Country Report: Chile

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CHILE: Pharma's Changing Landscape

"2014 represents an exciting time for healthcare in Chile with the implementation of a new national drug law; ensuring the creation of a system that makes access to medications easier and more transparent for patients and, moreover, assures a sufficient supply all over Chile," explains Helia Molina, a doctor specializing in pediatrics and nephrology and Chile's Minister of Health since March 2014. The 'Ley de Farmacos,' or Drugs Law, was passed by Chile's former government in January 2014; its implementation now rests with the new administration.

Cover Art by Ignacio Gana. Ignaciogana@gmail.com

"The new government of Chile has made a commitment to improving the health of the population," Molina explains, "and the Ministry of Health will expand the list of chronic diseases included in the Regime of Explicit Health Guarantees (AUGE) plan, which ensures government-funded coverage for patients regardless of age, class, and ability to pay."

This should contribute to boost a market that is already expected to grow 8.2 percent between 2012 and 2017 according IMS Health. In 2012, the Chilean pharmaceutical market was worth a total of USD 2 billion, according to the latest available data from IMS.

Helia Molina, Minister of Health

The new government plans to introduce further legislation to improve healthcare in Chile. In her paper entitled '50 Commitments for the First 100 Days of Government,' President-elect Michelle Bachelet builds the basis of her plan for better health services for the nation, committing to invest significantly in the construction of new hospitals, increase the number of specialists to combat long waiting lists in the public sector and provide patients with better access to free drugs.

As it currently stands, Chile's universal healthcare plan covers 80 percent of the population. The remaining 20 percent are entitled to pick their coverage from a number of private insurance companies known as ISAPRES. 80 percent of people in Chile should have access to free drugs under FONASA, the public health insurance system; however, the reality is that there are often shortages at hospitals, and as a result people turn to private pharmacies to fill their prescriptions out-of-pocket. As a result, despite FONASA, out-of-pocket expenditures in Chile are some of the highest in the OECD: A total 4.6 percent of the average Chilean family's budget is spent on healthcare, compared to the OECD average of 2.86 percent.

Ricardo Fabrega, director of the Public Health Institute

There is positive news on some fronts however: after years of infamously tense relations between MNCs and the government, both parties finally seem to have found a platform for dialogue. "As an industry, we have an active dialogue with the ministry regarding the expansion of access to innovative medicines, but the discussion is still young and we still have a lot to do," explains Erich Viertel, country manager at Janssen Chile. "Finding the best path to lead Chile toward economic development has been an ongoing task of Chilean governments and leaders over the last century. And if the country is able to sustain its current momentum, at the end of this decade it will probably become the first fully developed country in Latin America."

The Chamber of the Pharmaceutical Industry in Chile (CIF), which represents the international innovators, will carefully monitor the implementation of the new healthcare law, which requires prescriptions to mention the name of the chemical compound. While this is seen as positive for the customer, who will now have access to cheaper alternative products and also their personal brand preference, for, innovators there is still a major concern about bioequivalence.

Jean Jacques Duhart, executive vice president, CIF

In Chile, as in other Latin American countries, similares have high market penetration: generic drugs that do not have proven bioequivalence. "If the law would allow physicians to prescribe any generic drug including non-bioequivalents, all efforts made by previous governments would be for nothing," says Jean Jacques Duhart, executive vice president of CIF. "A large portion of products on the Chilean market cannot demonstrate quality, safety and efficacy through bioequivalence studies. Similares are neither generics nor originals and have not demonstrated their quality, efficacy and safety as recommended by the World Trade Organization."

He also warns: "This is not merely a concern in terms of health and risk for patients but it also introduces an important market distortion—different actors are competing with different standards."

Erich Viertel, country manager, Janssen

LEVEL PLAYING FIELD

Chile is aiming to achieve complete bioequivalence of generics by the end of 2014. Chile's Public Health Institute is leading the bioequivalence testing, aimed at regulating differences between generic and bioequivalent drugs. The recently appointed director of the Public Health Institute, Ricardo Fabrega, echoes the need for drastic change and stresses that: "laboratories that produce generics will have to understand that they must comply with bioequivalence studies; otherwise we will take them out of the market."

Carlos Cicogna, managing director, MSD

The request for bioequivalence could be a game changer. Companies producing similares could be forced out of the market, or to drastically change their practices. According to Carlos Cicogna, managing director of MSD Chile, it could also drive investments from MNCs in the country: currently, MNCs are responsible for more than half of the bioequivalent generics on the market. "The environment is getting more attractive for innovators such as MSD: with the new regulations we will see an equal playing field; fair conditions are being implemented. And as a result there is an increasing interest from the industry to increase investment in the country."

Cicogna, who has been in Chile since 2009, has already witnessed drastic change in the market: "There have been two major developments in the past five years: the implementation of the new drug law and the shift in landscape: the top players on the Chilean pharmaceutical market used to be local players, but today the key players are multinationals."

Elmer Torres Cortes, general manager, ASILFA

Another proposal currently being discussed in parliament is the complete overhaul of ANAMED, the national regulatory agency for medicines in order to bring it in line with other regulatory bodies around the world. Elmer Torres Cortes, general manager of ASILFA (the association representing generics companies in Chile) explains, ANAMED is currently part of Chile's Public Health Institute, but should be separated in order for it to stand as an independent regulator of medicines. The current plan being discussed for ANAMED is for it to reach level four of the Pan American Health Organization (PAHO) assessment table, at which point it can be designated a reference authority for medicines. "ANAMED should be autonomous, independent and capable of monitoring the local and international industry. We believe this is fundamental for the pharmaceutical industry in Chile," Cortes adds.

Tecnofarma: an outstanding example

THE R&D INCENTIVE

With the goal of making Chile a hub for innovation, the Chilean Ministry of Economy and CORFO, the Chilean Economic Development Agency, announced last year that four multinational companies would invest in new research and development centers. From the pharmaceutical sector, Pfizer will invest in a precision medical center studying new genome-based diagnostic technologies for cancer. The aim is to enhance Pfizer's precision medicine approach to help understand the underlying biology of disease and identify patients likely to benefit from new drugs.

Chile from a manager’s perspective

For the project, Pfizer partnered with the government to develop technology and research: CORFO has contributed USD 7 million out of a total investment of USD 21 million. "Our expectation is that with the initial support of the government, this will be the first of a series of programs that Pfizer will develop in Chile," explains CORFO's executive vice president Eduardo Bitran. "With this subsidy, which we consider seed money, we expect Pfizer to change its view of the country and continue to develop applied research in Chile. As a country we are sending a signal with the aim that other pharmaceutical companies will follow suit."

This strategy seems to be paying off: "The feedback from the industry has been extremely positive and as a result we have received many inquiries about the center," says Ricardo Avila, medical director at Pfizer Chile. "It seems that there is an increasing interest to increase investment in the country." Pfizer's country manager in Chile, Carlos Murillo, feels responsibility to turn this project into a success in the coming years and believes that Pfizer has paved the way for Chile to position itself as a biotech hub for Latin America. "I expect the ecosystem to start flourishing soon," he asserts. "This country is for our company an example of how we can work in partnership with the government."

Carlos Murillo, country manager, Pfizer

Over the past decade, as clinical research activities have been growing steadily within Latin America, Chile has worked hard to become a regional leader for conducting clinical trials. Due to its qualified human capital base and favourable government environment, the country has competitive advantages for developing such a cluster. Currently, Chile lead the per capita rate of clinical trials in Latin America (0.34 per 10 000 inhabitants, threefold of that of Brazil or Mexico).

Roche has a long history of conducting Clinical trials in Chile. Currently the company has 19 on-going trials in 10 different disease stages and is eager to conduct more in the future. According to Ciro Caravaggio, general manager of Roche conducting clinical trials in Chile can be expensive, the process can be slow, and requires significant approval hurdles. "Furthermore, many don't see the value the trials can bring to a hospital or a patient. For a major oncology hospital, clinical research is an integral part of care and not an afterthought; it is critical! So many patients are at the end of their treatment and want new hope."

Eduardo Bitran, executive vice president, CORFO

Historically the clinical trial environment has been seen as a matter for international companies but the CIF is working hard to turn around this situation. "We are working on involving more local partners in clinical trials and research and development. It is our ambition to establish Chile as a leader for clinical trials and research in medicines", CIF executive vice president, Jean Jaques Duhart said.

Prescription Drug Sales in Units

CHANGING LANDSCAPES

Pharma M&As are back with a vengeance. Latin America, which is predicted to grow two to three times faster than developing markets in the years to come, has been a prime target. Chile has not been spared in this recent activity, with several acquisitions in recent months.

Deutsche Pharma: partner of choice

The dealmaking in Chile started in December 2013 when Grünenthal Group, an international research-based pharmaceutical company headquartered in Aachen, Germany, completed the acquisition of Andrómaco Laboratories for an undisclosed sum. Andrómaco is a leading Chilean pharmaceutical company with over 70 years in the market that specializes in prescription drugs, but also has a wide range of high technology products, generics and OTC. Grünenthal accepted the public tender offer with respect to the acquisition of all issued and outstanding shares of Andrómaco.

João Simões, head of integration at Grünenthal Chile, explains that the acquisition has been a major step in the company's growth strategy and has almost doubled its revenues up to USD 450 million in Latin America. In the words of Grünenthal Group's CEO, Eric-Paul Pâques: "With Empresas Andrómaco, we acquire the best regional company to complement our own business and our therapeutic areas in the Andean countries and Central America." In Chile, it propelled Grünenthal into the market's top four companies.

Multi Latina

In May 2014, Alliance Boots, a British pharmacy-led health and beauty group, signed an agreement to acquire Farmacias Ahumada (FASA) Group. FASA is a publically-listed pharmaceutical specialist in Latin America comprising of two retailers: Farmacias Benavides, based in Mexico and Farmacias Ahumada, based in Chile. Together the retailers operate over 1,400 stores, with combined revenues of around USD 1.4 billion: the third largest retail pharmacy chain in Mexico with around 1,000 stores, and one of the three largest retail pharmacy chains in Chile with around 400 stores.

The latest move in a series of multi-billion dollar deals came in May with year, with the acquisition of CFR Pharmaceuticals by Abbott Laboratories. The largest maker of heart stents and adult nutritional beverages joined the wave of mergers and acquisitions with a USD 2.9 billion agreement to acquire Chile's biggest drugmaker. Santiago-based CFR sells a range of products for women's health, heart and respiratory diseases in 15 markets across Latin America. The deal will more than double its branded generic drug business in Latin America and establish the company among the top 10 pharmaceutical companies in the region.

Edgardo Díaz Navarrete, director, CENABAST

A PARTICULAR MARKET

Although Chile is a relatively small market, with only 17 million inhabitants, its geography makes it a challenging environment for logistics and distribution services. Chile stretches over 4,300 km along the southwest coast of South America, a distance roughly the same as that from San Francisco to New York. At the same time, its width never exceeds 240 km, making the country more than eighteen times longer than its widest point. It goes without saying that Chile's harsh geography, typified by the Andes mountain range, is one of the major challenges for the distribution of drugs.

Raúl Sánchez, general manager, Peri Logistics

"Reaching the outlying regions for private laboratories is very complicated to achieve," says Edgardo Díaz Navarrete, director of CENABAST, the public purchasing entity and distributor for all public hospitals and clinics, and Chile's de facto largest purchaser. "We reach the whole country, either through own distribution system or that of a logistics operator," says Navarrete. "We have managed to expand our reach by establishing great partnerships with third parties that allow us to conduct our services uninterrupted."

But this is not the only particularity of distribution in Chile. "The Chilean market place is very particular," explains Raúl Sánchez, general manager of Peri Logistics. "For example, the pharmaceutical market is characterized by the vertical integration and dominance of three major pharmacy chains in the country, which control together 92 percent of the market. This is something you don't see anywhere else in the world. And, international logistics providers that decide to come to Chile must take such particularities into account."

The Overview effect

"Since 2007 we have been working with the Ministry of Health for the distribution of vaccines and one of our first customers was CENABAST," Sánchez adds.

Unlike large international logistics companies such as DHL and UPS, both of which are present in Chile, Peri Logistics only works with pharmaceuticals or supplements. One of Peri Logistics' strengths is its cold chain expertise. Peri Logistics recently expanded its services to address the need for specialized temperature-controlled ground transportation services. The company's facility accommodates seven cold storage rooms, which allow them to successfully conduct the annual vaccination campaign.