Navigating Changes in Pharma

Q: Why are medical insurance penetration rates so low in Mexico? What is being done to increase this?

A: Brazil is the best comparison for Mexico, which has a 21 percent rate of private health insurance as a percentage of total healthcare spend, the highest in Latin America. In Mexico, there is a weak culture of insurance, investing and risk management. This means people need to be educated. In addition, insurance companies need to ensure they have a product offering for the middle and low socioeconomic segments. Some insurance companies are strategizing to enter this market, perhaps by creating products that offer new types of coverage or by working with special providers. They need to segment this market in a way that is attractive but affordable.

Q: To what extent are companies making drastic changes this year considering current global economic challenges?

A: Given that the new economic environment is only one driver shaping the Mexican pharma market, it is also important to understand there are other drivers. A few years ago, we were wondering why, if Mexico has a high prevalence of chronic diseases, a growing middle class and an aging population, overall healthcare and specifically pharma expenditure were not exhibiting high growth rates. This is because public investments in healthcare are not as high as they should be and also there is low private health insurance penetration. A good example is high-cost treatments because people cannot pay for them out-of-pocket. Low-cost pharmaceutical treatments are being bought out-of-pocket, which translates into healthy growth rates for this segment. But this specific growth cannot be seen in the market audits we track; this growth is coming from the impulse and private label segments, comprised of low-cost products sold in pharmacies directly to customers. The impulse market is growing at more than 10 percent in value terms and on average up to half of an independent pharmacy’s products will be impulse products.

The private label market is growing at over 20 percent in value terms. This is disproportional growth compared to the overall 4-5 percent growth rate of the total pharmaceutical market. In the past, pharma companies would have simply increased prices when faced with a tough global economic situation, but now it is not possible because patients have low-cost alternatives and pharma companies would lose market share. Despite this, in 2016 prices increased because raw material costs rose due to the peso devaluation. To remain competitive, pharma companies are focusing on cost containment measures. In the past, these companies never looked at general and administrative expenses or back-office costs, focusing only on their sales force expense, which is the largest item on their profit and loss statement. Now, every cost item is being examined. Some companies are starting to look into digital promotional and patient support models to enable this efficiency but they have not reached the level of sophistication of other industries. Companies still believe that traditional face-to-face promotion is the way to go.

Q: What are the most prominent issues you have spotted?

A: What is new these past years is peso devaluation, in some way driven by the US political situation. Companies have reacted with caution, especially when it comes to new investments but I do not see any panic. Companies are working as usual. The other change is the launch of more biosimilars. Multinational companies are the ones mainly affected by this trend. They are struggling because they now face more competition across their innovative portfolio. Some multinationals are launching patented products in Mexico but they are also having trouble getting inclusion to the formularies of the main institutions, which is becoming increasingly difficult. The strategy of solely focusing on innovative products might work in developed countries but not in Mexico, so multinationals need to adapt their strategies or change their portfolios. Across the broader healthcare industry, I see a proliferation of start-ups and business models trying to bridge the gap that the public and private insurers are not filling. These new businesses are positioning themselves in the center, serving the middle and low socioeconomic segments that cannot pay for traditional private insurance but do not want to receive public care.