OTC Market in Latin America

Overview and trends

Sydney Clark | IMS Health
October 2013

On a global perspective, OTC has been outgrowing Pharma since 2008

Year on Year Value Growth & OTC Share of Total Pharma MAT Q1 2013

Global

16

14%

14

11.6%
11.1%

10.8%

10.7%

12

10.5%

10.6%

10.8%

11.0%

11.1%

11.3%

11.7%

12%

10%

Value Growth (%)

10

9.7

Total Pharma = $913bn Total OTC = $107bn

8%

7.5

7.5

7.7
7.1 6.9

7.7 6.5 6.6 5.4

6%

6.6 5.1
5.5 5.3

5.9 4.8 4.4

5.8 4.6
4%

4.3

2.2
2

2.0

2%

0%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Total Pharma

Total OTC

OTC Share of Total Pharma

Source: IMS OTC Global Analysis, IMS MIDAS; *N.B. Trend break due to change in estimation methodology

OTC and consumer health products play an important role in prevention and reducing overall health care costs
Trend in society towards focus on preventative health and nutrition
Media campaigns heighten awareness of unhealthy lifestyles Growing number of advertisements, magazines and blogs for self-medication with vitamins, minerals and other dietary supplements Emerging markets following mature market trends of adopting supplements as part of a healthy diet Payers are recognizing the long-term costbenefits to preventative treatments Many health insurance providers encourage active lifestyles and healthy eating as part of their membership schemes As a result more companies are entering into the space which has now become a separate market to just nutrition The market is expected to continue with strong growth

Global

OTC as a means of reducing overall health care costs 1

It is estimated that OTC medicines provide a value of US$102 billion to the US healthcare system Each dollar spent on OTC medicines saves $6-7 for the U.S. healthcare system 240 million people in the U.S. currently use OTC medicines60 million of them would not seek alternative (e.g., Rx) treatment if OTC medicines were not available If OTC medicines did not exist, an additional 56k medical practitioners would need to work full-time to accommodate the increase in office visits by consumers seeking prescriptions for self-treatable conditions If OTC medicines were not available, additional Emergency Department visits, primarily by patients on Medicaid and uninsured individuals, would drive up nearly $4 billion in healthcare system costs

Source: (1) Booz & Co. CHPA Study The Value of OTC Medicine to the United States, 2012

This shift of focus towards health & wellness has led to the development of transversal market segments
Cosmeceuticals Topically applied, but contain ingredients that influence the biological function of the skin Vitamins, herbs, various oils, and botanical extracts typically added Manufacturer may not claim that these products penetrate beyond the skin's surface layers or that they have drug-like or therapeutic effects E.g.: Stiefel (GSK), Galderma (Nestle/Lreal), ROC (J&J) Nutraceuticals

Global

Pharmaceuticals

Often derived from food products, provide medical or health benefits, including the prevention and/or treatment of a disease Typically sold in the medicinal form of capsule, tablet, powder, solution High growth rates and attractive margins have fueled interest from Big Pharma/Food companies E.g.: RB buys Schiff Nutrition, Valeant buys Swiss Herbal and Probiotica, Nestle buys Pfizer Nutrition

Personal Care

Nutrition

Nutricosmetics Ingestible products containing ingredients such as botanical actives, enzymes, proteins, and vitamins that offer antioxidant benefits and that are formulated and marketed specifically as beauty aids E.g.: Inneov (LOreal), Imedeen (Pfizer), Oenobiol (Sanofi)

In emerging markets, including LatAm, OTC represents a greater share of retail channel drug expenditures...
Share of OTC and Prescription market by region (retail channel, US$ basis)
12% 10% 5%

Latam

25%

23%

15%

OTC RX

Reduced access to physicians drives population to seek OTC as 1st line of treatment Largely nonreimbursed (out of pocket) markets favor lower cost OTC alternatives (vis a vis RX) Long standing culture of selfmedication in many LatAm countries

75%

77%

85%

88%

90%

95%

CEEMEA

LatAm

APAC

Western Europe

Japan

North America

Source: IMS OTC Global Analysis, MAT March 2013

...despite lower availability of molecules with OTC alternatives

Latam

Value Contribution (%) of Category to OTC Sales

100 90 80 70 60 50 40 30 20 10 0

12 26 11

All Others Skin

Examples of RX to OTC Switches since 2000 Prilosec (omeprazole) $175m yearly sales Zyrtec (cetirizine) $150m yearly sales Allegra (fexofenadine) $130m yearly sales Zocor Heart Pro (simvastatin) UK only, behind the counter
2

8
13 14 18

17 Digestive 22

Pain Relief
VMS & Tonics CCR

18

21 Global

21 LatAm

Source: IMS OTC Global Analysis

Latam

LatAm region is a key contributor to growth in OTC

LatAm represents roughly 10% of the global OTC market

Source: IMS OTC Global Analysis

The OTC market in LatAm totals USD11.4 billion and has been growing at 15%
LatAm OTC market US$ (billion)
+14,9% 9,8 8,6
1,4 (16,5%) 0,4 (4,2%) 1,5 (15,7%) 0,4 (4,5%)

LatAm

11,4
1,7 (14,6%) 0,5 (4,7%) 1,6 (14,1%) 1,8 (15,5%)

CAGR 13x11

Others Argentina Venezuela Mexico

+8,2% +21,6% +37,0% +2,0%

0,9 (9,9%)
1,7 (19,6%)

1,2 (12,3%)
1,7 (17,2%)

4,3 (49,8%)

4,9 (50,3%)

5,8 (51,1%)

Brazil

+16,5%

2011

2012

2013

Source: IMS MIDAS, MAT Aug 2013 Note: Ex-manufacturer MIDAS price level USD at constant exchange rates from Aug 2013

Company performance per country is inconsistent, with locals typically gaining share
Leading OTC Corporations in LatAm
LA Rank 1 2 Corporation SANOFI HYPERMARCAS BAYER EMS
(US$ MM)

LatAm

Sales 807 725 544 511

CAGR 13x11 11% 13% 11% 20%

Bra Rank 2 1

Mex Rank 4 -

Venz Rank 6 -

Arg Rank 9 -

3
4 5 6 7 8 9 10

15
3 5 11 10 6 8 4 Ache

2
14 1 8 6 3 17 Pisa

5
16 2 10 9 41 Gr Farma Leti

2
3 1 27 28 5 21 Elea Andromaco

GSK
GENOMMA NESTLE J&J B.I. TAKEDA

478
478 439 420 411 320

7%
21% 22% 7% 10% 15%

Other local players amongst Top 10 in country

Roemmers
Bago
Source: IMS MIDAS, MAT Aug 2013 Note: Ex-manufacturer MIDAS price level USD at constant exchange rates from Aug 2013

The OTC market in Brazil has grown double digits over the past two years brands drive market growth
Brazil OTC market Standard Units (billion)
+11,4%

Brazil OTC market US$ (billion) 5,2

4,3%

54,4
6,7% Generics

+13,3%

48,9 43,9
6,9% 7,0%

4,1
5,8%

4,5%

4,5

93,1%

93,0%

93,3%

Brands
94,2% 95,5%

95,7%

2011

2012

2013

2011

2012

2013

Source: IMS PMB MAT Sept 2013. Retail channel only. Prices at PPP price level. Constant exchange rate of 1 US$ = R$2,18

Mix in OTC shifts towards higher value added categories and away from commoditized segments
40 35 30
2013x2011 CAGR (%)

Brazil OTC market growth by therapy area US$ (million)

Size of bubble represents size of therapy area (US$ million)

Nutrients (276)

Dermo-cosmetics (763)

25
Vitamins & Sup. (684)

20 15 10
Ophthal. (237)

Other Derm (292) Muscle Relax (293)

5
Other GI (405)

Cough & Cold (693) Analgesics (606)

Others (603)

0 -2 -1 0 1 2 3 4 5

A-A/F/U/Laxatives (392)

10

11

12

13

14

15

16

17

% Generics penetration
Source: IMS PMB MAT Sept 2013. Retail channel only. Prices at PPP price level. Constant exchange rate of 1 US$ = R$2,18

10

Despite lack of generics, competition in higher value added segments intensifies

40 35 30
2013x2011 CAGR (%)
Nutrients (276)

These 3 segments represent roughly 50% of total absolute growth since 2011 Derma-cosmetics Local players gaining space Genomma (Cicatricure, Pointts), Hypermarcas, Biolab, Ache, others Line extensions of sun protection and hidration products Nutricosmetics Bepanthol Nutrients mainly uptake of pediatric formulations from MNC (e.g. Nestle, Danone, Abbott) Vitamins & supplements Vitamin D (Depura, Addera D3, others) Other Derm (292) Multivitamins and Vit C few global brands growing (e.g. Centrum, Redoxon); many local Cough &share Cold (693) brands gaining (e.g. EMS, Marjan, Cifarma, Analgesics (606) Biolab, Cimed, Eurofarma)
-2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Dermo-cosmetics (763)

25
Vitamins & Sup. (684)

20 15 10 5 0

% Generics penetration
Source: IMS PMB MAT Sept 2013. Retail channel only. Prices at PPP price level. Constant exchange rate of 1 US$ = R$2,18

11

Lower growth segments partially driven by underlying shift in consumer behavior towards niches
These 4 segments represent roughly 25% of total absolute growth since 2011
40 35 30
2013x2011 CAGR (%) Analgesics Ample generic penetration Ibuprofen gains participation within treatment Combinations grow faster (e.g. Neosaldina, Lisador) Cough & Cold Generics highly penetrated in select molecules (acetylcysteine, loratadine, ambroxol) Local multisymptom products outperform (e.g. Multigrip, Cimegrip, Decongex Plus) Increased usage of sodium based drugs (e.g. Rinosoro, Sorine, Maresis, Salsep, etc) Other Derm Generics highly penetrated in select molecules (nystatin, ketoconazole, anti-bacterials/fungals) Genomma outperforms with Aspexia A-A/F/U/Laxatives Generics highly penetrated in select molecules (simeticone, dimeticone) Increased use of herbal products

25 20 15 10 5 0 -2

Other Derm (292)

Cough & Cold (693) A-A/F/U/Laxatives (392) Analgesics (606)

-1

10

11

12

13

14

15

16

17

% Generics penetration
Source: IMS PMB MAT Sept 2013. Retail channel only. Prices at PPP price level. Constant exchange rate of 1 US$ = R$2,18

12

Several events could impact the future market dynamics

HIGHER
1

Higher price controls

Income Increasing

Consolidation/ Expansion of Chains Association between Independent pharmacies Population Aging

0,8

Private payers coverage increasing

Tax reduction

OTC Market Impact

0,6

Physicians in pharmacies
Farmcia Popular program coverage

Higher prescriptions controls

Switch RX to OTC New Competitors

Pharmacist prescribing

0,4

Private Label Expansion

0,2

OTC return to back of counter

LOWER
0 0

LOWER

1 Likelihood

2 3 years of occurrence on next 3-5

HIGHER

Source: IMS Analysis Note: HEOR = Health Economics and Outcomes Research; DTC = Direct to Consumer Advertising

13

Prescription retention enforcement is on the agenda and could change the drug consumption profile
Antibiotics volume impact of 25-30%, with a higher list price mix
175 150 125 100 75 50 25
RDC 44/2010
Vitamins
Several Several

Other Classes a higher impact could be expected, with winners and losers 1 Rx
Antacids and antiulcerants
Pantozol, omeprazol

Forecasted PMB

OTC
Eno, Estomazil

Std Units (Millions)

1.1 1.1

25-30%

ketoprofen, etodolac

Non Steroidal Anti Rheumatics Centrally Acting Muscle Relaxant Antitussives and Expectorants Topical Anti-acne Preparations

Diclofenac, nimesulide

1.0
Dorflex, Nevralgex, Sedalex

0
List Price (BRL Millions) 250 200 150 100 50 0
jul/08 jul/09 jul/10 jul/11 jan/08 jan/09 jan/10 jan/11 jan/12 jul/12 jan/13

Torsilax, Tandrilax, Mioflex-A Hedera Helix, Acebrophylline

0.8 0.6 0.3 0.2 0.1

Acetylcysteine, Ambroxol

Adapalene, Tretinoin

Glycolic Acid + Salycilic Acid, Benzoyl Peroxide

7-11%
Topical Antifungice

Ciclopirox, Isoconazole

Miconazole, Nystatin + Zinc Sorine, Narix

Nasal Decongestant

Neosoro, Sorinan

14

Source: PMB Note: Molecules and/or Brands from medicines on the right chart are (non-exhaustive) examples. Preference for grouping by molecules instead of brands excluding those cases where combinations would be unlikely to be shown in the chart. (1) Figures from April 2013 MAT Sales list priced

It is expected that distribution & retail will remain dynamic by the next years
Continued consolidation in a relatively fragmented market Larger chains are planning to open new pharmacies (it is expected 320 new stores for 2013 considering just the top 3 chains), but they are going to face great challenges: To find suitable places in main cities Set up new business models in small cities (eg. Farmasil) Entrance of Grupo Ultra through the aquisition of Extrafarma Independent pharmacies and small chains are looking for different business models in order to achieve more benefits in negotiations and logistic efficiency Partnerships/Associations Participation in established franchises (eg. 26 out of 52 new Farmais stores were independent pharmacies) Using specialization business models to deal with niches
Popular Business model that focused in the new Class C (part of the population that is rising its consumption range) in association or not with partners Diabetes Compounding

Personal & Beauty Care

Nutrition

Regulation has been debated with possible significant impacts Limitation of marketed categories, traceability, destination of drugs residues, others
15

Conclusion
OTC drugs play an important role in prevention and reduction of health costs OTC drugs represent a larger and increasing share of the pharmaceutical market in emerging markets There is still ample room for expansion Therapy areas / molecule availability

Companies expanding their presence across the region

Brazil plays a predominant role within Latin America All therapy segments grow, but consumption patterns are favoring market segments of higher value The outlook for the market is positive, with most potential future events favoring increased usage of OTC medications

Thank you
OTC Market in Latin America
Overview and trends
Sydney Clark | IMS Health
October 2013