The pharmaceutical industry has made strong moves in Latin America. High volumes and healthy market growth are driving investment decisions, but hurdles remain.
In April 2013, the Brazilian health minister, Alexandre Padilha, flew down to Sao Paulo to unveil a series of eight agreements with manufacturers to produce 10 drugs locally and some $3.5 billion in low-cost loans to foster innovation. "The least the government spends with imports, the greater the number of medicines the government will be able to supply the national health service (locally known as SUS) for free," he said. Last year, Brazil's pharmaceutical industry registered a deficit of 10.5 billion reais (around $5 billion), and the government is pushing hard for technology transfer. Foreign pharmaceutical companies agree to pass on their knowledge to domestic institutions to produce a drug or a medicine locally within five years. In return, they enjoy the exclusive rights to supply the government with these products at market value during this period.
The pharmaceutical sector has been part of Brazil's industrial policy since Lula's era, and is Latin America's, and one of the world's, largest healthcare market. According to Fernando Pimentel, the Brazilian minister of development, in charge of industrial policy known as "Brasil Major" (Greater Brazil), as many as 35 companies are already involved in the government operation. Demand for better healthcare and for quality drugs is growing, and a substantial part of the Brazilian middle class, according to a McKinsey survey, is ready to increase its medical spending, as the public sector is struggling to cope with such demand. "While [the middle class] does not spend as much on drugs out-of-pocket as the upper classes does, on a per capita basis, its sheer size translates into total spending almost twice as big as that of wealthier segments. Global pharma companies should not ignore it," wrote Sanjeev Agarwal, Joao d'Almeida, and Tracy Francis in a joint McKinsey article.
In Brazil, perhaps more than anywhere else in Latin America, economic activity has remained subdued lately, but investors are still banking on its long-term potential. The per capita spending on medicines is still relatively low, much lower than in Mexico, the region's second largest market, for instance. But, there are currently over 700 manufacturers and 1,000 pharmaceutical plants in Brazil, and the scope for consolidation is still great.