BRAZIL MULLS DRUG INDUSTRY MEGAMERGER

Media reports in Brazil claim that two of the country's largest drug firms are planning to merge. Although the new company will be small by global standards, with annual revenues of roughly BRL1.5bn (US$671mn), it is hoped that the new entity will offer stronger competition against multinationals.

The two family-owned firms, Aché and Biosintética, are among the top five Brazilian producers, and respectively reported revenues of BRL918mn (US$411mn) and RBL700mn (US$313mn) for 2004. Both are largely focused on the fast-growing generics sector, although some analysts comment that Biosintética's position in branded products is less strong than Aché. The company's proprietary products include a successful plant-based anti-inflammatory known as Acheflan. Further, the company is also known in Brazil for its line of non-bioequivalent copies known as "similares."

The merger denotes an important step in long-standing plans by Brazil's national development bank, the BNDES, to create a "national champion" in pharmaceuticals. However, a merged company is likely to be an even more attractive takeover target. Biosintética's largest APIs supplier is Israeli generics giant Teva, which is reported to have negotiated an acquisition but failed to agree a price in recent months.

Meanwhile, it is unclear whether the possible merger will be simply the first of many in the local sector, as manufacturers await new bioequivalency rules and see growing pressure from larger international drugmakers. Some less enthusiastic sources also claim that the eventual value of a consolidated domestic sector could be flattered by the weak state of the US dollar, which has cut raw materials costs significantly in the last 12 months.