China and India may get all the press, but the other two countries in the so-called BRIC group of developing pharmaceutical markets are also offering new growth opportunities. According to World Bank statistics, Brazil placed No. 8 and the Russian Federation was No. 9 in gross domestic product in 2008, higher than India as well as more established markets such as Spain, Canada, and Australia. Brazil’s population of almost 192 million in 2008 placed fifth in the world, and Russia’s population of almost 142 million placed ninth, higher than Japan, Mexico, and Germany, among others. According to the CIA World Factbook, Russia was fifth and Brazil was sixth in gross domestic product growth among the G-20 countries in 2008.
With growth rates of 5.6% and 5.1%, the two countries far outperformed major markets such as the United States (1.1%), the European Union (0.8%), the United Kingdom (0.7%), and Japan (-0.7%). But Brazil and Russia each offer their own unique variations on the traditional emerging market mixture of risk and potential reward: the burgeoning growth of both economies, high drug importation rates, and increasing prevalence of lifestyle diseases such as diabetes and hypertension are tempered by challenging regulatory environments, largely uneducated populations, corruption (most notably in Russia), and a lack of purchasing power.
Brazil
Brazil is a consolidated democracy with economic stability and an expanding middle class of close to 100 million individuals, growing 40% since 2004. The country is now one of the 10 largest economies in the world and was one of the countries least affected by the economic crisis, with expected positive gross domestic product growth in 2009 and a 5% projected growth rate in 2010.
Analysts at Business Monitor International (businessmonitor.com) are forecasting average growth of 6.2% per year from 2009 to 2013 for the pharmaceutical sector in Brazil, with expenditure reaching R$40.6 billion ($24.6 billion) by 2013. This growth is expected to be driven by expanded access to healthcare, which BMI analysts believe will lead to significant increases in volume drug consumption. Although the growing generics market and the government’s tough stance on patented drug prices should continue to hold down value growth, moves towards more stringent bioequivalence standards in generics should create positive price pressure on cheaper drugs.
Despite a strong domestic pharmaceutical industry, Brazil is a net importer of pharmaceuticals in value terms, and BMI’s analysts expect this to remain the case during their 2009 to 2013 forecast period. In fact, Brazil’s negative pharmaceutical trade balance is an increasingly important political topic for the government. In December 2008, the Ministry of Health correlated improvements in the pharmaceutical trade balance with access to medicine and set a target of reducing the deficit by 30% by 2013. The public pharmaceutical sector imports pharmaceuticals valued at around $8 billion a year, while exporting just $2 billion.
A number of major multinational pharmaceutical companies have taken notice of this growing opportunity. In April 2009, Sanofi-Aventis, already the largest foreign player in the country’s pharma market, signed an agreement to acquire Medley, the third largest pharmaceutical company and the No. 1 generic company in Brazil. In 2008 Medley’s sales amounted to R$458 million ($260 million), about two-thirds of which were in generics. Sanofi-Aventis executives believe that with a generic portfolio of 127 products, Medley is well-positioned to benefit from the growth of the Brazilian generic market, which is projected at more than 20% per year in the coming years. The acquisition will also help Sanofi-Aventis (sanofi-aventis.com) to reinforce its No. 1 ranking among pharmaceutical companies in Brazil, with a 12% market share.
In July 2009, Astellas Pharma (astellas.com) announced the launch of Astellas Farma Brasil Importacao de Distribuicao de Medicamentos Ltda. to help meet the growing demand for pharmaceuticals in Brazil. Takeda (takeda.com) also announced the launch of a Brazilian subsidiary in December 2009.
Other companies are taking the strategic partnership approach. In September 2009, UCB (ucb.com) and AstraZeneca (astrazeneca.com) entered into a partnership to register and commercialize UCB’s PEGylated anti-TNF alpha drug Cimzia in Brazil. The drug is to be registered for the treatment of rheumatoid arthritis and Crohn’s disease.
Making it in the Brazilian marketplace, as with other developing marketplaces, can be a highly complex undertaking. As in other industries in Brazil, there is strong government presence in the pharmaceutical market. The regulatory system is under the authority of the ANVISA, the Brazilian equivalent to FDA.
Pharmaceutical companies in Brazil need to be prepared to meet the needs and demands of a diverse population. This is where local knowledge and presence is essential, according to Richard Pilnik, president of Quintiles Global Commercial Solutions (quintiles.com). Public spending on healthcare is still relatively low and price-sensitive. Medicines are not reimbursed and are out-of-pocket expenses, except in hospitals. Government policy is biased toward local manufacturers, and the government controls the price of medicines.
The health system in Brazil is a mixed public-private system, where the SUS (Unified Healthcare System) is responsible for providing free care and medicines for the whole population, as per the 1980 constitution. Reality, though, is quite different due to insufficient resources and organization. The private sector has filled this gap. Some 40% of the 7,000 existing hospitals are private, and about 40 million people, or 20% of the total population, are covered by private health plans. The critical healthcare decision makers in matters of public policy and tenders are the Federal Ministry of Health and the State Health departments. Intellectual property enforcement is improving, but still a risk.
“It is important for pharma marketers to understand local practice,” Mr. Pilnik says. “For instance; a prescription is not a guarantee for sale: aggressive substitution from both generics and branded generics occurs at the point of sale [pharmacies]. The regulations and limitations on promotional materials are quite restrictive. Complying with the complex tax system is onerous.”
One quirk of the Brazilian marketplace is the enhanced power of pharmacists. Although unusual to other foreign markets, it is a common practice in Brazil to find pharmacists suggesting another medicine instead of the one prescribed by the doctor, according to Mário Martins, general manager, Cegedim Dendrite Brazil. The only restriction to prohibit this practice is in place for black tagged medicines, which are prescribed by psychiatrists.
“Another unusual practice is that if the consumer receives two prescriptions, one will be withheld in the drugstore,” Mr. Martins says. “To buy the medicine again, the consumer must go to the doctor to have another prescription.”
As in many emerging markets, a large segment of the Brazilian population is not educated about healthcare and medicines. The government is trying to close the gaps through educational campaigns. Due to causes ranging from heredity to obesity, the most common recurrent diseases in Brazil are hypertension and diabetes. About 10 million people in Brazil suffer from hypertension, and 31.5 million Brazilians suffer from diabetes. In the case of diabetes, the biggest problem is that people don’t realize they are suffering from the condition due to lack of awareness, according to Mr. Martins.
To combat this lack of information, the federal government launched a program called Saúde da Família (Family Health) in 1994. This program, Mr. Martins says, seeks to re-orient the care model through the implementation of multidisciplinary teams in primary healthcare. These teams are responsible for monitoring a set of families located in a specific geographical area. The program covers 37.5% of the Brazilian population, or about 62.3 million people.
Another initiative from the government is the program Equipes da Saúde (Health Teams). Each team of doctors, nurses, and health agents is also responsible for monitoring about 3,000 to 4,000 people in a given area. The teams work mainly in primary healthcare, in homes and community mobilizations, providing comprehensive care and carrying out activities related to education and health promotion.
Many pharmaceutical companies also try to fill the education gap by launching social actions, such as giving books to health institutions to be distributed to people that suffer from cancer, diabetes, and other diseases. According to Mr. Martins, companies working with the government in supporting social actions or even creating them can give pharmaceutical brands a very positive image with the population while helping them become more informed about prevention of diseases.
Russia
Russia presents its own set of challenges and opportunities to marketers. Unhealthy, bad habits are pervasive throughout Russia. Smoking and alcohol consumption are very popular; according to Cegedim Dendrite analysts, 70% of Russian men and 30% of Russian women smoke, and about 270,000 Russians die every year because of smoking. Russia is ranked as the No. 1 country worldwide by teens and children who smoke.
Cardiovascular risk factors are wide spread – Russia has about 1.4 million deaths each year for cardiovascular reasons – and Cegedim Dendrite analysts believe that 2.4 million Russians are infected with HIV. This offers a significant opportunity for sales of pulmonological, oncological, hepatoprotectors, cholesterol lowering, hypotensive, and HIV drugs. The government has increased healthcare funding in each of the past three years and is expected to do so again in 2010. Russia imports an estimated 70% to 80% of its drugs.
Just as in Brazil, the major multinational pharmaceutical companies have not been slow to take advantage of the Russian opportunity. And just as in Brazil, Sanofi-Aventis is again one of the big players. In November 2009, the company’s CEO, Christopher Viebacher, signed a memorandum of understanding with Prominvest, a fully owned subsidiary of the Russian state corporation Rostekhnologii, confirming the company’s intent to participate in the “Pharmpolis Project” using the new Sanofi-Aventis insulin factory located in Russia as a pilot initiative. The agreement’s implications carry far beyond business; the document was signed by Mr. Viebacher and Mikhail Shelkov, general director of LLC Prominvest, during the Franco-Russian Intergovernmental Seminar held in the Castle of Rambouillet, France, in the presence of Russian Prime Minister Vladimir Putin and François Fillon, prime minister of France.
The “Pharmpolis Project” is part of the overall effort of the Russian government to localize innovative drug manufacturers in Russia, to attract high technology platforms, and to provide manufacturers with sufficient resources, effective business environment, and proper supplier networks to foster the expansion of the pharmaceutical market.
According to Mr. Viebacher, his company’s goal is to create a situation in which patients suffering from severe conditions, such as diabetes, are diagnosed and treated as early as possible. Diabetes is one of the Russian Federation’s three major public health priorities, affecting 2.5 million diagnosed type 2 diabetes patients, according to the Russian National Diabetes Registry. If undiagnosed cases are taken into account, this figure is estimated to be about 10 million.
HIV is also a growing problem in Russia. According to the latest official statistics of the Federal AIDS Centre of the Russian Federation, as of June 30, 2009, there are 494,074 HIV cases registered in Russia among citizens, with 55,247 new cases being registered each year.
With this in mind, executives of Roche (roche.com) and the Russian pharmaceutical company Viriom Ltd. (viriom.com) signed a license agreement in October 2009 granting Viriom development and commercialization rights for potential novel treatments for HIV/AIDS patients in Russia, Ukraine, Belarus, and Kazakhstan. Roche will provide Viriom with preclinical candidates belonging to the new class of non-nucleoside inhibitors of reverse transcriptase, or NNRTIs. Roche has also agreed to contribute its expertise in the HIV field through scientific coaching and representation on Viriom’s board of directors. Royalties from resulting sales in these markets will be paid to Roche, and the company will retain rights in other territories. Viriom Ltd. will develop these innovative compounds in Russia, including preclinical research and initiation of clinical studies that are expected to begin in 2010.
There is one very significant challenge to working in Russia compared with Brazil, India, or China: the country is famously corrupt. Transparency International ranks Russia 146th out of 180 countries worldwide, well below Brazil at No. 75, China at No. 79, and India at No. 84.
“It is very difficult to operate business in an ethical manner [in Russia],” says Lucia Railean, general manager, Cegedim Dendrite Russia. “The registration process for drugs is complicated and non-transparent, so a lot of time and personnel must be devoted to this process. And molecules are not protected by patent, wherein a production method can be patented. Therefore, 60% to 70% of all Russian drugs are generic.”
The Russian Healthcare Development Program, a recent government initiative, is likely to cause major structural changes in the Russian pharmaceutical market, according to analysts with the strategy consulting company Frost & Sullivan. The main aim of this government-introduced program is to ameliorate the quality and availability of healthcare, thereby improving overall social well-being. Toward these ends, the Russian government plans to introduce mandatory health insurance, supply out-patient hospitals with modern medical equipment and qualified personnel, create an electronic health records system, and discourage self-treatment – a common practice in Russia – by tightening control over prescription drug sales.
This initiative includes the Russian Health Ministry’s plan to enhance the domestic production of “strategically important” pharmaceuticals; a draft list of 55 drugs was announced in December 2009. The list includes drugs used to treat heart disease, cancer, and infectious diseases, as well as diseases of the respiratory and digestive systems.
Frost & Sullivan’s healthcare industry analyst Dominika Grzywinska says this decision is a step toward import substitution and reaching a 50-50 split of imported and domestically produced drugs by 2020, as stipulated by the Russian Healthcare Development Program.
“The Russian pharmaceutical market, worth $16.2 billion, is the largest and fastest growing in the CEE region,” Ms. Grzywinska says. “However, 80% of drugs sold are imported because domestic companies tend to be small and undercapitalized. It is still too early to predict how the government plans will restructure the market, but there are several possible scenarios.”
Sanofi-Aventis and Nycomed (nycomed.com) have announced plans to establish production plants in Russia. Both hope to capitalize on the privileges bestowed on domestic producers. For example, domestically produced products can be priced up to 15% higher than imported drugs. Establishing production in Russia, though, still involves significant obstacles, such as longwinded administrative procedures and complicated registration methods.
A faster and less complicated route, Frost & Sullivan’s analysts believe, would be to enter the market through acquisitions or strategic partnerships. This brings certain benefits, primarily an established market position or brand name. Moreover, Russian pharmaceutical manufacturers often have outdated production facilities, which generates a need for capital investments.
Another possible option is that local manufacturers would buy the licenses for producing certain medicines from foreign generic companies once the patents expire. However, funding issues must first be resolved, as domestic producers in Russia often face serious financial difficulties. Therefore, easier access to capital would be needed, such as favorable loans, subsidies, or structural programs.
“The success and effectiveness of import substitution in Russia hinges on how effectively the government will pursue its goals,” Ms. Grzywinska says. “One thing is certain; this latest decision is bound to bring inevitable changes and generate new opportunities for local producers and foreign investors alike.”