South America’s Pharma market poised for growth

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.

The majority of these facilities are shared utility multi-client facilities, providing turnkey, scalable distribution solutions for companies launching new products into these fast-developing markets. The facilities typically provide inventory management, order management, product preparation, returns management, recall support, and frequently value-added customer care and regulatory compliance services as well.

Hector Oyarzun, director of Healthcare Logistics for Geo Express International, a Toronto-based global logistics provider of pharmaceutical and clinical trial logistics solutions with a specialty in the Latin America market, says very few pharmaceutical companies have their own logistics infrastructure, with the exception of smaller national laboratories.

“There is just no point in comparing costs, infrastructure, and the attention to detail 3PL can provide in these highly complex logistics scenarios, where large distances and highly variable temperatures play a major role,” Oyarzun says. “This explains why although there are still many small providers in each country, it is the megacarriers such as UPS, DHL, FedEx and Kuehne + Nagel that are making great progress, mostly through acquisitions and heavy investment on infrastructure, technology, and certified warehousing and distribution facilities, as well as temperature control equipment.

A great example of this is the UPS facility in Goiania, Brazil, for its largest healthcare client - Merck Sharp & Dohme, or the FedEx acquisition of Rapidao Cometa Logistica e Transportes with approximately 9,000 employees across Brazil.”

Not only are the “megacarriers” making progress but also specialized pharmaceutical logistics providers such as World Courier and Marken. Both providers specialize in the clinical trial space by providing a range of services such as temperature-controlled handling capabilities, in-transit temperature-controlled monitoring and replenishment, customs brokerage solutions, distribution handling including pick and pack, labeling, packaging and returns handling.

The need for temperature-controlled handling, storage and transportation is increasing as the growth of new drugs, particularly biopharmaceuticals and many clinical trials require such special handling. Csafe, a joint venture between AmSafe and AcuTemp, provides specialized leased containers and other services for cold chain air cargo shipping companies. These specialized containers allow for shippers to monitor the temperature of the drugs throughout the entire flight.

The company’s airline partners include such companies as FedEx, United Cargo and Air Canada. Its forwarder partner network includes DHL, Expeditors International of Washington, Kuehne + Nagel and UPS. Mohr says the company is doing a growing amount of business in South America. He also noted that Brazil is especially is poised for significant growth thanks to a growing middle class.

“Although there is more inbound and not a lot of outbound traffic out of South America, clinical trials present a unique opportunity and is a prime market,” Mohr says.

The growth of clinical trials has spread into other South American countries. For example, earlier this year, both World Courier and Marken opened clinical depots in Buenos Aires, Argentina. For World Courier, the company had been in Argentina since 2005, but due to increasing demand, expanded its trial supply storage depot to 3,400 square meters. Argentina, Brazil, Chile and Peru comprise its South America network.

Marken opened its temperature-controlled clinical distribution in Buenos Aires in January 2012. The facility serves more than 1200 research sites in the region.

DHL, a leader in clinical trial transportation and handling, has established hubs in Buenos Aires, Argentina, Sao Paulo, Brazil and Santiago, Chile. DHL says these hubs link shared and multi-user warehousing capabilities with managed transportation, import and export documentation preparation and value added services such as assembly and postponement.

Among its clinical trial services:
Set-up, project and materials management
Transport and chain of custody planning
Labeling and re-packaging
Storage, distribution and controlled environmental monitoring

Besides clinical trial services, Kuehne + Nagel provides various services to Bayer Healthcare and Roche in Chile. The company operates Bayer’s 4,000-sq.-m. facility in Santiago. The site encompasses five cool zones for temperature-controlled cargo. The company also provides repackaging and labeling as well as special promotions preparation and laboratory testing of products.

Kuehne + Nagel manages Roche’s Santiago distribution center and provide distribution to hospitals, clinics and pharmacy distribution centers throughout the country. “Roche is an innovative healthcare company, and this deal is part of our strategy to improve our focus on core activities locally,” according to the general manager of Roche Chile. “It will allow us to dedicate more attention to demand generation, without losing the quality of our current distribution in Chile. Working with Kuehne + Nagel, a world-class logistics service provider, we will also have the possibility to incorporate new technologies, explore synergies and further integrate our logistics and distribution processes, improving our efficiency and reducing inventories.”

The South American pharmaceutical logistics market is expected to continue its growth, particularly as clinical trial needs grow and pharmaceutical manufacturing move further into this region. The domestic market continues to make up the largest portion of the demand, however, it is expected the international market is likely to increase as output rises. As such, investments in infrastructure improvements particularly the region’s airports, ports and road networks are being made to ease congestion and to also bring South American countries together for a potential strong cross-border network. ACW

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