Economic viability of the implementation of a pharmaceutical industry producing harmonies in the State of Bahia/Brazil.

Presenter: Andreia Costa Santos, London School of Hygiene and Tropical Medicine

Abstract

Background: in 1996, during a global period of firms’ privatisation, the Government of State of Bahia/Brazil decided to put a strategic pharmaceutical industry for sale, which was a producer of infectious disease drugs for the Unified Health System (SUS). The intention of the leaders at that moment was to reduce, considerably, the participation of the State in the economy. This strategy not only was unsuccessful, but also destroyed the industry’s infrastructure, and left the State of Bahia behind in the process of pharmaceutical industrialization. The current administration want to rescue this process through the attraction of the pharmaceutical industries to the State of Bahia. One of the strategies is to produce a hormonal line of goods to supply the SUS, which will distribute for free for the whole population. The production includes contraceptives and hormones for treatment.
Main objective: to evaluate the viability of the implementation of an industry producing contraceptives.
Methods: Porter’s model (structure-conduct-performance) was used to identify the industries competing in that market, the presence of supply constraints, substitutes goods, and international legislation. Theories of industrial organisation were used to define strategies to the industry during the medium and long runs. Mixed econometric models were used to define the possible prices (using different scenarios) to the SUS.
Results: To be economically viable, the level of monthly production should be of, at least, 16 millions of oral contraception pills, and 5-10 millions of other contraception method. The capital cost would range from US$ 3 to US$ 6 millions, depending on the product to be produced. Operational costs would range from US$ 1 to US$ 3 million, also depending on the product. The proposed prices that could be absorbed by SUS should be less than US$ 1.5/pack, in case of oral contraceptive and US$ 1-2/pack for other method.
Discussion: The strategy to implement a pharmaceutical industry in the State of Bahia is important, but should be considered under some economic, political and environmental conditions. The national strategy of pharmaceutical cluster should be considered in the first instance.