Galderma to invest R$200m in São Paulo factory
Galderma, the pharmaceutical arm of Nestlé Skin Health, plans to build a large factory in Hortolândia, São Paulo, starting February 2015. The investment totals nearly R$200 million, in order to accelerate its expansion in Brazil, the world’s third largestValor Internacional
“We have a factory in Hortolândia, but it’s already small. We are discussing building a very large factory there, I hope to begin in January or February,” said Galderma CEO Humberto Antunes in an interview with Valor. It will be a factory of over-the-counter products such as moisturizers, cleansers, antiseptics, sunscreens and some solutions that require prescription from a dermatologist, especially for acne.
The company also plans to have in Brazil and in China, within five years, research and development centers in cosmetic procedure, for treatments such as those that use botulinum toxin, a market segment that is growing significantly and has gained popularity with the brand Botox, of Allergan.
Mr. Antunes said that the Brazilian market is one of the global leaders in sales and prescriptions for skin-health products, which justifies the expansion of production capacity and research in the country.
"In Brazil most of our products, differentiated and many imported, are targeted at classes A and B. But there’s also the huge class C in Brazil, which we want to reach. We have very big aspirations for this market. Money in Brazil has changed hands, as Brazilian dermatologists tell me,” the executive said.
American company Galderma was created in Texas in 1961, and since 1981 was operating
as a joint venture of Switzerland’s Nestlé and French cosmetics group L'Oréal. In February this year, Nestlé, a food industry leader, surprised the market when it acquired the 50% stake of L'Oréal in Galderma, taking over 100% of the company in a deal estimated at €2.7 billion.
Following this “highly strategic” operation, the Swiss group announced the creation of Nestlé Skin Health (NSH), with the ambition of becoming the global leader in skin health. NSH, with its own board and executive management, has started its operations by joining Galderma and Bübchen, a Nestlé’s German subsidiary focused on cosmetics and products for babies, children and pregnant women.
Last year, Galderma’s sales reached €1.65 billion and profit was €234 million (with a 14.1% margin). It has 5,000 employees and operates in 80 countries. It’s structured into three business units: prescription products (47% of the total compared to 80% a decade ago); products that do not require prescription (33%); and aesthetic and corrective treatment, which includes its own "Botox" (20%). The idea is that each unit will have the same weight in the business within a few years.
Born in Brazil, Mr. Antunes has been the company’s CEO for ten years. An economist, he left the country in 1981 to study in Nebraska, with a scholarship from Sandoz. A year later he went to Basel, after that lived in Italy, and then he returned to Brazil. Then he went to Argentina, went back to Switzerland, always at Sandoz and Zyma. He’s been working at Galderma since 1997.
Analysts have no doubt that the company can grow by 8% per year, twice the industry’s rate globally, over the next five years. The dermatology market is estimated at $36 billion, of which Galderma has a 5% market share. But the broader skin-health market is estimated at $120 billion and the company wants to grab 10% of it, with over $10 billion in less than ten years. Mr. Antunes said the company will focus 100% on skin health, without mixing with traditional cosmetics. "Beauty itself is another thing. Our focus is skin health,” he said. "We have a very serious approach to health. We have more than 600 scientists working only on this all the time, the entire year.”
The company offers an integrated treatment approach. A patient with skin cancer, for example, may need self-medication to help prevent risks from excessive exposure to sun, but also require medication for skin lesions. At each stage of treatment or disease, Galderma wants to offer all these products, matching each other.
"We are developing our entire strategy around prevention,” the executive said. "It will be a much better world if we ensure that people age healthily, because they can stay active longer, with greater social interaction, improved mobility, and better self-esteem. And if the person gets sick, we will treat him [or her] as well.”
Specialists say there are more than 3,000 skin diseases. Each person is affected at least once by one of them in a lifetime. About 6% of the world population has psoriasis, which causes redness and irritation, other 5% have rosacea, 60% to 80% of adolescents have acne and each year 3.5 million new cases of skin cancer are diagnosed in the world.
The market is huge, driven by emerging countries (with an expected growth of 13% to 17% annually in this segment); due to demographics (the number of people over 60 years is expected to reach 1 billion in 2020, with demand three to four times higher for dermatological products); due to urbanization and the growing awareness about health and wellness; as well higher spending on health in the US, the world’s largest market.
Galderma has 34 units in the world, and the Brazilian is its second largest after the US one. The company’s highest per capita use of dermatological medical solutions is in Australia, where health insurance pays, for example, for sunscreens.
Mr. Antunes does not hide his enthusiasm for Brazil, the world’s third-largest market, just behind the US and Japan. According to Euromonitor, the Brazilian dermatological market grew 9% and reached $660 million in 2012.
Galderma does not disclose its sales by country, but people familiar with the company estimate that it has grabbed an important share of the Brazilian market.
The executive said the new Hortolândia factory will be large enough to meet demand in the Southern Cone, which accounts for a very large consumption. "Transporting water across the Atlantic is expensive,” he said. With a larger factory in Brazil, he aims to reduce the impact of carbon dioxide emission, cut down transport costs, replace imports and make products more competitive.
"In Brazil, people increasingly have their favorite dermatologist,” he said. “Brazilian dermatologists are light years ahead of those in other countries when it comes to corrective and aesthetic procedures,” Mr. Antunes added. “First, due to the Brazilian consumer’s open mind. Second, Brazilian dermatologists are well-trained, are not tied to the past. If there’s a Brazilian category [profession] leading the world, it’s that of dermatologists, who follow trends, go to courses, like novelty.”
Recently awarded with the “Lifetime in Dermatology Achievement” by a specialized publication in the US, Mr. Antunes said that he gets much of his inspiration from Brazilian dermatologists. “If we have Restylane today, it’s because a Brazilian dermatologist specified what kind of filler we should have, because not all are equal. And the same happened with a dermatologist’s advice about Dysport, which we should get the license of that product that already existed for multiple sclerosis. We bought the license and developed the product for aesthetic medicine.” Mr. Antunes said the company wants to do more research in Brazil, and would like to get help from the government for this. “It’s not money,” he said. “It’s enough if they authorize clinical trials faster. In the US, I can get an authorization for a clinical trial a year earlier than in Brazil. And time is money. If Brazil became more efficient, we would do much more research there.”