Sep. 22, 2020
Health costs in all countries have been on the rise, as both better but longer treatment of ever-increasing number of chronic diseases becomes more common in ageing populations. To address this, governments find themselves increasingly on the hunt for creative ways to lower health expenditures, as OECD countries' pharmaceutical expenditures outstrip the average growth of their economies. On average, the pharmaceutical industry accounts for about one-fifth of health spending in OECD countries. Generic drug markets can act as a salve for high health costs, presenting a way to increase efficiency in pharmaceutical spending and allow greater access to health treatment. Mexico presents an interesting market for investors, with growing demand for more medicine and the creation of a more unified healthcare system. However, better regulations by the government will be the real change needed to create a fairer market.
Mexico's per capita spending on pharmaceuticals was USD251 in 2017, rather low for an OECD country. However, as a percent of total health spending, pharmaceuticals represented 22.7, representing 1.3% of total GDP. Despite the fact pharmaceutical spending represents one-fifth of total health spending in the country, generic drugs penetration is around 21.4%. This low penetration rate may have to do with the time-to-market for these products: according to a Mexican government report in 2017, it can take more than two years for generic versions of brand-name drugs to hit the Mexican market; in Europe, this number is closer to seven months, while in the US it is almost immediate. Furthermore, generic drugs do not always lead to lower prices in Mexico: two years after the entry of a generic, the average price was only around 20% lower than its original price, whereas in the EU it was around 40% cheaper, showing the market has little incentive to make cheaper generic formulas.
Part of the issue is the lack of a comprehensive Bolar exemption, which allows for generic manufacturer to acquire a regulatory registration up to three years before the original drug patent has expired. Meanwhile, market competition could be driven by lack of incentives, both monetary and regulation-wise, by doctors to prescribe cheaper medicine. For example, 2017 legislation limits the possibility of substituting branded drugs when a physician does not write down a generic name on a prescription. The lack of transparency between the patent system and procedures for the sanitary registration of a generic version also causes problems for pharmaceutical companies. Issues also arise from the supply-side: Labs put barriers up to generics by granting several patents for the same active substance, increasing costs for third parties to enter the market, or abuse judiciary actions to deter competitors.
But not all is wrong with Mexico's pharmaceutical market. With around 90% of the population covered by some sort of health insurance, it represents a huge market for makers of generic drugs. And generic drugs have experienced somewhat of a growth in market share, especially as countries, in the aftermath of the 2008 financial crisis, sought to bring down health expenditures through improved access to generic drugs and multiple drug patent simultaneous expirations. Furthermore, the government's move in 2019 to centralize the procurement of all medicines through the Ministry of Economy to weed out corruption inadvertently lead to a medicine shortage in the country, demonstrating the need for a strong pharmaceutical industry. This demand, paired with the government's creation of a more unified health system, will certainly be the push that both lawmakers and industry makers need to start investments, regulation-wise and money-wise, in the industry.
The increasing prevalence of chronic diseases, development of medicines to treat common conditions, proliferation of specialty medicines, and changes in clinical practice guidelines are all pointing to a greater share of the pharmaceutical market going to generic drugs. To promote the growth of generics in the country, the government should make the linkage system more transparent, reduce legal disputes aimed at delaying the entry of competitors, and eliminate regulatory obstacles. No need for sugar to make this medicine go down.