Figure 1 Breakdown of ELEA’s sales
4. The pharmaceutical market in Argentina
Argentina has a population of 40 091 359 (INDEC, 2010). With a human development index (HDI) of 0.866, Argentina is ranked forty-ninth out of the 182 countries included and is considered to be a country with high human development (UNDP, 2009). Female life expectancy is 79.10 years and male life expectancy is 71.60 years (Ministerio de Salud & PAHO, 2009). Argentina’s urban population equals roughly 89.5% of the total population. Approximately 19.2% of Argentine households live below the poverty line and, of these, 6.3%
are considered poverty-stricken (INDEC, 2006). In 2007, the infant mortality rate was 13.3 deaths per 1000 live births (Ministerio de Salud & PAHO, 2009).
Argentina has 321 doctors, 38 nurses and 11 midwives per every 100 000 inhabitants (Ministerio de Salud & PAHO, 2009).
The principal infectious diseases found in Argentina are Chagas disease, HIV/
AIDS and tuberculosis. The tuberculosis morbidity rate is 27.1 cases per 100 000 inhabitants and the mortality rate is 1.76 deaths per 100 000 inhabitants. In 2007, roughly 80.4% of tuberculosis cases were detected and cured by directly observed therapy (DOT). The mortality rate for HIV/AIDS is 3.6 deaths per 100 000 inhabitants and the incidence rate is 39 per 1 000 000 inhabitants (Ministerio de Salud & PAHO, 2009).
The Argentine pharmaceutical industry consists of approximately 250 laboratories, of which 37 are state-owned (national, provincial or municipal) and the remainder are owned by private enterprises. Argentina is home to 110 industrial plants, 93 of which belong to Argentine businesses and 17 of which belong to foreign-owned laboratories. The Argentine pharmaceutical industry produces approximately 2000 pharmaceutical products with different APIs, or combinations thereof, which make up more than 10 500 products with
15 A hybrid virus is a mix of a standard laboratory virus strain and, for instance, the H1N1 virus.
commercial names and comprise roughly 23 000 different presentations (De la Puente et al., 2009).
In 2009, sales in the Argentine pharmaceutical market totalled US$ 3.846 billion.16 Prescription drugs account for 90% of the market and over-the-counter sales comprise the remaining 10%. The pharmaceutical industry represents 5% of industrial gross domestic product (GDP). The pharmaceutical industry directly employs 27 000 people and indirectly employs another 100 000 people.17
Argentine laboratories control approximately 58.5% of the domestic market and foreign-owned laboratories control the remaining 41.5%. Four of the six largest laboratories located in Argentina – Roemmers (first), Bagó (second), ELEA (fifth), and Gador (sixth) – are domestic companies. As in other countries, the pharmaceutical industry is very highly concentrated, with the 15 largest laboratories accounting for 55% of the market; of these 15 laboratories, 9 are domestic companies.
Historically, there has been a strong market presence on the part of domestically owned laboratories. In 1963, Argentine laboratories controlled 50.7% of the market and by 1971 this percentage had increased to 51.6% (Katz, 1973).
This upward trend continued throughout the 1980s, and by 1994 Argentine laboratories controlled 61% of the local pharmaceutical market.
In the 1990s, the pharmaceutical sector experimented with certain structural transformations, including the elimination of price controls, the reduction of tariff protection, the elimination of the prohibition against patents for pharmaceutical products, and the modification of the regulatory regime for the industry (Panadeiros, 2002).18 At the same time, foreign laboratories acquired several domestic laboratories or specific product lines from domestic laboratories. Furthermore, foreign laboratories ceased to license products to Argentine laboratories and, instead, began to sell the products directly to the market. This led to a decrease in the market share of Argentine companies, which fell to 49.1% in 2000, the lowest level since 1962 (Panadeiros, 2002).
The devaluation of the Argentine peso in 2002 and the subsequent economic crisis constricted the local pharmaceutical market. From 2001 to 2002, the market slipped from US$ 3.659 billion to US$ 1.309 billion.19 Despite the changes initiated in the 1990s and the depth of the 2002 crisis, Argentine laboratories adapted to the new circumstances and recouped their leadership positions in the market in subsequent years. At the beginning of the twenty-first century, Argentine laboratories began to buy manufacturing plants and
16 Source: IMS Health Argentina.
17 Source: CILFA.
18 2000 was the only year in which foreign-owned laboratories had higher levels of participation in the market than local laboratories.
19 Source: IMS Health Argentina.
production lines from the multinational laboratories.20 In 2009, the market regained the value it possessed in 2000, totalling US$ 3.846 billion and, as described above, the market participation of Argentine firms reached 58.5%.21 The structure of the Argentine pharmaceutical industry has been the subject of numerous studies over the past 40 years (e.g. Katz, 1973, 1974, 1987; Katz &
Burachik, 1992). Until the mid-1990s, the success of the national industry was thought to be the result of three main factors: (i) the prohibition of patents for pharmaceutical products, (ii) the approval regime for medications, and (iii) the high level of tariff protections afforded to the local industry (Santoro, 2000).
As a result of these three factors, domestic firms based their strategies on the rapid rate of introduction of new products to the market and the supply of raw materials to the international market. The cost to import raw materials was far below the transfer price that multinational subsidiaries usually paid, while the sale price for drugs was slightly less than the prices offered by the multinational laboratories. This price differential was used on many occasions to produce a backward vertical integration into production of APIs, to realize more aggressive marketing schemes (e.g. increased commercialization costs per unit), and to assist in many aspects of company development, ranging from production to pharmaceutical development (Santoro, 2000).
Local companies have undertaken new product launches at a high rate, and also launched products with new combinations of APIs. Argentine companies have based their model on the sale of branded generic drugs and the intense promotion of their products. This approach results in many branded generics having the same characteristics as the innovative products available in the international market. Consequently, the Argentine generics laboratories obtained market power through trademarks and promotion (De la Puente et al., 2009). On the other hand, multinational firms have based their strategies on the payment of transfer prices for the importation of finished products and materials, fewer new product launches per year, and a strong tendency to concentrate on drugs comprised of only one API (Santoro, 2000).
The Argentine pharmaceutical market relies very heavily on imported raw materials. Throughout the 1990s only approximately 25% of the raw materials used by the national drug manufacturing industry were of local origin, a proportion that has decreased over the past several years due to the transformations that the industry undertook during the 1990s (De la Puente et al., 2009). According to the Argentina Instituto Nacional de Estadística y Censos (Statistics and Census National Institute; INDEC), only 15.20% of inputs were domestic in origin in 2009.22 These data reflect the elevated dependence
20 In 2002, Argentine laboratory Roemmers bought a Roche plant, Casasco bought a plant from Janssen Cilag, and Phoenix purchased a plant from Novartis. In 2004, LKM acquired a Schering AG plant, while HLB Pharma bought an Aventis plant. In 2005, Craveri purchased Valeant Pharmaceuticals Argentine plant. In 2006, Roemmers acquired Bristol-Myers Squibb’s domestic production site and Richmond purchased a facility from Altana Pharma (CILFA, 2006, p. 25).
21 Source: IMS Health Argentina.
22 Conclusion of the author based on 2009 quarterly reports from INDEC (2009a).
on imported APIs that confronts the pharmaceutical sector (De la Puente et al., 2009). According to the interviews conducted for this case study, Argentine companies do not have the scale of production that Indian and Chinese firms possess, and so the Argentine companies cannot compete with the lower prices offered by Indian and Chinese companies. This – rather than a lack of technical expertise – is the principal impediment to increased development in the domestic pharmachemical industry.
In 2009, Argentine imports and exports of APIs, excipients, and finished and semi-finished products totalled US$ 1.424 billion and US$ 735.30 million, respectively. Of these totals, APIs and excipients comprised roughly US$
297.88 million of imports and US$ 95.13 million of exports. The importation of finished and semi-finished pharmaceutical products totalled US$ 1.126 billion, while the exportation of finished and semi-finished products constituted US$
640 million (Table 1). The export of pharmaceutical products represents 1.34%
of Argentina’s total exports, while the import of pharmaceutical products makes up 3.67% of the country’s total imports.23