Getting older and wealthier by the day, Latin Americans increasingly visit their pharmacy. Since 2008, the region is by far the fastest growing pharmaceutical market in the world. By 2017, Brazil will become the fourth largest pharma market, behind the U.S., China and Japan. But, this impressive growth story is not a victory for multinationals. The real winners are Latin American generic drug makers and locally owned retailers.
In the course of two decades, Latin American generics have evolved from a nuisance to the international laboratories into the dominant force in most medication categories. The most accommodating market in the region is Argentina. Patents were only first legally recognized starting in 2000, so as a result, many international drugs marketed there carry no patent protection. Non-original drugs are classified as Biosimilars (not generics) and thus do not require proof of bioequivalence. Furthermore, data exclusivity, the most important step of protecting original formulas in developed markets, is not even recognized in Argentina. Argentina’s lax intellectual property protection has enabled the generic industry to thrive. Companies like Laboratorios Raffo, Driburg, Grupo Bago and Biosidus are some of the largest private sector employers in Argentina and the pride of Kirchner administrations, under whose favorable regulatory regime they have expanded.
Former Brazilian health minister, Jose Serra famously stood up to the international pharmaceutical industry in the 1990s by criticizing the lengthy patent protections of expensive HIV drugs. After winning their showdown with global pharma, Brazil began opening the regulatory door to more generics. Though considered more respectful of intellectual property rights than Argentina, Brazil nonetheless supports one of the world’s largest generic industries. EMS, Brazil’s largest drug laboratory, began producing generics in 2000, and today employs over 5,000 Brazilians and exports generics to 40 plus countries. Even Mexico, bound by the rigors of Nafta, has developed an impressive homegrown generics industry.
Generics can be as much as 70 percent cheaper than original drugs. Since medical prescriptions in Latin American countries must only list the medical name and not the brand name, pharmacists tend to recommend generics. In spite of their affordability, generics are mindful to incorporate a healthy margin for pharmacy retailers into their pricing structure.
The accessible prices of generics has helped unleash consumer demand for pharmaceuticals. Rising incomes and an aging population further bolsters medication volumes. The pharmacy retail sector is quickly evolving to meet demand. Chile was the first to modernize and consolidate its pharmacies. Farmacias Ahumada S.A. (Fasa), based in Santiago, is the largest drugstore chain in Latin America and one of the largest in the world in number of outlets, with a network of nearly 1,000 pharmacies in Chile, Peru, Brazil, and Mexico.
Consolidation is underway in other markets, most evidently in Brazil and Mexico where independents are losing ground to well-lit large size pharmacy chain stores modeled after U.S. and UK equivalents where a high percentage of sales come from OTC and non-medical related items. In Mexico and Brazil, the larger pharmacy chains are striving to stay ahead of the process and prevent foreign competitors from entering. The greatest threat to pharmacy chains comes from non-medical retailers like Walmart, who mastered the pharma product category in its U.S. stores and now sells more than 250 generics in its Mexican outlets. Almost one fourth of all pharmaceutical sales in Mexico today go through non-medical retailers including Superama, and Soriana, two of the largest supermarket chains.
Latin America’s $100 billion pharmaceutical industry is today dominated by Latin American firms. Brazilian, Argentine and Cuban generics producers already export their goods to other emerging markets in Asia, Africa and the mid-East. It may not be long before Latin American pharmacy giants do the same. Perhaps then, the multinational players will finally act upon the opportunities south of the Rio Grande
