GSK Enters Antibiotic Deal With Farmanguinhos


BMI View: The partnership between GlaxoSmithKline and the Brazilian government will guarantee a continuous revenue stream for the UK-based multinational pharmaceutical company and limit the negative influence of competition from both rival innovative products and generic medicines. However, over the long-term, the company could lose its market share once the deal ends. As the Brazilian government is determined to boost domestic pharmaceutical research and production, collaboration with local partners offers foreign drugmakers a way to enjoy state incentives as well as to enhance their market share in this promising emerging pharmaceutical market.

GlaxoSmithKline (GSK) has entered a five-year partnership with the Brazilian state-own drug producer Institute of Drug Technology ( Farmanguinhos) to produce its antibiotic drug Amoxil (amoxicillin) locally, which was previously produced in Mexico and imported into Brazil. The partnership, including technology transfers, scientific collaboration and professional training, will support the local production of antibiotics. The first and second batches of the medicine were delivered in June and October 2012, while the total volume to be manufactured will depend on demand.

The partnership will enable GSK to enjoy the government's incentive scheme immediately. It will also enhance its market share in the Brazilian pharmaceutical market, because as part of the government's plan to boost the local healthcare industry, domestic produced medicines will be priced at up to 25% premium over foreign products on government purchases as part of a new policy. [1] However, over the long-term GSK may lose its market share to domestic producers when the deal terminates.

GSK's Strong Collaborative Efforts In The Public-Private Partnerships (PPPs) In Brazil
Source: BMI
Apr-03 Fiocruz and GlaxoSmithKline signed a similar agreement for the production of 100mn doses of Mumps, Measles and Rubella (MMR) vaccine for childhood immunisation
2004 GlaxoSmithKline divested a 40,000m² production facility to Farmanguinhos for a reported BRL18mn (US$7.27mn). The plant is expected to manufacture GSK's off-patent antiretroviral drugs
Aug-09 GlaxoSmithKline announced an alliance with Fiocruz's Instituto de Tecnologia em Imunobiológicos (Bio-Manguinhos) for the value of BRL4.0bn (US$2.0bn). GlaxoSmithKline provided its pneumococcal vaccine Synflorix for a ten-year period, starting in 2010. Additionally, Fiocruz will have access to the technology used for the production of this vaccine. Bio-Manguinhos already has technology transference agreements with GlaxoSmithKline for the production of the triple viral vaccine (MMR) and the vaccine against rotavirus.
Nov-10 GSK entered into a technology-transfer deal with Fiocruz for the development and manufacturing of vaccines for diseases affecting poorer countries including polio, Haemophilus influenzae type b (Hib), measles, mumps, rubella, rotavirus and pneumococcal diseases
Apr-03 Fiocruz and GlaxoSmithKline signed a similar agreement for the production of 100mn doses of Mumps, Measles and Rubella (MMR) vaccine for childhood immunisation
2004 GlaxoSmithKline divested a 40,000m² production facility to Farmanguinhos for a reported BRL18mn (US$7.27mn). The plant is expected to manufacture GSK's off-patent antiretroviral drugs
Aug-09 GlaxoSmithKline announced an alliance with Fiocruz's Instituto de Tecnologia em Imunobiológicos (Bio-Manguinhos) for the value of BRL4.0bn (US$2.0bn). GlaxoSmithKline provided its pneumococcal vaccine Synflorix for a ten-year period, starting in 2010. Additionally, Fiocruz will have access to the technology used for the production of this vaccine. Bio-Manguinhos already has technology transference agreements with GlaxoSmithKline for the production of the triple viral vaccine (MMR) and the vaccine against rotavirus.
Nov-10 GSK entered into a technology-transfer deal with Fiocruz for the development and manufacturing of vaccines for diseases affecting poorer countries including polio, Haemophilus influenzae type b (Hib), measles, mumps, rubella, rotavirus and pneumococcal diseases

BMI notes that the Brazilian government has a long-term commitment to support domestic pharmaceutical industry through tax incentives, low-cost loans and technology transfer arrangements. It has exercised its single payer power and guaranteed a substantial market share in the Brazilian healthcare market to negotiate several similar deals with multinational pharmaceutical companies including Merck & Co, Novartis, Pfizer, Protalix, GlaxoSmithKline and Roche.

In addition, the Ministry of Health's Secretariat of Science, Technology & Strategic Supplies is developing a national Health Industrial Complex (CIS - Complexo Industrial de Saúde), investments amounted to BRL6.0bn (US$3.1bn) between 2003 and March 2010. Fundação Oswaldo Cruz (Fiocruz) is the Ministry of Health's body responsible for its implementation. With CIS, the ministry aims to increase its support to regional research and production initiatives, and decentralise pharmaceutical production. In April 2012, the government announced investments of BRL2.0bn (US$1.1bn) in a number of PPPs between 18 public producers and the private sector between 2012 and 2014. GSK was among the multinational companies that showed interest in participating in these PPPs.

We believe that GSK is in a vulnerable position in the partnership with local authority. Despite the unrealised future revenue, the company's patented medicines can also be hurt by government emphasis on generic medicines and flaws in intellectual property regulations, the government's compulsory licensing of HIV/AIDS drugs as well as low cost diabetes treatment plan could reduce GSK's flexibility over local pricing and dampen its revenue-generating opportunities.

However, as one of the leading emerging markets, Brazil's pharmaceutical market is too important to be ignored. Sales of medicines in the country have expanded strongly in recent years, with a compounded annual growth rate (CAGR) of 8.1% in local currency terms between 2006 and 2011. In 2011, pharmaceutical sales in Brazil reached a value of BRL48.10bn (US$28.72bn), making Brazil the 10th largest market globally. Drug expenditure represented 1.16% of GDP in 2011, below the global average of 1.25%, highlighting the growth potential for this, as yet, immature market. Likewise, per-capita spending reached a value of US$146, below the global average of US$212. However, in Latin America (excluding Puerto Rico), Brazilians spend slightly above the regional average on pharmaceuticals.

Strong Growth
Brazil's Pharmaceutical Market Outlook

BMI believes that GSK's partnerships with the government may be questioned by some, but will guarantee continuous revenue stream, which limits the negative influence of competition from both rival innovative products and generic products, and provides a preferable risk profile in a highly competitive market.

[1] Business Monitor Online - Industry Trend Analysis - Government's Healthcare Pricing Premium Policy Can Favour Foreign Multinationals - January 04, 2012.

This article is tagged to:
Sector: Pharmaceuticals & Healthcare
Geography: Brazil, Brazil, Brazil, Brazil

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