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DDB and Market Outlook

Market Intelligence Brief

DDB outlook
COUNTRY OUTLOOK  PHARMACEUTICAL OUTLOOK  PRODUCTS PORTFOLIO  COMPETITION  DISTRIBUTION  BENEFITS  FINANCES  CONCLUSIONS  2  4  4  5  5  6  6  6 

DDB OUTLOOK Our Mission (DDB) We will become the most valued pharmaceutical distributor company for hospitals in Colombia Our Purpose (DDB) We dedicate ourselves to consumer needs through fast service and a huge supply of pharmaceutical products making human lives our utmost concern. Company Profile DDB markets leading medicines for humans of the world’s best known consumer brands on the Colombian market. We help people through our diligence, our quality service and our initiative in providing health products to the hospitals all around Colombia. The company as a recognized pharmaceutical distributor supplies the core city of Colombia, Bogotá, and many other main cities such as Medellin, Cali, Barranquilla and Pasto which imply an important channel distribution for marketing pharmaceutical products. Business Strategy In the last 30 years DDB has been providing the Colombian market with pharmaceutical products in all medical areas, DDB has prestigious clients ranging from the small private business companies to big public hospitals. DDB’s philosophy has always been to permit the access to pharmaceutical products to all type of social classes. That is why low prices and generic distribution of local and international pharmaceutical laboratories have been at the core of our business strategy.

3    Services DDB has been working on the Colombian market creating a huge channel distribution network and a long-term relationship with most of the pharmaceutical multinationals present in Colombia. The main service of DDB is the marketing of the pharmaceutical multinational’s products through the so called institutional channel which include Hospitals and Private Cliniques.

Marketing your Products The identification of business partners in the Colombian market and the development of pharmaceutical intelligence projects have allowed us to encourage our business activity and to consolidate us as an important actor in the pharmaceutical sector. In this process we are expanding our foreign suppliers in order to market and introduce new pharmaceutical products with a high demand on the Colombian market. Our channel distribution network and our price analysis data base make us a powerful business unit to reach the Colombian market.

Country Outlook In general, the Colombian economy looks healthy and poised for more positive growth. Colombia is expected to remain the third most populous country in Latin America and the fifth-largest economy in the region in 2007-11. Its population will reach 49.6m and GDP, measured at purchasing power parity (PPP), will reach US$531bn in 2011. Faster economic growth, combined with a decelerating birth rate and moderate currency depreciation, will result in an increase in average income (measured by GDP per head), which the Economist Intelligence Unit estimates will reach US$3,513 (at market exchange rates) by the end of the forecast period, making it one of the poorer markets in South America. Private consumption per head is estimated to reach US$2,162 by 2011. Not only are income levels low in absolute terms, but Colombia's income per head figures will continue to disguise wide inequalities. Analysts throughout the world are forecasting relatively strong growth in 20082012. Real GDP is expected to keep pace with 2006 gains, increasing roughly 5% per annum in 2008-2012. As real GDP is expected to increase, economists are forecasting a slight reduction in the annual inflation rate, settling around 4 -6% each year in 20082012. The stable forecasted inflation rates suggest that the economy is not in danger of overheating. Subsequently, unemployment rates are expected to fall to around 9-10% in 2008 and 2009. Consumer expenditure on health goods and medical services is expected to increase at a compound annual growth rate (CAGR) of 6.2% in 2007-2012.

4    Not surprisingly, OTC healthcare is expected to benefit from this increase in consumer expenditure; the industry is expected to see its retail sales value to increase at a compound annual growth rate of 1.7% in constant value terms in 2007-2012.

Pharmaceutical Outlook The Colombian OTC pharmaceuticals market consistently posted relatively strong rates of growth throughout the 2003-2007 period. This trend is expected to continue over the forthcoming five years, although at a declining rate. The Colombian OTC pharmaceuticals market generated total revenues of Col$1,292 billion in 2007, representing a compound annual growth rate (CAGR) of 8.62% for the period spanning 2002-2007. Vitamins and Dietary Supplements proved the most lucrative for the Colombian OTC pharmaceuticals market in 2007, generating total revenues of Col$437.39 billion, equivalent to 33.8% of the market's overall value. In comparison, sales of analgesics generated revenues of $283.3 million in 2007, equating to 21.8% of the market's aggregate revenues. The performance of the market is forecast to decelerate, with an anticipated CAGR of 10.2% for the five-year period 2007-2012, which is expected to drive the market to a value of Col$1.406 billion by the end of 2012. The Colombian OTC pharmaceuticals market generated total revenues of Col$1,292 billion in 2007, representing a compound annual growth rate (CAGR) of 8.62% for the period spanning 2002-2007. Vitamins and Dietary Supplements proved the most lucrative for the Colombian OTC pharmaceuticals market in 2007, generating total revenues of Col$437.39 billion, equivalent to 33.8% of the market's overall value. In comparison, sales of analgesics generated revenues of $283.3 million in 2007, equating to 21.8% of the market's aggregate revenues. The performance of the market is forecast to decelerate, with an anticipated CAGR of 10.2% for the five-year period 2007-2012, which is expected to drive the market to a value of Col$1.406 billion by the end of 2012. Products Portfolio In order to proceed with the import business, DDB has chosen a manufactured product by Leo-Pharma, Heparin and Protamine. In the Protamine´s case, we acquire this product from a multinational supplier at 8.73 USD cost price. The average expected annual demand of this product at DDB (turnover) is around 12.350 (units) for the years 2011 and 2013. With a 20% margin, the DDB selling price is 10.92 USD as you might see on the following figure.

5    Figure: Turnover Expected DDB Annual Demands and Pricing Structure

We have estimated this figures considering the consumer market price from a importing company, Grupo Farma that supplies DDB, and according to IMS is the leader on this product. The current prices trend is to go up. Following our product example, DDB has estimated the Protamine cost price to increase at an annual rate of 5.6%, expected for the next three years. Competition Colombia’s OTC healthcare remains highly fragmented with a large number of companies defending their shares, particularly through brand and image revitalisation. Competition was particularly tough in generic products within analgesics, cough, cold and allergy (hay fever) remedies, digestive remedies, medicated skin care and vitamins and dietary supplements. Product differentiation is often not stressed in OTC healthcare and players continue to focus on building brand loyalty and reputation. Furthermore, brand loyalty can often be extended to generic products, as generic brands such as Tecnoquímicas’ MK, Biochem Farmaceútica’s Noxpirin Pax and Pfizer’s Generics gained share by offering affordable prices, making them more attainable to the bulk of the population. In terms of multinational brand share, Wyeth Inc, Laboratorios is the leading company in the Colombian market, with an 12.8% share of the market by value. In comparison, GlaxoSmithKline Plc generates 11.4% of the market's revenues. Distribution Grocery outlets and chemists/pharmacies lead the distribution of OTC healthcare, together accounting for more than half of total value sales in 2008. The strong position of grocery outlets was supported by cultural purchasing traditions, as most buy OTC healthcare alongside their biweekly or weekly grocery purchases. The strength of chemists/pharmacies is meanwhile due to consumers preferring to consult pharmacists regarding product use and dosage. Chains in chemists/pharmacies and drugstores/parapharmacies are remodelling and expanding their outlets in order to gain share. These larger outlets expanded their product portfolios, to provide not only Rx and OTC

6    healthcare but also cosmetics and toiletries, soft drinks, stationery and health food.  

Benefits 
DDB would like to become authorized distributor of Leo-Pharma in the Colombian Market. This will create synergies for both parties in terms of market share. It will contribute to Leo-Pharma internationalization strategy,

Marketing Plan 
DDB has its own distribution channel.

Finances 
In order to enter the Colombian market, we would need to have a GMP from a recognized organization around the world (FDA, EMEA, WHO). An individual payment by product must be made in order to register each molecule (around 1500 USD per product). You can also find this information on the following link: http://web.invima.gov.co/Invima//tramites/docs_tarifas/tarifas_medicamentos. htm  

Conclusions 
1.. We at DDB would like to have a foreign allied understanding the changing pharmaceutical Colombian market and providing us good and affordable prices.