Indian pharmaceuticals companies should focus on geographies such as Latin America and particularly in the Mexican market which may yield better return on efforts, says a recent report by Barclays Securities.
Brazil ($16bn) and Mexico ($12bn) together constitute the largest pharma markets in LatAm. IMS forecasts a growth rate of 14-16% for the next few years for both markets. The report said that the Indian pharma may need to revisit the conventional wisdom of Brazil being the more attractive.
"However, the returns on efforts to grow in Mexico could be higher, factoring in a proactive regulatory agency with easing policy. Both markets are dominated by regional and family-led firms that could also pave the way for a wave of consolidation, allowing for easier entry for Indian pharma companies," it added.
Pharma analyst Balaji Prasad of Barclays, during a media round table, said, "Though nothing can be compared to the US markets in terms of profitability, but it will always be a good thing to diversify into other markets. Compared to Brazil, Mexico is relatively easier market to enter if you have a strong presence in the US. The approval process is extremely rigid in case of Brazil which is, on the other hand, is much easier for Mexico. There is no price control in the Mexican market whereas in Brazil, there is a price cap of up to 65% on branded generics."
The Indian companies that are doing well in the LatAm markets include Dr Reddy's Laboratories, Glenmark, Lupin, Natco Pharma and Cipla.
A unique characteristic of the LatAm markets is the Medicamento Similares (Similar Medicines or Similares for short). Similares are the branded non-bioequivalent (non-BE) drugs that were launched in the markets before branded equivalent (BE) standards were applied and sold by local and regional firms under a brand name. The sales force selling these brands typically focus on both the physicians and the pharmacies to influence the prescription trends. As is similar with most branded pharma markets in the world, where out-of-pocket spending is the norm, these brands are usually taken as an indicator of quality. The out-of-pocket spending in pharma in Mexico and Brazil is nearly 83% and 65%, respectively.
"Another outcome of the policy moves to introduce complete substitutability could also be to reduce the branded nature of the industry. While this may sound detrimental to the branded generic business in Brazil, it could open up a more profitable field for Indian firms in the plain generics segment, which would not necessitate the maintenance of a field force. We believe this is one of the most significant burden on profitability currently," the report further said.
In terms of regulatory environment, the registration process in Brazil is getting more complicated mostly because of the process itself, but also due to the price definition. The maximum price of generics is around 35% below brands. Foreign companies can participate through a local subsidiary or a Brazilian partner. On the other hand, Mexico has cleared a significant backlog of drug approvals in the past few years. The generics are 70% cheaper than brands. However, the key challenges is the loss of patents, increase in generics and growth in chains and supermarkets.
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