Within the Brazilian pharmaceutical retail, drugstores are the main means of access for the population to medications and one of the main channels for hygiene and beauty articles. Most of these businesses sell Medicines, OTC Drugs, Hygiene, and Beauty Products.
The Brazilian drugstore market is a strong growth market, still fragmented, but under process of consolidation. The population pays for most of its drugs with its own resources, since public and private drug subsidy programs, which are prevalent in several countries around the world, are still incipient in Brazil.
The drug sector is one of the fastest growing sectors in the world, having consistently overcome the growth of the world economy in recent years, a trend also seen in Brazil, according to data published by IMS Health.
We can identify the following types of drugs in Brazil:
- Brand Medicines
- Reference Medicines
- Similar Brand Medicines
- Generic Medicines
- OTC Medicines
Drugs covering the Reference Medicines and Similar Branded Medicines to which is required a medical prescription for sale.
New drugs launched by laboratories after major investments in research and development, comprehensive testing and approval procedures from the relevant government agencies. These are drugs used as a parameter for bioequivalence and bioavailability tests for the approval of the Generic Drugs. These products, when launched, are protected by a patent, whose term can vary by the category of the invention and the country’s laws. In Brazil, this term is up to 20 years.
Drugs containing the same or the same active ingredients and the same concentration, dosage form, route of administration, doses and therapeutic indication of the respective Reference Drugs, which can differ only in characteristics related to the size and shape of the product, expiration date, packaging, labeling, excipients and vehicles (intravenous, tablet, capsule, suppository, etc.). Similar Brand Drugs are also identified by the trademark and, the Generic Drugs can only be produced and traded after expiration or waiver of patent protection of the respective Reference Drug. Similar Brand Drugs goes through pharmaceutical equivalence and bioavailability tests required by the Ministry of Health, without, however, going through the bioequivalence test.
Drugs that are identical or bioequivalent to the respective Brand Drugs in the form of dosage, efficacy, safety, power, quality, performance characteristics and intended use, developed after the expiration, waiver or breach of the patent of the Brand Drugs on which they are based, and using formulas of Brand Drugs. Therefore, a medical prescription is also required for the sale of this type of drug. The difference is in the name, the brand and the form of disclosure. Generic Drugs are not protected by patent.
Drugs, whose sale is free without requiring the presentation of a medical prescription, are used to relieve a medical condition. This group includes drugs for treating acute conditions easy to be self-diagnosed, such as antacids, cough, pain, and cold medicines. In 2018, the Brazilian drug market reached a compound annual growth rate of gross sales and services revenue (CAGR) of approximately 14.6% between 2008 and 2018.
Factors that justify the growth prospects of the market
We believe that the growth of the drug market in Brazil is mainly due to (i) the increase in income and per capita consumption; (ii) the Brazilian population aging; (iii) the expansion of the generic drug market; and (iv) the early control of pathologies. The charts below illustrate the evolution of the sector in the world and Brazil in recent years:
The pharmaceutical market in Brazil
The annual per capita consumption of drugs in Brazil shows great potential for growth, as it is still significantly lower when compared to the consumption in the main world markets.
The following factors explain the strong perspectives of Brazilian market growth:
- Increase in Income and Per Capita Consumption
- Population Aging
- Expansion of the Generic Drug Market
- Early Control of Pathologies
According to the Brazilian Institute of Geography and Statistics, or IBGE, the expenditure with drugs strongly varies by the level of family income, which shows the existence of strong low demand for the lower income population.
According to IPC Maps, which measures the potential for Brazilian consumption, an increase in the population’s potential for urban consumption has been observed recently, especially in Income Class C consumption. In 2015, this class was attributed a percentage of 33,7% of the total urban consumption potential in Brazil and in 2019, this percentage increased to 37.5%, as shown in the graph below:
Drug consumption varies by age. This consumption standard, in conjunction with the expected growth of the population over 60 years old, should cause the Brazilian pharmaceutical market to increase its level in the coming years. In 2000, according to IBGE – Brazilian Institute of Geography and Statistics, the number of people older than 60 years old was 12.9 million, increasing to approximately 26.3 million in 2010. IBGE expects this number will jump to 29.2 million in 2020, to 41.5 million in 2030, and to 73.5 million in 2060, which corresponds to an average compound annual growth rate of 3.5% for the next 20 years. It is expected that the demographic representativeness of this portion of the population, which was 10% in 2010, will jump to 33.7% in 2060, as the chart below.
Population evolution by age group
The Generic Drugs were introduced in Brazil at the end of 1999. Since the beginning of their sales, they have been showing high growth. According to data of IQVIA, the sales of generic drugs reached BRL 28.0 billion in 2018, a growth of 9.0% in sales carried out in 2017 totaling BRL 25.6 billion. The amount, audited by IQVIA, does not take into account the discounts of more than 50% offered by the industry to the retailer and is based on the price records made by the laboratories at the Brazilian Drug Market Regulation Chamber (CMED). The following chart illustrates the evolution of the participation growth concerning the Generic Drugs in the total drug market.
Evolution of the generic drugs (% growth)
Among the factors that cause the Generic Drug market to be in an expansion time, the competitive price of these drugs stands out when compared to the brand drugs and the expiration of patents for top-selling drugs in the near future. According to the Brazilian applicable laws, the prices of the Generic Drugs should be at least 35% lower than the Reference Drugs clearly due to lower research and development costs, which make them very competitive and, in practice, the discounts offered are higher than the mininum reference value.
The lifestyle adopted by the population in large cities in Brazil and in the world has contributed to the degradation of the individuals’ health. This urban population breathes polluted air, eats inappropriately, has a sedentary lifestyle and suffers from the effects of stress, which contributes to diseases such as diabetes, high cholesterol, hypertension, respiratory diseases, depression, among others. Additionally, physicians and the general population are becoming increasingly aware of the benefits resulting from the prevention, detection and early control of these and other pathologies. Treatments have started increasingly earlier by taking medications, contributing to health and well-being and leveraging the growth of the pharmaceutical market, especially among the non-elderly population.
Hygiene and Beauty Industry (HPC – Personal Hygiene, Perfumery and Cosmetics)
According to data published by the Brazilian Association of the Personal Hygiene, Perfumery and Cosmetics Industry (ABIHPEC), in 2018, the turnover of the hygiene and beauty segment in Brazil reached BRL 48.8 billion, with an average compound annual growth rate between 2010 and 2018 of 8.7%. 2.8% growth in 2018.
The chart below illustrates the turnover of the Brazilian non-pharmaceutical industry (“Ex-Factory”, tax-free) between 2006 and 2018:
In Brazil, the retail of pharmaceutical products is mainly carried out by independent drugstores and pharmacy chains (including chains linked to supermarkets).
As a retail industry whose scale is a determining factor for the competitiveness of its participants, we believe that there is a natural trend towards consolidation of this sector. This major concentration of the sector can be noted in foreign markets, such as the United States, Chile, and Mexico.
One of the main factors that have been promoting the consolidation of the pharmaceutical retail sector is the trend towards formalization of the Brazilian economy. Traditionally, many retail segments in Brazil were defined by a high degree of informality, mainly by means of tax evasion by small companies. This tax difference affected the large chain as it reduced the advantages obtained by gains in scale.
This market distortion has been gradually mitigated due to (i) the modernization of the Brazilian tax system, implementing electronic invoices, (ii) the taxation at the industry or distributor level for all subsequent stages of the distribution chain (tax substitution) and (iii) the evolution of the payment systems, which increased the proportion of payments made with credit and debit cards.
In addition to the difference in size between the Southeast market and other Brazilian regions, it is also noted differences in the participants of the pharmaceutical retail. In the Southeast, most major retail chains are clearly present. This region is the main platform for four of the main Brazilian chains (Drogaria São Paulo, Drogasil, and Droga Raia) where there are approximately 60% of their stores. As a result, we believe that the competition in the Southeast region is higher than that seen in other Brazilian regions.
In the other Brazilian regions, where most large chains still have limited exposure, larger local participants that have relevant market participation in their field of expertise are highlighted, in addition to the remarkable presence of our Company, especially in the North and Northeast.
From our point of view, the successful local pharmacy chains are related to some regional factors, including the presence in suitable locations offering convenience to customers; efficient location of distribution centers reducing the generation of tax liabilities resulting from interstate transportation of goods; and, customized service to the locals.
Our Company operates in a competitive market, in which the main players are the drugstores chains and independent pharmacies, but we also competed with other types of companies, such as perfumeries, supermarkets and direct selling companies. The competitors vary depending on the geographic where we operate.
The table below shows the main competitors by region of the country:
|Federal District||Rosário/District, Drogasil and Pacheco|
|Goiás||Santa Marta, Rosário, Drogasil and Pacheco|
|Mato Grosso||São Bento, Rosário, Drogasil|
|Mato Grosso do Sul||São Bento, Drogasil and Farmais|
|Alagoas||Permanente, Drogasil and Drogaria São Paulo|
|Bahia||Indiana, Drogaria São Paulo, Drogasil and Extrafarma|
|Ceará||Dose Certa, Extrafarma and Drogasil|
|Maranhão||Extrafarma and Drogasil|
|Paraíba||Permanente, Drogasil, Redepharma and Extrafarma|
|Pernambuco||Bompreço, Drogasil Drogaria São Paulo and Extrafarma|
|Piauí||Globo and Extrafarma|
|Rio Grande do Norte||Globo, Drogasil and Extrafarma|
|Sergipe||Permanente and Drogasil|
|Amazonas||Avenida and Angélica|
|Tocantins||Independente, Drogasil and Extrafarma|
|Espírito Santo||Drogasil, Santa Lúcia and Pacheco|
|Minas Gerais||Araújo, Indiana, Droga Raia, Drogasil, Farmais and Pacheco|
|Rio de Janeiro||Pacheco, Drogasmil, Droga Raia, Drogaria Moderna, Venâncio and Nossa Drogaria|
|São Paulo||Drogaria São Paulo, Onofre, Drogasil, Raia, Farmais and Extrafarma|
|Paraná||Nissei, Farmais, Preço Popular, Droga Raia, Pacheco, Panvel and Vale Verde|
|Rio Grande do Sul||Farmácia São João, Panvel, Farmais, Droga Raia and Preço Popular|
|Santa Catarina||Preço Popular, São João, Nissei, Panvel, Angeloni and Farmais|
In the North, Northeast and Mid-west, as well as in the countryside of other Brazilian states, the main competitors, in general, are not the large chains, but local pharmacy chains.