Streamlined government procedures ensure global firms continue to invest in Mexico's pharmaceuticals market

Major global firms continue to invest in Mexico’s pharmaceutical industry. In 2017, 20 of the world’s top-25 pharmaceutical giants were active in the country, and 22.7% of total health spending went towards the pharmaceutical industry, according to the OECD. That same year, Mexico was the second-largest pharmaceutical market in Latin America and ranked 15th in the world, contributing around 0.5% of the country’s GDP, according to multinational professional services network KPMG. Looking forwards, as multinationals expand their operations in Mexico, several are now developing in-country research and development (R&D) facilities and opening manufacturing operations from which to expand their Latin American operations. “Local companies are gaining ground in the Mexican pharmaceutical market,” Karel Fucikovsky, managing director for Mexico and Central America at Pierre Fabre, a French pharmaceutical and cosmetics company, told OBG. “As a consequence, international firms are looking more towards innovative products to differentiate themselves in an increasingly competitive market.”

Regulatory Framework

Recognised by the World Health Organisation in 2012, Mexico’s Federal Commission for Protection against Sanitary Risks (Comisión Federal para la Protección contra Riesgos Sanitarios, COFEPRIS) is the country’s regulatory authority of regional reference for medicines and biological products. Similarly, the US considers COFEPRIS as a competent equivalent of the US Food and Drug Administration, working hand in hand on cross-border regulatory operations. COFEPRIS is has also emerged as the regional leader for the licensing of new generic drugs, since a 2005 reform saw the adoption of stricter quality assurance mechanisms, requiring generics to be bioequivalent to the original patent. Both improvements in quality assurance and the reduction of health risks have enhanced the reputation of COFEPRIS at the regional and global level.

Generics & R&D

The rate of chronic and non-communicable diseases continues to rise. In response, both the generic and biosimilar drug markets have grown substantially in recent years. In 2018 nine out of 10 medicines sold in Mexico were generic, according to data from sector research firm IQVIA Mexico, comprising 53% of total medicine production that year. Looking ahead, the generics market alone is forecast to grow by 11% per year to 2025, according to investment firm Seale & Associates, at which point it will be worth almost $9.5bn.

However, for the generics industry to continue expanding, there needs to be a greater focus on R&D. Mexico is currently ranked 21st for clinical research at the global level, according to the Mexican Association of Pharmaceutical Research Industries, and the high cost of R&D makes it difficult to maintain the low price of generics. Two years after a generic drug enters the domestic market, for example, it costs on average 29% less than the patented equivalent. This is significantly more than in other countries, where generics are as much as 40% cheaper than the original.

Nevertheless, private investment in R&D from pharmaceuticals reflects the ongoing growth in the Mexican biosimilar market. US firm Pfizer announced plans to invest $26m in Mexico in 2019, $15m of which will go towards R&D. Likewise, Swiss multinational Novartis plans to establish Mexico as its clinical research centre for Latin America, spending between $3.5m and $5m in Mexico in 2018, and investing 20% of its earnings into R&D globally. Indeed, investment in R&D is a wise move, according to the Mexican Association for Pharmaceutical Research Industries, which found that every peso invested in clinical research creates a return of 1.64 pesos in the local economy.

Manufacturing

The manufacturing power of Mexico’s pharmaceutical industry is also an area of potential growth, as multinationals move their operations from traditional locations, such as India and China, to Latin America. With pharmaceutical exports valued at $1.2bn, Mexico was ranked first in Latin America and 27th in the world in 2018. In addition, the high regulatory standards enforced by COFEPRIS ensure that Mexico’s pharmaceuticals meet international standards, and that those products can be exported to most countries.

Moreover, the low cost of labour, combined with Mexico’s proximity to and trade agreements with the US and Canada, means the costs to manufacture and then springboard into regional markets remains low. At present, around 80% of all Mexican exports are destined for the US, and the trade market between the three countries is worth around $1.3trn. The prolonged trade tensions between the US and China have also contributed to the drive towards regional production in Mexico (see overview).

Several foreign pharmaceutical firms have stated their interest in developing production in Mexico. German company Boehringer Ingelheim has earmarked MXN1.6bn ($82.7m) to expand one of three plants in Mexico, with an eye on increasing production of their diabetes drug by 50%. This move is especially pertinent, as Mexico has the highest rate of diabetes out of all OECD countries. Likewise, Pfizer, a US multinational pharmaceutical corporation, invested $8m in the modernisation of its Toluca manufacturing plant in 2018, while another US firm, Merck, plans to invest part of its MXN600 ($31m) total investment in its Naucalpan plant in 2019.

Challenges

Despite these strides, there is still room for improvement. COFEPRIS, for example, is often criticised for its slow speed and inaccuracy. According to Gabriela Dávila, the regional director of clinical research for Latin America at Pfizer, due to bureaucratic hurdles in the regulatory system, it can take up to 12 years for innovative drugs to reach the market. “This not only prevents the medicines from reaching patients, but delays the speed at which generic equivalents can be released,” she told OBG.

Furthermore, medical data still needs to be input manually, which means it is prone to errors, as medical documentation contains multiple identification numbers. “In order to make the market more competitive, COFEPRIS should improve internal operations,” Sandrine Dupriez, CEO of French-owned Laboratories Expanscience Mexico, told OBG. “This will guarantee consumers receive the correct medication. They also have to boost communication channels with the medical community to reduce response times and shorten procedures.”

COFEPRIS has recognised issues and is working to address them. Between 2016 and 2018 approval times for new medicines dropped by 50% thanks to greater digitalisation that allowed for some documents to be processed online. Additionally, the regulatory body has introduced digital processes for patient documents, albeit at a slower pace compared with such efforts made in other industries.

Looking Ahead

With the change in government in July 2018, however, 2019 has seen the progress of COFEPRIS slow, with the new administration stopping the regulatory body from processing as many as 14,000 procedures. Until the administration of President Andrés Manuel López Obrador presents clear policies to support his National Health Plan 2019-24, further hold-ups in the sector could become increasingly common.

Mexico’s attractiveness as a regional manufacturing hub for multinationals will also depend on the ratification of the US-Mexico-Canada Agreement by the US and Canada. As investment in manufacturing in Mexico continues to grow, however, it seems only a matter of time until all three countries ratify the agreement, opening up the opportunity for further development in Mexico’s pharmaceutical industry.