Pharmaceutical industry-

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Pharmaceutical industry-

  1. 1. Pharmaceutical Industry in UruguayReport prepared by Uruguay XXI for LATINPHARMA 2011 November 2011
  2. 2. Table of Contents1. Introduction ............................................................................................................................. 52. Main Indicators of Pharmaceutical Industry ............................................................................ 7 2.1. Characteristics and Expenditure Structure of Healthcare in Uruguay ..................... 9 2.2. Pharmaceutical Industry Production.......................................................................... 11 2.3. Employment and Productivity .................................................................................... 13 2.4. Export and Domestic Market Prices ........................................................................... 15 2.5. Wage Levels................................................................................................................ 16 2.6. Pharmaceutical Companies in Uruguay ..................................................................... 18 2.7. Investments ................................................................................................................ 193. Exports and Imports of the Pharmaceutical Sector in Uruguay ............................................. 20 3.1. Exports and Imports of the Pharmaceutical Sector in Uruguay -Products ............. 23 3.2. Exports and Imports of the Pharmaceutical Sector in Uruguay - Countries........... 25 3.3. Exports and Imports of the Pharmaceutical Sector -Companies............................ 264. Domestic Market Structure .................................................................................................... 28 4.1. Chain Actors ............................................................................................................... 28 4.2. Market Size and Average Prices ................................................................................. 30 4.3. Leading Companies, Products and Market Share. ..................................................... 33 4.4. Distribution Channels ................................................................................................. 355. National Integrated Health System (S.N.I.S) .......................................................................... 416. Prospects for the Pharmaceutical Sector in Uruguay ............................................................ 447. Research and Development Centers ...................................................................................... 45Annex – Strategic Plan for the Pharmaceutical Sector .................................................................. 52Bibliography ................................................................................................................................... 54 2
  3. 3. 1. Executive SummaryThe main objective of this report is to analyze the recent development and the perspectives ofthe Uruguayan pharmaceutical sector. This industry has been one of the most dynamic in thelast decade and has achieved an increasing relevance in the Uruguayan economy, not onlybecause of its qualified personnel or the generation of value added, but also because it is oneof the main industries that have become a key driver in regards to innovation and research inUruguay. Therefore, the pharmaceutical sector has become one of the strategic sectors forgrowth, not only for its export potential but also because of its investment attraction.The report begins by showing the main indicators in this sector. From these indicators we canconfirm that the pharmaceutical sector production has shown an increasing trend in the lastdecade. In addition, this tendency has been accompanied by a growing number of employedpersonnel (with a profile focused on professionals and technicians), with an increasingperformance over the last few years and with remuneration levels which are considered abovethe industry average. In Uruguay, the pharmaceutical industry has approximately 100companies, that on average are relatively larger than the average of the national industry andthat have also invested far above the average of the industry, in many cases under theInvestment Promotion and Protection Law.By examining the trade pattern in the Uruguayan pharmaceutical industry, we can verify thatapproximately over half of the total production of the sector is subject to trade. AlthoughUruguayan exports of pharmaceutical products have grown in the last ten years, Uruguayanimports have been greater than exports in the period under review, recording a trade deficit.Medicines are the main exported product representing in 2010 nearly 64% of the total;followed by human and animal blood and pharmaceutical preparations and goods, with a totalparticipation of 20% and 6.4% respectively. Likewise, it is worth mentioning the incorporationof antibiotic exports in 2010. The destinations for these exports are concentrated in the region(Latin America), being the MERCOSUR countries the main buyers.Subsequently, the structure of the domestic market of the pharmaceutical sector is analyzed.Multinational companies that manufacture patented products worldwide and national orregional companies that sell or manufacture similar or generic pharmaceutical products areidentified as the main actors. Moreover, examining the sales of these companies it is observedthat sales from regional and national laboratories show a similar behavior than those ofmultinational companies. However, if sales are examined in physical units, the results showthat national laboratories present a greater activity than foreign laboratories. Subsequently, 3
  4. 4. average prices in dollars of medicines marketed by multinational laboratories increased 75% inthe period 2004-2010, while prices marketed by national laboratories increased 50%. It is alsointroduced and analyzed the structure of the sales channels of pharmaceutical products forhuman use: Private channel, consisting of drugstores and pharmacies, health insurancechannel and the public channel (Government).In order to contextualize the analysis, the characteristics of the current National IntegratedHealth System (SNIS) are briefly displayed, as well as the impacts that this system can bringupon the distribution chains. In this regard, the potential impacts of the health reform on theUruguayan pharmaceutical industry could come primarily through changes in the distributionof the number of members between the private sector (health insurance schemes), and thepublic sub sector that could generate modifications in the participation of each of themarketing channels (private, health insurance and State), or also through new regulations onthe production and marketing of medicines.Finally, the main perspectives for the Uruguayan pharmaceutical sector are outlined. For thefollowing ten years the consolidation of the sector’s growth is foreseeable and its turnover isexpected to expand at an average annual rate of between 3%-9%. Also, this increase would beevidenced by the export potential of the sector, mainly due to the small size of the domesticmarket and the aging demographic structure of Uruguay (similar to those of developedcountries). On the other hand, this expected increase in production would be accompanied bysignificant increases in the company’s productibility, given the increasing use of technologyand the incorporation of new technologies. A moderate increase in the concentration atbusinesses-level is expected, simultaneously with a larger presence of foreign capital onbusinesses property. 4
  5. 5. 1. Introduction The Uruguayan pharmaceutical industry has presented a remarkable dynamism in the past eight years, boosted by sales in the domestic and external market, with a significant growth of investment in the sector together with the establishment of new research centers and new industries. During this period, the average increase in the Uruguayan pharmaceutical industry has exceeded the manufacturing industry as a whole and the national economy, despite the extraordinary growth observed in these years. Also, pharmaceutical industry exports have been more dynamic than the total exports of the country, even though these have experienced an historical “boom" regarding their growth, driven mainly by the emergence of new export flows, a rise of international demand for Uruguayan commodities exports as well as by the sharp increase of their international prices. The pharmaceutical industry has been selected by the Government as one of the strategic sectors to be boosted by industrial policy sector plans in the period 2010-2020, developed by the “Productive Cabinet” (Gabinete Productivo) within the framework of the Sectoral Tripartite Councils, with the participation of the main public and private actors involved in the industry. The main objectives of the industrial plan is to strengthen the production chain, promoting innovation and development as well as the internationalization of the production, by achieving the following vision in regards to what the sector should be: “To become a leading productive sector in South America and a worldwide reference. We want to be recognized as a model sector due to the quality of our products, the technology we use and the specialization of our human resources, which enables us to gain access to the most demanding markets worldwide and continue to provide high quality medicine at affordable prices for all Uruguayans”. The main objective of this report is to analyze the recent development and prospects of the Uruguayan pharmaceutical sector. For this purpose, the report is structured as follows. First of all, the report analyze the Uruguayan market for the pharmaceutical industry by stressing the main indicators of the sector that account for the development and relevance that this industry has acquired in the Uruguayan economy. Section four shows the business trade analysis of the Uruguayan pharmaceutical industry. Afterwards, the structure of the domestic market of the pharmaceutical sector is analyzed, exploring, in particular, the main agents and the distribution chains amongst them. In section six the characteristics of the current National1 Pharmaceutical Sectoral Plan, Productive Cabinet, June, 2011. 5
  6. 6. Integrated Health System (SNIS) are briefly displayed, as well as the impacts that this systemcan bring upon the distribution chains. The perspectives and prospective of the sector arepresented in section seven. Finally, section eight lists some of the main tools through whichresearch and development of the pharmaceutical industry in Uruguay is conducted. 6
  7. 7. 2. Main Indicators of Pharmaceutical IndustryThe national pharmaceutical sector consists of four production chains which are transversallycrossed by Biotechnology2: Pharmaceutical laboratories for human use; veterinarianlaboratories; laboratories for phytotherapy and nutraceutical products and manufacturers oftherapeutic devices.Within pharmaceutical laboratories for human use we can find multinational companies whichmanufacture patented products worldwide, national or regional companies that manufacture ormarket similar or generic pharmaceutical products and sales offices engaged in theintermediation of products within the sector.Pharmaceutical laboratories for human use include pharmaceutical specialties, which can bebased on active principals of chemical origins or a result of biotechnological applications. Anexisting classification is the following: Patented Products. Are those whose manufacture is temporarily protected by the Patent Law, enabling the laboratory that registered the patent to be the only one authorized to produce or market these products, and because of this exclusivity, they are the most expensive products which leave a high profit margin for the company. Generic Products. Products that are characterized by having the same active principle of patented products and that also have gone through bioequivalence testing (which show that the same concentration in the destination body at the same speed can be accomplished) to guarantee that they are interchangeable with the patented product.In the veterinary sector companies with biological-veterinary specialties, pharmaceutical-veterinary companies and sales offices dedicated to importing can be found. These laboratoriesinclude products that are also based on chemical origin active principles or are a result ofbiotechnological applications. Chemical- based supplies are imported while supplies frombiological origin are from national origin, as well as culture media. Its production is destined tothe domestic market and export.Another industry chain include phytotherapy products which are obtained from plants and havetherapeutic purposes to prevent, mitigate or cure a pathological condition, it also includes2 Defined by the United Nations Convention on Biological Diversion as, any technological application that usesbiological systems, living organisms, or derivatives thereof, to make or modify products or processes for specific use. 7
  8. 8. nutraceutical products which are isolated or purified products obtained from food. Even thoughthe development of this chain is emerging in terms of trade, alliances between public andprivate actors along with local producers have been materialized, these have enabled Uruguayto achieve a high level of quality in the international arena. This sector has many opportunitiesfor development since the international demand for natural products has grown significantly.Diagnostic and therapeutic devices manufacturers produce reagents, reference and controlstandard solutions, analytical tools, and systems designed for the use in the diagnosis of diseaseor other conditions.Biotechnology runs through each one of these sectors, and it is the most dynamic part, withgreat opportunities for development mainly due to the fact that international demand forbiotechnological applications in the different segments of the human and animal pharmaceuticalindustry is growing significantly. Chart No. 1- Structure of the Pharmaceutical Chain in Uruguay Source: Productive Cabinet 8
  9. 9. 2.1. Characteristics and Expenditure Structure of Healthcare in UruguayIn order to analyze the Uruguayan pharmaceutical industry, the following summarizes thedemographic and social structure of the country.In Uruguay the population growth rate is relatively low – 0.5% per year—which in the long rundoes not favor the expansion of the domestic market of medicines and thereby thedevelopment of the pharmaceutical industry. However, it is worth mentioning that in Uruguaythe entire population has formal healthcare coverage, according to data provided by theMinistry of Public Health (MSP)3 .On the other hand, elderly people (aged 65 and above) represent approximately 13% of thetotal population. The relative weight of such group age, together with a life expectancy at birth4average of 76 years old, generates a high consumption of medicines because this consumption isgreater in the aging population. In proportion to other Latin American countries, Uruguay is thecountry with more elderly people over 65 years of age. As shown in the following graphics,there is a strong tendency towards the increase in the aging of the country’s population. Graph No. 1- Population by Gender and Five Year Age GroupsSource INEOn the other hand, in Uruguay, health expenditure remained approximately at 7.5% of the GDPin 2009. Although this share has decreased in regards to previous years, even so, this percentageis very high compared with other countries of Latin America, such as the cases of Paraguay,Colombia and Ecuador.3 Source: Creation of the National Integrated Health System 2005-2009, Ministry of Public Health4 According to data provided by the National Statics Institute (INE), in 2010 life expectancy at birth for men was of 73years of age whereas for women it was of 80 years of age. 9
  10. 10. Chart No. 2 – Health Expenditure (% of GDP) Country 2006 2007 2008 2009 OECD (High-Income Economies) 11.15 11.12 11.29 12.08 High-income Economies 10.94 10.90 11.02 11.87 Argentina 8.45 8.44 8.44 9.53 Brazil 8.48 8.44 8.44 9.05 Chile 6.62 6.90 7.49 8.18 Latin America and the Caribbean 6.95 7.10 7.17 7.75 (Developing Economies) Latin America and the Caribbean 6.94 7.09 7.15 7.74 Uruguay 8.24 7.81 7.78 7.45 Paraguay 6.43 6.24 5.97 7.08 Colombia 6.17 6.06 5.88 6.42 Ecuador 5.26 5.40 5.32 6.08 Venezuela 5.74 5.80 5.40 6.02 Bolivia 5.14 4.71 4.36 4.82 Peru 4.30 4.26 4.47 4.62 Source: Source World Health Organization National Health Account database (www.who.int/nha/en)If the average of per capita health expenditure is evaluated (2006-2009), it is observed thatUruguay shows an approximate expenditure of US$ 600 per-year; levels which are close to thoseof Argentina’s and Brazil’s per capita health expenditures. Meanwhile, during this period; onaverage 14% of health expenditure correspond to medicine expenses, according to dataprovided by the National Statics Institute (INE). Chart No.3 – Average per Capita Health Expenditure Country Average in US$ 2006-2009 High-Income Economies 4,225 Chile 705 Brazil 638 Argentina 612 Uruguay 618 Venezuela, RB 536 Latin America and the Caribbean 488 Latin America and the Caribbean 486 (Developing Economies) Colombia 288 Ecuador 206 Peru 176 Paraguay 136 Bolivia 72 Source: Source World Health Organization National Health Account database (www.who.int/nha/en). 10
  11. 11. From the total health expenditure, it is essential to identify how much does public expenditurerepresents. When this analysis is carried out, Uruguay shows that public expenditure on healthrepresents 63% of the overall expenditure. Chart No. 4 shows the list of countries in the regionwith their corresponding percentage of public expenditure on health. Again, these figures aresimilar to those of Latin America’s most developed countries. Chart No.4 – Public Expenditure on Health as a Percentage of Total Health Expenditure Country 2006 2007 2008 2009 Colombia 84 84 84 84 Argentina 56 59 63 66 Bolivia 68 66 63 63 Uruguay 53 54 63 63 Peru 59 58 59 59 Ecuador 44 42 42 48 Chile 42 43 44 47 Brazil 42 42 44 46 Paraguay 39 41 40 43 Venezuela 42 47 45 40 Source: Source World Health Organization National Health Account database (www.who.int/nha/en). 2.2. Pharmaceutical Industry Production5According to data from the Economic Activity Survey (Encuesta de Actividad Económica-EAE)developed by the National Statics Institute and corresponding to 2008; the Uruguayan GrossValue of Production (GVP)6 of the pharmaceutical industry amounted to US$ 314 million.Estimates prepared for the 2009-2010 period show that the GVP climbed up to US$ 327 millionand US$ 371 million respectively.5 The information provided in this paragraph includes the productive activity of the pharmaceutical laboratories forhuman use, veterinary, phytotherapy and nutraceutical. According to our own estimates, based on the work ofBittencourt, et al (2010), participation in veterinary laboratories can be quantified in about 13% of the sectorproduction, while the participation of phytotherapy and nutraceutical laboratories can be considered marginal.6 The gross value of production, industrial GVP, is defined as the sale of goods manufactured with domestic net rawmaterial from granted discounts, plus the income from sale of unprocessed raw material, minus the cost of soldunprocessed raw material, plus manufacturing work for third parties, plus the variation of stocks of finished products,plus the variation of stocks of products in process. The variation of stocks and sales are valued at producer price andfor this reason it includes taxes to net products subsidies. 11
  12. 12. Graph No. 2- Gross Value of Production of the Pharmaceutical Industry (US$ Millions)7 Source: Own estimates and elaboration based on the National Statics Institute.To know the actual evolution of the sector, excluding the effect of "price" in the estimation ofthe production value, it is appropriate to consider the Index of Physical Volume (IFV). In thesecond half of the 1990s, as a result of the exodus of more than 20 multinational companiessuch manufacturer companies, the pharmaceutical sector recorded a sharp decline in theirproduction levels. However, as of 2002 a recovery process began which has continued up to thepresent day, along with the recovery of the entire manufacturing industry. This growth in thepharmaceutical industry was maintained even in 2009, when the industry recorded a slightdecline as a result of the deepening of the international economic crisis. According to theIndustry Chamber of Uruguay (CIU) "while in 2009, the physical volume of the pharmaceuticalindustry sales were not affected by the international crisis, when analyzing sales by destination,it seemed that exports showed a significant contraction as of May 2009 on the occasion of thereduced international demand, while the dynamics of sales in market offset said fall"8.Figure three shows the evolution of the sector’s IPV , which shows clearly the drop recorded bythe pharmaceutical activity up to 2002, and since then a continuous growth that has evolved inthe same way as the industry as a whole. Likewise, and as it was mentioned above, after the2002 crisis, the dynamism of the Uruguayan pharmaceutical industry has been significantlysuperior to the manufacturing industry as a whole, which is significantly noteworthy since thisindustry has shown one of the periods of highest growth in its history.7 Data for the years 2006 and 2009 and 2010 are based on our own estimates.8 “Enfoques Económicos”, Época III, Año 12, No.27. December, 2010, pág. 79 12
  13. 13. Graph No.3 – Physical Volume Index of the Pharmaceutical Sector and the Industry in General. Base Year 2006 Source: National Statics Institute 2.3. Employment and ProductivityBetween the years 1999-2003, the pharmaceutical industry employed approximately 2,200people. From this year onwards, a steady path of increases in the number of employedpersonnel began, placing this value in 2010 in about 3,860 employees approximately. It isimportant to mention the high participation of technicians and professionals, and to a lesserextent, the participation of operators during these last years. Graph No.4- Number of Employed Personnel in the Pharmaceutical Sector. Base Year 2006 Source: National Statics Institute INEOn the other hand, there is available information from the Employed Personnel Index and fromthe Hours Worked Index (HWI) of the pharmaceutical industry, which is important to consider. 13
  14. 14. The following graphics confirm that in 2004 a turning point occurred in the sector, mainly due tothe fact that from this year on, a significant increase in regards to employed personnel andhours worked was recorded.Graph No.5 – Variation of the Employed Personnel Index and Hours Worked Index. Base Year = 2006 Source: National Statics Institute INEFrom the above indicators, it is possible to get close to one of the sector’s productivity indicator.In this sense, the apparent productivity of the sector, measured as the ratio between thevariations of IPV/EPI, shows a growing trend in recent years (see Grap 5).From 2002 to present time, the pharmaceutical industry accumulates growth levels ofproductivity of 12.2%, with an annual average increase of 1.3%, superior performance to theone observed in the manufacturing industry as a whole. Graph No.6 - Variation of Productivity Measured by the Ratio between the IPV and the EPI. Base Year 2006 Source: National Statics Institute INE 14
  15. 15. 2.4. Export and Domestic Market PricesMedicine prices have shown an increasing trend after the steep decline observed at thebeginning of the past decade, both in export and domestic market`s sales prices (measured incurrent dollars).According to the Chamber of Industry of Uruguay (CIU), external sales of medicine pricesshowed an upward trend between the end of 2002 and mid-2009. However, over the last yearand a half, the sector’s export prices showed a significant reduction. Yet, export prices in 2010,on average, were higher than those of the 2003-2005 period, but lower than the prices duringthe 2008-2009 period. Graph No.7 – Evolution of Prices of the Pharmaceutical Sector Measured in Current Dollars Quarterly Mobile Series 2006 Base Indexes=100 Export Domestic Market Source: National Statics Institute (INE) and Chamber of Industry of Uruguay (CIU)For its part, selling prices of medicinal products in the domestic market expressed in dollars haveshown a sustained growth over time, driven mainly by the increase of prices (in Uruguayanpesos) of medications, as well as by the appreciation of the local currency against the dollar.Thus, nowadays the average prices of medicines sold in the domestic market measured incurrent dollars are greater than those observed prior to the devaluation of 2002.It is also worth mentioning that the evolution of medicine prices in the local market has notbeen homogeneous within each therapeutic group. While in 2010 analgesics prices measured indollars were 34.3% higher than in 2000, prices of antibiotics were 22% lower. 15
  16. 16. Graph No.8 – Evolution of Internal Prices Measured in Current Dollars Quarterly Mobile Series 2006 Base Indexes=100 Analgesics Antibiotics Source: National Statics Institute (INE)On the other hand, in 2010 medicine prices for respiratory disorders and medicines to preventcardiovascular diseases were 2.3% and 12.2% higher than those obtained in 2010. 2.5. Wage LevelsThe Uruguayan pharmaceutical industry is characterized by employing a higher percentage ofprofessionals and technicians than the manufacturing industry average. According to dataprovided by the Economic Activity Survey and developed by the National Statics Institute (year2005), in which the employed personnel is disaggregated into job categories, 12.9% of theemployees in the pharmaceutical industry belong to a technical-professional scale, while theaverage of the manufacturing industry is 2.6%. Likewise, due to significant investments in thesector regarding machinery and technology during the 2005-2010 period, it is expected that theproportion of the total amount of employed technicians and professionals has grown in recentyears, a tendency that will continue to increase in coming years according to specialized sourcesof the sector. The evolution of wages in the pharmaceutical industry9 -estimated by the behaviorof the Average Wage Rate of the chemical industry- show a persistent recovery since 2004,although in real terms the current levels of the pharmaceutical industry (2010) are considerablylower than 10 years ago. However, measured in current dollars, wages in the sector are greater9 The information corresponds to the Average Wage Rate (Indice Medio de Salarios -IMS) of the chemical industry,sectoral cluster in which the pharmaceutical industry is located, maximum disaggregation level achieved in the INEstatistics. However, while there may be small differences regarding the behavior within the various sectors that makeup the chemical industry, it is understood that these sectors show a similar behavior over time. 16
  17. 17. than those observed at the end of the 90’s, mainly explained by the appreciation of theUruguayan peso against the dollar during these last years. Graph No.9- Evolution of Wages in the Chemical Industry Quarterly Mobile Series Índices base 2006=100 Dollars Actual uruguayan pesos Source: National Statics Institute (INE)On the other hand, the chart below shows the average annual remuneration received by thepharmaceutical industry employees in the past four years, and the average cost per worker forthe industry during the same period10.Chart No.5 – Average Annual Wage and Cost per worker of the Pharmaceutical Industry in US$ Average Average Year Wage Expense 2007 15,815 17,335 2008 18,788 21,035 2009 19,531 21,866 2010 23,104 25,868 Source: National Statics Institute and our own estimatesDespite recording a noticeable increase in wages and costs of workers of the nationalpharmaceutical industry (46.1% to 49.2% respectively) in the past four years, explained mainlyby the significant increase (in dollars) of prices in the Uruguayan economy , the cost of humanresources in Uruguay continues to be very competitive when compared to the rest of the region.10 Annual average remuneration includes payments for bonus (13th salary in the year) and holiday payment, while theaverage cost per employee in addition to the remuneration received by them includes the costs of social laws(contributions to the social security and national health insurance) carried out by the companies. 17
  18. 18. 2.6. Pharmaceutical Companies in UruguayIn 2009, the national pharmaceutical industry had a total of 103 companies, representing lessthan 1% of the total of existing companies in the manufacturing industry.While classifying the sector’s companies according to the employed personnel range, it denotesthat 65% (67 companies) correspond to micro and small businesses (less than 20 people), 24%(25 companies) employ between 20 and 99 people, and 11% (11 companies) are majorcompanies (100 employees or more). If this information is compared with the information ofthe manufacturing industry we can confirm that companies from the pharmaceutical sector areon average relatively larger than those of the national industry sector. This situation is related tothe significant investments and entry costs made by the pharmaceutical sector in order forcompanies to operate under competitive terms.Likewise, 88.1% of the employed personnel of the pharmaceutical industry belong to mediumand large companies (over 20 people), while this value is 65.3% in the overall industry and 56.1%in the country. This shows that companies from the pharmaceutical industry are characterizedfor creating important workforce, more than the industry average and the country in general. Chart No.6- Number of Companies in the Pharmaceutical Industry by stretch of Employed Personnel. Year 2009 Total of 100 or 1-4 5-19 20-99 Companies more Country 110,818 91,998 14,748 3,433 639 Industry 14,853 10,944 2,922 784 203 Pharmaceutical 103 34 33 25 11 Industry Source: National Statics Institute (INE) Chart No. 7- Distribution of Employed Personnel by stretches. Year 2009 Distribution of Employed Personnel According to Range Total of Employed 1-4 5 - 19 20 - 99 100 and more Personnel Country 633,135 24.4% 21.2% 21.4% 34.7% Industry in 127,934 22.2% 21.0% 25.0% 40.3% General Pharmaceutical 3,572 1.8% 10.1% 35.0% 53.1% Industry Source: National Statics Institute INE 18
  19. 19. 2.7. InvestmentsIn the period 2004-2008, the sector invested an average of $ 13.4 million of dollars per year,especially in 2006 and 2008 in which over 15 million of dollars were invested, as shown in thegraphic below. In relation to the value of production in the period under consideration, theinvestment in the sector, on average, represented 6.8% of the aforementioned, reaching itsmaximum participation in 2006, when it represented nearly 10% of the GVP. Even moresignificant are the invested amounts when measured in relation to the operating surplusobtained by enterprises in the sector, where the invested amounts correspond on average to45% of the income generated by the national pharmaceutical industry. Therefore, one canconclude, that the pharmaceutical industry invests a rather significant proportion of its profits inthe expansion of its productive capacity. Graph No. 10- Gross Fixed Capital Formation- Pharmaceutical Industry (Millions of US$ 2004-2008) Source: National Statics Institute INEIf we analyze the investment by component for the last year of available information (2008), itstands out that 47% (US$ 7.8 million) of the sector’s investment corresponds to machinery andequipments used for production, while 35% (US$ 5.9 million) accounted for buildings andconstruction, and 16.6% accounted for intangible assets, and the remaining 2.0% correspondedto others. It is important to mention that within the framework of the Investment Promotionand Protection Law (Law 16.906), whose mission is to promote and increase investment in thecountry through the granting of tax benefits, several projects in the pharmaceutical industrywere promoted during the periods of 2005 to 2010. All projects declared of national interest bythe Application Commission (Comisión de Aplicación-COMAP11), under the protection of theabovementioned law reached US$ 8.6 million in 2010, corresponding to a total of 11 projects.11 The Investments Law Application Commission: Body responsible for the granting of benefits under the protectionof Law 16.906. Note (*): Investment made between January – August 2011, Source: COMAP. 19
  20. 20. During the period of January-August 2011, the sector’s investment were widely superior to all ofthe considered years, they amounted to US$ 60.4 million with a total of 36 projects. Chart No.8 – Projects Promoted by COMAP-Pharmaceutical Industry in Uruguay US$ Millions Number of Projects 2005 3.1 4 2006 18.8 6 2007 2.4 2 2008 10.1 7 2009 20.4 12 2010 8.6 11 2011* 60.4 36 Source: Ministry of Economics and Finance (MEF)-COMAP 3. Exports and Imports of the Pharmaceutical Sector in UruguayThe analysis of foreign trade in the Uruguayan pharmaceutical sector is of significant importancesince it enables the evaluation of the positioning of the country in the international market.Approximately over half of the total production of the sector is subject to trade. The foreigntrade pattern of the Uruguayan pharmaceutical industry based on data from the NationalCustoms Directorate is analyzed below (DNA12 13- Dirección Nacional de Aduanas).Uruguayan exports of pharmaceutical products have shown a growing trend in the last tenyears. This shows the growth of the sector in Uruguay and the strengthening of the industry.Only in two opportunities a slight inter-annual decline of international sales was evidenced in2002 and 2009. However, these declines, at levels of 6% and 8% respectively, coincide with theeconomic crisis that affected the industry in general.In 2010, the value of Uruguayan exports of pharmaceutical products reached a figure close toUS$ 105 million, slightly lower than the 2009 record, which amounted to US$ 114 million.However, in the first half of this year, exports of pharmaceuticals have already accumulated a12 Headings 2936, 2937, 2939 y 2941 of the Harmonized System from chapter “Organic Chemical Products” fromchapter 29 are included, and all the headings from chapter 30 “Pharmaceutical Products”13 In the same way, as in the production data, the statistics of foreign trade do not allow a clear distinction betweenexports (imports) of pharmaceutical products for human use from those of veterinary pharmaceutical products, sincethe tariffs positions used in foreign trade statistics coincide. In a general sense, based on estimates of Bittencourt(2010) and our own estimates, one can calculate the participation of the above mentioned in the total exported bythe pharmaceutical sector of a 30%, and 16% on imports. 20
  21. 21. total amount of 60 million, which suggests that if this pace continues, a new annual record willbe achieved.When it comes to Uruguayan pharmaceutical imports, it is quite obvious that these imports aregreater than the exports throughout the entire period under review, determining a negativetrade balance. However, it is worth noticing that this gap is reduced considerably over theperiod, being the trade deficit in 2010 26% less than in 2001. Chart No.9 – Trade Balance of the Uruguayan Pharmaceutical Sector (US$ millions) First Half 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 of 2011 Exports 31 29 30 43 52 62 76 104 114 105 60 Imports 144 100 86 92 96 107 123 151 149 188 104 Trade Balance -114 -72 -56 -49 -45 -45 -47 -47 -35 -84 -44 Source: Prepared by Uruguay XXI based on data from the DNA Graph No.11- Uruguayan Exports and Imports of the Pharmaceutical Sector Data in US$ millions Source: Prepared by Uruguay XXI based on data from the DNAThe export coefficient can be calculated in order to quantify the percentage of total productionof the pharmaceutical sector destined for the external market. This indicator is calculated as thedivision of the sector’s exports and the total production of the sector. By using the GVP theexport coefficient showed an upward trend up to 2009 (almost 35%). However, in 2010 theexport coefficient dropped as a result of the decrease in exports during that year whileproduction continued to increase. 21
  22. 22. The results obtained from the export coefficient show the increasing importance of the externalmarket to place the production of the Uruguayan pharmaceutical industry. Dousksas et al(2008), consider that the main factors that have boosted the external sales of the nationallaboratories are the following: The Uruguayan market has the lowest levels of prices in LatinAmerica, a cheap workforce compared to the destination countries of the domestic production,a strategic logistic position to supply the region in due time and proper form, as well as installedcapacity which allows supplying new markets. The factors previously exposed, allowed toexpand sales abroad at an annual average rate of 14.5% during the last ten years. Meanwhile,this strategy has improved the profitability obtained by national companies.Although the current position of multinational companies do not have industrial plants installedin Uruguay, in some cases they have established the strategy of centralizing the distribution inUruguay and supply other subsidiaries in the region from our country, mainly Paraguay andBolivia (to a lesser extent). This strategy enables companies to optimize resources and reducelogistics costs. Consequently, re-exports of pharmaceutical products are carried out bymultinational enterprises during the export of pharmaceutical products (NCM 30 – CommonNomenclature for the Common Southern Market), as well as in the domestic production ofmedicines. Graph No.12 – Export Coefficient (%) Source: Prepared by Uruguay XXI based on data from the DNAOn the other hand, it is interesting to analyze the participation of imports in the total apparentconsumption as a way to quantify how much of the domestic demand is supplied with externalproduction. The apparent consumption is defined as the GVP plus the imports minus the 22
  23. 23. exports. This variable had a significant increase in the period 2003-2010, which confirms thegrowth of the pharmaceutical industry in recent years.As seen in the graphic below, imports of the pharmaceutical sector explain between 41 and 47percentage points of the total apparent consumption over the last decade. These accounts forthe fact that imports satisfy an important part of the domestic demand of the sector. Graph No.13 – Apparent Consumption According to Origin Data in US$ millions Source: based on data from INE and DNA 3.1.Exports and Imports of the Pharmaceutical Sector in Uruguay - ProductsA detailed analysis of the products comprised within the pharmaceutical sector should becarried out in order to have a complete overview of the Uruguayan pharmaceutical industry. Asshown in the chart below, Medicines (NCM 3004) are the main exported product in thepharmaceutical sector, representing in 2010 63.7% of the total. Other relevant exportedproducts are human and animal blood (NCM 3002), and Pharmaceutical Preparations and Goods(NCM 3006), with a total participation of 19.5% and 6.4% respectively. On the other hand, it isnoteworthy the incorporation of antibiotics exports for a value of US$ 57,683 dollars in 2010.It is also worth mentioning that the pharmaceutical sector includes exports with HighTechnology Content (HTC). In 2010, the pharmaceutical sector had a 90% participation inexports with High Technology Content. In addition, the pharmaceutical sector occupies thesecond position in the ranking of the most innovative sectors, proving that 48% of companies 23
  24. 24. are innovative.Regarding the Sector’s imports, Medicines (NCM 3004) also occupy first place inthe ranking, followed by human and animal blood (NCM 3002), and non-dosed medications. Chart No.10 – Uruguayan Pharmaceutical Exports by Product Data in US$ millionsNCM % variation % part. Description NCM4 2008 2009 2010 4 2010/2009 20103004 Medications 74.07 81.53 66.64 -18.3% 63.7% Human and Animal Blood for3002 13.99 14.80 20.44 6.9% 19.5% therapeutic purposes Pharmaceutical Preparations and3006 4.99 6.46 6.68 0.3% 6.4% Goods Glands and other Organs for3001 0.98 2.05 3.50 1.8% 3.3% Opotherapy Uses Natural or Reproduced by Synthesis2937 2.64 2.54 3.17 0.8% 3.0% Hormones Pro-vitamins and Vitamins, Natural or2936 5.06 4.66 2.84 -2.2% 2.7% Reproduced by Synthesis3003 Non-Dosed Medications 1.85 2.04 1.17 -1.1% 1.1%2941 Antibiotics 0.01 0.00 0.06 0.1% 0.1% Vegetable Alkaloids, Natural or2939 0.01 0.01 0.05 0.0% 0.1% Reproduced by Synthesis Wadding, Gauze, Bandages and other3005 0.08 0.07 0.04 0.0% 0.0% related items TOTAL 103.68 114.18 104.60 -11.75% 100% Source: Prepared by Uruguay XXI based on data from the DNA Chart No.11 – Uruguayan Pharmaceutical Imports by Product Data in US$ millionsNCM % variation % part. Description 2008 2009 2010 4 2010/2009 20103004 Medications 89.32 88.26 106.56 20.74% 56.61% Human and Animal Blood for therapeutic3002 24.97 26.99 38.17 41.42% 20.27% purposes3003 Non-Dosed Medications 7.61 7.39 9.53 28.92% 5.06%3006 Pharmaceutical Preparations and Goods 6.70 6.38 8.41 31.83% 4.47% Pro-vitamins and Vitamins, Natural or2936 5.38 4.60 6.29 36.80% 3.34% Reproduced by Synthesis Natural or Reproduced by Synthesis2937 5.10 4.27 5.55 30.15% 2.95% Hormones2941 Antibiotics 4.60 3.75 4.44 18.47% 2.36% Glands and other Organs for Opotherapy3001 2.21 2.78 4.38 57.85% 2.33% Uses Wadding, Gauze, Bandages and other3005 3.03 3.58 3.76 4.95% 2.00% related items Vegetable Alkaloids, Natural or2939 1.70 1.10 1.15 4.72% 0.61% Reproduced by Synthesis TOTAL 150.61 149.08 188.25 26.27% 100% Source: Prepared by Uruguay XXI based on data from the DNA 24
  25. 25. 3.2.Exports and Imports of the Pharmaceutical Sector in Uruguay - CountriesBy observing the exports of the pharmaceutical sector by destination markets, these indicatethat they are concentrated in the region (Latin America), being the MERCOSUR membercountries the main buyers. Exports of pharmaceutical products to this bloc represent 34% of thesector’s total exports.On the other hand, it is worth mentioning that in 2010 the exports to “Zonamérica” Free Zonerepresented 22.6% of the industry exports. This is due to the presence of Roemmers S.A.Laboratories which operates in this Free Zone, re-exporting their products from “Zonamérica” toother countries mainly from Latin America. It is important to take into account that this is theleading exporting company in the sector.As far as imports are concerned, the main suppliers of the Uruguayan pharmaceutical industryare Argentina, United States and Brazil, representing all together 41% of the total imports in2010. Graph No.14 – Main Destinations of Uruguayan Exports of the Pharmaceutical Sector Year 2010 Spain, 3,2% Bolivia, 2,6% South Africa, 3,3% Ecuador, 3,8% Chile, 3,9% Others, 21,3% Venezuela, 5,9% Argentina, 6,9% Zonamerica, Brazil, 13,2% 22,6% Paraguay, 13,3% Source: Prepared by Uruguay XXI based on data from the DNA Graph No.15 – Main Destinations of Uruguayan Imports of the Pharmaceutical Sector Year 2010 25
  26. 26. Source: Prepared by Uruguay XXI based on data from the DNA 3.3.Exports and Imports of the Pharmaceutical Sector -CompaniesThe strong concentration of exports at enterprise level is confirmed if we examine said exportsin the pharmaceutical industry. The first four laboratories in the ranking account for 54.2% oftotal exports. Roemmers laboratory is the main exporter with 22.8%, followed by MicrosulesLaboratory (15.5%), Roche International (8.3%) and Urufarma (7.5%). On the other hand,imports of the sector have a greater degree of diversification by companies. In this case, the firstten jointly represent 58% of the total.Meanwhile, leading companies should be examined according to whether they belong to someof the representative bodies of the pharmaceutical sector (National Laboratories Association -ALN) and the Chamber of Pharmaceutical Specialties and Related Sectors – C.E.F.A). Within theALN, we can find: Roemmers, Urufarma, Libra Laboratory, Farmaco Uruguayo and CelsiusLaboratories. For their part, Roche International and Abbot Laboratories Uruguay belong toCEFA. 26
  27. 27. Chart No.12 – Leading Export Companies of the Pharmaceutical Sector Year 2010 - Data in US$ millionsCompany US$ Part. %ROEMMERS S.A. 23.9 22.8%LABORATORIOS MICROSULES URUGUAY S.A. 16.3 15.6%ROCHE INTERNATIONAL LTDA. 8.7 8.3%URUFARMA S.A. 7.9 7.6%LIBRA LABORATORY S.A. 6.3 6.0%SYNTEX URUGUAYA S.A. 6.2 5.9%MERIAL S.A. 4.7 4.5%PRONDIL S.A. 4.7 4.5%CLAUSEN LABORATORY S.A. 4.3 4.1%FARMACO URUGUAYO S.A. 3.9 3.7%DIROX S.A. 2.8 2.7%ABBOTT LABORATORIES URUGUAY S.A. 2.3 2.2%SANTA ELENA S.A. 2.2 2.1%LA RESERVA TRADING CO. S.A. 1.8 1.7%CELSIUS LABORATORIES S.A. 1.7 1.6%OTHERS 7.1 6.8%TOTAL 104.6 100.0% Source: Prepared by Uruguay XXI based on data from the DNA Chart No.12 – Leading Import Companies of the Pharmaceutical Sector Year 2010 - Data in US$ millions Company US$ Part. %ROCHE INTERNATIONAL LTDA. 22.0 11.7%ROEMMERS S.A. 13.8 7.3%GRAMON BAGO URUGUAY S.A. 9.7 5.2%BAYER S.A. 9.2 4.9%ABBOTT LABORATORIES URUGUAY S.A. 6.0 3.2%MINISTRY OF PUBLIC HEALTH 5.8 3.1%LIBRA LABORATORY S.A. 5.8 3.1%GLAXOSMITHKLINE URUGUAY S. A. 5.7 3.0%WARNER LAMBERT URUGUAY S.A. 5.6 3.0%URUFARMA S.A. 5.3 2.8%BOEHRINGER INGELHEIM S.A. 4.6 2.5%S.A.NOFI AVENTIS URUGUAY S.A. 4.6 2.4%CLAUSEN LABORATORY S.A. 4.5 2.4%S.A.C.E.I.NICOLAS VAN HAAREN 3.5 1.9%ASTRAZENECA S A 3.2 1.7% OTHERS 78.8 41.8% TOTAL 188.2 100.0% Source: Prepared by Uruguay XXI based on data from the DNA 27
  28. 28. 4. Domestic Market StructureTo perform a proper overview of the behavior and development of the Uruguayanpharmaceutical market, it is necessary to identify the main actors involved, as well as thedifferent production marketing channels. 4.1. Chain ActorsWithin the pharmaceutical laboratories for human use, it is possible to distinguish threedifferent competitive groups, which can be defined by their nature as well as the competitivestrategies they employ. Based on their nature, they can be divided into: - Multinational enterprises manufacturers of patent products on a global scale. - National or regional companies that sell or manufacture similar or generic pharmaceutical products. - Sales offices engaged in the intermediation of products in this sector.This third group centralizes its activity in public biddings, medicine purchases by the State, anddoes not have a relevant participation in the rest of the production marketing channels.Moreover, and in the majority of cases, these companies are importing offices, which carry outimports from countries with low prices, mainly China and India. Thus, the following paragraphfocuses mainly in the behavior of the first two groups.Multinational corporations are companies that are part of global pharmaceutical groups whichoccupy first places in sales worldwide, with large investments in research and development. InUruguay, they are grouped under the Chamber of Pharmaceutical Specialties and RelatedSectors (CEFA).Generally this group of companies is homogeneous in its structures and strategies. Regardingtheir structures, most of them are sales offices or representations of these companies thatreports abroad, and generally depend on the regional office located in Argentina. On the otherhand, in their strategies they follow global guidelines, both for the company and for thedevelopment of each product line, without further incidence in their definitions. Their strategiesare defined abroad, which implies difficulties regarding the adaptation to the local market, giventhe implemented global strategies. Generally, multinational laboratories have as a strategy thedifferentiation of their products from their main attributes: quality, image and efficiency;However, in the Uruguayan market competition is mainly carried out through prices. 28
  29. 29. Currently, there are 17 multinational subsidiaries in Uruguay, most of which up until the 1980spossessed industrial plants in the country and were focused on production. In the mid-1990s,the openness to trade and the need to carry out large investments to upgrade their productivestructures in order to achieve the quality standards required by the parent company, ledmultinationals to rethink ways to penetrate the Uruguayan market. Thus, the small size of theUruguayan market in comparison with other countries of the region, and the consequent lowprofitability for multinationals, led to the decision of closing the existing industrial plants inUruguay and becoming importers from larger subsidiaries, located mainly in Argentina andBrazil.On the other hand, national laboratories and laboratories with regional capital - mostly fromArgentina - are grouped within the National Laboratories Association (ALN). Unlikemultinational laboratories, these groups of companies have more heterogeneous productivestructures and marketing strategies, covering from national family businesses to Latin Americanmultinationals subsidiaries or branches.These laboratories emerged in the 1950s, and in recent years they have been expanding theirpresence in the local and international market through important investments. This mainlyinvolved the purchase of industrial plants in disuse by multinational companies.Up to November 200114, the general strategy pursued by these companies for the domesticmarket was protected by the non- existence of a Patent Law in the country, which allowed themto launch into the market a vast range of similar drugs. Therefore, they covered virtually all thetherapeutic spectrum and left to multinationals only those products that possessed exclusiveaccess to raw materials, active ingredients for their manufacture or very specific manufacturingprocesses for those who did not have available technology, either by development or economiesof scale.As a way to expand their participation in the market, national laboratories have, in addition totheir own production lines, the representation of international laboratories, generally Europeanor American, as part of their business strategy.14 In 1999, the 17.164 Law came into force, this law regulates the relative rights and obligations of invention patents,developed with help of the Technical Committee of Patents created by the Executive Branch along with theparticipation of the ALN and CEFA. However, Article 127 of the aforementioned law, states expressly: "Inventions ofagricultural chemical and pharmaceutical products will not be patentable until November 1, 2001". Thus, the law doesnot have retroactive effects on products that were already being marketed in the country prior to this date. Theseproducts will continue to sell unless they fall into disuse or new therapies indicate their non- prescription. 29
  30. 30. Finally, in recent years, national laboratories began to destine an increasing part of theirproduction to the external market, taking advantage of the acquired "Know How”, the lowproduction costs and the reduced internal size. 4.2. Market Size and Average PricesAccording to data from IMS Health, in 2010 the turnover of the domestic pharmaceutical marketfor human use amounted to 331 million of dollars, which represented a 23% increase withrespect to sales in 2009 (273 million of dollars), this is explained by a 5% growth of sold unitsand 17% due to the rise of prices in dollars. In the period 2004-2010, sales had an 80% increasein current dollars.Even though the domestic pharmaceutical market has expanded significantly over the pastseven years, with increases in the amounts of sold units as well as in the prices of medicines,driven by the growth of the household incomes simultaneously with the appreciation of theUruguayan peso against the dollar, the behavior of sales vary within the two major subgroups oflaboratories previously defined.Conforming to data from CEFA15, by breaking down the information according to the origin ofthe capital of the laboratories for the period 2004-2010, we can observe that national andregional laboratories sales showed a similar behavior to those of multinational enterprisesmeasured in values, with an expansion of 112.4% and 122.6% respectively (during theaforementioned period). However, measured in physical units, national laboratories presented asignificantly higher dynamism than foreign laboratories with an increase of 39.8% and 25.4%respectively. In contrast, the average price in dollars of marketed drugs by multinationallaboratories increased 77.4% in the period 2004-2010, while prices marketed by national andregional laboratories increased 51.9%. Similarly, it is relevant to point out that like in 2010; theaverage prices of medicines marketed by multinational laboratories were almost five timesgreater than those of national and regional laboratories.15 Due to the fact that different information sources were considered, estimates regarding the size of the domesticmarket may vary from those presented in paragraphs above. Even so, we understand that the information iscomplementary and contributes to the enrichment of the sectoral analysis. 30
  31. 31. Chart No.14 – Sales in the Domestic Market in Thousands of Dollars by Business Chamber C.E.F.A A.L.N. TOTAL Thousands Variation Thousands Variation Thousands Variation Year US$ % US$ % US$ % 2004 49,543 1.0 109,266 6.2 158,809 4.5 2005 56,955 15.0 124,363 13.8 181,318 14.2 2006 60,330 5.9 126,854 2.0 187,184 3.2 2007 67,560 12.0 142,853 12.6 210,413 12.4 2008 86,080 27.4 176,838 23.8 262,918 25.0 2009 93,402 8.5 189,704 7.3 283,106 7.7 2010 110,295 18.1 232,096 22.3 342,391 20.9 Source: C.E.F.A Chart No.15 – Sales in the Domestic Market in Thousands of Units by Business Chamber C.E.F.A A.L.N. TOTAL Thousands Variation Thousands Variation Thousands Variation Year Un. % Un. % Un. % 2004 7,780 -4.8 70,394 6.9 78,174 5.6 2005 7,475 -3.9 74,945 6.5 82,420 5.4 2006 7,983 6.8 77,250 3.1 85,233 3.4 2007 7,872 -1.4 82,314 6.6 90,186 5.8 2008 8,681 10.3 89,239 8.4 97,920 8.6 2009 9,544 9.9 90,447 1.4 99,991 2.1 2010 9,759 2.3 98,399 8.8 108,158 8.2 Source: C.E.F.AIn 2010, according to data from C.E.F.A., the national and regional laboratories grouped in theA.L.N accounted for 91% of market sales measured in physical units, while multinationallaboratories accounted for the remaining 9% of the market. However, in current dollars, theA.L.N. laboratories have 68% of the domestic market while multinationals grouped in C.E.F.A.account for 32% as a result of the higher prices obtained by these last group. 31
  32. 32. Graph No.16 – Participation in Domestic Market Sales according to Business Group In Physical Units 9% 91% C.E.F.A A.L.N. Source: C.E.F.A.With respect to the evolution of prices of medicines measured in current dollars in the domesticmarket during these recent years, they have presented an upward trend, even though it is worthnoting that they are based on very low levels after the devaluation and economic crisis of 2002. Graph No.17 – Prices of Medicines (US$) in the Domestic Market Source: C.E.F.AHowever, despite the increase observed in recent periods, the dollar prices of medicines inUruguay continue to have the lowest prices in the region, as shown in the following chart, whichpresents information for the year 2008. 32
  33. 33. Graph No.18 – Comparison of Average Prices of Medicines in Latin America- Year 2008 (Prices in US$) Source: IMS Health 4.3. Leading Companies, Products and Market Share.The domestic market for medicinal products is characterized on the one hand, by the lowconcentration of sales at laboratories level as well as in products, and on the other hand, by therelatively stable structure in the market share of the laboratories.In regards to the fragmentation of sales at enterprise level, we can observe that the marketleading company accounted for 12.5% of the sales measured in dollars. Likewise, the five leadingcompanies accumulate 34% of the sales. Three of them correspond to national and regionalcapital companies (A.L.N.), and two are multinational enterprises (C.E.F.A.). Chart No.16 – Sales from Leading Laboratories Sales in 2010 Company Business US$ Participation Chamber Thousands % Units Share % Roemmers A.L.N. 41,266 12.5% 9,557 13.0% Bayer C.E.F.A 19,256 5.8% 2,722 3.7% Roche C.E.F.A 18,690 5.6% 480 0.7% Urufarma A.L.N. 16,735 5.1% 3,841 5.2% Celsius A.L.N. 16,734 5.1% 5,316 7.2% Others 218,494 66.0% 51,422 70.1% Total 331,175 100.0% 73,338 100.0% Source: IMS HealthFor its part, the most marketed medicine in the private channel, both over-the-counter and withprescription, has a market share of only 1.2%, while the main ten medications marketed in thischannel account for less than 9% of the market share. 33
  34. 34. Chart No.17 – Main Medicines by Trade Name in the Private Channel Sales in 2010 Product Business Laboratory US$ (Trade Name) Chamber Share % Thousands Divina 21 Urufarma A.L.N. 3,819 1.2% Amoxidal Roemmers A.L.N. 2,957 0.9% Yasmin Bayer C.E.F.A. 2,864 0.9% Novemina Lazar A.L.N. 2,715 0.8% Insulatard HM Roemmers A.L.N. 2,559 0.8% Perifar Spefar A.L.N. 2,440 0.7% Clexane Sanofi-Aventis C.E.F.A. 2,249 0.7% Perifar flex Spefar A.L.N. 2,155 0.7% Pharmaton Boehringer Ing C.E.F.A. 2,151 0.7% Others 302,619 92.7% Source: IMS HealthAnalyzing the structure of sales, but at drug level, we observe that the main five marketed drugsare close to 8% of the market share. Chart No.Nº18- – Main Drugs by Trade Name in the Private Channel Sales in 2010 Drug US$ Share % Thousands Drospirenone + Ethinylestradiol 8,180 2.5% Bevacizumab 4,647 1.4% Ibuprofen 4,129 1.2% Acetylsalicylic Acid 3,852 1.2% Metamizole Sodium 3,851 1.2% Others 306,515 92.6% Source: IMS HealthFinally, regarding the participation of the leading laboratories in the domestic market, in thefollowing chart16 you can see, that during the past seven years there has not been many changesin market shares, beyond a slight growth of the participation of the leading laboratory.16 Due to the fact that different information sources were considered, estimates regarding the size of the domesticmarket may vary from those presented in paragraphs above. Even so, we understand that the information iscomplementary and contributes to the enrichment of the sectoral analysis. 34
  35. 35. Chart No.19- Participation of the 10 Leading Laboratories Ranked according to 2010 Values Business Company 2004 2005 2006 2007 2008 2009 2010 Chamber Roemmers A.L.N. 8.14 7.87 807 8.70 8.39 8.94 10.37 Roche C.E.F.A. 7.40 6.99 7.11 6.91 6.83 6.82 6.98 Bayer C.E.F.A. 5.87 5.20 6.20 5.46 5.55 6.35 6.08 Celsius A.L.N. 5.80 6.21 5.11 6.15 5.91 5.60 5.30 Urufarma A.L.N. 3.27 3.53 3.47 3.64 4.31 4.65 4.99 Spefar A.L.N. 3.97 4.00 4.17 3.79 3.67 3.82 4.35 Fármaco uruguayo A.L.N. 3.06 3.58 3.83 4.10 4.06 4.12 4.29 Abbot C.E.F.A. 3.03 3.15 2.96 2.93 3.07 3.56 3.50 Libra A.L.N. 3.61 3.44 3.45 3.21 3.13 3.39 3.35 Lazar A.L.N. 3.46 3.28 3.45 3.34 3.45 3.38 3.03 Source: C.E.F.A 4.4. Distribution ChannelsCurrently, the structure of the sales channels for pharmaceutical laboratories for human use isdefined by the existence of three distinctive segments in this sector, which are the privatechannel consisting of drugstores and pharmacies, the health insurance channel and the publicchannel (Government). Each of these channels has different characteristics, such as marketedvolumes, periods and payment conditions, price levels, all of which determines differentprofitability levels obtained by the laboratories in each one of these channels.According to data from C.E.F.A. in 2010, measured in values, pharmacies and health insuranceschemes channeled 42% of medicine sales, health insurance schemes 36% and the State 22%. Graphic No.19- Sales Distribution by Distribution Channels (US$) Source: C.E.F.AHowever, measured in physical units, the participation of the diverse sales channels variessignificantly, being the health insurance schemes and the State the agents who acquire the most 35
  36. 36. significant volumes, allowing them access to better prices and payment conditions, with regardto pharmacies and drugstores. Graph No.20- Sales Distribution by Distribution Channels (Physical Units) 26% 28% Pharmacies and Drug Stores Health Insurance Schemes State 46% Source: C.E.F.ABelow is a brief analysis of each of the identified channels, its main features (prices andmarketed volumes) and the different strategies adopted by each group of laboratories.PharmaciesAccording to the sector’s report prepared by the Productive Cabinet in 200817, Uruguay hadapproximately 1,300 pharmacies located in Montevideo, 600 in the interior of the country andsix drugstores, five of them located in Montevideo and one in the interior of the country.Historically, the average sale price in this channel is the highest compared to the rest of thechannels, and therefore provides higher trade margins to participating laboratories.Additionally, it has been characterized as the channel in which payment periods have beenshorter, usually at 50 days from the date of invoice, and the payments chain has not beeninterrupted, with few exceptions, given that it is very fragmented by the existence of a largenumber of pharmacies in the country. Figure 1 – Operation of the Private Channel Laboratory Drugstore Pharmacy Doctor Patient Source: Productive Cabinet (2008)17 Nowadays the number of community pharmacies could present a slight decline due to a tendency towards anexisting concentration in the sector in the last couple of years. 36
  37. 37. Although community pharmacies are characterized as small business units, in which thestock of medicines is minimum and inventory turnover is low, the formation of chains ofpharmacies in Uruguay are becoming increasingly noteworthy. These chains place ordersdirectly to laboratories and possess a general deposit from which they distribute to otherbranches. In this case, the relationship with drugstores is practically inexistent since workingwith considerable volumes enables them to have access to more convenient prices andpayment periods directly from laboratories. Another modality that has been adopted by themarket in recent years is what it is known as a "Pool of Pharmacy". This new modalityincludes a physical establishment which operates as a merchandise warehouse and enablesmembers to have direct contact with the laboratories, placing the order in importantvolumes and therefore obtaining significant discounts.Although in recent years the participation of the private channel in the total sales oflaboratories has remained practically unchanged, we do observe changes regarding thechannel itself, such as in the distribution between drugstores and pharmacies. According todata from IMS Health – taken from Dos Santos et al. (2009) - While in 2003 only 19% of thelaboratories pharmaceutical products sales were marketed directly through communitypharmacies, i.e. without prior intermediation of drugstores, in 2008, 40% of sales weremarketed directly through pharmacies. Chart No.20 – Sales in the Private Channel according to Business Groups Thousands of Dollars Units Average Price Year Var. Var. Var. Var. Var. Var. C.E.F.A. % A.L.N. % C.E.F.A. % A.L.N. % C.E.F.A. % A.L.N. % - 2004 18,837 4.5% 38,972 3.9% 4,031 2.6% 14,509 0.9% 4,67 1.7% 2.69 5.1% - 2005 22,388 18.9% 42,852 10.0% 3,941 -2.2% 13,773 5.1% 5,68 21.6% 3.11 15.6% 2006 23,393 4.5% 43,248 0.9% 3,933 -0.2% 14,178 2.9% 5,95 4.8% 3.05 -1.9% 2007 26,428 13.0% 49,971 15.5% 4,175 6.2% 15,100 6.5% 6,33 6.4% 3.31 8.5% 2008 35,174 33.1% 63,787 27.6% 5,080 21.7% 16,337 8.2% 6,92 9.3% 3.9 17.8% 2009 36,473 3.7% 66,506 4.3% 5,619 10.6% 16,776 2.7% 6,49 -6.2% 3.96 1.5% 2010 39,738 9.0% 85,442 28.5% 5,466 -2.7% 18,079 7.8% 7,27 12.0% 4.73 19.4% Source: C.E.F.AIt is in this channel where the laboratories associated with the A.L.N. present higher averagesales prices, which are significantly higher than the prices marketed in the health insurance and 37
  38. 38. State Channels. Instead, for multinational laboratories grouped into C.E.F.A, the private channelrecords the lowest prices of sales18, even though it presents the largest volumes.Health Insurance SchemesThis channel comprehends Health Insurance Schemes and Private Insurances. Currently, wehave 40 Health Insurance Schemes in the country, 11 in Montevideo and 27 in the interior, whilethere are seven Private Health Insurances associated with the National Integrated Health System(SNIS). 20 years ago these institutions were authorized to have “Health Insurance SchemesPharmacies”, which give their members medicines for the value of a single-value ticket for allmedications. At the beginning, the local pharmaceutical industry was able to foresee that due tothe large volumes that they could handle and the associated lower costs of distribution, thischannel would be an interesting way of getting medications into the market. Soon, due to thepurchasing power achieved by the healthcare system, the average selling price dropped. Thefigure below shows how the patient receives the medication through the laboratory by means ofthis channel. Figure 2 – Operation of the Health Insurance Channel Laboratory Pharmacies from Doctor Patient Health Insurance Schemes Source: Productive Cabinet (2008)Through this channel patients can have access to medications through a copayment which isusually cheaper (although not always) than if the patient has to purchase the medicationthrough the private channel. Each of these institutions also presents a list of generic namemedications, better known as Vademecum19, which comprises the essential medicinesavailable for treatment of the population’s most common conditions. Physicians from theseinstitutions are forced to prescribe medications that are included in the aforementioned list.In this way, laboratories face a double challenge; to be admitted in each institution’s18 It is worth mentioning that the most expensive medications of the multinational laboratories products portfolio arepurchased by users through pharmacies within the health insurance schemes or provided by public health for users ofthe public system. In the case of the former, it is cheaper for members of health insurance schemes to purchase thistype of medication through copayment than to purchase them in community pharmacies.19 Set forth in Decree 321, August, 2003. 38
  39. 39. medical list and if this is actually achieved, to encourage their prescription by the medicalstaff of the institution.On the other hand, Douskas et al. (2008) point out that in Uruguay there are no medications,except for over-the-counter medicines, which present a high level of participation in the privatechannel, and that have not been marketed in the mutual channel before. Sales in this channel,enables to propagate and circulate knowledge of the medicine both to physicians and patients. Chart No.20 – Sales in the Health Insurance Channel According to Business Groups Thousands of Dollars Units Average PriceYear Var. Var. Var. Var. C.E.F.A. % A.L.N. % C.E.F.A. Var. % A.L.N. Var. % C.E.F.A. % A.L.N. %2004 18,921 2.0% 36,124 3.8% 2,471 -6.0% 23,074 3.1% 7,66 8.7% 1,57 0.6%2005 21,504 13.7% 35,613 -.,4% 2,495 1.0% 21,177 -8.2% 8,62 12.5% 1,68 7.0% -2006 23,236 8.1% 38,740 8.8% 2,726 9.3% 23,208 9.6% 8,52 -1.2% 1,67 0.6%2007 25,227 8.6% 43,912 13.4% 2,488 -8.7% 26,619 14.7% 10,14 19.0% 1,78 6.6%2008 30,524 21.0% 56,047 27.6% 2,582 3.8% 29,133 9.4% 11,82 16.6% 1,92 7.9%2009 30,255 -0.9% 63,780 13.8% 2,713 5.1% 32,351 11.0% 11,15 -5.7% 1,97 2.6%2010 34,382 13.6% 74,573 16.9% 2,978 9.8% 36,307 12.2% 11,55 3.6% 2,05 4.1% Source: C.E.F.ABy fragmenting sales, according to business groups, we can observe a significant predominanceof the laboratories associated with the A.L.N, with a participation of 92% in the number of unitssold in 2010, although measured in values, their participation is significantly lower (68%), as aresult of the lower prices in regard to the laboratories associated with C.E.F.A. The prices of theaforementioned in the health system channel are five and a half times higher than those ofnational and regional laboratories.StateUntil 2001 the State purchases of medicines were carried out through independent biddings foreach body (hospitals, military health institutions, Social Security Bank-BPS, National InsuranceBank-BSE, etc.). Payment periods exceeding 180 days or more was also a distinctive feature,although with some laboratories they kept debts that exceeded the 24 months. After theeconomic crisis of 2002, the Government sought to strongly reduce costs in the acquisition ofmedications along with improvements in the financial situation of public health institutions. Forsuch purposes, the government implemented a purchase center which depends exclusively ofthe Ministry of Economy and Finance (MEF), which consolidates the orders of all dependenciesand commits itself to shorter payment periods, thereby achieving a lower acquisition cost of 39
  40. 40. medicines and enabling laboratories to have a greater liquidity by having access to money inshorter periods of time20.A common practice of national laboratories is that they enter the state channel to achieve thelargest market share selling with lower profitability levels from those obtained in the privatechannel, enabling them to achieve economies of scale and greater propagation and knowledgeof their products. Chart No.22 – Sales in the State Channel according to Business Groups Thousands of Dollars Units Average PriceYear C.E.F.A. Var. % A.L.N. Var. % C.E.F.A. Var. % A.L.N. Var. % C.E.F.A. Var. % A.L.N. Var. %2004 7,062 -13.9% 20,405 3.8% 567 -6.0% 19,535 3.1% 12,46 42.1% 1,04 5.1%2005 9,449 33.8% 20,835 2.1% 529 -6.7% 18,539 -5.1% 17,86 43.3% 1,12 7.7%2006 9,808 3.8% 23,933 1.9% 831 57.1% 21,848 17.8% 11,8 -3.9% 1,1 -1.8%2007 10,962 11.8% 26,501 10.7% 568 -31.6% 22,695 3.9% 19,3 63.6% 1,17 6.4%2008 14,442 31.7% 29,547 11.5% 395 -30.5% 23,071 1.7% 39,56 105.0% 1,28 9.4%2009 20,718 43.5% 31,494 6.6% 585 48.1% 20,676 -10.4% 35,41 -10.5% 1,52 18.8%2010 28,303 36.6% 37,986 20.6% 685 17.1% 21,634 4.6% 41,32 16.7% 1,76 15.8% Source: C.E.F.AAs mentioned above, the State channel is the only one that on average pays the lowest prices incomparison to the three other channels. Moreover, sales from this channel, measured inphysical units, are dominated by national laboratories, although they have recently lost someparticipation by low-cost medications importing offices from Asian countries. Within this groupof laboratories, this channel is the only one who presents the lowest prices and subsequently,the lowest levels of profitability. On their part, multinational laboratories limit their participationin public biddings to high-cost medications. In this regard, as of 2008, the National ResourceFund (Fondo Nacional de Recursos-FNR) incorporated new pathologies to its list of treatments,and their medicines are only available in the product portfolio of multinational laboratories,characterized by its high costs, which increased significantly the average prices received by thisgroup of laboratories.20 Prior to the creation of the State Centralized Purchasing Unit (Unidad Centralizada de Compras del Estado-UCA), dueto the failure and delays of their payments, prices of sales carried out through this channel presented a high financialcomponent. 40
  41. 41. 5. National Integrated Health System (S.N.I.S)Since 2005, many changes began to take place in the Uruguayan existing health system (HealthReform) which implied changes in laws and regulations and from which the National IntegratedHealth System (Sistema Nacional Integrado de la Salud - S.N.I.S) was created.To a great extent, the reform was developed under the following guiding principles: Universal access to health, fairness in the access of health, fairness in cost and financing of health, quality healthcare, and recover the financial sustainability of the system.Considering that the changes generated by the creation of SNIS21 might have potential impactson the pharmaceutical industry in Uruguay, it was considered appropriate to briefly describe themost relevant changes that were introduced. In this sense, the potential impacts of the reformof health on the Uruguayan pharmaceutical industry could come mainly through: o Changes in the distribution of the number of members between the private sector (health insurance schemes), and the public sub sector that could generate modifications in the participation of each of the marketing channels (private, health insurance and state). o New regulations on the production and marketing of medications.Regarding laws and decrees approved, Law 18.131 which created the National Health Fund(Fondo Nacional de Salud - Fonasa) and Law 18.211 which came into force January 1, 2008,creating The National Integrated Health System (SNIS) are noteworthy. With the entry into forceof Law 18.131 new groups were integrated to the benefits of health insurance, includingemployees from the State Central Administration and education officials, among others. On theother hand, with the entry into force of Law 18.211, new users entered progressively by stagesto the SNIS, including under age children of dependent workers, retirees and pensioners andmost recently, university professionals and others with sectoral benefit funds. The data showedbelow reveals the changes mentioned above. Chart No.23- Expansion of the Integrated Assistance in the SNIS by Type of Provider21 It should be noted that at the time of the present report, in Uruguay no papers or research has been done that mayquantify the plausible impacts of the health reform on the pharmaceutical industry. Moreover, this topic exceeds thescope of this document. 41

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