Mexico requires pharmaceutical producers to innovate to develop new revenue streams

The market for medicine in Mexico is dominated by the state, creating a challenging environment for drugs producers. However, space exists within the generics market to capture market share outside of the public sphere. In the more advanced segment of biosimilars, companies are looking to the insurance market to open up new market potential.

Growth in the generics market has been uneven. In Mexico normal generics grew at around 6% in 2017, and the rate of expansion is expected to remain slightly lower but largely steady in 2018, with industry stakeholders estimating growth to range between 5.6% and 5.8%. This represents a significant tapering of growth, which for the few years prior had stood in the range of 25-30%, according to the records from some manufacturers. Contrarily, branded generics are experiencing growth at a rate that is twice that of the unbranded generics segment. One example of this is the own-brand market, in which large chain pharmacies and retail stores purchase generic medicines directly from manufacturers and brand them for sale in their stores. This market has been growing by double digits in Mexico. The manufacturers of generic medicines have seen significant sales to chains such as Walmart de México, which operates 10 of its branded Medimart pharmacies in the country.

Brand Name Gains

Profit margins are bigger in the branded generics segment as well, which have been a major driver for the sector. Branded products can have up to a 20% higher margin than non-branded generics. A key advantage for branded generics is that sales prices are not controlled by public health sector tenders, which tend to drive down prices. There are, however, risks involved in the branded generics model, which requires more marketing without a ready public sector buyer.

“There is a give and take in the branded generics arena. There is not enough transparent price pressure, which makes prices more buoyant, but launching a product and crafting a brand out of it requires a high level of long-term investment,” Gurulinga Konanur, CEO of Hetero Drugs México, told OBG.

Price Volatility

Committing to that investment can be a challenge in a market where profit margins are tightening. Rising competition from both Mexican generics producers and multinational manufacturers, along with growing pressure on prices from the public health sector, is the main reason for this. Margins for certain products have gone down as much as 50% in recent years, according to Konanur.

Generics are mostly sold by bidding on tenders for sales to the public health sector. The government price points have ripple effects in the market, as there are caps on the charges to private purchasers within a few cents of public sector prices. This can be attributed to the bidding processes that are transparent for normal generics, allowing private buyers to keep costs down as well. “We have seen that sometimes prices fall so far that some foreign manufacturers cannot compete, as high import costs make these prices infeasible for profitable sales,” Konanur told OBG. “The government sector procurements are transparent, and all of us in the industry drive the price further down by our bidding for contracts. There is immense competition and price infighting.”

New Niches

As margins shrink, the sector is increasingly looking for new avenues of growth. One such channel with potential is the opening of clinics within pharmacies. This concept of bringing the clinic to the patient is being pursued by a number of pharmacy chains. Under this model, customers can be seen by certified doctors and then step out into the pharmacy to purchase the medicine prescribed.

“The generics market in Mexico continues to exhibit strong growth, going hand in hand with the expansion of the large pharmacy chains,” Karel Fucikovsky, director-general of pharmaceuticals and cosmetics company Pierre Fabre Médicament Latin America, told OBG. “Patients are increasingly well informed about specific illnesses, and are often empowered to seek advise from the pharmacy, sometimes prior to a medical opinion or consultancy.”

Biosimilars

As opposed to the generics market, where growth outside of the public sector is based on marketing at the pharmacy level, the market for biosimilars, a new type of treatment that replicates human antibodies to treat advanced diseases, will rely on innovations to the insurance model. Use of biosimilars has been gaining traction as they significantly reduce the cost of treatment of advanced diseases. For manufacturers there are two pillars of growth in the biosimilars sector.

First is the speed of new molecule development, clinical studies and launch times. Being the first to market is critical as many firms are working on creating the same molecules, and it is therefore essential to develop critical mass for an new product before it is joined by others that can drive prices down. The second is public and private sector penetration, which is achieved via pull-through marketing with doctors in both sectors. With a sales pitch that involves lowering costs, albeit from a higher level of treatment costs for serious illness, the public sector has been more market-ready for the technology.

Insurance Issues

Breaking into the private sector, however, relies on a robust insurance sector, an industry that is still developing in Mexico (see Insurance chapter). Currently, the share of biosimilars sales to the private sector is around 7%, with approximately 93% headed to the public sector, which subsidises purchases on behalf of patients.

The significant informal economy in Mexico has been a drag on insurance development, both in the private and public sectors. Increased formality in the economy will create a bigger insurance market over time, though this is a long-term agenda. There are signs that as the large youth population begins to come of age and establish their careers, they may start adopting more private health insurance.

“Because insurance is intrinsically linked to a country’s overall economic profile and performance, Mexico’s open economy makes it one of the most attractive insurance markets in the region, if not the most,” Marcos Gunn, northern Latin America regional president at insurance provider Chubb, told OBG. “The combination of changing consumer behaviours among younger demographics and the country’s expanding middle class is driving innovation and economic growth that then positively feeds back into the insurance sector.”

As the insurance market continues to grow and private care expands, the market for biosimilars is also expected to increase. This should provide further impetus for producers to invest in the research and development that is crucial to achieving and sustaining the edge in this emerging medical market.