a new production plant.

Ranbaxy Farmaceutica Ltda has also invested in new facilities in the country and has formed alliances with Davidson and Schering Plough do Brasil.

Indian companies have been increasingly attracted to Brazil. A few years ago several companies started selling bulk drugs to Brazil. Since then other Indian majors like Cadila Healthcare, Core Health Care, Strides, Torrent etc. have set up operations in Brazil to market their formulations and are even planning to set up manufacturing bases here which could be used for exports to Mercosur countries in the future .

Teva has formed a joint venture with Brazilian Biosintetica (BioTeva) and invested nearly US$50mn in setting up production facilities in the country. Hexal has also invested into local Brazilian production in Cambe and distributes imported drugs in the country.

Local companies are not to be left far behind and are actively investing in modernizing and building new production facilities to step up their output of generics.

A goldmine or a minefield?

The Brazilian government forecasts that in as little as 2-3 years, generic drugs will represent approximately 40 per cent sales in this sector. Current growth rates of 45 per cent for the generics sector second this estimation which makes the Brazilian generic market one of the most attractive destinations for companies seeking an increased international presence in addition to providing a springboard for accessing other countries of the region. The growth rates and increasing government preference for generics also justifies the increased investment in the sector to a certain extent. Furthermore, sales of generic drugs should also be further boosted by the fact that
- Nearly 75 medicine patents on best selling drugs expected to expire by 2004.
- The public health care systems in most Brazilian states are expected to purchase almost the entire production of generics drugs as part of the government's programme to distribute medicines to the poorest.

However, various factors within the healthcare system of the country are likely to limit the growth of the Brazilian pharmaceutical market at the exponential rates being estimated and therefore put a huge question to this strategic movement towards a market that is seemingly under immense pressure of an ill-equipped healthcare system incapable of supporting the drive to generate a strong generics market -
- Limited access of healthcare services, distribution and communication of medicines amongst the 176million Brazilians
- Extremely concentrated market - contrary to the government objectives, generics do not reach the masses
- Predominant uninformed self-medication
- Purchases through medical prescriptions account for not even half the market
- Frequent substitution of high pressed formulations with cheaper versions
- Absence of a uniform healthcare distribution policy for increasing access of drugs to the low-income population
- Abence of a well-defined reimbursement plan
- Aggravation of idle capacity due to slow volume growth, new entrants and investments in production capacities
- Slow recovery of the economy
- Margin reducing factors in the industry
- Weak currency
- High interest rates
- Price control mechanisms

An exponential growth in the generics sector on one hand and limitations with regards to margins, market penetration, reimbursement policies, and a limited consumer access to pharmaceuticals on the other definitely make successful market entry in this country a challenge.

The critical success factor for a market participant would therefore be the selection of a viable business model that can not only overcome these challenges, but more importantly look beyond Brazil as a singular destination and anticipate the geographical advantage Brazil offers in the Latin American region.

- (Jayashri Kulkarni is Director - Healthcare Practice, Frost & Sullivan India.)