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Insight

Strict Rules Favor Local Production

Wed, 09/06/2017 - 14:44

In Mexico, the largest single purchaser of generic medicine is the public sector. It is no wonder then that increasing sales to this sector is widely seen as a solid growth strategy. In 2017, IMSS alone spent MX$41.9 billion (US$2.3 billion) on the consolidated purchases, acquiring 1,371 types of products, 63 percent of which were generics. However, the tender system favors companies

106 that have manufacturing plants in Mexico, seemingly leaving those that do not out in the cold. That is enough incentive to build and produce locally, says José Díaz, Executive Director of Indian pharma company Micro

Pharmaceuticals.

“Mexican law states that only Mexico-produced products can participate in the largest tenders. This is why we want to construct a manufacturing plant.” There is a profitable loophole, however: companies that do not produce in Mexico can sell to the government when larger companies cannot meet the tenders. “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,” Díaz says.

The consolidated purchasing system often means enormous savings for the public institutions that participate, representing MX$3.4 billion (US$188 million) in 2017. However, Díaz points out that this often obliges companies to operate at a loss and is not necessarily better for everyone. “Sometimes the health sector sets costs extremely low and it seems impossible that the product could be sold at a price so low it is below the production cost,” Díaz says.

Micro Pharmaceuticals Mexico is not closed to working with the public sector and once its manufacturing plant is up and running, it looks forward to finding new opportunities, Díaz says.

The Mexican generics market as a whole was worth US$3.33 billion in 2015, according to Seale & Associates. Although Micro Pharmaceuticals has almost 500 products available to purchase in India, only 12 are on Mexican shelves due to slow regulatory approval.

“We do not know how long it will take to get approval for the other products,” says Díaz. This means that Micro Pharmaceuticals Mexico cannot rely on its large portfolio for sales and growth. Instead, it has created alliances with pharmacies and national pharmaceutical laboratories. “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 Díaz.

Micro Pharmaceuticals Mexico is also looking at pharmacies for allies because they have a great volume of own-branded products. The company is keen to enter this segments with the large pharmacy chains, including those in supermarkets.

An expansion from Mexico to Central America is also in the works. “We are on the verge of closing a deal with a Guatemalan distributor and we are participating in a US$12.5 million tender in Guatemala. We will continue to look for similar opportunities across Central America,” says Díaz. The products it takes to Central America will not be those available in Mexico, as the company adapts each portfolio to the country’s needs. “What sells in India will not necessarily sell in Mexico,” he explains.

These countries are easier to enter for foreign companies because regulation is not as strict as in Mexico. “Whereas in Mexico we cannot sell a product that does not have Mexican registration, in Central America a product need only be registered once, anywhere, to be available for sale,” Díaz says. In addition, COFEPRIS is becoming increasingly recognized globally as a regulatory agency that demands high standards. Díaz believes the company can compete against the multitude of products available in less-strictly regulated countries with its high-quality products produced in FDA-certified manufacturing plants.