BRAZIL - DEDICATED TO THE CONTINUED DEVELOPMENT OF THE LIFE SCIENCES

A large and developed healthcare market

Brazil is a perfect location for multinationals that wish to diversify their Life Sciences activities in a large developing market where the healthcare sector is increasingly attractive for medical equipment. In Brazil's favor are the enormous size of its potential market, increasing expenditures in the healthcare sector, and an increasingly aging population:

• 33% of the 201 million Brazilian population are still younger than 20; however, life expectancy reached 74.6 years in 2012. Today, 20 million people older than 60 live in Brazil, similar to what is seen in developed markets like France and Germany.

• The healthcare sector accounts for 9% of the GDP and, according to the Brazilian Association for the Medical, Dental, Hospital and Laboratory Equipment Industry (ABIMO), Brazil spent over US$ 9.1 billion in medical equipment in 2011, which is 50% more than in 2009.

• Brazil has a solid and well-established public health program, which is responsible for 50% of healthcare sector expenditures in the country. Part of the procedures performed in this system are contracted by the private sector.

A comparison between the increase in Brazil's current population and the expenditures in the healthcare sector shows that, when expressed as a percentage of the country's GDP, these expenses are well above those of its Latin American counterparts, such as Mexico and Chile, and not far behind those of more developed countries like Canada.

Technology to drive future growth

The Brazilian healthcare sector is not only enormous, it is also growing at an accelerated pace. Brazil has overcome a number of recent crises and its rapidly expanding middle class is demanding healthcare technology, services and attention. Consumers have increased their spending on private health insurance by 50% over the past five years due to increased purchasing power and higher employment rates. These factors have resulted in an impressive performance by the medical equipment sector and this prosperity is expected to continue for the next ten years:

• Over the last five years, more than 27 million Brazilians have ascended to the middle class, increasing their spending on technology, vehicles and healthcare.

• From 2001 to 2011, per-capita healthcare expenditures have gone up by 6% around the world, 10% in Latin America and almost 14% in Brazil.

• From 2000 to 2010, Brazilian per-capita healthcare expenses have grown at a compound annual rate of 14%, reaching US$ 990.

• According to ABIMO, the Brazilian market grew by more than 9% in 2010 and roughly 18% in 2011.

The current medical equipment market is highly developed to meet current demand, with 90% of a hospital's technology and equipment needs being easily supplied domestically. A supply surplus has resulted in more than US$ 700 million in exports per year. Thus, the future growth of the Life Sciences sector will be driven by disruptive innovations and technology transfers that are currently not taking place in Brazil.

• In Brazil, over 68% of medical equipment suppliers are family-owned small and medium businesses. This presents an opportunity to market new technology products or supply existing companies that are growing and investing in better technologies.

The Brazilian environment is ripe for the introduction of more technologically advanced products and expenditures on such items are expected only to increase over the coming years.

Government Incentives Favor Local Production and Development The Brazilian public healthcare program, Unified Healthcare System (Sistema Único de Saúde or SUS), cares for 80% of the Brazilian population and is responsible for 48% of the country's current healthcare expenditures. In 2011 alone, the SUS carried out more than 740 million exams, 2.4 million chemotherapy treatments and 4 million surgeries for Brazilian consumers. Even some procedures carried out in charitable hospitals and clinics were paid for by the public healthcare system.

Considering the Brazilian government's strong involvement in the healthcare sector, the Life Sciences sector remains a national priority and an important concern. With the aim of securing sustainable supply and exports revenues, the government has developed a number of initiatives to promote foreign investments, technology transfers and the continued development of the sector as a whole.

Attractive fundraising and financing solutions have been created by BNDES (Brazilian Development Bank) and FINEP (Financing Agency for Studies and Projects) to drive foreign investment and technology development.

The government is encouraging partnerships between the public and private sectors for technology transfers and development through various public laboratories around the country. These "Production Development Partnerships" will facilitate government registration and purchase of the technology required by the Brazilian public healthcare system when this technology is developed and transferred to public laboratories.

The sector's standards and policies have been adjusted to align with internationally accepted regulations in order to better facilitate technology transfers and promote international business transactions.

• The Ministry of Health has established a number of programs to expand the SUS in order to develop specific sectors, such as radiation therapy, investing US$ 300 million in equipment, subsidies for workforce training programs, financing and materials.

• To strengthen its position, the Ministry of Health is currently developing a centralized purchasing system in order to leverage bulk purchases as a negotiation tool.

• Products and medications on the SUS essential purchases list receive priority for both patent requests and ANVISA (National Health Surveillance Agency) registry.

• The Ministry of Health regularly publishes a list of essential and priority medications, called RENAME (National List of Essential Medications) and plans to expand it to include medical equipment so that manufacturers can be aware of the most important public sector demands ahead of time.

Solid regional R&D and cluster development

Approximately 94% of Brazilian medical products and equipment are manufactured in the Brazilian South and Southeast regions, which are also the country's main manufacturing centers; new arrivals will benefit from existing supply chains. Furthermore, several industrial clusters have developed around important public and private universities and research and development centers, such as CIETEC (São Paulo), BioRio (Rio de Janeiro), BioMinas (Minas Gerais) and FIPASE (Ribeirão Preto, SP). Developed laboratories, business incubators, high-tech production units and ties with universities combine to create an attractive ecosystem for medical equipment investments in the South and Southeast. However, state-owned laboratories, which can encourage foreign companies interested in entering the Brazilian market, can likewise be found in other regions around the country. A strong dedication to furthering R&D in Life Sciences is indicative of potential for innovation and an enormous long-term investment opportunity in Brazil.

​Better Investment Opportunities in Medical Equipment

The Brazilian medical equipment sector currently produces a surplus of products in some sectors while suffering from considerable scarcity in others. Subsectors manufacturing products such as orthodontics, incubators and medical furniture, for example, successfully export to countries throughout the world and currently produce a surplus in the country. Nevertheless, the current overall negative trade balance in the healthcare sector is about US$ 1.5 billion and certain trends shift demand to areas where present and forecasted production is unable to meet local demand:

• The aging population, the increased purchasing power and the presence of isolated populations in the interior of the country are generating demand for more mobile systems, monitoring devices and home care equipment.

• Increases in purchasing power and the growth of the private healthcare industry will generate demand for new technologies and high-tech equipment, such as PET scanners, analyzers, optical instruments and X-ray machines.

• Other general needs and trends in the medical equipment sector include smaller products (miniaturization in general), advanced software, increased automation, professional radiology devices and certain consumer goods.

• The Brazilian Ministry of Health intends to regularly publish a list of priority medical equipment required by the public health system, which will allow manufacturers to plan more strategically. This is already successfully done for medications.