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South America's Pharma market poised for growth

By Hpanchal on February 14, 2013

The pharmaceutical industry continues to undergo numerous changes as government regulations persist, blockbuster patents expire and the need for cost control rises within the industry. As such, there is a shift towards emerging markets for not only manufacturing but also to penetrate growing domestic markets.

As a result of this shift towards emerging markets, the pharmaceutical supply chain has become even more extended and further complicated as infrastructure and government regulations in these markets can result in security concerns as well as critical delays in delivery.

Transport Intelligence estimates the global pharmaceutical logistics market grew more than 12 percent from 2010 to 2011 to approximately $61.7 billion. Expectations for 2012 are for a greater increase as the two largest emerging markets – Asia and South America witness even further demand for these types of services.

Second only to Asia, the South American pharmaceutical logistics market possesses great opportunity despite infrastructure and government regulation concerns. In fact, Transport Intelligence estimated this market grew more than 20 percent between 2010 and 2011 to $9.4 billion with Brazil alone growing almost 14 percent for the same period to $5.1 billion. The South American market made up more than 15 percent of the total pharmaceutical logistics market in 2011 with Brazil alone comprising 8.3 percent of the total market.

As such, Brazil is the largest Latin American healthcare market. Brazil’s growing middle class and the increasing number of pharmacies have resulted in the country becoming a top 10 global drug market according to IMS Health data. Brazilian companies lead the domestic market in sales.

Currently there are about 540 pharmaceutical companies operating in the country with 90 companies responsible for manufacturing generic drugs. Despite government favoritism towards the domestic providers, global pharmaceutical manufacturers such as Pfizer, Sanofi-Aventis, Merck and Roche have also established facilities in this market.

Imports make up most of the Brazilian pharmaceutical market, fueled by the growing middle class. However, export value of pharmaceutical goods appears to be increasing at a faster clip, 15.4 percent from 2011 over 2010 as compared to a 4.1 percent import value increase for the same period. This may be attributed to more global pharmaceutical manufacturers expanding and shifting operations away from higher cost geographic regions to Brazil.

A concern of the industry is Brazilian government regulations which tend to be confusing. Hence, partnering with a knowledgeable supply chain provider is usually a benefit in situations such as this. For example, in some Brazilian states, there is a licensing requirement to have a warehousing operation in the same state as the manufacturing facility.

Another regulatory influence, which can vary by state, is the system of sales tax. This has resulted in manufacturers in affected states to ship directly to retailers, bypassing wholesalers, and thereby avoiding one level of sales tax. Mark Mohr, director of Customer Support and Partner Management for Csafe, notes that customs clearance abilities are a concern particularly as offices tend to be closed on weekends which can be a detriment for pharmaceuticals that require temperature-control handling as well as being time-critical.

Infrastructure has always been a concern as airports, ports, road and rail have not been able to keep up with demand. Through the years, the Brazilian government has invested in its infrastructure; however, it appears to have made little difference as goods continue to back up at airports and ports.

Despite this, the 3PL market has grown. Scott Szwast, director of Healthcare Marketing for UPS, says a significant percentage of the development and deployment of healthcare distribution centers in Brazil is being undertaken by third-party logistics providers focused on the pharmaceutical, bio-pharma, and medical device markets.

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