Healthcare Growth Opportunities in Brazil

Is Brazil the Next Big Thing in Healthcare?

In today’s global economic world, the BRIC countries (Brazil, Russia, India and China) are setting up new horizons, promising strong potential for future growth in the healthcare market. According to Frost & Sullivan’s research, it is estimated that Brazil will continue to maintain the second position among the BRIC countries after China.

The Brazilian healthcare market is poised for rapid growth by $19.80 billion from 2011-2015, constituting a Compound Annual Growth Rate (CAGR) of 12.6 percent. The major revenue will come from the pharmaceutical/biotech sector, followed by medical devices, medical imaging, clinical diagnostics and healthcare IT. Overall, the distribution of healthcare sectors will be maintained over the next five years.

With a Complex Set of Drivers Comes a Diversified Set of Opportunities

Over the past few years, private contributions in healthcare have risen with the increased interest of the investors and rising private equity investments and mergers & acquisition activity. Further, the healthcare industry in Brazil has also progressed through huge investments in R&D and the implementation of innovative healthcare delivery models.

Foreign Direct Investment (FDI) and Private Equity Investment Starting to Play the Game

Given the attractiveness of the Brazilian market, many multinational companies are making a foray into the market through joint ventures with local healthcare companies. For example, the American multinational MSD (Merck & Co.) made its first foray into the Brazilian market, which is a joint venture with Supera, a company created in 2011 by the national laboratories Eurofarma and Cristalia. The expectation is that sales revenues of the new company, Supera RX, will reach $500 million by 2017 with a portfolio of innovative medications and drugs.

There also has been an increase in private equity investments across the healthcare delivery chain. For example, Brazil’s national development bank, the BNDES, and the four major local pharmaceutical companies – Ache, EMS, Hypermarcas and UniãoQuimica – established a joint venture in 2012 to develop biological drugs, probably biosimilars. The expectation is that the new company, BioBrasil, will commence its operations in the first semester of 2013, with the initial investment worth $200 million in capital from its banking partner.

Intensive M&A, with Local Companies, too

The Brazilian healthcare market has also witnessed M&A deals over the past few years. For example, the Brazilian company Bergamo was acquired for $215 million by a multi-national company named Amgen in 2011. The acquisition of Delta, Bunker and Probiotica by Canadian company Valeant accounted for more than $100 million in 2010 and 2011. The acquisition of leading Brazilian healthcare IT company WPD by Agfa in 2011 has resulted in significant growth opportunities in Brazil. The acquisition of WhebSistemas, Tesco Informatica and Dixtal by Philips in 2008 and 2010 has geared the global portfolio of clinical diagnostics and patient monitoring solutions in the Brazilian market.

The Aggressive Expansion and Modernization of Top Private Hospitals

The number of hospitals in Brazil with international accreditation certificates reached 37 in 2011 and grew 117.6 percent in two years. In São Paulo state, private hospitals are expected to receive investments of $1.50 billion in the next five years. With the increase in bed ratio and the change in technological updates, there is a shift in focus on examinations, diagnosis and specialized treatments, which demands new centers.

Boom of Population with Private Insurance Plans

The number of people with private insurance plans has significantly increased due to the recent positive economic scenario and the growth of formal employment, moving from 31.8 million to 47.6 million in 2011; this shows that in every four habitants in Brazil, one has a private insurance plan.

Brazil will have One of the Heaviest Burdens of Disease around the Globe

Despite improvements in basic health indicators, such as maternal mortality and child mortality, Brazil will endure a tough battle against both infectious (dengue still has epidemics year after year) and non-communicable diseases, with special attention to obesity and diabetes. Another area is cancer; more than 2.0 million new cases are expected by 2015.

Medical Tourism: An Emerging Market of $2 Billion

Brazil is emerging as a major medical tourism destination, with the market expected to reach $2.1 billion by 2015 with a CAGR of 28 percent, and lead LATAM’s expansion in medical tourism. Other emerging destination hubs for medical tourism in LATAM are Chile, Colombia, Costa Rica and Mexico. The key therapeutic areas in this field are oncology, orthopedics, cardiology, plastic surgery, dental treatments and neurology.

It is estimated that the factors driving this growth are the expansion and improvement of infrastructure, especially in hotels and airports, due to the World Cup and Olympics, and also due to modernization of private hospitals. However, this growth is hindered due to a lack of government regulations.

The Sixth Largest Pharma and Biotech Industry in 2015

The Brazilian pharmaceutical market is among the top 10 in the world that earned revenues of $26.1 billion in 2011, and it is estimated to reach $41.3 billion in 2015. The Brazilian pharmaceutical market is the largest market in Latin America, growing at a compound annual growth rate of 12.1 percent from 2011 to 2015.

The pharmaceutical market is currently driven by branded and non-branded generics, which will be strengthened with patent expiries of blockbusters, such as Diovan, Zyprexa, Nexium, Cialis and Cymbalta. With this scenario, the significant number of acquisitions and strategic deals on branded and non-branded generics is expected to be maintained.

Controlling the indiscriminate dispensing of different types of medicines is a great challenge for Brazil’s healthcare system. In response, the government program Farmácia Popular (Popular Pharmacy) was launched in 2004. The consolidation of government policies promoted dynamic change on pharmacies and drug stores with discount rates up to 90 percent, which implicated the increase in sales by 123.4 percent in 2011. This represents a major effort by the government to exert control over Brazil’s sprawling retail pharmaceutical industry and help deter the unregulated trades.

The market is also driven by an aging population, and the percentage of the elderly population (60 years and older) will significantly rise to 13.5 percent in 2015 from 10.1 percent in 2005. With the growing number of aging population, there would be significant incidence growth in traditional pharmaceuticals segments like cardiovascular diseases, pulmonology, neurology and oncology, and non-traditional pharmaceutical segments that include cosmetics, plastic surgeries and nutrition.

The Over-the-Counter (OTC) drug market estimates current growth of 15 percent in Brazil. The categories of OTC drugs that make Brazil the leading pharmaceutical market include nutritional supplements, multivitamins, dermocosmetics, analgesics and cold/flu.

The Fastest-Growing Sector in Healthcare by 2015

The Brazilian medical devices market is the largest in Latin America and is anticipated to reach $8.4 billion in 2015 from $4.7 billion in 2011, which is ahead of Mexico. A 15.8 percent CAGR is expected until 2015, which may slightly increase the participation within the region from 33.3 percent to 34.3 percent.

The main risk factors, such as cardiovascular diseases, oncology, chronic diseases (diabetes and cancer), breast implants, and knee and hip replacement surgeries, are increasing at a fast pace in Brazil. Added to the expansion of infrastructure for acute treatment, the Brazilian market will witness huge potential for growth in interventional devices, radiotherapy equipments, telemedicine & mobile health, and orthopedics devices.

These are the driving factors for growth in the Brazilian medical devices market and are believed to increase with the rising aging population, penetration of lower-cost versions, and reimbursement by private insurance companies.

The coronary stents sale is expected to grow from 14 percent to 18 percent in the next five years, with 160,000 stents sold annually in Brazil. The trend of coronary heart diseases (CHD) mortality in Latin America is expected to triple over the next two decades. It is estimated that the investments for oncology treatment from the ministry of health will surpass $280 million, and the orthopedics market will surpass $700 million by 2015. The implementation of a telehealth program by the federal government suggests a necessary investment of $39 million for its expansion in 2012. Also, the market for enteral and parenteral nutrition devices will demonstrate strongest growth over the next few years.

However, the medical devices market is inhibited by certain factors, such as tighter quality control for breast implants, lack of adoption of sophisticated products, and high depends on imports and exchange variations.

A Nascent Market with Opportunities Everywhere

The Brazilian healthcare IT market earned revenues of $410 million in 2011 and is estimated to reach $714 million in 2015. Brazil’s share in Latin America will surpass 47.1 percent in 2015 from 45.2 percent in 2011 with a CAGR of 14.8 percent. The healthcare IT sector growth is hindered due to the lack of knowledgeable workers and also basic infrastructure, such as Internet, electric power, etc.

The factor driving the growth of the healthcare IT sector in Brazil is the penetration of IT solutions such as EMR and HIS, with the expansion of infrastructure especially in Brazilian private hospitals. The adoption of EMR practices also increased with the rise of accredited hospitals. For example, the number of hospitals with international accreditation certificates increased from 15 in 2009 to 25 in 2010.
The expansion of a strong customer base for mobile health apps, with the revenues generated from smart phones and tablets, is another driving force for the growth of the healthcare IT sector in Brazil. It is estimated that the revenues from smart phones will reach $46.6 million in 2015, with growth of 112 percent annually. The apps are considered to have huge potential for growth in clinical diagnostics and education areas for diseases, medicines information, etc.

It is estimated that the greatest challenge in the coming years lies in development of effective communication that showcases the payback of healthcare IT solutions.

Reimbursement from Private Insurance Plans will Sustain the Solid Growth for Medical Imaging

The Brazilian medical imaging market was estimated at $616 million in 2011, growing at a CAGR of 11.5 percent from 2011 to 2015. The medical imaging market in Brazil is anticipated to grow at a fast pace, contributing 51.2 percent share in Latin America, thus revenues will be increased to $952 million in 2015.

The medical imaging market is by no means left behind, with a significant amount of investments springing up for the local companies to expand their technology innovations. This is possible due to the support from financial institutions such as FINAME, BNDES, FINEP and CNPq. The aging population and increase in chronic diseases are considered to be the main drivers for the medical imaging market. Portable ultrasound systems are witnessing an enormous demand from physicians and are expected to further boost the growth of the medical imaging market by 15 percent to 20 percent in 2015.

The positive factor that will drive the imaging market is the inclusion of imaging modalities such as PET and SPECT, which help in providing imaging scans for the detection of lymphoma and lung cancer. These modalities are now being included in the list of procedures covered by private insurance plans.

Despite the positive growth in the medical imaging market, the market is experiencing certain challenges due to the low penetration of CT and MRI equipments, which comprise only 4.1 percent of the total installed base in Brazil. Another challenge is that Brazil has an incredibly high concentration of private hospitals with relatively less qualified healthcare professionals.

A Nearly $1 Billion Market Pushed by Government Investments

Brazil’s clinical diagnostics market is expected to grow from $616 million in 2011 to $952 million by 2015, at a CAGR of 9.6 percent.

It is estimated that the government will facilitate the expansions of molecular laboratories from 16 units to 38 units by increasing the investment opportunities in R&D. The next-generation DNA sequencing technologies and point-of-care testing will create novel market opportunities and significant growth in Brazil. It is estimated that the rate of acquisition of rapid tests for Hepatitis B & C will be $3.6 million.

However, the growth of the clinical diagnostics market is restrained by factors such as lack of production expertise and accessibility of diagnostics testing in rural areas.

Market Insight by Swathi Allada; Research Service NAB2 by Willian Fujioka

Published: 16 Aug 2012