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Analysis

Despite Headwinds, Optimism Reigns

Wed, 09/06/2017 - 09:47

Despite geopolitical and economic pressures both at home and abroad, Mexico’s health industry is pulling together to improve access, raise awareness of the need for prevention and taking steps to position itself as global hub for clinical research. 

Global economic and geopolitical uncertainty marked the latter part of 2016 and the first half of 2017 and sparked concern for many companies worried that currency fluctuations would negatively impact their bottom line. The peso yo-yoed in line with US polling predictions in the run-up to the November 2016 US elections and further depreciated against the US dollar post-elections as newly elected President Donald Trump maintained his nationalistic rhetoric, much of it directed against Mexico. The dollar appreciated against many other currencies, including the euro, against which the peso faltered, negatively impacting many European-based health companies. As 2017 rolled out, the Mexican peso stabilized and saw its best quarter in decades. The health sector plans for the long-term and most companies reported growth and plans to continue investing in Mexico, despite their initial fears. “Teva has drawn up a list of countries with growth markets and Mexico is among those,” says Guillermo Ibarra, Director General of Teva Mexico, a unit of the world’s largest generics company, which produces 120 billion tablets and capsules per year. “One of my jobs has been to internally sell Mexico to our global headquarters. It is a country that has industrialized greatly and is not reliant on commodities; it has steady economic growth of around 2-2.5 percent per year, which in the long term makes  Global want to continue investing in the country. We have invested many millions of dollars in improving, updating and raising the bar for our plants.”

Aside from the economic headwinds that buffeted the sector before tailing off, two diseases loomed over the health industry: obesity and diabetes, both of which were declared 

epidemics, the first noncontagious diseases to be considered as such. Although many private and public-sector initiatives are afoot to combat the diseases and related complications, to make true progress personal habits need change, says José Narro, the Minister of Health of Mexico. “The population is not fully conscious about the dimension of the problem. Secondly, although there has been a deceleration of the death rate, there is no decline. The number of deaths due to diabetes multiplied by about seven times between 1980 and 2015, from around 14,600 in 1980 to 98,500 in 2015. In the 21st century so far, there have been 1.1 million Mexican deaths directly due to diabetes. This is a grave problem. We must ensure that the measures that appear to be effective are maintained. We also must act to protect young children and teenagers. For this reason, in May 2017 we began the Salud en tu Escuela (Health in your School) program, which will send doctors to over 1,700 primary and middle schools to talk about key health topics,” Narro says.

The government’s measures include raising awareness through various publicity campaigns but it remains hampered by access issues with the public health system and a shrinking government budget. With less money to spend, government institutions have placed a priority on generics, pressuring Big Pharma companies. On the other side of the ledger, both the public and private spheres have penciled in clinical research as a strategic segment that could provide a windfall to companies, government institutions and ultimately, patients. 

A FRACTURED SYSTEM

 The theme of access to health remained a significant topic in 2016/2017. The many Mexicans working in the informal sector are denied access to the main public healthcare institutions and are obliged to pay out-of-pocket for 

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treatment or use Seguro Popular. This encourages the population to delay seeking diagnosis and treatment, as many prefer to live in blissful ignorance of a condition than to have it formally diagnosed. Not beginning treatment causes diseases to worsen and the effects cost dearly. 

“In most countries, pharmaceuticals represent only 10 percent of the total cost of diabetes. If people can invest that first 10 percent or even a little more to get access to better products, a big part of the other 90 percent of costs can hopefully be avoided. In Mexico, this is critical, because the system is now treating the complications of people that began suffering from diabetes 15 years ago. Since then, the diabetic population has more than doubled,” says Yiannis Mallis, Vice President and General Manager of Novo Nordisk Mexico, the market leader for diabetes pharmaceuticals. 

Faced with shrinking budgets, public institutions are struggling to cover a larger number of patients who are increasingly suffering from preventable illnesses such as type 2 diabetes (T2D), obesity and the ensuing conditions from these diseases such as cardiac insufficiency. These are worsened by poor lifestyle habits such as a lack of exercise, smoking and alcohol consumption. Dealing with the complications is keeping the hospital sector busy. While public institutions are bursting, private hospitals have capacity to spare. The two are working on a more efficient way of collaborating to alleviate the public sector burden and improve access. Several PPPs were announced during the year for the construction of hospitals, most of which will be operated by ISSSTE. However, many argue that increasing the number of hospitals is not the key to improving the health of Mexicans. “Health is a process, not a state. Health ranges from the complete state of physical and mental wellbeing as defined by the WHO, to a second before death, when health is basically lost. In between there are many states, some better than others. If people see health this way, prevention can be put in place. We want to promote education so that more people can take control of their health. We must begin to build processes for healthy aging,” says Narro. 

This is vital with any disease but it is especially important for diabetes and cancer given their impact, related ailments and high number of sufferers, which big and small companies have recognized. Janssen, part of giant Johnson & Johnson, for example, is working on early diagnosis methods for prostate cancer while young Mexican startup Higia Technologies is developing early detection methods for breast cancer. Rogelio Villarreal, Director General of Centro de Oftalmología Monterrey and Ojos Para México Foundation, says the problem runs across many afflictions. “Although the prevalence of glaucoma is 5 percent at 40, at 70 it is 18 percent and above that it rises to 30

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35 percent. Like glaucoma, macular degeneration must be detected early because the impact is irreversible. Diabetic retinopathy is common due to the big diabetes problem in Mexico and occurs in both T1D and T2D. It also requires early diagnosis to stop the progression of problems in the retina,” he says. However, the theme of access remains. To carry out checkups and catch conditions and diseases early, the population must have access to healthcare services. 
Amid belt-tightening, public-sector institutions are stretching budgets to cover more people. The Seguro Popular, for instance, has started eliminating duplicate registrations with other institutions. “We have cleaned up our database and no longer have 9 million duplicate registrations. We will continue to work on this in 2017 and we expect to reflect this in a higher quality service for patients because there will be more resources per policyholder. Seguro Popular has been sharing information with other health systems since 2016, a year in which we lowered the number of policyholders by 3 million,” says Gabriel O’Shea, National Commissioner for Social Protection in Health of Seguro Popular.

PRIVATE SECTOR UNDER PRESSURE

Companies are also feeling the pressure to make their products available to a larger proportion of the population. Big Pharma companies are often the only producers of a certain treatment and therefore have a responsibility to ensure it is as widespread as possible. In recent years, as the government tender process has consolidated and amplified, budget requirements often mean generics are favored over patented brands and some brands have even been liberated in Mexico so that generics companies can create less expensive versions of the products. This has pushed some Big Pharma companies out, and some have created their own generics lines to remain competitive. “In 2016, the Mexican health industry saw one of its toughest years, achieving single-digit growth in terms of value due to the introduction of new products and price increases,” says Raúl Camarena, General Manager of Aspen Labs Mexico. Despite a difficult year, the Mexican pharmaceutical market remains the second largest in 

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Latin America and among the top 15 worldwide, according to KPMG. BMI Research reports that the Mexican pharmaceutical market as a whole was worth US$11.2 billion in 2015, of which Seale & Associates estimate US$3.3 billion was attributable to generics. Generics producers are keen to make sure their more affordable alternatives are available in as many points of sale as possible. Releasing packets of innovative medicines so that generics companies can create options and increase access has been one of the greatest weapons in the government’s plan to offer increased access. However, price pressures have begun impacting companies that are unwilling or unable to go as low as requested. “We hardly sell to the government because it has adopted an aggressive price-reduction policy. This policy erodes income at companies like pharmaceuticals, which need to earn money to continue reinvesting in research. For companies like us, selling to the government is not viable. We have decided to only sell particular products to state hospitals, so 95 percent of our sales are to the private market,” says Felipe Espinosa, CEO of Mexican pharmaceutical Laboratorios Collins. 

As a result, many companies have begun turning to the private sector for growth, looking for other streams of revenue such as manufacturing for private labels, the branded generic products available from large pharmacy chains and retailers. The world’s largest company in this sector, Perrigo, is confident in the Mexican market. “Our business in Mexico is extremely important to Perrigo’s global operations. Not only do we share a very similar business model with the US branch of Perrigo but we service many of the same strategic customers that have presence on both sides of the border. We have identified Mexico as the country in Latin America with the greatest potential for growth as the economic and demographic conditions are very promising for our industry. We believe that each day there will be more opportunities to develop significant supply-chain partnerships between our countries due to NAFTA,” says Ricardo Ganem, Vice President and General Manager of Perrigo Mexico. “Each retailer is different, with distinct formats and specific strategies. Our job is to work with them in developing products and brands that best fit each of their strategies. Even smaller pharmacies have varying strategies. Some sell from behind a counter like traditional pharmacies, whereas others are more like minisupermarkets where you could even buy groceries and other convenience items. This is a model more often seen in the US but it is a growing trend in Mexico,” he adds.

Medical device manufacturers face some of the same issues as Big Pharma companies, as some devices have high price points and suffer if budgets remain too low to invest in new equipment. In addition, specialized devices are facing tough competition from more generic, cheaper and older models. “The prices are also low, so they are not sustainable in the long term. We can offer those prices for one year, but not several years running, especially with the depreciation of the Mexican peso against other currencies. This is not sustainable and endangers quality,” said Martín Ferrari, Director General of Dräger Mexico.
One method that can be used to find ways to improve healthcare is Big Data. Although the collection of Big Data in healthcare has been slow in the past due to the lack of digitalization, with the penetration of smartphones and the increased number of startups it is taking off in 2017 with giants such as Grupo PLM, Google and even Facebook. “Many healthcare organizations use incredibly sophisticated technology in diagnostics and treatment but substantial parts of their workforce use only rudimentary or no technology. Less than 20 percent of payments to healthcare providers and their suppliers are done digitally, for example,” states a 2016 McKinsey article in Harvard Business Review. These gaps are huge opportunities to digitalize and implement Big Data tools in Mexico, as with the right push the country could leapfrog. 


TESTING … TESTING

The first half of 2017 also saw a push for clinical research as the authorities stepped in to help make Mexico the clinical research hub many have been predicting for years. “In January 2017, we signed an agreement to promote clinical research that simplifies processes and integrates them. To meet all requirements and obtain all permits used to take 365 days but we are reducing this to 45 days. Our goal is to triple the investment in clinical research in Mexico and we hope to see US$600 million over the next two years, up from under US$200 million. An agreement has been reached with IMSS and ISSSTE will soon join the program. We are working on another agreement with the national health institutions and with UNAM. This will no doubt happen by the end of 2017,” says Julio Sánchez y Tépoz, Commissioner of COFEPRIS. Medicines that are released by companies cannot be sold immediately in the Mexican market, as regulation stipulates that they must undergo testing by COFEPRIS, in addition to the clinical trials they underwent either in Mexico or elsewhere, to first ensure their safety and efficiency. The backlog COFEPRIS saw in this area led the regulatory agency to create the authorized third-party figure which can perform testing on its behalf. “Speeding up processes through authorized third parties helped make the regulatory procedures more efficient and thus increased the attractiveness of Mexico as an investment destination for health,” says Geraldine Rangel, Director General of Healthlinks, a Mexican firm that provides market analysis to companies wishing to enter Mexico.

SECURING PRODUCTS

The flip side of improving access is maintaining security, a challenge logistics companies are up to. The distribution of essential medicines in Mexico is complicated by the tough geographical terrain and the uncertain security environment. Many employ distinct methods to prevent vehicle theft, such as using dual GPS to circumvent jammers, employing electromagnetic locks and distinct route planning. “One of the greatest challenges we face is Mexico’s size, so we must ensure the provision ofan effective, efficient and continuous service. Security  is a hot topic that requires care. We are a low-margin industry, so all additional costs immediately impact our profitability. We need to be prudent about how we manage additional expenses, which, ideally, we should not have. The health industry in Mexico is also a complex and fragmented one that requires different skillsets. I truly believe that Mexico is one of the most complex healthcare markets,” says José Alberto Peña, Director General of Grupo Marzam, one of the country’s big four wholesalers/distributors of the health sector. 
Then there is the black market and the issue of counterfeit medicine. To render faking medicine less appealing, pharmaceuticals are enhancing security at their warehousing facilities, as well as working to provide security features on their packaging. Holograms, braille and QR codes are just some of the methods used to prove authenticity. The medical devices sector suffers less from counterfeiting but more from the illegal importation and sale of devices that are not stored in adequate conditions to ensure patient safety. Herbal products have also faced shake-ups recently, with many being removed from sale after COFEPRIS inspection. Ensuring the authenticity of claims on packaging has been a main goal for this sector. However, IMSS has been looking into including herbal medicine, a Mexican tradition, as the public institution is in desperate need of safe, cost-effective alternatives. 

LOOKING FORWARD

Although challenges remain in the Mexican healthcare system, there are also opportunities for companies to bridge gaps, the most notable of which is set to remain access to healthcare as both sectors seek to increase treatment options for a growing number of people, at a price that does not break the bank. Companies will need to balance this with providing innovative solutions, as well as ensuring they can be amplified to suit the needs of Mexico’s 121 million inhabitants. 

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