Alejandro Calderón Díaz
Director General
Grupo IFACO
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View from the Top

Increasingly Sophisticated Third-Party Manufacturing

Wed, 09/09/2015 - 14:44

Q: As a reaction to the developing market, how has the company evolved since its creation?

A: Grupo IFACO was created as a third party manufacturer for international companies, but during the 1970s we changed our business model to incorporate an increased focus on our own brands. The removal of the regulations requiring international companies to have a manufacturing plant in Mexico saw a drop in the country’s production capacity as factories were relocated. Since then, the Mexican generic market has increased in volume but reduced in terms of value, with products more accessible to the general population even as pharmacies’ profit margins are adversely affected. Pharmaceutical companies are therefore renting underused spaces to manufacturing companies. The arrival of international companies in Mexico has provoked seismic changes in the market and initiated a return to third-party manufacturing practices, both for raw materials and finished products. We have also expanded into biotechnology and the complexity of these products has seen us develop and implement highly sophisticated schemes in collaboration with several different actors. The resulting strategies are similar to joint ventures, with the common goal being the development and production of biotechnological products.

Q: In what ways are you collaborating to manufacture biotechnological products?

A: While we have been manufacturing human growth hormone and insulin for several years, we are now beginning to integrate more complex molecules that require specialized equipment and professionals. We are collaborating on this project with several companies from the US since these investments demand a level of skill and investment that no one company is capable of providing. The collaboration also fuses our two principal knowledge bases, with the ultimate goal of developing and exporting these products, since our production capacity exceeds the demand of the Mexican biopharmaceutical market. Biotechnology is a medium-term investment, meaning that it generally takes longer to see a return than similar investments in chemical products.

Q: What diseases are you aiming to tackle?

A: Since GBT has developed a platform technology through which several pathological conditions could be treated, several criteria are taken into consideration when selecting GBTs therapeutic programs. We are currently focusing on developing three therapeutic programs to combat diabetes, hemophilia, and cancer respectively, a program specifically aimed at areas with unmet medical needs. We applied for a grant in order to develop a solution for type I diabetes, and as the government has a vested interest in developing solutions, the proposal was granted. We chose hemophilia because it is a pathology involving just one damaged gene that could be easily repaired using gene therapy. In terms of cancer treatment, our technology is robust and extremely safe, and our laboratory results suggest it may well be useful for solid tumors. For investment purposes, companies require promising data, which we have presented for our gene therapy technology. Meanwhile, we are still generating data on biodistribution, toxicology, safety, and efficacy, which are the most important elements to evaluate in gene therapy.

Q: What adjustments are you making to your generics line in response to increased competition?

A: From the outset, we have focused on the quality of our products as a key perpetuator of growth. We are expanding our offices by 5,000m2 to increase our biotechnological capacity, as well as investing in panels and equipment that have never been used previously in Mexico. Once our plant expansion is complete, we want to secure accreditation from the FDA and EMA for the production of biocomparables and generics. COFEPRIS does not currently have collaboration agreements with either agency but their approval will greatly simplify exports. We must be capable of guaranteeing that the products released to market are of the highest quality, although our products are already comparable to those products we currently use as references. Our product lines range from common drugs with a cost of approximately MX$20 to highly sophisticated products, and our drug development strategy involves the release of a generic equivalent as soon as a given patent expires, meaning that COFEPRIS approval is our priority. Another goal is to make our products accessible to those without social security, since half of Mexico’s population faces a restrictive budget and a lack of access to medication and healthcare services, and as a solution we aim to lower prices for products aimed at that demographic. The key to this is a new distribution channel called the “impulse market” consisting of large wholesalers who sell to pharmacies, small hospitals, and clinics generally frequented by individuals with a low income.

Q: How have distribution channels evolved in the last few years to meet market requirements?

A: Traditional channels have been impacted by the introduction of international pharmaceuticals to the market. The pharmaceutical market has also changed enormously since the introduction of generic medicines at the end of the last century. This has given the industry a dynamism that it had been lacking for decades, and has forced existing market leaders to adopt more strategic policies. The largest retailers used to be national companies such as Nadro and Casa Saba, but regional companies have encroached on the potential offered by the impulse market by focusing on the pacific, southeastern, and central regions of the country. These distributors are isolated and their territories do not overlap, and so their business model is to create strong relationships with their clients and intensify local presence.

Q: The Trans-Pacific Partnership (TPP) aims to lengthen patent protection - how does this agreement affect your business lines?

A: Mexico has experimented with several different free trade agreements, so we have learned to adapt quickly to change. NAFTA oversaw the development of a legal framework for patents and industrial property but this subsequently led to abuses, mainly from patent-owners attempting to extend their protection period. The TPP also aims to implement other conditions, such as a specific waiting period for the clinical data of biopharmaceuticals. The TPP will be principally beneficial in countries where companies generate patents for global enforcement. On the other hand, these regulations will limit the amount of medications that the government can acquire at low prices through consolidated purchases, meaning that the population is likely to face restrictions in access to certain medications. Mexico is in a precarious situation since our regulation for biotechnological drugs is rather new and most innovative medicines are biopharmaceuticals, so increasing the patent protection period will limit Mexico’s market participation. A major issue is transparency and due to the highly confidential nature of the majority of the discussions and proposals thus far, there is little public knowledge of the exact wording of the proposed law. CANIFARMA, just like all agencies involved in these negotiations, had to sign a confidentiality agreement.

Q: What challenges has Grupo IFACO faced during its time in the manufacturing industry?

A: After the 1985 earthquake in Mexico City, the government encouraged manufacturers to diversify in terms of locations, so we moved our three laboratories and their corresponding offices to Guadalajara. Collaboration with the Biocluster in the region has been problematic, since many companies are unaccustomed to cooperating. We have worked with universities, but collaboration with private companies is made difficult by a lack of government regulation. Moreover, through Cryopharma we produce seven different active pharmaceutical ingredients (APIs), initially for the manufacture of our own brands, but we have since begun to commercialize them to third parties. Several API manufacturers left the country before pharmaceutical producers followed suit, meaning a lack of competition for the domestic industry; a problem that has been exacerbated by increased competition from India, China, and South Korea. A further complication is that medications sold to the public continue to drop in price. When the API is manufactured in Mexico, this product fulfills the “national content degree” required by government regulations, provided that the API represents 65% of the final price with the remainder constituting foreign products, manufacture, and distribution costs. Fulfilling the national content degree allows a product to participate in the government’s tenders, which account for 80-90% of the government’s purchase of medications, medical supplies, and devices. This requirement was obtained from acquisition laws influenced by free trade agreements with the US and the percentage has been slowly increasing from 50%. The problem is that the final price of a product has been lowering and this, alongside the high exchange rate, has generated concern within the industry.

Q: What are your expansion plans and priorities for 2015?

A: We hope to have completed construction of our new biotechnology plant in Jalisco by the end of this year, increasing API production and incorporating new product lines such as prefilled syringes. By this point, we will have an aggressive commercialization scheme in place to tackle the impulse market. Our attention is focused on distributors to government departments which do not operate through tenders. Next year we plan to restart new promotion strategies targeting doctors and patients, which we aim to accomplish with select products, since our short-term goal is to enter this niche market. Eventually, production capacity will be high enough to justify exports. COFEPRIS’ reputation as a regulatory agency is solidifying, which will facilitate the acquisition of international certifications. We currently have strong partners for our current biotechnological lines, but are constantly looking to extend our collaborations.