Finding Opportunities in Brazil

Brazil’s turbulent presidential election in October 2014 shed some light on the country’s political landscape causing some to view the country differently. Has this change affected how the market views the industry and its potential? Experts say it is still too early to tell, adding that they would not risk an answer or figure projection at this point. The facts about Brazil and its potential have not changed, as well as the natural resources available, interest in consumption of goods and medicines, growth potential of lower and middle classes, population statistics (which now have become harder to obtain). In Brazil, however, the market is influenced by many factors including news and misinformation. The following facts may show what the scenario might be for Brazil in 2015. Relevant statistics The gross domestic product (GDP) in Brazil expanded 0.10% in the third quarter of 2014 over the previous quarter, according to the Brazilian Geography and Statistics Institute (IBGE) (1). GDP growth rate in Brazil averaged 0.71% from 1996 until 2014, reaching an all time high of 4.5% in the third quarter of 1996 and a record low of -4.2% in the fourth quarter of 2008. Brazil was still the seventh largest economy in the world in 2014, according to the World Bank, and the largest in Latin America, with the country considered one of the fastest-growing economies in the world mainly due to its export potential (2). According to projections by The Economist Intelligence Unit, however, negative figures in 2014 would push the country down in the ranking (3). Brazil’s trade is driven by its natural resources, and agricultural and manufacturing production and foreign investment have recently been attracted by scientific and technological development, rising domestic demand, and an increasingly skilled workforce. Struggling infrastructure, extreme bureaucracy, and corruption, however, remain great challenges to companies as well as to the country’s economic development. What experts and journalists hoped was that the popular government party would look after the population and improve the quality of life, while moving persons from the poverty level to the middle class and transforming them into great consumers, making the economy thrive and investments to flow in. What experts, as well as the population, have recently observed, however, is that the challenges are not exactly being addressed in the way the country had hoped and may not be resolved any time soon. Also, inflation is on the rise as well as infrastructure and utility fees, while bureaucracy continues growing and corruption spreads even deeper, instead of being properly halted. And the government has not changed. President Dilma Rousseff was re-elected and took office in January 2015 with the smallest margin since 1994, with 54.5 million votes (51.6%), while her opponent, Aécio Neves, a senator from the state of Minas Gerais, received 51 million votes. The small margin proves the country does want changes and Rousseff will probably face her own challenges ahead. She will have to face the Congress, for example, which now has a stronger opposition presence. Trading markets will be hard to appease as well. Proof of that is that after election results were announced, the selloff of local assets brought Brazil’s Bovespa down more than 5% early in the trading. Also, the Real currency immediately dropped to a nine-year low against the US dollar. Pharma sector Brazil’s pharma sector has been observing the political movements and hoping for the best. Pharmaceutical figures from late 2014 show that earnings plunged in November for the fourth time in the year. Revenues for November were US$2 billion (Brazilian Real 5.468 billion), down 8.1% compared with October, according to IMS Health (4). In volumes, revenues dropped by 8.8%. Revenues also fell in the months of February, June, and August of 2014. The industry, however, had grown 12.9% in sales and 7.4% in units sold until November 2014, according to IMS Health figures. Growth in 2014 was expected to be around 13%, IMS Health reported. The final growth figure for 2014 had not been released before the publication of this article. According to the Brazilian Pharmaceutical Trade Association (Sindusfarma), the industry does not expect 2015 to be that great overall. The sector may tend to contract with a slower job growth rate, they believe. Data seem to indicate that pharmaceutical companies should continue looking at the generic-drug market in Brazil, which, as a bonus, has the support of the government in any hard times to come. The generic-drug market continues growing and boosting the sector’s figures, with generic revenues increasing by 17.9% from January to November 2014. In November, the figure dropped 7.8% compared with the previous month. The sector currently holds 25.4% of the market share in Brazil. A McKinsey research report unveiled that, during early 2011, better healthcare and education were increasingly important to Brazil’s middle class. Sixty-three percent considered brand drugs relevant for medicine and would pay a premium for certain ones (5). The researchers said they believed that high-quality patented medicines were a profitable opportunity. In 2010, however, the value of prescription drugs sold to Brazil’s middle class was $8 billion, mostly for unpatented medications. Global pharma executives thought this group would be more interested in spending money on consumer electronics, cosmetics, and travel other than on healthcare. According to the McKinsey report, executives said that the local middle class preferred to purchase generic drugs. Even when physicians prescribed branded drugs, some patients would switch their medications to less expensive generic options. As a result, global pharma companies, according to the report, had concluded that they should focus on Brazil’s wealthiest consumers and would reach the middle class only through generic and branded generic drugs, a market that was growing at a 28% compounded annual rate in 2010/2011. Now, with branded medications requiring strong research, development, and high levels of investment, that type of business may not seem so immediately rewarding after all or could even be a bit risky considering the steep downfall of the local economy. References 1. Brazilian Geography and Statistics Institute, Data on gross domestic product, www.ibge.gov.br/home/estatistica/indicadores/pib/defaultcnt.shtm, accessed Jan. 21, 2015. 2. World Bank, Brazil Overview, www.worldbank.org/en/country/brazil/overview, accessed Jan. 21, 2015. 3. Intelligence Unit, Brazil,The Economist, http://country.eiu.com/brazil accessed Jan. 21, 2015. 4. Brazil National Laboratories Association, www.alanac.org.br, accessed Jan. 21, 2015. 5. McKinsey & Company, Unlocking Pharma Growth, Navigating the intricacies of emerging markets (McKinsey & Company, 2012), www.mckinsey.com/~/media/mckinsey/dotcom/client_service/pharma%20and%20medical%20products/pmp%20new/pdfs/emerging_markets_compendium_2012.ashx, accessed Jan. 21, 2015. -Hellen Berger is a business news correspondent based in São Paulo, Brazil. Article Details BioPharm International Vol. 28, Issue 2 Pages: 26-27 Citation: When referring to this article, please cite it as H. Berger, "Finding Opportunities in Brazil," BioPharm International 28 (2) 2015.