Pharmaceutical Industry in Mexico
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PHARMACEUTICAL INDUSTRY IN MEXICO OCTOBER 2018 INDUSTRY REPORT PHARMACEUTICAL INDUSTRY IN MEXICO The pharmaceutical sector focuses on the research, development, production and commercialization of chemical products or biopharmaceuticals for the prevention or treatment of diseases ▪ The classification of the drugs is by (1) origin, whether they have synthetic origin or biological origin and/or by (2) their prescription: controlled medicines that need a prescription for sale and free prescription (over the counter OTC) for the treatment or prevention of minor conditions that do not require a prescription ▪ Of up to 10,000 substances that are investigated, only one reaches the market as medicine, which implies investments close to US$2,500 million ▪ Pharmaceutical companies in Mexico generate 79,000 direct jobs and just over 310,000 indirect jobs ▪ The pharmaceutical industry represents 0.5% of the national GDP and 2.9% of the manufacturing GDP ▪ The pharmaceutical industry is under strict regulation in all its stages: research, development, approval, promotion and commercialization Pharmaceutical Mexico 2018 Sources: BMI Research, Secretaría de Economía, INEGI, KPMG Seale & Associates Creative Solutions. 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PHARMACEUTICAL INDUSTRY IN MEXICO In 2017, the value of the industry in Mexico reached US$10,026 million in sales, an increase of 3.08% over 2016 ▪ Sales were divided as follows: 83.44% were prescription medicines, of which 65.60% were patented medicines (with intellectual property by the creator laboratory) and 34.40% generic medicines (which no longer have patent), while the remaining 16.56% of total sales were OTC prescription medicines ▪ A compound annual growth rate (CAGR) of 5.96% (2017-2022) is expected in the total sales of the industry, in the sales of controlled medicines a CAGR of 5.86% is expected and in sales of medicines of free prescription a CAGR of 6.44% $16,000 10% $14,000 5% Total Sales of the $12,000 Pharmaceutical Industry $10,000 0% US$ Million $8,000 Mexico $6,000 -5% Historical Forecast $4,000 -10% Growth % y-o-y $2,000 $0 -15% $12,000 $2,500 $10,000 $2,000 $8,000 $1,500 $6,000 $1,000 $4,000 $2,000 $500 $0 $0 Prescription Medicines Sales OTC Medicines US$ Million US$ Million Patented Generic Historical Forecast Pharmaceutical Mexico 2018 Seale & Associates Sources: BMI Research, INEGI, Secretaría de Economía Creative Solutions. Trusted Advice. PHARMACEUTICAL INDUSTRY IN MEXICO The main pharmaceutical product sold both by value and volume were antibiotics with 16.1% and 22.9% respectively, out of the total sales of medicines during 2015 ▪ The second main medicines sold were drugs for the digestive system and metabolism with 13.1% in value and 12.3% in volume, out of total sales Sales by Pharmaceutical Product 2015 % out of the Total Value Volume 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% Antibiotics Digestive System and Metabolism Cardiovascular System Nervous System Vitamins and Vitamin Compounds Respiratory System Veterinary Use Analgesics Food Supplements Locomotor System Dermatologists Hematopoietic System Antiparasitic Vaccinations Oncology Antivirals Others Pharmaceutical Mexico 2018 Sources: INEGI, Secretaría de Economía Seale & Associates Creative Solutions. Trusted Advice. PHARMACEUTICAL INDUSTRY IN MEXICO The main producing entities in the pharmaceutical industry during 2014 were Mexico City with 38.6% of the national production, followed by the State of Mexico with 28.1% and Jalisco with 19.3% ▪ By number of economic units, Mexico City leads with 232 units, Jalisco with 166 and the State of Mexico with 82 During the period 2010-2016, the pharmaceutical sector in Mexico has received a Foreign Direct Investment (FDI) of US$5,298 million ▪ The largest investor country has been Israel with an accumulated US$2,012 million and the United States follows with an accumulated investment of US$1,200 million ▪ Mexico presents a 17.1% saving in operating costs in pharmaceutical manufacturing compared to the United States Israel Luxembourg US$2,012 US$268 Germany US$531 USA France Accumulated FDI 2010-2016 Total US$5,298 Million US$1,200 US$ Million US$402 Other Countries: US$885 Million Pharmaceutical Mexico 2018 Sources: INEGI, Secretaría de Economía Seale & Associates Creative Solutions. Trusted Advice. PHARMACEUTICAL INDUSTRY IN MEXICO: EXPORTS AND IMPORTS During 2017, Mexico was the main exporter in Latin America and number 27 worldwide. Mexico exported US$1,357 million and imported US$4,242 million ▪ 35.7% of the exports of the pharmaceutical industry in Mexico went to the United States, 10.2% to Panama and in third destination, to Colombia with 6.7% ▪ 28.9% of imports came from the United States, 18.3% from Germany and 9.1% from France ▪ The main exporting country worldwide during 2017 was Germany with a participation of 16.1%, followed by Switzerland with 13.4% United States 36.8% Panama 10.3% Colombia 6.7% Ecuador 4.9% Destination of Exports Brazil 4.5% % of Total Exports France 4.4% Total Exports US$1,357 m Guatemala 3.3% Costa Rica 3.0% Peru 2.5% Australia 2.4% Rest of the World 21.2% United States 28.9% Germany 18.3% France 9.1% Switzerland 5.7% Origin of Imports Italy 4.4% % of Total Imports Spain 4.0% Total Imports US$4,242 m Canada 4.0% Ireland 2.9% Brazil 2.5% China 2.3% Rest of the World 17.9% Pharmaceutical Mexico 2018 Source:Trade Map Seale & Associates Creative Solutions. Trusted Advice. HEALTH SECTOR IN MEXICO The economic value of the health sector represents approximately 6% of GDP in Mexico. About 40% of the expenditure made in health is paid out of pocket (direct payment made by households for health services at the time of receiving them), the OECD average is 20% ▪ A great challenge is to stop chronic diseases that represent between 20% and 25% of the causes of death in Mexico ▪ Health expenditures for chronic diseases are growing at a faster rate than the health budget. The budget of the Mexican Institute of Social Security (IMSS) increases to 5% year-on-year (y-o-y) while health expenditures for chronic diseases increase to 7% y-o-y ▪ In Mexico there are 4,437 hospitals by 2017, of which 31.07% are public and 68.93% are private, giving a total of 125,173 beds, 0.97 per 1,000 inhabitants Total Expenditure in the Health Sector in Mexico US$ Billion Historical Forecast $120,000 20% 18% $100,000 16% 14% $80,000 12% $60,000 10% 8% $40,000 6% 4% $20,000 2% $- 0% 2014 2015 2016 2017 2018 2019 2020 2021 2022 Health Expenditure Drug Sales % of Health Expenditure Pharmaceutical Mexico 2018 Sources: INEGI, BMI Research, KPMG Seale & Associates Creative Solutions. Trusted Advice. HEALTH SECTOR IN MEXICO Main Causes of Morbidity and Mortality in Mexico % of Growth in 2017 Morbidity Cases per Year Mortality Deaths per Year Acute Respiratory Infections 23,445,722 Heart Diseases 128,731 Intestinal Infections 4,476,041 Diabetes 98,521 Urinary Tract Infections 4,106,966 Malignant Tumors 79,514 Ulcer, Gastritis and Duodenitis 1,337,562 Accidents 51,697 Gingivitis and Periodontal Diseases 1,106,123 Liver Diseases 47,628 Conjunctivitis 909,106 Cerebrovascular Disease 34,106 Acute Otitis Media 574,022 Pneumonia and Influenza 18,889 Obesity 552,512 Violence 20,762 Vulvovaginitis 490,296 COPD 21,057 % of Population by Coverage Scheme The percentages exceed 100% for the multiple coverages that there are 63% 59% 1.80% Social Health: IMSS, Seguro Popular Private ISSSTE, Pemex, Sedena and Semar Pharmaceutical Mexico 2018 Sources: Secretaría de Economía, INEGI Seale & Associates Creative Solutions. Trusted Advice. PHARMACEUTICAL INDUSTRY $76.5 $54.2 $52.6 $50.1 $40.9 $40.1 $39.6 $38.9 $31.2 $29.2 Biggest Pharmaceutical Companies Worldwide By Sales 2017 US$ Billion Pharmaceutical Mexico 2018 Source: Bloomberg Seale & Associates Creative Solutions. Trusted Advice. SWOT ANALYSIS OF THE INDUSTRY STRENGHTS: • The second largest market for medicines in Latin America • Regulatory standards greater than the other Latin American countries • Strong relations with the United States and Canada • Developed industry and strong national and multinational presence OPPORTUNITIES: • New legislations offer potential for growth in the market for generic medicines • The expansion of public programs such as Seguro Popular can increase spending in the industry • Less restrictions on advertising • The increase in chronic diseases, i.e. diabetes WEAKNESSES: • The application of the national patent law remains problematic • With 10% of the population without health insurance, the market is sensitive to economic impacts • Inefficient coordination of regulatory and health policies, as well as slow entry into the generic market, has contributed to high pharmaceutical prices THREATS: • Continued non-compliance with the national patent law may continue to limit investment and product launches • The bureaucracy of the IMSS and the ISSSTE causes long waiting times for the approvals of clinical trials • The uncertainty of the policies to be taken by AMLO Pharmaceutical Mexico 2018 Source: BMI Research Seale & Associates Creative Solutions. Trusted Advice. CURRENT MARKET SITUATION COMPARABLE PUBLIC COMPANIES - GLOBAL Annual Average EV / 10/1/18 Price EBITDA Mkt. Cap. Enterprise EBITDA Company Country Sales Margin US$M Value EV / EV / 10/1/18 2015 2016 2017 EBITDA Revenue Johnson & Johnson USA $139.69 $81,382 34.4% $374,754 $388,698 10.9x 13.0x 14.0x 14.5x 4.8x Pfizer Inc. USA $44.27 $53,373 40.1% $259,516 $287,423 10.6x 11.3x 11.6x 13.4x 5.4x Roche Holding AG SUI $243.10 $58,101 38.4% $207,814 $222,596 12.8x 11.7x 10.9x 9.9x 3.8x Novartis AG SUI $86.40 $52,588 30.8% $200,604 $220,279 13.8x 13.1x 13.7x 9.7x 4.2x Merck & Co., Inc.