Healthcare Multinationals face New Reality in Latin America

A dimmer macroeconomic outlook in Latin America is reshaping the expectations of healthcare multinationals.

With economic growth faltering across the region and public sector budget cuts expected, the health care industry in Latin America is encountering sharp pressure points, but multinational executives still see opportunity.

Last week, FSG convened a gathering of pharmaceutical and medical device executives to discuss the outlook for Latin America and its healthcare sector. While most executives remain fairly optimistic about their current growth plans for the region, falling GPD growth rates, rising inflation, currency depreciation, and especially the rising threat of government spending cuts are driving increasing concern, particularly in terms of rising pricing pressures for healthcare products and services.

Among the major strategic approaches companies are considering to confront the new reality in Latin America, executives pointed to:

  • Improving their market access capabilities: Healthcare companies are considering revamping their market access strategies for both public and private businesses. The most common responses to the current environment have been 1) evaluating how to further leverage health economics studies in discussions with government purchasers, and 2) reassessing the key stakeholders they engage for purchases in key markets
  • Pursuing inorganic growth opportunities: Pursuing acquisitions is another reemerging approach currently under consideration by many companies, given the opportunity to take advantage of current market volatility and a strong dollar to make more affordable acquisitions

Executives also shared their outlook and concerns on the major Latin American markets, expressing considerable consensus over where healthcare companies will need to focus their efforts over the coming years. I’ve broken this outlook down into five key takeaways:

1. Continued commitment by healthcare multinationals to the Brazilian market

  • Steady commitment: Brazil remains the most significant priority for nearly all healthcare multinationals, with most companies increasing or maintaining their commitment to the market. However, a minority of executives are worried about outsized corporate expectations for the market.
  • Long-term growth opportunities: Companies still believe that there is significant untapped opportunity in Brazil and are exploring different means to increase their penetration into the Brazilian market, including acquisitions, greater local manufacturing, and organic geographic expansion.
  • Corruption-scandal fallout: Compliant healthcare companies expect to gain from corruption scandals involving kickbacks by disrupting and weakening the position of non-compliant companies in the industry. Short-term uncertainty, growing over the economic fallout from the Petrobras scandal, is also raising fears over its impact on the economy’s performance.

2. Mexico remains a source of concern for healthcare multinationals

  • Disappointing performance: Mexico, despite having a better macroeconomic outlook than Brazil, is, in reality, looking like a disappointment for healthcare multinationals.
  • Weak government commitment to health care: Healthcare companies, particularly pharmaceutical companies, have cited a lack of commitment by the federal government toward the healthcare sector in recent years, with exceedingly weak real spending growth and lack of progress on measures to improve the efficiency of spending, particularly with Mexico’s high administrative costs.
  • Public-sector pricing pressures: The significant fiscal retrenchment that the Mexican government will be implementing over the next 12 to 18 months will also put significantly more pressure on public sector and will limit new infrastructure investments, including hospitals.
  • Corruption concerns: Corruption is a growing concern in Mexico, with the government benefiting local companies close to the ruling PRI, through ways including faster inclusion in the national formulary and preference in the public tender process.

3. Colombia remains a priority market, but pricing pressures are growing

  • Resilient investment destination: Colombia remains a key strategic priority for multinationals in the healthcare sector, especially given the relative resilience of the Colombian market to external headwinds when compared to other South American markets.
  • Rising profitability concerns: Increasing price controls and continued distribution challenges are leading to a tempering of expectations for some healthcare companies, especially as the government aggressively pursues spending cuts to confront the impact of falling oil prices.

4. Argentina is seen by healthcare companies as a high potential market, particularly after elections

  • Expecting a rebound, not a crash: Most executives push back against any analysis that looks at Argentina as in the same boat as Venezuela, even if many of the economic drivers of these markets’ underperformance are the same.
  • Commitment to public healthcare spending: Argentina, along with Brazil, has a government that is committed and currently has the resources to continue to support significant increases in healthcare expenditures.
  • Optimistic about post-election reforms: Healthcare companies are generally hopeful that the next government will pursue a more rational set of economic policies, particularly by severely reducing import and foreign exchange controls, though some are more skeptical than others as to how quickly this will occur and whether Argentine politicians will be able to make the necessary changes.

5. Multinationals are beginning to reconsider their footprint in Venezuela

  • Losing patience: Healthcare companies are asking themselves whether they can really take a wait-and-see approach in Venezuela for much longer. As public companies are revising their valuations of trapped local currency denominated assets, this is creating a situation where corporate is beginning to step in and ask harder questions.
  • Analysis paralysis obstructing decisive action: Companies are struggling with knowing when and how to reenter or exit the market and what payment terms (in dollars) to negotiate with distributors and with the government.

FSG provides regular updates on key trends affecting health care in these major Latin American markets in our Quarterly Market Reviews, and FSG analysts will continue to monitor how regional macroeconomic and political trends are impacting the healthcare sector in Latin America. To stay up to date with our Latin America research and executive events, FSG clients can access the client portal. Not a client? Contact us at info@frontierstrategygroup.com.

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