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December 25, 2020 | Publication: Fitch Solutions - Industry Reports

Competitive Landscape (M&A Report Colombia Pharmaceuticals & Healthcare Competitive Landscape - Colombia - Q1 2021)

Colombia's pharmaceutical market will remain highly challenging for multinational innovative pharmaceutical manufacturers. As with almost every emerging market,
affordability levels are low for high-value patented drugs. Aggressive medicine price policies focused on the innovative medicine segment will pose additional
headwinds to drugmaker opportunities.

Research-Based Industry

Colombia's pharmaceutical market will remain highly challenging for multinational innovative pharmaceutical manufacturers. As with almost every emerging market,
affordability levels are low for high-value patented drugs. Aggressive medicine price policies focused on the innovative medicine segment will pose additional
headwinds to drugmaker opportunities.

In the 1940s, Colombia started to receive foreign investment in the pharmaceutical sector, with the entry of large multinational companies. Abbott, Bristol Myers-
Squibb, Schering, GlaxoSmithKline (GSK), Merck KGaA and Bayer were the first multinational drugmakers to establish operations in the country. Their arrival
contributed to the development of Colombia's pharmaceutical industry sector.

More recently, multinational investment into pharmaceutical research and development and production in Colombia has been minimal, indeed of the top 50 global
pharmaceutical firms, none has an innovative medicines production facility in the country. Merck Sharp & Dohme and Merck KGaA sold their local manufacturing
plants in 2012. The latter's assets were acquired by Altea Farmaceutica, a recently founded Colombian company, which has continued to produce Merck KGaA's
products at the plant. Merck KGaA will continue its sales operations in the country.

Nonetheless, while domestic drug production accounts for two-thirds of medicine consumption by volume, multinationals reportedly account for three-quarters of
medicine sales by value. Market competition between local and foreign companies has intensified since the start of 2012, as Sanofi purchased GENFAR and Recalcine
announced its acquisition of Lafrancol.

The Colombian population is a highly skilled workforce and wages in the industrial sector are highly competitive with other developing and industrialised countries. The
Colombian government has also sought to incentivise industrial production by establishing a number of free economic zones and 'special import-export systems'. There
are currently 11 free trade zones, which are exempt from import tariffs and VAT on imports, and have special access to the country's foreign trade bank, Bancoldex.
Barranquilla, Cartagena, Santa Marta and Pacifico are on the coast and within easy access of the main ports while the others are strategically located to serve different
production centres. There are also five economic export zones where special tariffs apply. Foreign multinational pharmaceutical firms are represented by the Association
of Pharmaceutical Research and Development Laboratories (Asociacion de Laboratorios Farmaceuticos de Investigacion y Desarrollo, AFIDRO).

Despite the aforementioned tax incentives and competitive labour force, pharmaceutical production by multinational drugmakers has fallen in recent years due to more
attractive tax incentives and fewer quality and procedural regulations in other regional markets, according to a study of the domestic pharmaceutical production
environment in Colombia, published in May 2016 in the European Journal of Management and Business. The study also highlights that instabilities within the healthcare
system, high prevalence of drug counterfeiting and smuggling as well as control and surveillance deficiencies as specific weaknesses of the Colombian market.

The foreign pharmaceutical industry in Colombia is well represented. Founded in 1957, Asociacion De Laboratorios Farmaceuticos De Investigacion Asociacion De
Laboratorios Farmaceuticos De Investigacion (AFIDRO) had 24 members in 2018. AFIDRO has taken an active role in defending intellectual property rights, physician
prescribing, and drug regulation to FDA and WHO standards, including drug bioavailability and bioequivalence.

Local companies are represented by the National Industrial Association (ANDI). Since April 1993, ANDI has run a Pharmaceutical Chamber which promotes
pharmaceutical production. There are 41 companies associated with ANDI, jointly representing around 90% of total pharmaceutical sales. Most of them are involved in
generic production. The Association of Colombian Pharmaceutical Industries represents domestic (mostly generic drug) manufacturers. Local companies are represented
by ANDI.

ANDI's Pharmaceutical Chamber aims to support the industry for its affiliates by seeking to enhance regulations, support fair pricing policies and maintain a
healthy competitive environment. As of 2017, the chamber has 46 affiliates, including the major multinational pharmaceutical firms as well as the major
domestic players. In a survey published in 2014, a number of market issues were highlighted as barriers to market access. These included:

high levels of market competition

weak demand for high-value medicine
currency translation
cost of supply of raw materials
smuggling/counterfeit medicines
infrastructure and logistics costs

In addition to these issues, Pharmaceutical Research and Manufacturers of America has repeatedly highlighted significant market access barriers for innovative drugs,
including weak patent enforcement, arbitrary and non-transparent reference pricing methodology, and the aggressive pricing scheme. Drugmakers with a wide product
portfolio, including generic medicines and OTC drugs, will continue to have a more significant market presence and greater revenue growth opportunities.

Export Table To Excel

Members Of AFIDRO (2020)

Abbvie Amgen Aspen Astellas AstraZeneca

BIIB
Bayer
Colombia BioMarin Boehringer Ingelheim Bristol-Myers Squibb
GSK Grunenthal Janssen Lilly Menarini Colombia
Merck MSD Novartis Novo Nordisk Pfizer
PTC Therapeutics Roche Sanofi Sanofi Pasteur Takeda

Generics Industry

Generic medicines dominate the Colombian pharmaceutical market on a volume basis as a result of the high proportion of private expenditure on medicines. More than
half of the market by value is accounted for through retail sales (out-of-pocket expenditures) while just under half of the market expenditure is from institutional sales
(hospital sales and the various reimbursement schemes). This, in addition to the aforementioned pricing and intellectual property issues, limit innovative drugmaker
opportunities. Within instructional sales, there is a heavy preference for generic medicines given their lower cost. Generic medicine sales account for roughly 45% of the
pharmacy sector by value and 70% by volume while they account for approximately 80% of hospital sales by volume.

The generic medicines market is highly competitive, with a significant number of major multinational pharmaceutical firms and a number of large domestic players
competing for sales. Given the number of large players within the generic medicine sector, there is fierce competition for market share and as a result, prices remain
highly repressed.

The competitive landscape within the generic medicine sector in Colombia has undergone a significant amount of consolidation by major multinational pharmaceutical
firms seeking to expand their presence in the market, and the Latin America region as a whole.

Sanofi acquired Brazilian generic drugmaker Medley in 2009 and launched in Colombia in 2012; it then acquired the second-largest Colombian drugmaker, Genfar, in
2013. In 2014, Abbott Laboratories acquired CFR Pharmaceuticals to more than double its branded generics presence in Latin America. CFR Pharmaceuticals was a
majority shareholder in two major Latin American drugmakers: Colombian Lafrancol, which ranked third for drug sales by value in Colombia, excluding the major
multinational drugmakers, and Colombian Laboratorios Synthesis. Other major generic drugmakers present are: Aspen Pharmacare, Bayer, Boehringer Ingelheim,
GlaxoSmithKline and Novartis (via Sandoz) are also major generic drugmakers present in the market.

We note that there have been growing reports of interest in the Latin American pharmaceutical market - and Colombia's in particular - from India-based generic
drugmakers. There are reportedly seven small Indian firms present in the market although none have major market shares. However, according to the director of the
Colombian Chamber of Commerce and Industry, major Indian drugmaker Cipla is interested in opening a medicine production facility in the country. The major
domestic generic players are (ordered by sales value): Tecnoquimicas, Procaps, La Sante, and Tecnofarma. Tecnoquimicas is regularly cited as ranking amongst the top
three for sales by value in Colombia while Procaps is also reported to be amongst the top 10.

Export Table To Excel

Multinational Market Activity

COMPANY OPERATIONS
Switzerland's Novartis has been present in Colombia since 1958. The company's pharmaceuticals
and healthcare businesses have five units in the country: ethical pharmaceuticals, generic drugs,
Novartis
animal health, CIBA vision and consumer healthcare. Its Italy-based Biochemie subsidiary is also
active in Colombia
US drug giant Pfizer is Colombia's leading pharmaceutical company, present at around 14 sites
Pfizer
across the country
Roche began marketing products in Colombia in 1945 and commenced local manufacturing
Roche operations in 1956. Today it operates through local subsidiary Roche Products SA, focused on
areas including transplantation, infectious disease, oncology and obesity
French drug major Sanofi is well placed to boost turnover in the Colombian market. Aventis
Pharma had several operations across the country, while Sanofi-Synthelabo fielded an important
range of brand name patented drugs. Sanofi also has local operations for Sanofi-Pasteur, its
Sanofi vaccines arm. Sanofi's Andean Good Manufacturing Practice (GMP)-certified manufacturing site
at Cali produces both the company's own drugs and medicines for third parties. From this plant,
Colombia Winthrop also exports generic products to Ecuador, Peru and Uruguay

US-based Merck & Co has had a presence in Colombia since 1944 and has carried out research in
the country for more than 30 years. The country is an R&D site for Merck: it has more than 50
Merck & Co scientists working on research in the country and the company invests USD2mn a year on local
R&D operations. In 2003, Merck opened a new research centre in the capital, Bogota, joining the
five clinical investigation units it has across the country
Johnson & Johnson & Johnson conducts manufacturing and sales & marketing operations across
Johnson pharmaceutical, Consumer and Medical Devices businesses in Colombia
GSK mostly imports and distributes a variety of prescription and OTC products. It is one of the
market leaders in Colombia, with an increasing role in the hospital market over recent years. In
GSK
the early 2000s, GSK targeted a 5% share of the market, with a focus on antiretrovirals, among
other prescription medicines
AstraZeneca's local subsidiary is focused on marketing products for its core therapy areas:
AstraZeneca anesthesiology, cardiovascular, gastrointestinal, infectious, metabolic, neuroscience, oncology,
respiratory and rheumatology
Following the acquisition of Farmacol in April 2011, Takeda has established its Colombia
operations as a regional hub for the Andean region (Colombia, Equador, Peru, Venezuela). The
Takeda
company initially focused on marketing OTC and out of pocket prescription drugs, but plans to
launch its oncology range in the coming years
AbbVie AbbVie conducts its local operations out of Bogota
Pharmaceutical Distribution

The distribution channel in the private pharmacy sector comprises pharmacy chains, hypermarkets, independent pharmacies, wholesalers and social benefit funds (Cajas
de Compensacion). In recent years, independent pharmacies and wholesalers have their lost market share, while pharmacy chains and hypermarkets have increased their
shares. The distribution channel in the institutional sector comprises hospitals, clinics, health centres, IPS and EPS.

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