Mexico is the world’s 11th largest pharmaceutical market and one of its most dynamic. Its performance in recent years depends on the metrics it is viewed from. In 2016 the market was worth $13.9bn, down from $17.2bn in 2014, according to data from IMSS health. However, with most pharmaceuticals priced in dollars the devaluation of the Mexican currency was a central reason for this fall. In peso terms, pharmaceutical sales hit a record MXN240bn ($14.5bn) in 2016, up from MXN209bn ($12.6bn) in 2015 and the total unit sales remained stable at 3.9trn. The growth of the generics industry, combined with the public health service’s bulk buying of pharmaceuticals has led to a shrinking of margins in the public sector. However, the private sector retains its growth potential in a country of 122m people. “The Mexican pharmaceutical sector has presented lucrative opportunities for a range of stakeholders in recent years,” Karel Fucikovsky, managing director of Pierre Fabre, a pharmaceutical manufacturer, told OBG. “It is estimated that the pharmaceutical sector as a whole grew by 51% between 2011 and 2015.”
The pharmaceutical industry is one of the sectors regulated by the Federal Commission for the Protection from Sanitary Risk (Comisión Federal para la Protección contra Riesgos Sanitarios, COFEPRIS), a body which oversees products representing 9% of Mexico’s GDP. In 2010 COFEPRIS faced a serious backlog of 8000 drugs licences and those products available on the market were highly priced.
However, since 2011 the commission has streamlined its licensing process and opened the door for price competition between generic drugs. In 2011, for example, it provided marketing licences to 24,800 drugs and medical devices, compared to 152 the previous year. Maximum prices are set by the Federal Attorney’s Office of Consumer.
In the past, there has been a notable disconnect between government regulatory agencies and the citizen, perhaps because the topic of health is extremely complex; whether it is authorising a specific technological practice or analysing the effect of a pesticide,” Julio Sánchez y Tépoz, health commissioner for COFEPRIS, told OBG. “Now there is a drive towards transparency alongside greater participation from academia, society and the individual citizen.” The second strand of the COFEPRIS strategy involved identifying 32 active substances in pharmaceuticals – used to treat 71% of mortality cases in Mexico – that had expired patents, but for which no generic drug was available. The licensing of the generic alternatives were fast-tracked and multiple generics with the same active substances were allowed to enter market simultaneously, fostering price competition. By March 2017 there were over 500 generics registered in the market.
The success of COFEPRIS’s turnaround was recognised in 2012 when it was named a National Regulatory Authority of Regional Reference by the Pan American Health Organisation. The private sector recognises the impact the commissions reform has had on the market. “COFEPRIS is doing a good job at developing the pharmaceutical sector and managing the balancing act between regulation and market promotion,” Vicente Saro, director-general of Chinoin, a pharmaceutical firm told OBG. “New initiatives will bolster assurance for companies by protecting intellectual property and ensuring higher quality standards, which will lead to market maturation in the long run.”
Thanks to the reform of COFEPRIS and the entrance of new generic treatments, the public health service’s pharmaceutical bill had dropped precipitously. From 2010 to 2015 the cost of drugs containing the 32 active substances fell by 61%, while those used to treat cardiovascular disease, diabetes and cancer dropped by 91% on average, generating savings of $1.5bn to health care providers. The availability of competing brands of genetics combined with the consolidated buying practices allowed the Mexican Institute of Social Security (Instituto Mexicano de Securidad Social, IMSS) to save MXN3.4bn ($204.9m) in its 2017 drug and equipment purchases, a 33% increase on savings made the previous year. The combined savings for IMSS from 2013 to 2017 was MNX14.2bn ($855.8m). Of the total 2017 bill of MXN41.9bn ($2.5bn), 63% of the 1371 products purchased were generic drugs and 29% were patent drugs. Mexico has the world’s second-highest penetration of generic drugs — behind the US — accounting for 84% of unit sales. By 2020 generics should account for 90% of volume and 60% of price value in Mexico.
With IMSS operating as a monopsony — where a single buyer dictates terms – the increased competition between generics firms has shredded margins. In 2016 sales to the public health sector constituted 42% of unit sales but accounted for only 22% of sales in peso terms. “In the pharmaceutical sector government contracts are not attractive,” Victor Soto, CEO of Levic told OBG. “Dealing with public institutions can be complicated and bureaucratic, margins are lower and payments can be delayed and irregular. However, even after years of strong performance, the private sector still provides ample opportunities for growth, although more investment and more work is needed from their side, too.”
The high penetration of generic drugs combined with the effective purchasing strategies of IMSS poses new challenges to pharmaceutical companies looking to tap the private sector. In 2016 the audited private segment accounted for 23% of unit sales but 55% of sales in pesos. The unaudited market consisted of over 35% of unit sales and a further 23% of the total peso market. Of the total private market — which had a value of $10.6bn in 2016, down from $12bn in 2015 – patented drugs accounted for 39% of sales and 13% of volumes. Given the greater margins in patented drugs, some foreign pharmaceutical firms continue to focus on promoting high cost treatments. “In the global pharmaceutical industry, there is a blanket philosophy of prioritising high technology, high-cost products,” Fucikovsky told OBG. “However, this is a mistaken strategy, especially in countries such as Mexico where access to medication is an issue for a significant percentage of the population and key health care institutions don’t have the resources to pay for these high-value drugs.” Some big-pharma firms – including Sanofi and Novartis – have acquired generics firms in recent years and this trend continues in Mexico, where there are over 300 manufacturers of generic drugs. In 2017 the NYSE-listed Teva Pharmaceutical Industries acquired Representaciones e Investigaciones Médicas (RIMSA), a Mexican drug manufacturers and distributor for $2.3bn. “RIMSA will provide Teva with a strong brand, unique portfolio of patent-protected products, a promising pipeline and significant relationships with patients, physicians and other health care providers,” Erez Vigodman, then-CEO of Teva, told media.
Many companies have been able to keep ahead of falling prices by cutting their costs, both through pooling resources and making efficiency gains across the value chain. “In recent years progress has been made in improving accessibility to the population thanks to falling drug prices,” Soto told OBG. “Advances have been made in the whole value chain, meaning that this reduction of costs has not translated into lower margins for producers.”
Cooperation between players can bring additional advantages. “The current trend in the pharmaceutical industry is to expand partnerships between key sector players,” Fucikovsky told OBG. “In the current cost-saving environment, the prospect of sharing resources has become increasingly attractive.”
While prices may be shrinking at home, Mexico’s pharmaceutical producers are well placed to benefit from the country’s regional trade agreements. Many local firms have established distribution capacity in Central America but the deepening ties with the other Pacific Alliance members – Chile, Colombia and Peru – could lead to further cooperation between regulatory bodies, easing the licensing process for those markets. Agreements with countries further afield also hold potential. “Mexico is a very open to investors,” Saro told OBG. “Following recent bilateral presidential visits with South Korea and Denmark, we are seeing more alliances with companies in these countries.”
In 2017-18 the incursion of generic products into the market will continue, with IMSS looking to further bring down its drug bill. The weak currency will also pose challenges over the course of 2017. However, Mexico is blessed with having an efficient licensing agency, an open trade policy and a growing research and innovation segment that make it a natural hub for pharmaceutical production facilities.
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