Mexico – goldmine for Indian pharma cos

Estimated size of the generic drugs market in Mexico: $4 billion (out of a total market size of $11.5 billion). Margins are high too. The regulatory regime is known for relatively quick approval of new molecules.

There’s more. Unlike in some European markets where insurers determine which drugmaker’s products are covered for claims, Mexican consumers pay for their drugs out of their pockets, hence are free to use any drugs. Apart from drugs for critical illnesses, products relating to the central nervous system (CNS), oral contraceptives and biosimilars have a big market in Mexico.

And so, Indian pharmaceutical companies, who excel in making generics, can hardly wait to check if Mexico, the second largest market in Latin America after Brazil, could be their new Eldorado.

Although only a few Indian firms are tapping Mexico as of now, analysts are convinced all that will change shortly. “Like Brazil, Mexico encourages a lot of branded generics over branded biosimilars. This market is currently growing at a rate of around 11-12%. Hence, Mexico holds promise for Indian companies, given the scope to focus on generics,” said an analyst.

For instance, Ranbaxy, Torrent, Glenmark and Sun Pharma already have a presence in Mexico. Cadila is keen to expand into Brazil and Mexico. Dr Reddy’s (DRL) has an active pharma ingredient (API) manufacturing plant in Mexico (it does not sell any products though).

Lupin set up its subsidiary Lupin Mexico 14 months ago and has started filing branded and generic products. It wants to focus on therapy segments like CNS, oral contraceptives and biosimilars.

Bhavika Thakker, research analyst at IIFL, said, “As medicine, healthcare and related costs head northwards in Western countries, markets like Mexico certainly offer immense opportunity for drugs companies in emerging economies like India. For, they already have proven capabilities in making high-quality, standard-compliant products at a fraction of the cost in developed markets.”

In developed markets, drug regulatory issues bordering on protectionism have been thwarting Indian pharmaceutical companies. In this context, Mexico’s recent measures to reduce regulatory hurdles hold much attraction.

“What makes Mexico attractive is that the government is taking proactive steps to encourage foreign participation and putting in place guidelines that could help expand the market," said Vinod Dhawan, group president, business development, Lupin.

According to analysts, Mexican drugs regulator Cofepris is aggressively working toward approving pending applications. As against 150 in 2010, the regulator approved 9,225 applications last year, thanks to select third-party agencies that preview applications and weed out incomplete ones, reducing processing time.

Foreign companies don’t have to set up a manufacturing plant in Mexico to sell drugs. However, exporters need to have their own distribution, storage and legal representatives. Mexico’s objective is to increase supply of medicines in the country. “This opens way for Indian firms to supply to Mexico from Indian facilities,” wrote Anubhav Aggarwal, research analyst with Credit Suisse, in a report.

Companies such as Lupin have already started filing products from India. According to Lupin sources, Mexico’s approval process is quite similar to that of the US and Brazilian. “It doesn’t take a lot of time, is quite liberal and it is the standard time (16-22 months) that companies can expect for any regulatory pathway to action their filings,” said a Lupin official.

Even in terms of realisation, analysts said, Mexico offers very good prospects. “There is no doubt Indian companies will invest in marketing and distribution set-ups. Once they acquire a critical mass, a large part of incremental revenue will flow down to their bottomline. That’s why, markets like Mexico are highly profitable,” said an analyst.

Since Cofepris recognizes good manufacturing practice (GMP) certificates issued by regulators in the US, Canada, Japan, Australia and Brazil to foreign drugmakers, many Indian companies are expected to benefit as they already have such GMP certificates.

But not in the immediate future though, say industry veterans.

“Many Indian pharma majors already have agreements with pharma multinationals to share markets. Indian pharma companies have entrusted the responsibility of tapping emerging markets to their foreign partners. So, at least in the immediate future, the presence of Indian companies in Mexico would be through these tie-ups and not directly,” said a CEO of a pharma research major.

He cited agreements of Dr Reddy’s with GSK and Aurobindo with Pfizer as examples. Dr Reddy’s, for instance, has not registered any revenues from its API facility in Mexico.