México: Epicenter of Nascent Pharma Consolidation in Latin America
By Srividya Jagannathan
The global pharmaceutical sector has been experiencing massive disruption from the Covid-19 pandemic. Manufacturers of some product lines face intense pressures to increase output as distributors work frantically to keep supply chains flowing. The pandemic presents challenges in procuring essential medications and equipment, sparking debate on the need for countries and regions to become more self-sufficient and coordinated.
This comes at an interesting moment in the evolution of Latin American pharmaceutical markets. While pharma companies had previously tended to limit expansion plans to the country where they were based, increasingly I am seeing them forge partnerships beyond their borders. Although it is still early days, a regional Latin America pharmaceutical market is emerging, with México at its core. A stronger regional market will help countries better meet pharmaceutical needs in the long term, enabling them also to better manage future pandemics and health crises.
Operating in the largest Spanish-speaking country in Latin America with a population of 126 million, Mexican companies are well placed to take advantage of expansion opportunities. Mexico is a country with a large and growing middle class, a welcoming environment for private sector investment, and a fast-increasing demand for health care — both health services and pharmaceutical products.
As pharmaceutical companies build out from Mexico, the industry’s growing acceptance of Mexico’s pharmaceutical industry regulator, COFEPRIS, as a regional standard-setter, is a boon. In practice, this means that once companies secure approval for their products from COFEPRIS, they find it easier to penetrate new markets, notably in neighboring Central America. A case in point is Sanfer, part of the Invekra group, a leading pharmaceutical group in Mexico with over 300 products in its portfolio, mainly branded generics. Sanfer is expanding southward into Central America and Caribbean markets such as Peru and Dominican Republic.
The International Finance Corporation (IFC), member of the World Bank Group and the largest global development institution focused on the private sector, welcomes this trend and is working to advance it. In 2019 IFC approved $160 million in new financing to the Mexican pharma company Siegfried Rhein, serving both as an anchor investor and helping mobilize additional financing from other investors. In 2018 IFC provided a $50 million loan to Genomma Lab, a Mexican company that develops, sells, and markets personal care products and over-the-counter pharmaceuticals. The loan was part of a $100 million financing package from IFC and the Inter-American Development Bank (IDB) to enable Genomma build its first manufacturing facility in Mexico.
Another example of the sector’s remarkable growth and consolidation is Siegfried Rhein’s parent company, Roemmers, a big pharmaceutical company headquartered in Argentina. Roemmers is growing its footprint in neighboring Brazil, the region’s largest market with a population of 210 million, through its subsidiary Farmoquimica (FQM), a manufacturer with a portfolio of more than 50 branded prescription drugs. In 2018 IFC provided FQM a $31 million loan to help it acquire Divcom, a company from northeastern Brazil that produces over-the-counter medication brands.
Diabetes, blindness, and Covid-19
The kinds of pharmaceutical drugs being manufactured in Latin America tend to cover a broad spectrum of therapeutic uses, with oncology and diabetes treatments good examples. IFC has been focusing its investments on medications for treating noncommunicable illnesses, the region’s fastest-growing disease type. For example, Mexico’s diabetes rate has risen to devastating levels, killing 80,000 a year and leading the government in 2016 to declare a national emergency. The spike in diabetes prevalence is generating strong demand for medications to manage the disease.
To respond to the diabetes epidemic, a nationwide network of health care facilities to diagnose and manage treatment is also needed. That is why IFC in 2018 made an equity investment in Clínicas del Azúcar, a chain of specialized diabetes clinics that has treated 30,000 patients to date, many from lower-income groups. The diabetes epidemic is hitting low-income groups especially hard. Tackling the problem holistically — from prevention to diagnosis to treatment and continuous monitoring — is essential.
Approximately 30 percent of all blindness cases in México are due to diabetic retinopathy. Backed by a $2.2 million equity investment by IFC, eye-care chain Salauno is addressing this health challenge by providing affordable and accessible services to low- and middle-income patients with the goal of eliminating needless blindness in Mexico. The company has treated over 230,000 people and grown from one surgical center in Mexico City into a network of diagnostic centers, offering a range of services throughout the Valley of Mexico Metropolitan Area. Salauno’s patients are especially vulnerable to Covid-19 as they tend to be older adults with diabetes and hypertension.
Pharma saves lives
As Latin America’s pharma market consolidates, with Mexico at the vanguard, the big question is: what impact will this have on patients and consumers? If done right, consolidation can be a net plus by making the industry safer and more efficient and by driving down drug prices.
Consolidation can notably spur improvements in product quality. The financial constraints faced by smaller companies in this sector can make it hard for them to maintain a consistent quality in output. By contrast, a bigger player like Roemmers has greater resources to invest in, and continuously upgrade, quality controls, which can create greater consistency in quality between production plants. Life sciences is an industry that demands very specialized knowledge, not just of the ingredients but of the processes for combining them. It is essential to follow each step of the process meticulously and in the correct sequence. Failure to do leads to errors, which can negatively affect health outcomes and lead to severe health consequences.
As more companies embrace cross-border growth, development institutions like IFC should share lessons learned from investments in pharmaceutical companies in more mature emerging markets, notably in Asia. The objective is market consolidation, done in a way that boosts consumers’ access to affordable, lifesaving, safe-to-consume medications.
Srividya Jagannathan is the Pharma Sector Head at the International Finance Corporation
This article was originally published in Spanish in Forbes Mexico on June 3, 2020.