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Analysis

Price Pressures Pushing Gnerics to Private Sector

Wed, 09/06/2017 - 10:38

Generics, a cheaper alternative to patented medications, are a key government strategy to provide healthcare for an increasingly sick population. However, pushing down prices is pushing some companies to seek business elsewhere. 

The government’s decision to initiate consolidated purchasing schemes to buy generics as an access strategy has made it one of the largest single generics customers in the world. That purchasing power has been a double-edged sword, however, with prices dropping to such a point that many generics companies have stopped seeing sales to the government as a priority.

“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 company Laboratorios Collins.

In the 2016-2017 consolidated purchases, MX$41.9 billion (US$2.3 billion) was spent and MX$3.4 billion (US$188 million) was saved. Sixty-three percent of the total amount spent, or MX$23.4 billion (US$1.3 billion), was spent on generics, according to IMSS. Generics companies, those either intent on entering the Mexican market or already established here, are adopting alternative strategies to boost sales and to detect new opportunities for growth. The market, many say, is just too big to ignore. “Zydus is a new operator in Mexico and we are interested in expanding our operations. There are various options to do so and to become relevant to the market. We entered Mexico in 2013 and we want to grow both organically and inorganically. There are few trillion-dollar economies in the world, so Mexico is a huge opportunity. If any global

pharmaceutical company Zydus Pharmaceuticals.

According to Seale & Associates, the Mexican generics market as a whole was worth US$3.3 billion in 2015 and according to the latest available data from statistica.com, generics sold to the public sector represented 59 percent of units in 2014 but only 15.2 percent of value. Retail brands or private labels represent 8 percent of units and 20.2 percent of value.

In the past, generics were seen as unreliable alternatives due to cultural stigma but this has changed over the last decade, mostly due to government purchasing preferences and increasingly strict regulation. NOM- 220 – SSA1 – 2015 is the updated law that regulates pharmacovigilance, a final version of which was published in the Federal Official Journal in July 2017. Such regulation helps guarantee the validity of medicines and stops unreliable drugs from tarnishing the sector's reputation.

Additionally, to improve access to treatment, COFEPRIS has begun liberating the patents of groups or packets of drugs so that more affordable, generic versions can be produced and commercialized. These actions from the regulatory body have resulted in 491 new medicines that cover 71 percent of causes of death in Mexico. “In total, 37 active substances have been liberated through our generics strategy, producing 491 generics, which represent MX$25 billion (US$1.4 billion) in savings while an extra 2 million people can be treated thanks to these savings. In 2017, we will continue with this strategy and more than 40 new molecule authorizations will be announced,” says Julio Sánchez y Tépoz, Commissioner of COFEPRIS.

One alternative for those that already have manufacturing plants in Mexico is to focus on private sector sales, as the margins are typically higher. “At Wockhardt we are focused on the private and semi-private sectors. Tenders might give the perception that the government is the biggest market but we need to realize that most of the money is in the private sector. Most of us will never go to an IMSS hospital. We prefer to go to a private hospital, which means that private insurance policies are increasing and are becoming a benefit that some companies offer their employees in Mexico,” says Francisco Hernández, 

Vice President Latin America of Wockhardt, a generics company. “We want to reach the private market because there we can promote the new model of doctor’s offices in pharmacies that many prefer because it is cheap, fast and closer to the point of sales,” he says. “In 2013, when I started operations in Mexico, the government market was 70 percent of our sales and private market sales were 30 percent. This number has changed over the years and in 2016, 60 percent was private and 40 percent government.”

Another option generics companies are exploring is to manufacture private labels for others, such as pharmaceutical chains or retailers that market their own-brand. “The fastest-growing sector in Mexico is the private-label business, of which the largest manufacturer worldwide is Perrigo. That, combined with the trend of having doctors’ consultancies in pharmacies, so- called “doc-in-a-box” programs, is the factor boosting the private-label sector,” says Paul Doulton, Founder & Managing Partner of Oriundo, a consultancy composed of former CEOs that helps new entrants to Latin American pharmaceutical markets.

Those without a production plant can do the exact opposite: to look for a company to manufacture for them. “One of the alternatives we are looking at while waiting to gain critical mass is to associate with national laboratories that can manufacture for us here in Mexico,” says José Díaz, Executive Director of Indian generics company Micro Pharmaceuticals Mexico.

Other strategies being looked at by companies include making the most of COFEPRIS’ agreements and Mexico’s central position in the Americas to export to Central and South America and licensing products to well-established companies in the Mexican market. “Mexican requirements cover many of the demands other countries make, so if we comply with COFEPRIS we are covering other countries’ rules too. There is also fast-track with other authorities like INVIMA in Colombia, which makes it easier for us to export to other countries,” says William Escobar, Director General of Swiss-Guatemalan generics company Grupo Unipharm.

Those that are committed to selling to the public sector plan to win on volume instead of on price by building or buying a manufacturing plant in Mexico, thus gaining access to an increased number of tenders. “Mexican law states that only Mexico-produced products can participate in the largest tenders. This is why we want to construct a manufacturing plant,” Díaz says. “This is what we are doing: supplying products that are out of stock elsewhere. At the moment, we can only aim for the crumbs of the cake, while companies that produce in Mexico take large slices.”

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