Universal Health Demands Propel GrowthSat, 09/05/2015 - 11:58
Mexico is the eleventh largest market for pharmaceuticals in the world and occupies second place in Latin America after Brazil. 20 of the 25 leading international pharmaceuticals are operating in Mexico, demonstrating the strength of the sector. According to ProMéxico, from 2005 to 2013 an annual average of US$400 million a year was received in foreign direct investment totaling US$3.46 billion of overall investment in the industry. In 2013 the pharmaceutical sector’s production was valued at US$13.98 billion and, based on ProMéxico’s average annual growth projection of 9.6% from 2014 to 2020, this figure is expected to climb to US$24.21 billion by 2020. Furthermore, in 2013 Mexico’s pharmaceutical exports were valued by ProMéxico at US$1.7 billion with the main markets being the US and Latin America.
Mexico’s current market is divided into patented medicines, which represent 51% of the market (US$7.4 billion), generics, which comprise 35% (US$5.1 billion), and the remaining 14% represents over the counter (OTC) products (US$2.1 billion). In terms of volume, COFEPRIS states that generics represented 84% of the market in 2014 and this figure is expected to continue rising.
Rafael Gual, Director General of CANIFARMA, states, ̈the industry has evoloved greatly over the last five years and we have designed a strong development program ̈. The association recently published its first census of the pharmaceutical industry and identified a 7.2% share in manufacturing GDP, ranking the sector as one of the largest manufacturing sectors in Mexico, second only to the automotive sector. According to CANIFARMA, 80,000 people are currently employed in the sector, approximately 45% of whom are sales representatives, demonstrating the importance of generating and maintaining brand loyalty among Mexican physicians.
Mexico also offers several advantages for the manufacture of pharmaceuticals, including its proximity to the US and its low manufacturing costs. Miguel Salazar Hernández, Director General of Boehringer Ingelheim Mexico, explains that for the company manufacturing advantages include “a lot of flexibility allowing customization of services for patients, benefitting the social security system, and enabling us to mantain competitive costs. Mexico is proving to be more competitive in the manufacture of pharmaceuticals than China.”
While Mexico’s pharmaceutical sector seems to be in an excellent position, it faces hindrances such as austerity policies, expiration of patents, and the rise of generic medications. The industry is also adapting to a changing market as the country conforms to a shift in its epidemiological profile, from infectious diseases to chronic degenerative diseases. This has emerged as a result of an aging population, a sedentary lifestyle, and the growing number of overweight and obese individuals. Chronic diseases are becoming an increasing burden for the healthcare sector. The latest Survey of Health and Nutrition (ENSANUT 2012) showed that at least 60.6 million Mexicans, 52% of the population, are either overweight or obese. The Mexican Institute for Competitiveness (IMCO) indicates that the main causes of mortality in Mexico are diabetes, cardiovascular diseases, and tumors. IMCO has discovered that “obesity can also be a risk factor for other diseases, it can be a drain on a system where people are hospitalized and treated due to being overweight, and it causes absenteeism in labor terms as well as a loss of productivity.” A central issue for any government is ensuring access to medication for its entire population, thus there is now a growing interest in the development of medications to treat these diseases.
The innovative pharmaceutical sector is also facing challenges. Cristobal Thompson, Executive Director of the Mexican Association of Pharmaceutical Research Industries (AMIIF), is concerned with the limited access to pharmaceutical innovation because “according to a report developed by IMS Health last year, patients in the public system have access to less than 10% of innovation approved by COFEPRIS. Innovative treatments that are being approved take almost five years to do so, which, compared to key global markets with similar levels of economic development, constitutes the longest timeframe.”
Nonetheless, Ugo de Jacobis, AstraZeneca’s President and Director General, points out that “Mexico, along with Brazil, is one of the few countries in the Latin American region that continues to invest in pharmaceutical innovation.” Mexico is not necessarily leading in R&D at this point in time, but this is steadily changing. Prior to the administration of President Enrique Peña Nieto the total amount of investment in R&D in Mexico was just 0.37% of GDP, an extremely low amount in comparison to the 6% average of the OECD. This is perhaps the ideal time to take advantage of the federal government’s new philosophy concerning R&D, pledging an increase in spending to 1% by the end of this year.
There is still ground to be gained. For example, while COFEPRIS has streamlined its approval process, at this point innovative medicines still take up to five years to be approved by the National Formulary. COFEPRIS is in the process of homogenizing its regulations in line with international authorities in Central and South America and was recently recognized by PAHO as a regulatory agency of reference. Gema Moreno Vega, Partner and Leader of Life Sciences and Healthcare Industry at Deloitte, states that this recognition will “allow companies to sell a product in [Central and South America] as soon as it is approved in Mexico whilst harmonizing regulations with those of the FDA.”
Local regulations will prove an important factor in promoting innovation and strengthening the pharmaceutical sector in Mexico. John Markels, General Director at Merck Sharp & Dohme (MSD), states that “Mexico is an very good place to do business” as companies can take advantage of a “growing population, large market, strong IP protection, improving regulatory infrastructure, a significant private laissez-faire market and a significant public market.” Mexican authorities have modified and created new regulations in order to facilitate the production of medications in Mexico. In 2008, the government gradually eliminated the need to have a manufacturing plant in Mexico in order to encourage the introduction of new medicines into the country. Patent law was also modified to include chemicals and now patents initially grant protection for 20 years with the possibility of a further three year extension.
It is important to consider that the pharmaceutical industry may not just be affected by local regulations but also by international ones. The Trans-Pacific Partnership (TPP), a proposed trade agreement on economic policy, is advocating initiatives including the protection of clinical data, an agreement for which Mexican organizations like AMIIF are currently involved in negotiations on behalf of the innovative sector. Socorro España Lomelí, Executive Director of the National Association of Medication Producers (ANAFAM), paints a less favorable picture of this treaty as she believes that it could create complications for Mexican industries who may take a long time to reach the standards proposed by the TPP thus delaying industrial growth, exports, and the development of biotechnological medications. Several groups, including Doctors without borders and Oxfam, warn that this treaty will stall growth in developing countries as it will affect patents and increase the cost of medications. Most discussions between TPP members are private and thus public information remains limited, meaning that determining the potential implications is difficult.
The rise of generic medications may seem like a threat to Big Pharma but this is not necessarily the case. As Dagoberto Cortés, former head of CANIFARMA and Director General of Hormona, states that “generics represent significant savings in government expenditure on medicines,” thus freeing up budget for the acquisition of innovative medicines. Currently, 80% the government’s budget is used for innovative medicines, which now represent less than 20% of its acquisitions by volume. International pharmaceuticals are also creating new strategies to adapt to the shifting market. Thompson states that now “almost all of the big pharmaceutical companies have a generic company or division within the corporation” and many are developing biosimilar products. De Jacobis also mentions AstraZeneca’s strategy to provide “integral services and disease management programs.”
Mexico currently seems to offer fertile ground for productive investment where the pharmaceutical industry can find plenty of opportunity to grow. Recent epidemiological shifts may increase the need for innovative medications to treat the growing patient population, and regulatory changes by the government are expected to ease the introduction of new medications into the country while safeguarding the health of its citizens. While the Mexican healthcare sector’s reliance on generics may be perceived as a threat to the industry, innovative strategies to adapt to this market could turn this into a further opportunity for growth.