Developing World Healthcare Blog
Brazilian Healthcare: Attracting Interest Despite Bad Press
We have not written anything on Latin America previously. The main reason is that the region constitutes a small portion of our EM healthcare investment universe. How do we define “small”? Try 15-20 companies. Among these countries, Brazil has the most opportunity with the world’s 9th-largest GDP and 5th-largest population.
Brazilian Healthcare Differs from the Typical Emerging Market
Brazil is an emerging market, but with some anomalies. Healthcare spending was 8.3% of GDP in 2014, which is high relative to other emerging markets where 5% (or less) of GDP is typical. Public healthcare spending is 46% of the total while private is 54%. There is a substantial private healthcare insurance market: 49 million people (24% of the population). Again, much higher than the usual 10-15% of the population seen elsewhere. Healthcare infrastructure is in line other emerging markets with 1.9 MDs and 2.3 hospitals beds per 1,000 population.
Private health insurance is 2.0% of GDP (5.8% in the US, highest globally), and well above the levels seen even in the developed world. Most private health insurance is concentrated in the southeast region of Brazil, which is wealthier (55% of GDP) than the balance of the country. To highlight the point, the federative units of São Paolo and Rio de Janeiro alone represent 32% and 12% of GDP, respectively.
Healthcare Services Dominate Among Listed Healthcare Companies
The twelve healthcare companies (market caps of US$100 million or more) listed on the BM&F Bovespa have an aggregate market cap of US$15 billion. They are mainly healthcare services businesses, including clinical laboratories, health insurers, distributors, and retail pharmacy chains. The life sciences sector has minimal representation with one animal health manufacturer and one pharmaceutical manufacturer. Brazil has been a strong market this year. The Bovespa Index is up 11% YTD with the average healthcare stock up 16%. The variation within this group is wide with several stocks down 0-5% and others up 40-70%.
The IPO market has come to life with two healthcare companies, Hermes Pardini and Centro de Imagem Diagnosticos SA – Alliar, completing offerings in the last three months. In addition, health insurer NotreDame Intermédica Sistema de Saude SA reportedly plans to list soon.
Brazil’s Healthcare Sector Draws Interest Despite the Country’s Challenges
The country’s size and growth have attracted significant investments from US healthcare companies and others. UnitedHealth Group bought a majority stake in Amil Participacoes, Brazil’s top health insurer, in 2012 and has continued to add hospitals and clinics. CVS Health bought Drogaria Onofre, the 8th-largest drugstore chain, in 2013. Several private equity firms have been active in the country. In 2015, the government opened the healthcare provider sector to foreign investors. Subsequently, The Carlyle Group bought a minority stake in Brazil’s largest private hospital chain, Rede D’Or São Luiz. Note that this list is not comprehensive.
Brazil’s economy is unlikely to match its historical growth because of its high debt load and political obstacles to reform. The economic downturn hit the insurance sector with several companies reporting declines in corporate enrollments and upticks in utilization as members lost or anticipated losing jobs. In addition, lower-cost health plans reportedly have taken market share. All that said, the economy has stabilized and is posting a modest recovery. The data show the upper-income segment of the population is willing to spend money and opt out of the public healthcare system. Further, many healthcare sectors are fragmented with significant inefficiencies. These dynamics point to continually evolving opportunities in this country.