Mexico Pharmaceuticals and Healthcare Report Q3 2012

BMI View: Mexico offers significant and improving opportunities for multinational pharmaceutical companies, especially in the outperforming generic medicine and improving patented drug sectors. Strong domestic demand and rising investment inflows will also have a positive impact on the pharmaceutical and healthcare sectors. However, companies will still face drug pricing pressure and the significant counterfeit drug problem in the country.

Headline Expenditure Projections Pharmaceuticals: MXN161.45bn (US$12.99bn) in 2011 to MXN174.91bn (US$13.67bn) in 2012; +8.3% in local currency terms and +5.2% in US dollar terms. US growth forecasts higher from Q212 due to exchange rate factors.

Healthcare: MXN872.67bn (US$70.21bn) in 2011 to MXN921.84bn (US$72.02bn) in 2012; +5.6% in local currency terms and +2.6% in US dollar terms. Forecasts upwards from Q212 due to macroeconomic data.

Medical devices: MXN52.05bn (US$4.19bn) in 2011 to MXN57.75bn (US$4.51bn) in 2012; +11% in local currency terms and +7.8% in US dollar terms. Forecasts upwards from Q212 due to macroeconomic data. Risk/Reward Rating: Mexico receives a Pharmaceutical and Healthcare Risk/Reward Rating (RRR) of 56.9 in Q312. Nevertheless, Mexico ranks fifth out of the 17 Americas markets surveyed in our proprietary regional RRR rating system. Globally, the country remains 29th out of the 95 countries included in our pharmaceutical universe. Key Trends And Developments

BMI has revised up its forecast for Mexico’s pharmaceutical market after analysis of recent positive developments and an improved macroeconomic outlook. This increasingly optimistic view is due to the government approving more innovative medicines from multinational drugmakers and facilitating patient access to the most commonly requested anti-cancer drugs. It has improved the sector’s regulation system to require scientific proof of a treatment’s effectiveness and evidence-based descriptions of drugs. There have also been more affordable medicines introduced in the generic drugs market by local and foreign companies. In addition, BMI has maintained its above-consensus real GDP growth forecast of 3.4% for 2012 and we have upgraded the 2013 forecast from 2.7% to 3.2%, despite Mexico’s vulnerability to external shocks. The forecast is a result of our expectation of strong domestic demand and rising investment inflows, which will generally have a positive impact on the pharmaceutical and healthcare sectors.

In January 2012, The Federal Commission for the Protection against Sanitary Risk (COFEPRIS) has required that products making therapeutic claims must be listed in Mexico's pharmaceutical register, which requires scientific proof of effectiveness and an evidence-based description of how the medicine or medical apparatus achieves its claimed effects. According to the new rules, which will take effect in February 2012, authorities can remove unsubstantiated advertising within 24 hours and fine manufacturers and distributors that advertise the products.

Mexico's Ministry of Health and the Mexican Association of Industrial and Pharmaceutical Research jointly announced the approval of 31 innovative drugs since the beginning of 2011. The medicines were developed by the majority of the leading multinational pharmaceutical companies and cover many of the major diseases in Mexico, including heart conditions, cancers, hepatitis C, kidney failure, pneumonia, bronchitis, anaemia, stomach ulcers and rare genetic syndromes. Seven of these innovative drugs were also launched in the US during the last 15 months. This indicates to BMI that multinationals have increased the priority of Mexico in their market launch schedules.

February 2012, Mexico's Federal Commission for Protection Against Health Risks (Cofepris) released three active substances including anastrozole, zoledronic and valaciclovir, following the expiry of patents. The active substances are indicated for the treatment of patients suffering with breast cancer, osteoporosis, bone cancer and degenerative diseases of Paget's disease of bone, and herpes zoster and simple. The agency also cleared eight licences for the development of generics that will be used to treat diseases causing 13% of deaths among Mexicans. The head of the Cofepris, Mikel Arriola, said the list of drugs is the fourth set of generic products that have cleared quality, safety and efficacy tests and also confirmed the expiration of the patents. BMI Economic View: Despite Mexico's continued vulnerability to external shocks, we forecast economic growth will be bolstered by solid private consumption and robust investment in the coming quarters. As such, we maintain our above-consensus real GDP growth forecast of 3.4% for 2012, and are upgrading our 2013 forecast from 2.7% to 3.0%.

BMI Political View: The constant struggle to introduce far-reaching social and economic reforms will be the defining characteristic of Mexican politics up to and beyond the 2012 elections. Meanwhile, with the population tiring of the continued elevated levels of drug-related violence, we see the next government as more likely to declare an unofficial truce with the cartels rather than follow a more aggressive anti-cartel agenda.