Pharmaceuticals Portugal report 2007

PortugalPharma reportApril 2007

Novo Nordisk, Lda.Quinta da Fonte

Edifício D. José, Q54 – Piso 12780-730 Paço de Arcos

[email protected]

Contribuinte N.º 501 485 210Capital Social: E 250 000

C.R.C. Cascais: 13.682 – Oeiras

Na Novo Nordisk temos orgulho nasinsulinas e nos sistemas de administraçãoque desenvolvemos e continuamos adesenvolver. Estas inovações permitemuma melhor qualidade de vida paramilhões de pessoas em todo o mundo.

At Novo Nordisk, we’re proud of theinsulin therapies and delivery systemswe’ve developed – and continue to develop – because those innovationsmake life better for millions of peoplearound the world.

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Portugal:

sk any senior executive to outline the Portuguesepharmaceutical industry’s current set of rules, andyou'll hear a tale of disorientation, even overwhelming

confusion. The government represents around two-thirds oftotal pharmaceutical sales in the country - to the tune of €2.8billion (US$3.7 billion) - accounting for more than 2% ofPortugal's gross domestic product. And although the pharma-ceutical industry doesn't seem to overlook its role in assistingits biggest client in a critical moment of health budget con-straints, it is certainly not happy about the way things haveturned out. “The situation in Portugal is not unique; it is normalthat governments with budget constraints seek to restructurethe health system. Portugal has been relatively calm for sever-al years, and now the government is trying to do everything ina couple of years,” says J. Miguel Noriega, general manager ofOrganon Portuguesa, a company under the Akzo Nobel organ-ization that is well known for contributing to the initial stepstoward family planning in Portugal 35 years ago.

Emerging from the Dark

Having taken office in 2005, the current Socialist “center left”government is facing a daunting array of issues and spending allof its political capital on promoting the country's long-delayedeconomic reforms. To begin with, by 2005, Portugal was facinga 6.1% budget deficit increase in terms of its GDP, far beyond the3% recommended by the European Union's Stability and GrowthPact. As a result, the Portuguese government has agreed to

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Riding theWave ofEconomicReform

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embark on an aggressive three-year budget deficit-reduction pro-gram that includes a range of severe measures. As the dramaunfolds, the rising healthcare costs are being identified as a nat-ural target of the state cost-containment initiatives.

The financial recovery, combined with the job of increasing thepopulation's access to medication, is under the strict hand of thePortuguese Minister of Health, Antonio Correia de Campos. “Itis not easy. There is a lot of pressure from pharmaceutical com-panies, pharmacies, diagnostic tests, efforts in hospital manage-ment, extra time for doctors and nurses and so on, but I am veryoptimistic,” says the minister, who is returning to the job fiveyears after his first assignment as Minister of Health. “The 2007budget for the health sector can only be controlled under certainconditions. One of them is the reduction of pharmaceutical pricesby 6%; another one is the reduction of co-payments by thenational health system on different levels, depending on the

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classes of reimbursement,” he adds.

The first set of price cuts, introduced in September 2005, target-ed all prescription medicines. “Price reduction has been fair incomparison with other European countries. France has decreasedprices by 20%, and Spain by 12%; it is always a very difficult sit-uation for the industry, but both sides are trying to be reasonable,”continues Correia de Campos, justifying the country's secondprice reduction of 6% on pharmaceutical products. This pricereduction, enforced in February of 2007,is a burden also shared by the pharma-ceutical distributors for the first time.The efforts don't stop there; the Ministry

of Health has decided to collect a dailyfee of US$6 per intern patient andUS$13 for each ambulatory surgery andhas frozen its investments in diagnostictests. By reducing pharmaceutical pur-chases in hospitals by 6% in 2006, fol-lowed by another 6% in 2007, the gov-ernment expects to save up to US$65million. This is in addition to efforts toreorganize the health system's workforce, such as cracking downon extra hours worked by doctors and nurses, which should savethe country about US$26 million.

On top of that, the country's remarkable efforts to introducegeneric drugs - which achieved a 16% market share in a four-yearperiod - are now expected to be transferred to the non-prescrip-tion segment, as Portugal authorizes the sale of over-the-counterdrugs in non-pharmacy outlets. The move should boost the OTCmarket share by 4% or 5% in the next couple of years andincrease the sales of medication outside the government's reim-bursement scheme.

As a result, in 2006, for the first time in many years, thePortuguese health budget was respected. Nevertheless, theEuropean Union expects the Portuguese public deficit to sinkbelow 3% of its GDP by 2008. Given the complex nature of thetask, that seems very unlikely.

Hospitals: Take a Number, Get in Line

While Correia de Campos has been trying to work his magic

with the country's health system budget, public hospitals haveaccumulated a critical debt with the pharmaceutical manufactur-ers. At the end of 2004, it reached an estimated €977.6 million(US$1.3 billion), a 51.1% increase compared with 2003.

However, reports from October 2006 show that the debt hasdecreased to €712 million (US$935 million), of which “over€100 million (US$131 million) belongs to Roche,” notesAdriano Treve, Roche's general director for Portugal. Since his

return to the country in 2000, thecompany has managed to consoli-date its leading position in the hos-pital market. “We know that thegovernment will pay one day; thequestion is just when,” he says. “Itis a continuous negotiation effort toensure we get paid. On the otherhand, Roche is committed to pro-vide a service to public health, andthe current portfolio that we have,particularly in the area of oncology,is very important to the country.”

The government is remodeling thebusiness structure of its public hos-pitals to create a system of privatemanagement and is building newhospitals within the Public-PrivatePartnership (PPP) scheme. Treve,who previously worked in Portugalas a marketing manager, acknowl-edges the positive changes but alsopoints out some limitations. “Thehospitals' environments have defi-

nitely changed and are becoming more dynamic. I see more flex-ibility from the various stakeholders in the hospitals. However,there is one thing to bear in mind: Since 2001, Portugal has hadfour different governments, and every new government meanschanges to the health sector. A new prime minister usually willnominate a new health minister, who may change people in theimportant functions of the health administration.”

Such concerns are also shared by James Hassard, general direc-tor of Amgen Portugal, the second-biggest hospital player in thecountry. “Amgen Portugal is almost 100% focused on the hospi-tal sector; consequently, we are under a lot of pressure. In termsof invoice sales, Amgen Portugal is close to the US$50 millionmark and is primarily focused in two areas: supportive care inoncology, and nephrology,” he says.

Hospitals Take 300 Days to Settle Their Accounts

Further complicating matters, hospitals are taking, on average,300 days to settle their accounts; this situation led the PortuguesePharmaceutical Association (Apifarma) to create a company justto take care of these debts, a “guarantee that especially the small


SPONSORED SUPPLEMENT

“Price reduction has been fair in

comparison with other European

countries."

Antonio Correira de CamposMinister of Health

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he says. Indeed, the lack of competi-tiveness often haunts the Portuguesepharmaceutical industry. “ThePortuguese pharmaceutical market is asmall market which represents around€4 billion (US$5.3 billion), includinghospitals,” he continues. “It is clearthat in the future, all the EuropeanUnion member States will try tosqueeze the pharmaceutical industrymore and more. The country needs tounderstand that it is losing competitiveness; some centers ofexcellence are moving to the United States or even India.”

The performance of the companies operating in the Portuguesepharmaceutical market is a true reflection of the current govern-mental policies. “The two consecutive 6% price cuts in less than18 months are a serious threat to any serious corporate planningand profitability levels. For the second year in a row, due to therestructuring of the Portuguese health system, we will be offer-ing all the extra profits generated by our growth rates to the gov-ernment,” says J. Miguel Noriega. In spite of that, his company,Organon Portuguesa, is seeking to further develop its position inthe areas of neuroscience and anesthesia and consolidate the

companies would get their money. After strong negotiationswith different ministers, health, economy and finance, we wereable to collect €0.5 billion (US$657 million),” says Joao GomesEsteves, chairman of the board of Apifarma. He continues,“Today, Apifarma is studying a mechanism which gives to thepharmaceutical industy at least the same rights which other sup-pliers have.”

Although hospital reforms are underway, forging a commercialmind-set out of a civil servant culture is very challenging, partic-ularly in Portugal, where the state employs 15% of the country'sentire workforce.

Gearing Up for the Fight

For every action there is a reaction. Instability, according toGomes Esteves, is the fundamental reason behind the lack of for-eign direct investment in the pharmaceutical industry inPortugal, a country where 95% of pharmaceutical activities arecommercial. Esteves, who has been the man behind thePortuguese Pharmaceutical Association for almost 15 years, hasthe tough challenge of representing all classes of companies -from manufacturers to distributors, generics to innovators. “Acountry that changes the rules every day can forget about FDI,”




J. Miguel Noriega

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strong image it has achieved in Portugal in the areas of gyne-cology, contraceptives and fertility.

For companies that aren't selling generics or OTC medicines,bringing new products to the market has been the only way toincrease sales in such an unwelcoming environment. There isno one better than the market leader to illustrate such a trend.In 2006, MSD Portugal boasted a 4.5% sales increase com-pared with 2005. “The current growth is based on the positiveperformance of the company's new products launched over thelast two years, particularly in the Inegy franchise and also inthe osteoporosis franchise. Nevertheless, the last years suffereda major impact from patent expirations; the company lost theexclusivity of important products such as Zocor and Proscar togeneric producers. The year of 2006 was a time of recovery thatallowed MSD Portugal to consolidate its number-one positionin the market,” says Jose Almeida Bastos, who is about to com-plete his 10th anniversary as general manager of MSDPortugal. For 2007, he places his bets on the areas of diabetes,

cardiovascular, oncolo-gy and CNS therapies(the latter more in themedium term), but heisn't leaving out “pain,respiratory, rheumatol-ogy, HIV and hospitalproducts, segments inwhich MSD is alreadyvery strong in Portugal,”he concludes.

As general director of Novo Nordisk Portugal, Antonio Araujoworks for an important player in the fight against diabetes in thecountry. He finds it very difficult to explain the Portuguese gov-ernment's numerous policy changes to his company's Danishheadquarters. But despite all the setbacks and “a portfolio whichstill does not contain all of the company's most modern insulin,”notes Araujo, “Novo Nordisk has managed to remain a marketleader in Portugal.”

As he expects to introduce the company's leading European

growth drivers, the products Levemirand NovoMix, to Portugal in 2007, hiscompany has a good outlook for thenext year. “We all know that theprevalence of diabetes is increasingdramatically - in Portugal as in otherparts of the world,” he says. “NovoNordisk is committed to changing dia-betes. We have the broadest portfolioof modern insulin, and our objectivefor 2007 is to make these productsavailable in Portugal in order to offer people with diabetes thebest treatment options.”

Make no mistake - despite what many regard as good prospectsfor the coming years, general managers of multinationals doingbusiness in Portugal are very concerned. Over the 10 years priorto the beginning of 2006, inflation in Portugal climbed 35% andthe prices of pharmaceuticals grew by only 7%. Drug priceshave been frozen since 2002, and the industry has experiencedtwo consecutive 6% price decreases since September 2005. Inaddition to that, the Portuguese pharmaceutical market is a very



Antonio Araujo

MSD Portugal consolidated its market leading position in 2006

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MSD's building in Portugal

Rua Consiglieri Pedroso, 123 Queluz de Baixo | 2745-557 Barcarena

+Tel.: 351 21 434 25 30 Fax: +351 21 434 25 37www.itf-farma.pt e-mail: [email protected]

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ronically one of Portugal's majorweaknesses is also one of its major

attractions. The country's pharmaceuticalpurchases represent a large proportion ofits public health expenditure - around28%, which is among the highest inEurope. It is, in fact, as Minister of HealthAntonio Correia de Campos points out, “aworld reference. Spreading the figures,”he says, “€1.5 billion (US$2 billion) isspent on ambulatory care plus €0.8 billion

(US$1 billion) in hospitals.” The €2.3 bil-lion (US$3 billion) spent on pharmaceuti-cals out of €8.7 billion (US$ 11.5 billion)“is a considerable amount,” he concludes.

A Competitive Advantage for Portuguese Producers

Antonio Barros Ferreira, executive direc-tor of the 100% Portuguese companyLusomedicamenta, has a positive perspec-tive on the local pharmaceutical players.“The fear often channeled by the compa-nies operating in Portugal is related to thefuture of the Portuguese market, not thePortuguese industry,” he says. “Obviously,we are also affected by these constraints inthe Portuguese market, but not on the

same scale. I believe that, although it is adifficult process, more and morePortuguese companies will shift theircapabilities to exports, and that will guar-antee the sustainability of the Portuguesepharmaceutical industry.”

Laboratorio J.Neves is very attuned to themarket changes. The company's acquisi-tion by the Soquifa Medicamentos groupnine years ago transformed a family com-

pany with little investment behind it into avery successful player. The efforts torebuild the company's image, rearrange itsworkforce and introduce new products tothe market have certainly paid off. “As aresult, from €1 million (US$1.3 million)in turnover in 1997, J.Neves achieved€18 million US$23.6 million in 2006, andthe objectives for 2007 are very ambi-tious: to reach €25 million (US$33 mil-lion),” says J.Neves' general manager, RuiRibas. The company's strategy of consoli-dating its position in markets bigger thanUS$13 million annually has guaranteed aperformance increase of 25% to 30%every year. In addition to that, J.Nevesrecently announced the acquisition of anew production unit, which, according to

its director, aims more to increase thecompany's production independence thanenhance its turnover.

“J.Neves has its production line distrib-uted in 13 different countries, and thecompany's volumes are usually low con-sidering its supplier capacities,” explainsRibas. “Portugal is a very small country;sometimes the company needs 1,000boxes, but we have to produce 200,000, anamount for three or four years, which isobviously a big investment added by thewarehousing costs. Therefore, in terms oflogistics, it is very different to manage acompany in such a situation,” he con-cludes. This is a common problem forlocal companies, but at the end of the dayit could be twisted into a competitiveadvantage. Small markets and volumesdemand flexibility, and flexibility is cur-rently Portugal's trademark when it comesto pharmaceutical production.

Still an Attractive Destination for FDI

Although Portugal has been increasinglyovershadowed by lower-cost producers inCentral Europe and Asia as a target for for-eign direct investment FDI, Pierre Fabre, aFrench company that has been in the coun-try since 1985, mostly in the areas of ambu-latory care and oncology, is a clear exampleof how Portugal can succeed as a destina-tion for pharmaceutical industry invest-ment. Following its strategy of seeking outopportunities in emerging pharmaceutical

So, Why Invest in Portugal?

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Small markets and volumes demand flexibility, and flexibility is currently Portugal's trademark when it comes to pharmaceutical production

competitive one. Among the country's roughly 200 play-ers, the market leader, MSD, holds a market share of6.4%.

According to data provided by the consulting firm IMSHealth Iberia, the Portuguese market struggled to reach a4.7% sales increase during 2006. This growth was largelydriven by the evolution of generics (which reached a 16%market penetration by the beginning of 2007), the boost

in OTC products since they were cleared for sale in non-phar-macy outlets, and new products brought to the market.

The good news is that, according to the IMS Health prognosis,the next four years should be better than the last two. ThePortuguese pharmaceutical industry should expect a growth rateof approximately 6% in the retail business and 9% in the hospi-tal business until 2010 - that is, unless the government decidesto follow the path of further price reductions.

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Despite its success in attracting new pro-duction to Portugal, Parreira points out,“the pharmaceutical sector is the easiesttarget to counter-balance the budgetdeficit, and this is no different in otherEuropean countries. There are bigger andmore attractive markets than Portugal, andthe Portuguese government has to under-stand the impact of these measures on thecountry's ability to attract investors.”Noting Pierre Fabre Medicament's abilityto foster international partnerships andshare development costs, Parreira seems tobe very optimistic about the company'sprospects in Portugal: “The company willhave two very important launches in 2008


markets (such as Morocco, Poland, Turkey,Tunisia and Mexico), as opposed to the tra-ditional European countries (such as theUnited Kingdom or Germany), the compa-ny recently announced that it would be tar-geting Portugal for new investment.“Portugal, competing with other countriessuch as Germany, Poland and Italy, was ableto take the European production of a respi-ratory products line, which will be done bya third party in the country. The choice ofPortugal has shown the commitment andefforts of the Portuguese operations to cre-ate and add value to the country's industry,”says Gilda Parreira, general director ofPierre Fabre Medicament Portugal.



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LUSOMEDICAMENTA : A RISING STAR

Antonio Barros Ferreira

Gilda Parreira

usomedicamenta is a companythat successfully combines theambitions of thriving in interna-tional markets and contract manu-facturing for local or internationalcompanies in Portugal. Althoughthe company has Portugueseroots, it was purchased by Cilag in1988, integrated into the Johnson& Johnson group and then repur-chased in a management buyoutoperation by a group ofPortuguese entrepreneurs in 2004.Now a national company onceagain, Lusomedicamenta has theadvantages of a strong client port-folio, including Novartis, Tecnifarand Roche, and the culture of amultinational. Its former owner

and some of its affiliates still rep-resent the majority of the compa-ny's clients; nevertheless, it hasstarted to grow successfully in dif-ferent directions in terms of clientsand services. As Barros Ferreiraexplains, “At the moment,Lusomedicamenta is able to doformulation and analytical devel-opment, registration and regulato-ry support, stability studies, prod-uct life-cycle extensions, and soon. It is very important nowadaysto have a contract manufacturerthat has an end-to-end solution.”

As the company's business modelchanged, says Barros Ferreira,“another priority was to create a

strong group, which we call thenew products introduction group,recruiting highly skilled humanresources with international expe-rience. The group is responsiblefor transferring products fromother sites and for developmentactivities.” The new strategicdirection is generating an annualgrowth of 8%, mostly fueled byexternal markets. This success isopening up new business opportu-nities for Lusomedicamenta. “Weare not only interested in contractmanufacturing, but also in differ-ent initiatives, such as biotechactivities for instance,” BarrosFerreira concludes.

driven by the urology market, and in 2010a very innovative project involvingfibromyalgia.”

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the other on health economics. “Recently,IMS Health has acquired a company inBarcelona called HRO Group that enlargedour competencies in such fields,” Mochosays of the expansion of the company's con-sulting business. “At the moment, there are10 people in Portugal and 30 in Spaininvolved in the consulting business.”Furthermore, IMS Health has decided totake a strategic approach combining itsIberian operations in Lisbon. “We are dis-cussing two very close regions. ThePortuguese market, compared to someregions in Spain, is very similar in terms ofsize and trends. As an example, the trend istaking companies such as Pfizer or MerckSharp & Dohme to introduce products andapproach clients in both markets at thesame time. In such a way, IMS Health canprovide better services to its clients.”

ITF Farma, part of the Italian ItalfarmacoGroup, is one of IMS Health's clients.When separating from its Portuguese part-ner in 2003, ITF took into account the par-

IMS Health, a longstanding source of infor-mation analysis for the pharmaceutical busi-ness, has found an immense opportunity todevelop its consulting skills. Carlos Mocho,general director for Spain and Portugal,explains: “Following an aggressive strategyof establishing partnerships and hiringskilled talents from established companiessuch as Deloitte, KPMG and BostonConsulting Group, IMS Health has consoli-dated its consulting division.” The impact ofthe shift has been immediate. “IMS HealthIberia is growing above 20% per year,” con-tinues Mocho. “The traditional areas ofinformation analysis are following the glob-al IMS trend of 12% increase; on the otherhand, the new areas have a major contribu-tion in these successes, reaching 40%increases in some cases.”

The new structure of IMS Health Iberiadivides the company into two parts, onefocused on information management and

ticular nuances of the Portuguese marketto design a tailor-made approach. “Thesize of the Portuguese market demands avery particular strategy. In addition tohaving the traditional portfolio of thegroup, Portugal has some generic prod-ucts that no other facility in the grouphas, considering that it is a very goodfinancial opportunity,” says Ana Girbal,general director of the company inPortugal. “In terms of results, if youhave to break even by the fourth year asan independent company in the countryand increase investments, you have to bevery pragmatic,” she continues. “Thegroup's traditional core business is rep-resented by the cardiovascular andimmuno-oncological areas; neverthe-less, ITF Farma Portugal does not haveproducts related to such areas, with theexception of generic products.” Thestrategy has proven to be very effectiveas the company moves toward a US$12million turnover in 2007, representingan increase of 13% compared with 2006.

Pick a Partner, Please

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Generics at a Crossroadsbe a hurdle for the sector's develop-ment.

Another very particular feature of thePortuguese generic market is the largenumber of companies involved. Thenumber of generic companies inPortugal (a country of 10 million peo-ple) has risen from nine in 2002 to morethan 50 in 2004. The trend toward moreINNs, combined with downward pricing pressure from the govern-ment and increasing foreign competition, should promote a strongmovement toward market consolidation, concentrating 80% to 85%of the market among five or six players.

Generic Usage Still Lagging Behind

“I still foresee the growth of generics outpacing the general mar-ket,” says Antonio Alonso Aventin, director of Alter. “However, itwill not be the same as the growth shown over the past threeyears.” Based on Alter's previous experience in the Spanish mar-ket, where it launched its generic line in 1997, this family compa-ny's success in Portugal has encouraged its owners to seek addi-tional opportunities in France and Italy. “Alter has exactly thesame ambitions for these two countries as when we designed thestrategy for generics in Spain in 1997 and in Portugal in 2001,”says Alonso Aventin. “In addition to that, Alter is also very well-

regarded in Panama and Guatemala, with the Nutribem brand, andwe have started to commercialize generic drugs. I am very confidentthat the new expansion phase will be very successful.” AlthoughAlter has been in Portugal for 55 years, it was really the last five thatbrought outstanding results. “In regards to Alter Portugal, practically95% of the company's growth was due to the generics market,” hecontinues. “We are one of the business groups which took a leadingrole in developing this market in the country. In 2001, Portugal wasresponsible for 10% of the group's revenues; today, the figure repre-sents 30% of the group's US$273 million turnover.” Such achieve-ments led the Spanish Business Club to name Alter the best Spanishcompany in Portugal for three years in a row, from 2004 to 2006.

Generic usage in Portugal is, however, still lagging considerablybehind that of Germany, the United Kingdom, Italy and France. Asthe 10% subvention was withdrawn before generics represented 20%of the market many are questioning whether the Portuguese genericmarket will continue developing with such intensity without the gov-ernmental support. On top of that, the market still needs some timebefore it sees a generic company rank among the pharmaceutical topfive. The truth is, there is major room for development before gener-ics reach the 30% market penetration mark. Portugal is headed in theright direction, but the road is long and accidents can happen, sowatch for signs.

he generic market was a latecomer to Portugal, having beenlegally authorized in 2002. Nevertheless, the favorable con-ditions created by the government have turned the category

into a remarkable success story, allowing it to flourish beyondalmost anyone's expectations. “Nobody believed, me included, thatthe generic market would represent 16% of the market in only fouryears. That was the projection for a 10-year period,” saysApifarma's Gomes Esteves. As generic products are, on average,35% cheaper than innovative products, the government has identi-fied the segment as a tool to reduce its reimbursement bill. As aresult, the government has decided to invest heavily in educationalcampaigns targeting doctors, pharmacists and consumers, andapprovals for product introduction have been easily obtained. Theadditional 10% subvention on the reimbursement scheme has alsobeen a critical factor in the successful implementation.

Very Profitable Generic Companies

Such an astonishing growth rate has naturally caused some sideeffects and a very unique profile for generics in the Portuguesemarket. The speed of the development left behind severalPortuguese companies that were unfamiliar with the generic busi-ness model. “In other countries, the local players are the maingeneric players, which did not happen in Portugal because they didnot have time to prepare themselves. In three months, the marketwas open. At the same time, as the generic market is a market ofvolume and the Portuguese market is a very small one, severalcompanies decided not to enter it and compete with internationalplayers,” states Gomes Esteves. Of the 1,300 possible INNs(International Nonproprietary Names), only 10% are in thePortuguese market - naturally the most expensive ones. Thatexplains why generic companies in Portugal are so profitable. Butthe situation is about to change. “We cannot underestimate thatmultinationals have decreased their prices considerably to competewith generic products. It is a normal market reaction. Consequentlythe generics growth in the future will be mostly related to theexpired patents released in the market,” stresses IMS Health'sCarlos Mocho. Furthermore, the government's tendency to focus onprice controls rather than directly encouraging generic usage might

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Joao GomesEsteves

“Nobody believed, me included, that thegeneric market would represent 16% of the market in only 4 years. That was the projection for a 10-year period”

Alonso Aventim

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ithin the Portuguese pharma-ceutical industry, the genericmarket is said to be the pro-

tégé of the former Portuguese government,and the OTC market the son of the currentone. When Prime Minister Jose Socratestook office in 2005, his first official speechsowed the seeds of what would grow intoa pharmaceutical sector revolution inPortugal. At that time, Socrates announcedthe enlargement of the distribution chan-nels for over-the-counter products and thepotential to sell them in non-pharmacyoutlets.

250 Stores Already Selling OTCs

Given the social forces in the country, itwas a courageous decision and a difficultone to implement.“In Portugal, retail pharmacies are

very well organized, concentratedand extremely powerful. Needlessto say that the class has been totallyhostile to this initiative; in fact,there are even rumors that theNational Association of Pharmacieswas pressuring intermediary sellersnot to supply non-pharmacies,”says Minister of Health AntonioCorreia de Campos. “Moreover, theassociation owns 49% of one of thebiggest local distributors, AllianceUnichem, and with the shares ofsister companies it controls up to60% of the country's pharmaceuti-cal distribution.” At the moment,there are 250 stores already com-mercializing OTC products. “Iwould say that only when we reach1,000 there would be significantvolume to compete with the tradi-tional commercial circuits,” Correiade Campos concludes.

The expected time frame forachieving such results is aroundfour years. The non-pharmacy out-lets must adhere to strict sellingconditions, which makes theNational Institute of Pharmacy andMedicines (INFARMED) a big part

of this process. “As INFARMED had tocreate all the support structure and organi-zation of a new area, we were not verysure how the industry would react,” saysVasco de Jesus Maria, president of

INFARMED. “Fortunately, there was avery good reception, which made theentire implementation possible in a shorterperiod of time. As a result, sales in the newoutlets are increasing, reaching about €1.3million (US$1.7 million) since the adop-tion of this measure in 2005.”

The recent interventions should bring the

Portuguese OTC market share closer tothat of other European countries; however,the market is still relatively undeveloped.“It will take time; the current OTC marketshare in Portugal is below 10%. The rich-er the country, the more OTC products; thepoorer the country, the more people try toaccess the reimbursement system,” saysApifarma's Gomes Esteves. He is, howev-er, very optimistic. “The market will growup to 50% over the present figures. Inother words, from the current 8% it wouldreach a 12% market penetration.” Bear inmind that the average for the EuropeanUnion member states is around 15%. Tofoster an increase in market share,INFARMED is very aware of its responsi-bility to review the product list and givecompanies the ability to move productsfrom non-reimbursed (but still under pre-

OTCs: Off and Running

Distribution channels forOTC products were diversified in 2005



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scription) status to OTC status.

“Currently, there are many more active sub-stances classified as non-prescription medi-cines, and in the forthcoming months thenumber of OTCs will increase consider-ably,” says Vasco de Jesus Maria, presidentof INFARMED. “From our most recentassessment, 44 new active ingredients willget OTC status, corresponding to 400 newpresentations. Currently, it is a small mar-ket, but I am sure it will grow very much inthe near future.” In addition to that, the pro-motion of OTC products is very much inline with the governmental reality of budg-et constraints. A study conducted by theEuropean Association of Auto-medicationin 2004 concluded that if OTC sales rose5%, the Portuguese state would saveapproximately US$200 million.

The industry hascertainly identifiedthe potential of theOTC market anddoes not want tomiss the party. Onegood example isNeoFarmaceutica,which is part of the

German Madaus Group and has been apresence in the Portuguese market since the1950s. Says Jose Verissimo,NeoFarmaceutica's general manager, “Afterthe OTC market liberalization, the marketis experiencing an amazing growth.NeoFarmaceutica is the second company inthe OTC market after Novartis, enjoying aleading position in several therapeuticclasses.”

The major driver of the company's growthhas been Ben-u-ron, the highest-sellingproduct in the Portuguese pharmaceuticalmarket, at more than 10 million units. In2005, the product moved to prescriptionstatus, and yet the company remained themarket leader in OTCs. “Ben-u-ron is acase study. It is not a very easy successstory,” says Verissimo. “The product hasbeen promoted for a long period of time,and to remain at the top demands a contin-uous marketing effort. The secret, I would

say, would be the combination of heavyexposure in different fields, such as pedi-atrics, orthopedic and rheumatology.Consequently, such a mix created the suc-cess that the product has been experienc-ing for a while.”

The company's successes in the OTC mar-ket have spurred its management to enternew fields of business this year. “Thestrategy involves entering new areas suchas the psychiatric and asthma business, inaddition to capitalizing on our core areasof pain and cardiovascular,” concludesVerissimo.

The 100% Portuguese company KTB SAis following the same track. The companyhas invested in OTC products that haveperformed very well in the US or UK mar-kets but are completely unknown toPortugal.

Importing the success stories was notexactly easy at first. “The product thatreally positioned KTB on the marketwas a vitamin supplement for childrenin a form of a gum. I remember the firstmeeting I had with the pharmaceuticalwholesaler - he said I was mad and Iwould never get the product off theground. Fortunately he was wrong,”says owner and manager Paula Soares, a

native of South Africa. The efforts arepaying off; KTB is expecting a salesincrease of close to 30% in 2007, build-ing on the momentum created by theOTC business. “Every month there aretwo or three new OTC sales points. Thisis just the beginning. The aim is to sellOTCs in every supermarket of the coun-try. Furthermore, the new stores sellmore types of products that a traditionalpharmacy would not sell, because peo-ple go in, they look at the product, thebox, they can read it and decide forthemselves. In a traditional pharmacy,most of the products are behind thecounter and the pharmacist would onlyrecommend what he knows,” she notes.High levels of growth have allowedSoares to think bigger. “Within the nexttwo years, KTB will be consolidating itsportfolio. We are expanding into themedical devices market.”




The Portuguese government would save US$200 million if OTC sales increased by 5%

Jose Verissimo

Importing Success Stories

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The Race for R&D




ne of the weaknesses of the Portuguese pharmaceuticalindustry is the difficulty of applying innovation; whilethe world's top research and development countries'

international investment ratios are around 14%, Portugal rarelyreaches 3%. The country's R&D expenditure in terms of its GDP

is one-third of the OECD's (Organisation for Economic Co-oper-ation and Development) average. Nevertheless, 8% of the coun-try's R&D is funded by the pharmaceutical industry. Moreover,Portugal has eight well-established research units and thousandsof PhDs in biomedics, molecular research and similar fields.

The Massachusetts Institute of Technology (MIT) and thePortuguese Ministry of Science, Technology and HigherEducation have recently announced a long-term collaboration tosignificantly expand research and education in engineering andmanagement in many of Portugal's leading universities. Thefocus on health mostly involves the areas of biomedical devicesand technologies, along with strategic decision-making in bio-medical business.

A few companies with a nose for opportunity have decided totake advantage of the country's existing capabilities. As James

Hassard, general manager of Amgen inPortugal, explains, “Portugal is not a tra-ditional receiver of R&D projects, so wetried to understand the reason behind it.There are barriers even at the individualinvestigator level to engaging in clinicaltrials. In a lot of ways, there is a tremen-dous appetite and motivation to beengaged, so we tried to leverage that. As an example, we haveexposed a few Portuguese investigators to the University ofCalifornia - Los Angeles, where there is a very strong investiga-tor network in terms of doing clinical trials within the UnitedStates. As a matter of fact,” continues Hassard, “a few physi-

cians from IPO Porto in Portugal have implemented some of thebest practices in 2006. Amgen needs not only commercial mar-kets but also markets for clinical development. This is an initialinvestment opportunity that we see here in Portugal. The coun-try has a very good social healthcare system, which is very con-centrated in the hospital setting, similar to Canada, my countryof origin. These types of medical systems can be very efficientfor doing clinical development in challenging diseases, such ascancer.” Hassard's main objective in his Portuguese assignment is tomaximize this type of investment in Portugal and raise the coun-try's prospects within the Amgen development community.“Annually, 25% of Amgen's revenues are reinvested in researchand development. It is probably the company's highest source ofinvestment worldwide,” he continues. “Nevertheless, that is notan easy job. The Portuguese model is not very well-defined, inmy opinion; when you choose a model, you need to create theinfrastructure, education and incentives to support it and attract

OJames Hassard

AMGEN’s team on the beach

8% of the country’s totalR&D is funded by the pharmaceutical industry

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the investment,” he says, explaining the company's choice ofIreland for a recent global US$1 billion investment in new manu-facturing facility.

Hassard is not alone in his concerns and expectations. “I am notvery sure in which direction this government is leading us; there isnot a clear strategy to the innovation road. The right hand has tounderstand what the left one is doing. In other words, the pharma-ceutical industry needs a stable environment,” says MSDPortugal's Jose Almeida Bastos. “The hospitals in five or six yearsare expected to be in very good shape, from a managerial stand-point. Therefore, I am very optimistic that Portugal presents goodopportunities, particularly in clinical trials.”

Another player trying to enhance its activities in clinical trials isRoche Portugal, explains Adriano Treve, the general manger, “weare currently involved in more than 20 local clinical trials, mostlyconcentrated in oncology and new indications. There are over 200people working on such activities, including patients. To invest inclinical trials is always a fight for space; you have to constantlyprove that you can recruit patients and scientists. Therefore, it is nota very easy process to follow.Nevertheless,” he continues, “tohave big clinical trials inPortugal is major goal forRoche. The strategy includesinvolving key opinion leaders inRoche's global studies. It is veryimportant that such profession-als are exposed to the new mol-ecules in the hospital sector.”

Pushing the Biotech Envelope

Miguel Noriega, who hasworked in several other coun-tries for Organon, outlines thegeneral advantages that couldhelp Portugal attract researchinvestments. “I see biggeropportunities in developmentactivities than in manufacturing.If Portugal wants to be in therace for research and develop-ment, it has an opportunity. ThePortuguese people are histori-cally natural entrepreneurs.The spirit of risk is here. ThePortuguese are highly educatedand speak other languages.”

Over the past five years,Portugal has experienced theemergence of more than 40start-up biotechnology compa-


nies distributed among its three main centers, Lisbon, Braga/Portoand Coimbra. The Portuguese biotechnology industry is awaken-ing, but there is still much room for development, particularly incomparison with Europe. The country has an unusual concentra-tion of agriculture-oriented biotechnology: Only 30% of biotechcompanies do work related to the health sector, as opposed to53% in Europe and 64% in North America. Most of thePortuguese companies are still recent spin-offs of local universi-ties. Their average annual turnover is US$600,000, and they arestruggling to find the necessary investments to grow. In thecountry's first national biotechnology meeting held lastNovember by the National Biotech Association (Apbio), JohanVanhemelrijck, EuropaBio's secretary general, spoke emphati-cally about the source of this problem: “In the US, innovationmeans progress; in Europe, it means risk.”

The Spirit of Risk

The lack of venture capital and the cultural resistance are two ofthe major barriers also encountered by Hassard. A manager atthe North American company Amgen who worked nine years in

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tioning of theMaghreb markets(Morocco, Algeriaand Tunisia) ledPharmaPortugal topromote roadshows in theregion in 2006.Emerging marketssuch as Poland and the Czech Republic arealso on the agenda.

Laboratório Edol is a perfect example ofwhat companies are trying to achieve byjoining the PharmaPortugal project. ThisPortuguese company, which has been inthe market for 54 years, is a market leaderin ophthalmology and dermatology andnow wants to showcase some of its expert-ise abroad. “Laboratório Edol wasextremely benefited to associate its imagewith the PharmaPortugal brand. The com-pany's small structure needs institutionalsupport, which enables us to have a muchgreater visibility in external markets,”explains Carlos Setra, general director ofthe company. “At the moment, the compa-ny is regularly exporting to the PALOPcountries and to the Morroccan market.Furthermore, there is a partnership with aBrazilian company, Europhama, whichmanufactures generic products designatedto the Brazilian and European markets.”

In a time when price reductions andcost-containment efforts set the tone ofthe domestic market, for Portuguesecompanies such as Edol, to sail is indeednecessary.

Exports: To Sail Is Necessary he words of the famous Portuguesepoem “To Sail Is Necessary,” pub-lished by Fernando Pessoa in the

beginning of the 20th century, capture thecountry's natural inclination to look over-seas. Nevertheless, this has not necessarilybeen reflected in the pharmaceutical busi-ness. Portuguese companies, as happenedwith Fernando Pessoa throughout his life-time, are often not appreciated according totheir true value. “The world market is notvery aware of the capabilities of thePortuguese pharmaceutical industry, andinitiatives as such are important to enhancethe international exposure of Portuguesecompanies. Although the pharmaceuticalsector in Portugal is not as developed as itis in some other European countries, takinginto account the country's size, we have arelatively strong pharmaceutical industry,”says Lusomedicamenta's Barros Ferreira,who speaks with the authority of someonewhose company exports 55% of its produc-tion to more than 47 markets.

Although Portuguese exports are the thirdmost important sector to the country'seconomy, the Portuguese pharmaceuticalindustry's total exports closed around amodest €300 million (US$397 million) in2005, a 10% increase over the past twoyears.

Recognizing the industry's underperfor-mance, a three-party institutional collabo-ration - involving the National Institute ofPharmacy and Medicines, the NationalForeign Trade Organization (ICEP) andApifarma - created the PharmaPortugalproject to raise the world's awareness ofthe Portuguese pharmaceutical industry.

It was about time. The export numbers ofthe companies involved in thePharmaPortugal project, which are mostlynational producers, reveal that exportnumbers had been decreasing.

The PharmaPortugal project aims toincrease exports by 10% by the end of2007. All the pharmaceutical companiesinvolved in the project have a combinedmarket share of 15%, representing 27% ofthe industry's workforce. This is the start-ing point of the government's ambitiousgoal to double the industry's exports in lessthan four years. The strategy behind theindustry's internationalization is to build

on the existing exportcapability of the 15companies involved inthe project and developa common brand to cap-italize on the marketswhere Portugal is tradi-

tionally strong, such as Brazil, Spain andthe United States.

The so-called “PALOP” countries(African Countries of Portuguese OfficialLanguage) are a major target of this strat-egy. On top of that, the interesting posi-

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Carlos Setra

“The world market is not very awareof the capabilities of the Portuguesepharmaceutical industry”

California's Silicon Valley, he states, “I do understand that thereis a tremendous aversion to risk, and several factors don'tencourage people to follow the path of a 'start-up' operation. Ifthe economy were to better reward risk, we could see more suc-cess stories.” The company is playing a leading role in challeng-ing the existing environment and fostering the Portuguesebiotech sector. “Amgen has the organizational history of know-ing what it was like to be a small biotech company with littleresources as well as the pitfalls in becoming larger and movingforward. Furthermore, now that the company has resources,there is strong global management that understands how and

where to help, and where and when to invest”, says Hassard.

The current situation in Portugal has piqued the interest of manycompanies like Organon Portuguesa and Lusomedicamenta instarting to prospect for biotech opportunities in the country.Perhaps biotech could be the sector to revive the industry'smorale and drive its innovation engine forward, yet there is along way to go. The one thing we can be certain of when itcomes to Portugal, as Novo Nordisk's Araujo points out: “Thecountry simply can no longer afford to see Europe frombehind.”

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ortugal had a colonial pres-ence in Angola for nearly 500years. The African countrygained independence in late1975, and in the following 17years it endured periods ofintense civil war. However, sinceits peacemaking efforts in 2002,Angola has shown remarkablyhigh GDP growth rates - 14% in2006 - and Portugal is certainlytaking advantage of that. Exportsto the country have been sky-rocketing since 2000. FromJanuary to October 2006, theyhave shown a 54% increase overthe same period last year, mak-ing the country Portugal's ninthlargest business partner. As aresult, in April 2006, PortuguesePrime Minister Jose Socrates

took 79 businessmen, five minis-ters and five state secretaries toassess future opportunities inAngola. Riding the wave of itssuccessful collaboration efforts,the PharmaPortugal projectmade Angola the last stop in itsseries of road shows, and theresults are starting to show.

Portugal has also celebratedagreements with Luanda'sPediatric Hospital to assist in thepromotion of children's healthand the management of hospitalpharmacies. In addition,INFARMED is assisting itsAngolan counterpart in restruc-turing its regulatory affairs. Thatkind of relationship is clearingthe way for business opportuni-ties, even for companies outside

the PharmaPortugal project suchas KTB SA. Angola has shown ahuge demand recently, and insuch a situation, people tend tobuy products in KTB's line.KTB's initial aim is to exploreonly the region surroundingLuanda, a market of approxi-mately 8 million people. Thecompany will start with two orthree products in a pilot pharma-cy to evaluate the marketresponse. “I would say that interms of Portuguese-speakingcountries in Africa, a strong mar-ket for the Portuguese pharma-ceutical industry, this is the onlyone which has the financialstructure to take on productssuch as KTB's,” says PaulaSoares, owner and manager ofKTB SA.

Next Stop, Luanda

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email: [email protected]

Documents

Pharmaceuticals Portugal report 2007