Brazilian drugmaker Hypermarcas shows that market savvy pays, even when an economy hits the skids. Despite an unexpected lag in GDP growth, Hypermarcas posted a surprise profit for the second quarter. A sales surge helped swing the company into the black, with pharma sales alone up 13.3%.
The results are a stark contrast to Sanofi's ($SNY) disclosure last week that a management snafu undercut its Brazilian sales, causing a €200 million-plus hit to earnings. The company's local management had been trying to fight the impact of a new value-added tax by discounting prices and pushing inventory to "inappropriate" levels. Sanofi swept out those managers and then disclosed the troubles with its second-quarter earnings report.
Brazil is one of the world's fastest-growing drug markets, and Big Pharma companies like Sanofi have been moving in to take advantage of that growth. But like other emerging markets, growth is faltering a bit; analysts in July cut their expectations for GDP growth to 2.31% from 2.34%
In explaining Sanofi's Brazil "issue," CEO Christopher Viehbacher said generic drug sales in Brazil are very sensitive to pricing changes. And it's partly pricing that puts Hypermarcas in a good position, JPMorgan analysts said last month; the firm said it expects Hypermarcas' sales to weather the overall economic slowdown in part because its products are inexpensive. The analysts also cited the company's newly improved sales team.
That sales team must have been working hard last quarter. For the second quarter of 2012, Hypermarcas lost 29.9 million reais, and this year, analysts had expected a 15 million reais loss. Instead, the company posted a profit of 19.3 million reais, or about $8.43 million. That's mostly because of a big increase in sales, with double-digit drug sales growth and strong sales of hygiene products. What's more, during a call to discuss Q2 earnings, CEO Claudio Bergamo says the company saw early signs of further strengthening in consumer demand in July.
Besides Sanofi and its Medley unit, which it bought in 2009, Amgen ($AMGN) moved into Brazil in 2011 with the $215 million purchase of Bergamo, a private company that specializes in oncology drugs. And Pfizer ($PFE) has a 40% stake in the country's Laboratorio Teuto Brasileiro, which it bought in 2010 for $240 million. Most recently, Merck ($MRK) set up a joint venture with Supera Farma Laboratorios, which will start by marketing 30 products drawn from Merck as well as Supera affiliates Cristália and Eurofarma.
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