Bloomberg News

Generic Viagra Delivers Hidden Billionaire Duo in Brazil

August 12, 2014

Eurofarma Racing

The Eurofarma team is a five-time champion of the Brazilian race circuit. Photographer: Helvio Junior/LatinContent via Getty Images

The day after Pfizer Inc. (PFE:US)’s patent for Viagra expired in Brazil, Carlos Sanchez flooded pharmacies with his generic erectile dysfunction pills. It was a day his army of lawyers, researchers and marketers had been preparing for more than three years, even winning a bid to move up the patent’s expiration date.

At a cost of 10 reais ($4.39), Sanchez’s pills were 5 reais cheaper than Pfizer’s, which had cut its prices in half just weeks before the patent ended. Sanchez’s copy of the little blue pill gave him an early foothold into the market for erectile dysfunction medicine in Brazil, where sales have quintupled in the last four years.

“Generics are the fastest-growing part of the market,” Tracy Francis, consultant for McKinsey & Co. Inc., said in a phone interview from Sao Paulo. “You have a large middle class buying drugs with their own money, so the price is right. Generics are a business for companies with scale – there are a lot of points of sale and you need to negotiate terms with retailers.”

Consumers from an emerging middle class that pay for two-thirds of drug costs out of pocket tend to choose generics at the drug counter. IMS Health (IMS:US) forecasts the industry will grow by 10 percent annually through 2019, as government subsidies for drug purchases and financing for innovation from Brazil’s state development bank offset economic growth that slowed to 2.2 percent in 2013, according to Geraldo Biasoto, economist at Universidade Estadual de Campinas.

Hidden Billionaires

While Brazil’s pharmaceutical industry isn’t known as a hotbed of innovation -- Sanchez invests about half as much as Pfizer in research and development as a percentage of revenues - - it hasn’t stopped drug copycats such as Sanchez from becoming billionaires.

Since taking over his family’s drug-store business at age 26, Sanchez has turned EMS Participacoes SA into a pharmaceutical company with revenue of 2 billion reais in 2013. His net worth is valued at $2.9 billion, according to the Bloomberg Billionaires Index, including an art collection funded by years of dividends.

Maurizio Billi, the majority shareholder of the third-largest Brazilian drug producer, Eurofarma Laboratorios Ltda., has amassed a fortune worth more than $1.2 billion, while Ache Laboratorios Farmaceuticos SA, a Sao Paulo-based company that had sales of 1.9 billion reais in 2013, has made billionaire fortunes for its three major shareholders, the Depieri, Baptista and Siaulys families.

Generic Knockoffs

Eurofarma and EMS are surpassed in scale by Laboratorio Neo Quimica, the pharmaceutical unit of consumer goods company Hypermarcas SA, which had revenue of 2.3 billion reais last year. The two companies are the second- and third-biggest producers of sildenafil citrate pills in Brazil, trailed by Pfizer in sixth place, according to IMS Health.

EMS exports to more than 40 countries in Latin America, Europe, Africa and Asia. Sanchez, who took over the company in the 1980s after his father died -- a loss that came just months after the passing of his wife -- distributes several generic spinoffs, including a cholesterol-lowering Lipitor knockoff and an immunosuppressant that prevents the rejection of transplanted organs.

He forged a joint venture with Germed in Portugal, a partnership with Italian lab MonteResearch, and opened a unit last year in Maryland, Brace Pharma, to lead an expansion into the U.S. and Canada. Revenue has surged 55 percent since 2010, and profit nearly doubled to 404 million reais in 2013, according to statements on the website of EMS.

‘Quality Medicine’

“The private pharmaceutical industry is business, we’re here to make a profit,” Sanchez said at a forum on innovation at Insper Business School in Sao Paulo last October. “Our business is to produce quality medicine that gives access to the population and cures people. So I feel like the happiest person in the world because I make money by helping people.”

Sanchez has received more than $300 million in dividends since 2009, and made a losing $85 million bid on Edvard Munch’s “The Scream” in 2012, according to Veja magazine. He declined to be interviewed for this story.

Maurizio Billi, the majority shareholder of Eurofarma, bought Argentine lab Quesada in 2009, and has since made acquisitions that took his company to Uruguay, Bolivia, Chile, Colombia, Peru and Central America. Billi rarely speaks to the press or appears in public, and referred questions to Maria del Pilar Munoz, Eurofarma’s head of new business, who said the company is contemplating an acquisition in Mexico.

Racing Circuit

Founded in 1972 by Maurizio’s father Galliano, Eurofarma had sales of 1.9 billion reais in 2013, fueled by 1,700 marketers who persuade doctors to recommend the company’s generics, which include generic Viagra and the oral contraceptive Tamisa.

“We began promoting our products at the doctor’s office in the 90s, and today medical prescriptions is our biggest unit,” Pilar said in an interview at the company’s industrial complex in Itapevi, Sao Paulo.

She watched as a robot guided by infrared sensors moved pill boxes from the lab to the warehouse. The glass wall behind her overlooked Eurofarma’s six manufacturing plants and the tropical forest biome lining Brazil’s biggest city. About a third of the company’s 6,000 workers work here and are offered perks such as free meals, a soccer field and hair salon.

A hall dedicated to Eurofarma’s corporate history features helmets from the firm’s stock car team. Billi, a race car driver in his spare time, won Brazil’s Porsche Master Cup last year. The Eurofarma team is a five-time champion of the Brazilian race circuit. Sanchez sponsored his own driver last month for the annual Corrida do Milhao.

Government Contracts

While Eurofarma dominates on the racetrack, EMS is leading in government deals. A recent rule change allows the health ministry to buy drugs from labs without a public bidding process, as long as firms partner with a state-owned lab. Under former health minister Alexandre Padilha, who stepped down this year to run for Sao Paulo governor, the number of such partnerships doled out annually quintupled to 49 in 2013.

EMS is a supplier in at least 15 of the partnerships, according to the ministry. One of them, a deal for EMS, Labogen and the navy’s drug lab to supply generic Viagra to treat pulmonary hypertension, was canceled by the ministry in June amid a money laundering investigation by federal police, according to a ministry statement. EMS declined to comment, while the press offices of Labogen and the navy’s drug lab didn’t immediately respond to requests for comment.

Campaign Donations

Eurofarma, which donated 2.3 million reais in 2010 and 2012 electoral campaigns, was granted one of the contracts. EMS didn’t register any donations.

The government’s Farmacia Popular program to subsidize medicine purchases is buoying growth for generics, said Pedro Bernardo, director at Interfarma, Brazil’s association of pharmaceutical research firms. Its budget grew more than 40 percent this year from 2013 to 2.6 billion reais.

“Generic sales have grown a lot and as they slowed down a bit, Farmacia Popular has kept them going,” he said in a phone interview from Sao Paulo.

In a bid to lower the government’s $6 billion annual medicine bill, Brazil’s state development bank, BNDES, is funding joint ventures between local and innovative foreign firms to support local development of costly biological drugs. EMS joined forces with Ache, Uniao Quimica and Hypermarcas for a 550-million-real research lab. BNDES also lent 190 million reais in February for an EMS lab in Manaus, under the company’s Novamed unit.

‘Radical Innovations’

Eurofarma, which received 106 million reais in research finance from BNDES in 2011, teamed with Merck & Co. (MRK:US) and biological medicine producer Cristalia in a joint venture, Supera RX. Eurofarma joined Biolab and Cristalia in another joint venture.

“There will be a tech transfer from partnerships with big multinationals like Merck,” Eurofarma’s Pilar said.

The growth spurt of Brazil’s big pharmaceutical companies must give way to more innovative research, said Pedro Palmeira, the head of the bank’s Profarma program, in a phone interview from Rio de Janeiro.

“Some national companies are working with growth rates well above the market average, some even doubling in size in the last few years,” he said. “We want to put more financially robust firms on the path of small incremental innovations that could lead to clinical research and who knows, even radical innovations.”

(An earlier version of this story corrected Eurofarma’s industry rank in the 7th paragraph.)

To contact the reporter on this story: Blake Schmidt in Sao Paulo at bschmidt16@bloomberg.net

To contact the editors responsible for this story: Peter Newcomb at pnewcomb2@bloomberg.net


Ebola Rising
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • PFE
    (Pfizer Inc)
    • $29.65 USD
    • -0.12
    • -0.4%
  • IMS
    (IMS Health Holdings Inc)
    • $26.27 USD
    • 0.15
    • 0.57%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus