5. Character of Domestic Competitive Environment 18
5.1 Safety Regulation 18
5.2 Government Funding of R&D 20
5.3 Price Levels 22
6. Conclusion 24
7. Limitations and Further Research 26
8. Appendix 27
8.1 Tables 27
8.2 Exhibits 29
8.3 Interviews 41
Pharmaceutical industry has been one of the main drivers of economic growth in most of the nations. Big pharmaceutical companies invest huge funds into research and development of new medicine that helps extend the life expectancy of people and improve their well being; in return these investments and advancements have made pharmaceutical industry one of the most profitable sectors in the world. Nowadays big pharmaceutical companies are facing numerous challenges, including but not limited to the stiff competition all over the world and better access to generic drugs.
This thesis concentrates on Mexico – an emerging market where the pharmaceutical industry is subject to growth and prosperity in the near future. The analysis of Mexican market is split intro three parts – analysis of population, competition and character of domestic competitive environment. In order to examine the population, various literatures and WHO figures about individual spending on medicine and life style shifts are interpreted. In addition to that, expert interviews helped obtain more in-depth information about the subtleties of Mexican population. It can be concluded that the average income and spending in Mexico is increasing as well as that the population is aging very rapidly. Thus, chronic diseases are the main source of long-term profit to pharmaceuticals in Mexico. The competitive landscape of Mexico is narrowed just to two main players – counterfeit production and generic drugs. The analysis is based on interviews, discourse analysis and desk research. Last part of the analysis is dedicated to the domestic competitive environment and the role of the government in the pharmaceutical industry. Various reports are interpreted as well as OECD and WHO data. We find that Mexican government is highly influential and that it contributes substantially in shaping the environment of the pharmaceutical sector. The government discourages new developments, makes it difficult to obtain the permit to introduce a new drug and regulates the prices, which makes it hard to big international pharmaceutical companies to survive in the competitive landscape.
This thesis weights the opportunities and threats of Mexican pharmaceutical market and in the end gives valid suggestions to the companies that aim to succeed in this country.
1.1 Problem Definition
Big Pharmaceutical (Big Pharma) companies were enjoying large sales, enormous profits and customer compliance all over the world during the last decades. Their considerable profits were based on the sales of their most-profitable products – blockbuster drugs. Blockbusters are defined as branded prescription drugs that generate at least $1 billion of revenue annually (Merrill, 2011). Over the past 50 years, this blockbuster-drug business model has been very successful because in case the drug is widely accepted and sold not only does it produce an effective therapy for a lot of people but also it generates immense profits for the pharmaceutical producer (Mara G. Aspinall, 2007). Huge R&D costs that were incurred in order to discover all time most profitable blockbuster-drugs such as Lipitor by Pfizer (US sales in 2011 – 7.7 billion dollars), Plavix by Bristol-Myers Squibb/Sanofi Aventis (US sales in 2011 – 6.8 billion dollars) and many others (Bartholow, 2012) (Table 1) have paid off in most profitable and biggest developed markets such as United States (US), Europe and Japan.
However, various issues that pharmaceutical companies are facing nowadays are disturbing this tendency. Main concern is expired or soon-to-expire blockbusters’ patents that imply rapid entry of producers of generic drugs to the market. The fore mentioned patents are both protecting their medical developments from being copied and enabling them to capitalize on their investments in R&D and guarantee a steady cash flow for 20 years (U.S. Food and Drug Administration, 2012). This problem goes in line with other issues pharmaceutical giants are facing such as increasing R&D costs, competition among branded products, price and government pressure etcetera.
It is projected that Big Pharma companies will continue to see profit erosions in 2013 – in tune of hundreds of millions of dollars – as their blockbuster drugs lose their exclusivity due to patent expiry (Marias, 2013). In the past two to three years market has already seen Big Pharma losing billions of dollars against the cheaper generics, but market observers say this trend will continue until 2021 (Marias, 2013). Mature markets that include US, Europe and Japan offer fewer opportunities for gaining more market share and boosting sales; thus, Big Pharma has turned to markets that have not been fully explored yet promise huge potential - emerging countries. Emerging market countries are expected to add 1.4 billion people to their middle classes in the next decade and account for more than 60 percent of global GDP growth between 2010 and 2016 (Accenture, 2011).
Given the situation of Big Pharma companies in developed markets, it is clear that new ways to capture the market share and strengthen the position have to be explored. Hence, the purpose of this research is to evaluate the situation of big pharmaceutical companies at hand and investigate what further steps could be taken to defend the market position and fight numerous threats.