Biolab enters the generics market and evaluates purchase in Canada

Valor Econômico | 07/04/2018
Biolab, one of the largest pharmaceutical companies with national capital, has just entered a new market, that of generic drugs, with revenue estimated at over BRL 150 million in 2019. The company, which is about to inaugurate its BRL 450 million factory in Pouso Alegre (Minas Gerais), is also entering the central nervous system (CNS) segment and has been eyeing assets for sale in Canada to potentially establish its first production unit outside Brazil.

Biolab's entry in the generics and CNS markets stems from the purchase of Actavis Brazil, which belonged to the Israeli Teva company, the world's largest manufacturer of generic drugs. The value of the deal, which was completed last week, was not disclosed.

Valor ascertained from the industry, however, that Biolab would have paid an estimated BRL 40-60 million for the operation, which includes a plant in Rio de Janeiro and a 30-product portfolio.

Actavis recorded an estimated BRL 50 million in revenue last year.

"We will enter the generics market, but without giving up Biolab's DNA, which is innovation," said Cleiton de Castro Marques, CEO and one of the pharmaceutical company's controllers. With the deal, Teva, which failed to consolidate itself as a relevant competitor in the Brazilian generics market, limits its operation in the country to the oncology and special treatment areas.

The Israeli company put assets up for sale and cut thousands of jobs, the result of a serious financial crisis caused by the purchase of Allergan's generic division for approximately USD 40 billion. The plant in Rio was not included in the divestiture plan, but the Brazilian pharmaceutical company initiated talks with the Israelis.

Biolab was mostly interested in the portfolio of brand-name drugs registered at the Brazilian National Health Surveillance Agency (Anvisa) and not yet marketed – the generic drugs were not the Brazilian company's focus. According to Marques, they are products with high regulatory barriers, no patents and a maximum of one competitor, which will be offered to the public market and in pharmacy networks. Those molecules have yet to be revealed for strategic reasons. "At least six molecules will be produced here," he said.

The businessman told Valor that talks between Biolab and Teva began in January and a formal agreement had already been reached in April. Preliminary conditions were met and the Brazilian pharmaceutical company took over the Actavis operation this Monday. In the generics market, the strategy will be to not compete directly with the large companies in the sector, such as EMS, Hypera and Medley (of French Sanofi group). Until next year, the portfolio will comprise a set of 60 products that will answer for 15% of Biolab's revenue.

"Generic drugs are a reality of the Brazilian market, so we must work with that as well. We will dilute production costs," said Marques, when questioned about the factors that led Biolab, a pharmaceutical company with traditionally higher prices and premium products, to a segment marked by strong competition and high discounts.

The major draw is in the other segment of Actavis products, which will allow Biolab to enter the central nervous system sector with a more robust portfolio, an area that was already on its radar. The pharmaceutical company's long-term strategy is based on brand-name products and new molecules eventually developed in the newly-installed research and development center in Canada.

At this time, Biolab – a laboratory with national capital – is investing BRL 450 million in a new plant in Pouso Alegre (Minas Gerais), which will double its current production capacity of 100 million units per year. Its next step in terms of expansion, however, will most likely be taken abroad. "The next step is likely to be a factory in Canada," said Marques. "We are already looking at assets".

Besides the potential route of acquisitions, the pharmaceutical company has already designed two major internationalization projects, Marques informed. The first is to launch Vonau (ondansetron), a drug for treating nausea and vomiting, in Peru, Ecuador and Colombia, as well as registration in Mexico and Saudi Arabia (which opens the door to countries in the Arab community).

The second is to launch dapaconazol, an antifungal entirely developed by Biolab and the result of radical innovation. The intention is to sell the drug, which is in the registration phase at Anvisa for the topical version, in the Asian, Latin American and Canadian markets as well. "We are wide open," said Marques, referring to conversations with potential distribution and co-development partners.

Last year, Biolab had net sales (with taxes) of BRL 1.3 billion and a forecast of 12% expansion for 2018 before the truck drivers' strike. A 10% expansion seems more reasonable now, says Marques. "May was a bit difficult," he comments. The pharmaceutical company is the leader in cardiac prescriptions, accounting for approximately 50% of its revenue.
At the same time as it strengthens its portfolio, Biolab is promoting deep changes to its governance, with support from the McKinsey consulting company.

The three controlling families – Cleiton de Castro Marques, his brother Paulo de Castro Marques and Dante Alario Júnior – met as a family council and named a board of directors, with seats being occupied by the three partners and two independent members. The intention is to prepare the company for a future succession process and, eventually, access to the capital markets, including initial public offer, in the event a business opportunity arises to justify such an initiative.
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