Pharmaceutical Industry in Uruguay

Report prepared by Uruguay XXI for LATINPHARMA 2011

November 2011

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Table of Contents

1. Introduction ............................................................................................................................. 5

2. 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 ................................................................................................................ 19

3. 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 ............................ 26

4. 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 ................................................................................................. 35

5. National Integrated Health System (S.N.I.S) .......................................................................... 41

6. Prospects for the Pharmaceutical Sector in Uruguay ............................................................ 44

7. Research and Development Centers ...................................................................................... 45

Annex – Strategic Plan for the Pharmaceutical Sector .................................................................. 52

Bibliography ................................................................................................................................... 54

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1. Executive Summary

The main objective of this report is to analyze the recent development and the perspectives of

the Uruguayan pharmaceutical sector. This industry has been one of the most dynamic in the

last decade and has achieved an increasing relevance in the Uruguayan economy, not only

because of its qualified personnel or the generation of value added, but also because it is one

of the main industries that have become a key driver in regards to innovation and research in

Uruguay. Therefore, the pharmaceutical sector has become one of the strategic sectors for

growth, 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 can

confirm that the pharmaceutical sector production has shown an increasing trend in the last

decade. In addition, this tendency has been accompanied by a growing number of employed

personnel (with a profile focused on professionals and technicians), with an increasing

performance over the last few years and with remuneration levels which are considered above

the industry average. In Uruguay, the pharmaceutical industry has approximately 100

companies, that on average are relatively larger than the average of the national industry and

that have also invested far above the average of the industry, in many cases under the

Investment Promotion and Protection Law.

By examining the trade pattern in the Uruguayan pharmaceutical industry, we can verify that

approximately over half of the total production of the sector is subject to trade. Although

Uruguayan exports of pharmaceutical products have grown in the last ten years, Uruguayan

imports 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 total

participation of 20% and 6.4% respectively. Likewise, it is worth mentioning the incorporation

of 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 or

regional companies that sell or manufacture similar or generic pharmaceutical products are

identified as the main actors. Moreover, examining the sales of these companies it is observed

that sales from regional and national laboratories show a similar behavior than those of

multinational companies. However, if sales are examined in physical units, the results show

that national laboratories present a greater activity than foreign laboratories. Subsequently,

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average prices in dollars of medicines marketed by multinational laboratories increased 75% in

the period 2004-2010, while prices marketed by national laboratories increased 50%. It is also

introduced and analyzed the structure of the sales channels of pharmaceutical products for

human use: Private channel, consisting of drugstores and pharmacies, health insurance

channel and the public channel (Government).

In order to contextualize the analysis, the characteristics of the current National Integrated

Health System (SNIS) are briefly displayed, as well as the impacts that this system can bring

upon the distribution chains. In this regard, the potential impacts of the health reform on the

Uruguayan pharmaceutical industry could come primarily through 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), or also through new regulations on

the production and marketing of medicines.

Finally, the main perspectives for the Uruguayan pharmaceutical sector are outlined. For the

following ten years the consolidation of the sector’s growth is foreseeable and its turnover is

expected to expand at an average annual rate of between 3%-9%. Also, this increase would be

evidenced by the export potential of the sector, mainly due to the small size of the domestic

market and the aging demographic structure of Uruguay (similar to those of developed

countries). On the other hand, this expected increase in production would be accompanied by

significant increases in the company’s productibility, given the increasing use of technology

and the incorporation of new technologies. A moderate increase in the concentration at

businesses-level is expected, simultaneously with a larger presence of foreign capital on

businesses property.

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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 National

1 Pharmaceutical Sectoral Plan, Productive Cabinet, June, 2011.

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Integrated Health System (SNIS) are briefly displayed, as well as the impacts that this system

can bring upon the distribution chains. The perspectives and prospective of the sector are

presented in section seven. Finally, section eight lists some of the main tools through which

research and development of the pharmaceutical industry in Uruguay is conducted.

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2. Main Indicators of Pharmaceutical Industry

The national pharmaceutical sector consists of four production chains which are transversally

crossed by Biotechnology2: Pharmaceutical laboratories for human use; veterinarian

laboratories; laboratories for phytotherapy and nutraceutical products and manufacturers of

therapeutic devices.

Within pharmaceutical laboratories for human use we can find multinational companies which

manufacture patented products worldwide, national or regional companies that manufacture or

market similar or generic pharmaceutical products and sales offices engaged in the

intermediation of products within the sector.

Pharmaceutical laboratories for human use include pharmaceutical specialties, which can be

based on active principals of chemical origins or a result of biotechnological applications. An

existing 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 laboratories

include products that are also based on chemical origin active principles or are a result of

biotechnological applications. Chemical- based supplies are imported while supplies from

biological origin are from national origin, as well as culture media. Its production is destined to

the domestic market and export.

Another industry chain include phytotherapy products which are obtained from plants and have

therapeutic purposes to prevent, mitigate or cure a pathological condition, it also includes

2 Defined by the United Nations Convention on Biological Diversion as, any technological application that uses

biological systems, living organisms, or derivatives thereof, to make or modify products or processes for specific use.

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nutraceutical products which are isolated or purified products obtained from food. Even though

the development of this chain is emerging in terms of trade, alliances between public and

private actors along with local producers have been materialized, these have enabled Uruguay

to achieve a high level of quality in the international arena. This sector has many opportunities

for development since the international demand for natural products has grown significantly.

Diagnostic and therapeutic devices manufacturers produce reagents, reference and control

standard solutions, analytical tools, and systems designed for the use in the diagnosis of disease

or other conditions.

Biotechnology runs through each one of these sectors, and it is the most dynamic part, with

great opportunities for development mainly due to the fact that international demand for

biotechnological applications in the different segments of the human and animal pharmaceutical

industry is growing significantly.

Chart No. 1- Structure of the Pharmaceutical Chain in Uruguay

Source: Productive Cabinet

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2.1. Characteristics and Expenditure Structure of Healthcare in Uruguay

In order to analyze the Uruguayan pharmaceutical industry, the following summarizes the

demographic and social structure of the country.

In Uruguay the population growth rate is relatively low – 0.5% per year—which in the long run

does not favor the expansion of the domestic market of medicines and thereby the

development of the pharmaceutical industry. However, it is worth mentioning that in Uruguay

the entire population has formal healthcare coverage, according to data provided by the

Ministry of Public Health (MSP)3 .

On the other hand, elderly people (aged 65 and above) represent approximately 13% of the

total population. The relative weight of such group age, together with a life expectancy at birth4

average of 76 years old, generates a high consumption of medicines because this consumption is

greater in the aging population. In proportion to other Latin American countries, Uruguay is the

country 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 Groups

Source INE

On the other hand, in Uruguay, health expenditure remained approximately at 7.5% of the GDP

in 2009. Although this share has decreased in regards to previous years, even so, this percentage

is 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 Health 4 According to data provided by the National Statics Institute (INE), in 2010 life expectancy at birth for men was of 73

years of age whereas for women it was of 80 years of age.

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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 (Developing Economies)

6.95 7.10 7.17 7.75

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 that

Uruguay shows an approximate expenditure of US$ 600 per-year; levels which are close to those

of Argentina’s and Brazil’s per capita health expenditures. Meanwhile, during this period; on

average 14% of health expenditure correspond to medicine expenses, according to data

provided 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 (Developing Economies)

486

Colombia 288

Ecuador 206

Peru 176

Paraguay 136

Bolivia 72

Source: Source World Health Organization National Health Account database (www.who.int/nha/en).

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From the total health expenditure, it is essential to identify how much does public expenditure

represents. When this analysis is carried out, Uruguay shows that public expenditure on health

represents 63% of the overall expenditure. Chart No. 4 shows the list of countries in the region

with their corresponding percentage of public expenditure on health. Again, these figures are

similar 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 Production5

According to data from the Economic Activity Survey (Encuesta de Actividad Económica-EAE)

developed by the National Statics Institute and corresponding to 2008; the Uruguayan Gross

Value 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 million

and US$ 371 million respectively.

5 The information provided in this paragraph includes the productive activity of the pharmaceutical laboratories for

human use, veterinary, phytotherapy and nutraceutical. According to our own estimates, based on the work of Bittencourt, et al (2010), participation in veterinary laboratories can be quantified in about 13% of the sector production, 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 raw

material from granted discounts, plus the income from sale of unprocessed raw material, minus the cost of sold unprocessed 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 and for this reason it includes taxes to net products subsidies.

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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 of

the production value, it is appropriate to consider the Index of Physical Volume (IFV). In the

second half of the 1990s, as a result of the exodus of more than 20 multinational companies

such manufacturer companies, the pharmaceutical sector recorded a sharp decline in their

production levels. However, as of 2002 a recovery process began which has continued up to the

present day, along with the recovery of the entire manufacturing industry. This growth in the

pharmaceutical industry was maintained even in 2009, when the industry recorded a slight

decline as a result of the deepening of the international economic crisis. According to the

Industry Chamber of Uruguay (CIU) "while in 2009, the physical volume of the pharmaceutical

industry 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 the

reduced 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 by

the pharmaceutical activity up to 2002, and since then a continuous growth that has evolved in

the same way as the industry as a whole. Likewise, and as it was mentioned above, after the

2002 crisis, the dynamism of the Uruguayan pharmaceutical industry has been significantly

superior to the manufacturing industry as a whole, which is significantly noteworthy since this

industry 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

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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 Productivity

Between the years 1999-2003, the pharmaceutical industry employed approximately 2,200

people. From this year onwards, a steady path of increases in the number of employed

personnel began, placing this value in 2010 in about 3,860 employees approximately. It is

important to mention the high participation of technicians and professionals, and to a lesser

extent, 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 INE

On the other hand, there is available information from the Employed Personnel Index and from

the Hours Worked Index (HWI) of the pharmaceutical industry, which is important to consider.

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The following graphics confirm that in 2004 a turning point occurred in the sector, mainly due to

the fact that from this year on, a significant increase in regards to employed personnel and

hours worked was recorded.

Graph No.5 – Variation of the Employed Personnel Index and Hours Worked Index. Base Year = 2006

Source: National Statics Institute INE

From 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 the

variations of IPV/EPI, shows a growing trend in recent years (see Grap 5).

From 2002 to present time, the pharmaceutical industry accumulates growth levels of

productivity of 12.2%, with an annual average increase of 1.3%, superior performance to the

one 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

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2.4. Export and Domestic Market Prices

Medicine prices have shown an increasing trend after the steep decline observed at the

beginning of the past decade, both in export and domestic market`s sales prices (measured in

current dollars).

According to the Chamber of Industry of Uruguay (CIU), external sales of medicine prices

showed an upward trend between the end of 2002 and mid-2009. However, over the last year

and 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 during

the 2008-2009 period.

Graph No.7 – Evolution of Prices of the Pharmaceutical Sector Measured in Current Dollars

Quarterly Mobile Series 2006 Base Indexes=100

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 have

shown a sustained growth over time, driven mainly by the increase of prices (in Uruguayan

pesos) 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 in

current 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 not

been homogeneous within each therapeutic group. While in 2010 analgesics prices measured in

dollars were 34.3% higher than in 2000, prices of antibiotics were 22% lower.

Export Domestic Market

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Graph No.8 – Evolution of Internal Prices Measured in Current Dollars Quarterly Mobile Series 2006 Base Indexes=100

Source: National Statics Institute (INE)

On the other hand, in 2010 medicine prices for respiratory disorders and medicines to prevent

cardiovascular diseases were 2.3% and 12.2% higher than those obtained in 2010.

2.5. Wage Levels

The Uruguayan pharmaceutical industry is characterized by employing a higher percentage of

professionals and technicians than the manufacturing industry average. According to data

provided by the Economic Activity Survey and developed by the National Statics Institute (year

2005), in which the employed personnel is disaggregated into job categories, 12.9% of the

employees in the pharmaceutical industry belong to a technical-professional scale, while the

average of the manufacturing industry is 2.6%. Likewise, due to significant investments in the

sector regarding machinery and technology during the 2005-2010 period, it is expected that the

proportion of the total amount of employed technicians and professionals has grown in recent

years, a tendency that will continue to increase in coming years according to specialized sources

of the sector. The evolution of wages in the pharmaceutical industry9 -estimated by the behavior

of 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 considerably

lower than 10 years ago. However, measured in current dollars, wages in the sector are greater

9 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 INE statistics. However, while there may be small differences regarding the behavior within the various sectors that make up the chemical industry, it is understood that these sectors show a similar behavior over time.

Analgesics Antibiotics

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than those observed at the end of the 90’s, mainly explained by the appreciation of the

Uruguayan 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

Source: National Statics Institute (INE)

On the other hand, the chart below shows the average annual remuneration received by the

pharmaceutical industry employees in the past four years, and the average cost per worker for

the industry during the same period10.

Chart No.5 – Average Annual Wage and Cost per worker of the Pharmaceutical Industry in US$

Year Average

Wage Average 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 estimates

Despite recording a noticeable increase in wages and costs of workers of the national

pharmaceutical industry (46.1% to 49.2% respectively) in the past four years, explained mainly

by the significant increase (in dollars) of prices in the Uruguayan economy , the cost of human

resources 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 the average 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.

Dollars Actual uruguayan pesos

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2.6. Pharmaceutical Companies in Uruguay

In 2009, the national pharmaceutical industry had a total of 103 companies, representing less

than 1% of the total of existing companies in the manufacturing industry.

While classifying the sector’s companies according to the employed personnel range, it denotes

that 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 major

companies (100 employees or more). If this information is compared with the information of

the manufacturing industry we can confirm that companies from the pharmaceutical sector are

on average relatively larger than those of the national industry sector. This situation is related to

the significant investments and entry costs made by the pharmaceutical sector in order for

companies to operate under competitive terms.

Likewise, 88.1% of the employed personnel of the pharmaceutical industry belong to medium

and 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 characterized

for 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

Companies 1-4 5-19 20-99

100 or more

Country 110,818 91,998 14,748 3,433 639

Industry 14,853 10,944 2,922 784 203

Pharmaceutical Industry

103 34 33 25 11

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

Personnel 1 - 4 5 - 19 20 - 99 100 and more

Country 633,135 24.4% 21.2% 21.4% 34.7%

Industry in General

127,934 22.2% 21.0% 25.0% 40.3%

Pharmaceutical Industry

3,572 1.8% 10.1% 35.0% 53.1%

Source: National Statics Institute INE

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2.7. Investments

In 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 the

graphic below. In relation to the value of production in the period under consideration, the

investment in the sector, on average, represented 6.8% of the aforementioned, reaching its

maximum participation in 2006, when it represented nearly 10% of the GVP. Even more

significant are the invested amounts when measured in relation to the operating surplus

obtained by enterprises in the sector, where the invested amounts correspond on average to

45% of the income generated by the national pharmaceutical industry. Therefore, one can

conclude, that the pharmaceutical industry invests a rather significant proportion of its profits in

the expansion of its productive capacity.

Graph No. 10- Gross Fixed Capital Formation- Pharmaceutical Industry

(Millions of US$ 2004-2008)

Source: National Statics Institute INE

If we analyze the investment by component for the last year of available information (2008), it

stands out that 47% (US$ 7.8 million) of the sector’s investment corresponds to machinery and

equipments used for production, while 35% (US$ 5.9 million) accounted for buildings and

construction, and 16.6% accounted for intangible assets, and the remaining 2.0% corresponded

to others. It is important to mention that within the framework of the Investment Promotion

and Protection Law (Law 16.906), whose mission is to promote and increase investment in the

country through the granting of tax benefits, several projects in the pharmaceutical industry

were promoted during the periods of 2005 to 2010. All projects declared of national interest by

the Application Commission (Comisión de Aplicación-COMAP11), under the protection of the

abovementioned 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 protection

of Law 16.906. Note (*): Investment made between January – August 2011, Source: COMAP.

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During the period of January-August 2011, the sector’s investment were widely superior to all of

the 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 Uruguay

The analysis of foreign trade in the Uruguayan pharmaceutical sector is of significant importance

since 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 foreign

trade pattern of the Uruguayan pharmaceutical industry based on data from the National

Customs Directorate is analyzed below (DNA12 13- Dirección Nacional de Aduanas).

Uruguayan exports of pharmaceutical products have shown a growing trend in the last ten

years. 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 in

2002 and 2009. However, these declines, at levels of 6% and 8% respectively, coincide with the

economic crisis that affected the industry in general.

In 2010, the value of Uruguayan exports of pharmaceutical products reached a figure close to

US$ 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 a

12

Headings 2936, 2937, 2939 y 2941 of the Harmonized System from chapter “Organic Chemical Products” from

chapter 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 between exports (imports) of pharmaceutical products for human use from those of veterinary pharmaceutical products, since the 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 by the pharmaceutical sector of a 30%, and 16% on imports.

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total amount of 60 million, which suggests that if this pace continues, a new annual record will

be achieved.

When it comes to Uruguayan pharmaceutical imports, it is quite obvious that these imports are

greater than the exports throughout the entire period under review, determining a negative

trade balance. However, it is worth noticing that this gap is reduced considerably over the

period, being the trade deficit in 2010 26% less than in 2001.

Chart No.9 – Trade Balance of the Uruguayan Pharmaceutical Sector (US$ millions)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

First Half 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 DNA

The export coefficient can be calculated in order to quantify the percentage of total production

of the pharmaceutical sector destined for the external market. This indicator is calculated as the

division of the sector’s exports and the total production of the sector. By using the GVP the

export coefficient showed an upward trend up to 2009 (almost 35%). However, in 2010 the

export coefficient dropped as a result of the decrease in exports during that year while

production continued to increase.

22

The results obtained from the export coefficient show the increasing importance of the external

market 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 national

laboratories are the following: The Uruguayan market has the lowest levels of prices in Latin

America, 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 installed

capacity which allows supplying new markets. The factors previously exposed, allowed to

expand 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 installed

in Uruguay, in some cases they have established the strategy of centralizing the distribution in

Uruguay and supply other subsidiaries in the region from our country, mainly Paraguay and

Bolivia (to a lesser extent). This strategy enables companies to optimize resources and reduce

logistics costs. Consequently, re-exports of pharmaceutical products are carried out by

multinational enterprises during the export of pharmaceutical products (NCM 30 – Common

Nomenclature for the Common Southern Market), as well as in the domestic production of

medicines.

Graph No.12 – Export Coefficient (%)

Source: Prepared by Uruguay XXI based on data from the DNA

On the other hand, it is interesting to analyze the participation of imports in the total apparent

consumption as a way to quantify how much of the domestic demand is supplied with external

production. The apparent consumption is defined as the GVP plus the imports minus the

23

exports. This variable had a significant increase in the period 2003-2010, which confirms the

growth of the pharmaceutical industry in recent years.

As seen in the graphic below, imports of the pharmaceutical sector explain between 41 and 47

percentage points of the total apparent consumption over the last decade. These accounts for

the 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 -

Products

A detailed analysis of the products comprised within the pharmaceutical sector should be

carried out in order to have a complete overview of the Uruguayan pharmaceutical industry. As

shown in the chart below, Medicines (NCM 3004) are the main exported product in the

pharmaceutical sector, representing in 2010 63.7% of the total. Other relevant exported

products 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 is

noteworthy 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 High

Technology Content (HTC). In 2010, the pharmaceutical sector had a 90% participation in

exports with High Technology Content. In addition, the pharmaceutical sector occupies the

second position in the ranking of the most innovative sectors, proving that 48% of companies

24

are innovative.Regarding the Sector’s imports, Medicines (NCM 3004) also occupy first place in

the ranking, followed by human and animal blood (NCM 3002), and non-dosed medications.

Chart No.10 – Uruguayan Pharmaceutical Exports by Product Data in US$ millions

NCM4

Description NCM4 2008 2009 2010 % variation 2010/2009

% part. 2010

3004 Medications 74.07 81.53 66.64 -18.3% 63.7%

3002 Human and Animal Blood for

therapeutic purposes 13.99 14.80 20.44 6.9% 19.5%

3006 Pharmaceutical Preparations and

Goods 4.99 6.46 6.68 0.3% 6.4%

3001 Glands and other Organs for

Opotherapy Uses 0.98 2.05 3.50 1.8% 3.3%

2937 Natural or Reproduced by Synthesis

Hormones 2.64 2.54 3.17 0.8% 3.0%

2936 Pro-vitamins and Vitamins, Natural or

Reproduced by Synthesis 5.06 4.66 2.84 -2.2% 2.7%

3003 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%

2939 Vegetable Alkaloids, Natural or

Reproduced by Synthesis 0.01 0.01 0.05 0.0% 0.1%

3005 Wadding, Gauze, Bandages and other

related items 0.08 0.07 0.04 0.0% 0.0%

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$ millions

NCM4

Description 2008 2009 2010 % variation 2010/2009

% part. 2010

3004 Medications 89.32 88.26 106.56 20.74% 56.61%

3002 Human and Animal Blood for therapeutic

purposes 24.97 26.99 38.17 41.42% 20.27%

3003 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%

2936 Pro-vitamins and Vitamins, Natural or

Reproduced by Synthesis 5.38 4.60 6.29 36.80% 3.34%

2937 Natural or Reproduced by Synthesis

Hormones 5.10 4.27 5.55 30.15% 2.95%

2941 Antibiotics 4.60 3.75 4.44 18.47% 2.36%

3001 Glands and other Organs for Opotherapy

Uses 2.21 2.78 4.38 57.85% 2.33%

3005 Wadding, Gauze, Bandages and other

related items 3.03 3.58 3.76 4.95% 2.00%

2939 Vegetable Alkaloids, Natural or

Reproduced by Synthesis 1.70 1.10 1.15 4.72% 0.61%

TOTAL 150.61 149.08 188.25 26.27% 100%

Source: Prepared by Uruguay XXI based on data from the DNA

25

3.2. Exports and Imports of the Pharmaceutical Sector in Uruguay -

Countries

By observing the exports of the pharmaceutical sector by destination markets, these indicate

that they are concentrated in the region (Latin America), being the MERCOSUR member

countries the main buyers. Exports of pharmaceutical products to this bloc represent 34% of the

sector’s total exports.

On the other hand, it is worth mentioning that in 2010 the exports to “Zonamérica” Free Zone

represented 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” to

other countries mainly from Latin America. It is important to take into account that this is the

leading exporting company in the sector.

As far as imports are concerned, the main suppliers of the Uruguayan pharmaceutical industry

are Argentina, United States and Brazil, representing all together 41% of the total imports in

2010.

Graph No.14 – Main Destinations of Uruguayan Exports of the Pharmaceutical Sector

Year 2010

Others, 21,3%

Zonamerica, 22,6%

Paraguay, 13,3%

Brazil, 13,2%

Argentina, 6,9%

Venezuela, 5,9%

Chile, 3,9%

Ecuador, 3,8%

South Africa, 3,3%

Spain, 3,2% Bolivia, 2,6%

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

26

Source: Prepared by Uruguay XXI based on data from the DNA

3.3. Exports and Imports of the Pharmaceutical Sector -Companies

The strong concentration of exports at enterprise level is confirmed if we examine said exports

in the pharmaceutical industry. The first four laboratories in the ranking account for 54.2% of

total exports. Roemmers laboratory is the main exporter with 22.8%, followed by Microsules

Laboratory (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 first

ten jointly represent 58% of the total.

Meanwhile, leading companies should be examined according to whether they belong to some

of 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 the

ALN, we can find: Roemmers, Urufarma, Libra Laboratory, Farmaco Uruguayo and Celsius

Laboratories. For their part, Roche International and Abbot Laboratories Uruguay belong to

CEFA.

27

Chart No.12 – Leading Export Companies of the Pharmaceutical Sector Year 2010 - Data in US$ millions

Company 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

28

4. Domestic Market Structure

To perform a proper overview of the behavior and development of the Uruguayan

pharmaceutical market, it is necessary to identify the main actors involved, as well as the

different production marketing channels.

4.1. Chain Actors

Within the pharmaceutical laboratories for human use, it is possible to distinguish three

different competitive groups, which can be defined by their nature as well as the competitive

strategies 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, and

does 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 out

imports from countries with low prices, mainly China and India. Thus, the following paragraph

focuses mainly in the behavior of the first two groups.

Multinational corporations are companies that are part of global pharmaceutical groups which

occupy first places in sales worldwide, with large investments in research and development. In

Uruguay, they are grouped under the Chamber of Pharmaceutical Specialties and Related

Sectors (CEFA).

Generally this group of companies is homogeneous in its structures and strategies. Regarding

their structures, most of them are sales offices or representations of these companies that

reports abroad, and generally depend on the regional office located in Argentina. On the other

hand, in their strategies they follow global guidelines, both for the company and for the

development of each product line, without further incidence in their definitions. Their strategies

are defined abroad, which implies difficulties regarding the adaptation to the local market, given

the implemented global strategies. Generally, multinational laboratories have as a strategy the

differentiation of their products from their main attributes: quality, image and efficiency;

However, in the Uruguayan market competition is mainly carried out through prices.

29

Currently, there are 17 multinational subsidiaries in Uruguay, most of which up until the 1980s

possessed 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 productive

structures in order to achieve the quality standards required by the parent company, led

multinationals to rethink ways to penetrate the Uruguayan market. Thus, the small size of the

Uruguayan market in comparison with other countries of the region, and the consequent low

profitability for multinationals, led to the decision of closing the existing industrial plants in

Uruguay and becoming importers from larger subsidiaries, located mainly in Argentina and

Brazil.

On the other hand, national laboratories and laboratories with regional capital - mostly from

Argentina - are grouped within the National Laboratories Association (ALN). Unlike

multinational laboratories, these groups of companies have more heterogeneous productive

structures and marketing strategies, covering from national family businesses to Latin American

multinationals subsidiaries or branches.

These laboratories emerged in the 1950s, and in recent years they have been expanding their

presence in the local and international market through important investments. This mainly

involved the purchase of industrial plants in disuse by multinational companies.

Up to November 200114, the general strategy pursued by these companies for the domestic

market was protected by the non- existence of a Patent Law in the country, which allowed them

to launch into the market a vast range of similar drugs. Therefore, they covered virtually all the

therapeutic spectrum and left to multinationals only those products that possessed exclusive

access to raw materials, active ingredients for their manufacture or very specific manufacturing

processes for those who did not have available technology, either by development or economies

of scale.

As a way to expand their participation in the market, national laboratories have, in addition to

their own production lines, the representation of international laboratories, generally European

or 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 the participation of the ALN and CEFA. However, Article 127 of the aforementioned law, states expressly: "Inventions of agricultural chemical and pharmaceutical products will not be patentable until November 1, 2001". Thus, the law does not have retroactive effects on products that were already being marketed in the country prior to this date. These products will continue to sell unless they fall into disuse or new therapies indicate their non- prescription.

30

Finally, in recent years, national laboratories began to destine an increasing part of their

production to the external market, taking advantage of the acquired "Know How”, the low

production costs and the reduced internal size.

4.2. Market Size and Average Prices

According to data from IMS Health, in 2010 the turnover of the domestic pharmaceutical market

for human use amounted to 331 million of dollars, which represented a 23% increase with

respect to sales in 2009 (273 million of dollars), this is explained by a 5% growth of sold units

and 17% due to the rise of prices in dollars. In the period 2004-2010, sales had an 80% increase

in current dollars.

Even though the domestic pharmaceutical market has expanded significantly over the past

seven 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 the

Uruguayan peso against the dollar, the behavior of sales vary within the two major subgroups of

laboratories previously defined.

Conforming to data from CEFA15

, by breaking down the information according to the origin of

the capital of the laboratories for the period 2004-2010, we can observe that national and

regional laboratories sales showed a similar behavior to those of multinational enterprises

measured in values, with an expansion of 112.4% and 122.6% respectively (during the

aforementioned period). However, measured in physical units, national laboratories presented a

significantly 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 multinational

laboratories increased 77.4% in the period 2004-2010, while prices marketed by national and

regional laboratories increased 51.9%. Similarly, it is relevant to point out that like in 2010; the

average prices of medicines marketed by multinational laboratories were almost five times

greater than those of national and regional laboratories.

15

Due to the fact that different information sources were considered, estimates regarding the size of the domestic

market may vary from those presented in paragraphs above. Even so, we understand that the information is complementary and contributes to the enrichment of the sectoral analysis.

31

Chart No.14 – Sales in the Domestic Market in Thousands of Dollars by Business Chamber

C.E.F.A A.L.N. TOTAL

Year Thousands

US$ Variation

% Thousands

US$ Variation

% Thousands

US$ Variation

%

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

Year Thousands

Un. Variation

% Thousands

Un. Variation

% Thousands

Un. Variation

%

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.A

In 2010, according to data from C.E.F.A., the national and regional laboratories grouped in the

A.L.N accounted for 91% of market sales measured in physical units, while multinational

laboratories accounted for the remaining 9% of the market. However, in current dollars, the

A.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.

32

Graph No.16 – Participation in Domestic Market Sales according to Business Group

Source: C.E.F.A.

With respect to the evolution of prices of medicines measured in current dollars in the domestic

market during these recent years, they have presented an upward trend, even though it is worth

noting 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.A

However, despite the increase observed in recent periods, the dollar prices of medicines in

Uruguay continue to have the lowest prices in the region, as shown in the following chart, which

presents information for the year 2008.

9%

91%

In Physical Units

C.E.F.A A.L.N.

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 low

concentration of sales at laboratories level as well as in products, and on the other hand, by the

relatively stable structure in the market share of the laboratories.

In regards to the fragmentation of sales at enterprise level, we can observe that the market

leading company accounted for 12.5% of the sales measured in dollars. Likewise, the five leading

companies accumulate 34% of the sales. Three of them correspond to national and regional

capital companies (A.L.N.), and two are multinational enterprises (C.E.F.A.).

Chart No.16 – Sales from Leading Laboratories

Company Business Chamber

Sales in 2010

US$ Thousands

Participation % 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 Health

For its part, the most marketed medicine in the private channel, both over-the-counter and with

prescription, has a market share of only 1.2%, while the main ten medications marketed in this

channel account for less than 9% of the market share.

34

Chart No.17 – Main Medicines by Trade Name in the Private Channel

Product (Trade Name)

Laboratory Business Chamber

Sales in 2010

US$ Thousands

Share %

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 Health

Analyzing the structure of sales, but at drug level, we observe that the main five marketed drugs

are close to 8% of the market share.

Chart No.Nº18- – Main Drugs by Trade Name in the Private Channel

Drug Sales in 2010

US$ Thousands

Share %

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 Health

Finally, regarding the participation of the leading laboratories in the domestic market, in the

following chart16 you can see, that during the past seven years there has not been many changes

in 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 domestic

market may vary from those presented in paragraphs above. Even so, we understand that the information is complementary and contributes to the enrichment of the sectoral analysis.

35

Chart No.19- Participation of the 10 Leading Laboratories

Ranked according to 2010 Values

Company Business Chamber

2004 2005 2006 2007 2008 2009 2010

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 Channels

Currently, the structure of the sales channels for pharmaceutical laboratories for human use is

defined by the existence of three distinctive segments in this sector, which are the private

channel consisting of drugstores and pharmacies, the health insurance channel and the public

channel (Government). Each of these channels has different characteristics, such as marketed

volumes, periods and payment conditions, price levels, all of which determines different

profitability 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 insurance

schemes 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.A

However, measured in physical units, the participation of the diverse sales channels varies

significantly, being the health insurance schemes and the State the agents who acquire the most

36

significant volumes, allowing them access to better prices and payment conditions, with regard

to pharmacies and drugstores.

Graph No.20- Sales Distribution by Distribution Channels (Physical Units)

28%

46%

26%Pharmacies and Drug Stores

Health Insurance Schemes

State

Source: C.E.F.A

Below is a brief analysis of each of the identified channels, its main features (prices and

marketed volumes) and the different strategies adopted by each group of laboratories.

Pharmacies

According to the sector’s report prepared by the Productive Cabinet in 200817, Uruguay had

approximately 1,300 pharmacies located in Montevideo, 600 in the interior of the country and

six 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 the

channels, and therefore provides higher trade margins to participating laboratories.

Additionally, it has been characterized as the channel in which payment periods have been

shorter, usually at 50 days from the date of invoice, and the payments chain has not been

interrupted, with few exceptions, given that it is very fragmented by the existence of a large

number of pharmacies in the country.

Figure 1 – Operation of the Private Channel

Source: Productive Cabinet (2008)

17

Nowadays the number of community pharmacies could present a slight decline due to a tendency towards an

existing concentration in the sector in the last couple of years.

Laboratory Drugstore Pharmacy Doctor Patient

37

Although community pharmacies are characterized as small business units, in which the

stock of medicines is minimum and inventory turnover is low, the formation of chains of

pharmacies in Uruguay are becoming increasingly noteworthy. These chains place orders

directly to laboratories and possess a general deposit from which they distribute to other

branches. In this case, the relationship with drugstores is practically inexistent since working

with considerable volumes enables them to have access to more convenient prices and

payment periods directly from laboratories. Another modality that has been adopted by the

market in recent years is what it is known as a "Pool of Pharmacy". This new modality

includes a physical establishment which operates as a merchandise warehouse and enables

members to have direct contact with the laboratories, placing the order in important

volumes and therefore obtaining significant discounts.

Although in recent years the participation of the private channel in the total sales of

laboratories has remained practically unchanged, we do observe changes regarding the

channel itself, such as in the distribution between drugstores and pharmacies. According to

data from IMS Health – taken from Dos Santos et al. (2009) - While in 2003 only 19% of the

laboratories pharmaceutical products sales were marketed directly through community

pharmacies, i.e. without prior intermediation of drugstores, in 2008, 40% of sales were

marketed directly through pharmacies.

Chart No.20 – Sales in the Private Channel according to Business Groups

Year Thousands of Dollars Units Average Price

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 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.A

It is in this channel where the laboratories associated with the A.L.N. present higher average

sales prices, which are significantly higher than the prices marketed in the health insurance and

38

State Channels. Instead, for multinational laboratories grouped into C.E.F.A, the private channel

records the lowest prices of sales18, even though it presents the largest volumes.

Health Insurance Schemes

This channel comprehends Health Insurance Schemes and Private Insurances. Currently, we

have 40 Health Insurance Schemes in the country, 11 in Montevideo and 27 in the interior, while

there are seven Private Health Insurances associated with the National Integrated Health System

(SNIS). 20 years ago these institutions were authorized to have “Health Insurance Schemes

Pharmacies”, which give their members medicines for the value of a single-value ticket for all

medications. At the beginning, the local pharmaceutical industry was able to foresee that due to

the large volumes that they could handle and the associated lower costs of distribution, this

channel would be an interesting way of getting medications into the market. Soon, due to the

purchasing power achieved by the healthcare system, the average selling price dropped. The

figure below shows how the patient receives the medication through the laboratory by means of

this channel.

Figure 2 – Operation of the Health Insurance Channel

Source: Productive Cabinet (2008)

Through this channel patients can have access to medications through a copayment which is

usually cheaper (although not always) than if the patient has to purchase the medication

through the private channel. Each of these institutions also presents a list of generic name

medications, better known as Vademecum19, which comprises the essential medicines

available for treatment of the population’s most common conditions. Physicians from these

institutions 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’s

18

It is worth mentioning that the most expensive medications of the multinational laboratories products portfolio are purchased by users through pharmacies within the health insurance schemes or provided by public health for users of the public system. In the case of the former, it is cheaper for members of health insurance schemes to purchase this type of medication through copayment than to purchase them in community pharmacies. 19

Set forth in Decree 321, August, 2003.

Laboratory Pharmacies from

Health Insurance Schemes

Doctor Patient

39

medical list and if this is actually achieved, to encourage their prescription by the medical

staff 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 private

channel, 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

Year Thousands of Dollars Units Average Price

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 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.A

By fragmenting sales, according to business groups, we can observe a significant predominance

of the laboratories associated with the A.L.N, with a participation of 92% in the number of units

sold in 2010, although measured in values, their participation is significantly lower (68%), as a

result of the lower prices in regard to the laboratories associated with C.E.F.A. The prices of the

aforementioned in the health system channel are five and a half times higher than those of

national and regional laboratories.

State

Until 2001 the State purchases of medicines were carried out through independent biddings for

each body (hospitals, military health institutions, Social Security Bank-BPS, National Insurance

Bank-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 the

economic crisis of 2002, the Government sought to strongly reduce costs in the acquisition of

medications along with improvements in the financial situation of public health institutions. For

such purposes, the government implemented a purchase center which depends exclusively of

the Ministry of Economy and Finance (MEF), which consolidates the orders of all dependencies

and commits itself to shorter payment periods, thereby achieving a lower acquisition cost of

40

medicines and enabling laboratories to have a greater liquidity by having access to money in

shorter periods of time20.

A common practice of national laboratories is that they enter the state channel to achieve the

largest market share selling with lower profitability levels from those obtained in the private

channel, enabling them to achieve economies of scale and greater propagation and knowledge

of their products.

Chart No.22 – Sales in the State Channel according to Business Groups

Year Thousands of Dollars Units Average Price

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.A

As mentioned above, the State channel is the only one that on average pays the lowest prices in

comparison to the three other channels. Moreover, sales from this channel, measured in

physical units, are dominated by national laboratories, although they have recently lost some

participation by low-cost medications importing offices from Asian countries. Within this group

of 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 participation

in public biddings to high-cost medications. In this regard, as of 2008, the National Resource

Fund (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 this

group of laboratories.

20

Prior to the creation of the State Centralized Purchasing Unit (Unidad Centralizada de Compras del Estado-UCA), due to the failure and delays of their payments, prices of sales carried out through this channel presented a high financial component.

41

5. National Integrated Health System (S.N.I.S)

Since 2005, many changes began to take place in the Uruguayan existing health system (Health

Reform) which implied changes in laws and regulations and from which the National Integrated

Health 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 impacts

on the pharmaceutical industry in Uruguay, it was considered appropriate to briefly describe the

most relevant changes that were introduced. In this sense, the potential impacts of the reform

of 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 force

of Law 18.131 new groups were integrated to the benefits of health insurance, including

employees from the State Central Administration and education officials, among others. On the

other hand, with the entry into force of Law 18.211, new users entered progressively by stages

to the SNIS, including under age children of dependent workers, retirees and pensioners and

most recently, university professionals and others with sectoral benefit funds. The data showed

below reveals the changes mentioned above.

Chart No.23- Expansion of the Integrated Assistance in the SNIS by Type of Provider

21 It should be noted that at the time of the present report, in Uruguay no papers or research has been done that may quantify the plausible impacts of the health reform on the pharmaceutical industry. Moreover, this topic exceeds the scope of this document.

42

Provider 2007 2008

Public Health (ASSE) 1,308,593 1,192,580

Health Insurance (IAMC) 1,491,874 1,806,750

Private Insurance 69,167 74,789

Military and Police Healthcare 250,000 250,000

Total of SNIS Users 3,119,634 3,324,119

% Population Coverage 93% 100%

Source: S.N.I.S – Ministry of Public Health

As shown in Chart 1, with the creation of the SNIS more than two hundred thousand people

were incorporated into the integrated health coverage. For its part, the number of members of

health insurance schemes increased in more than three hundred thousand people. Also, as the

different stages of admission of new groups to the SNIS begin to be implemented, a gradual

growth in the number of users of health insurance schemes and private health insurance and an

oscillating behavior in the case of public health can be observed.

Chart No.24 – Evolution of the Number of Users by Provider

Providers 2007 2008 2009 2010 March-

2011 Health Insurance Schemes 1,491,880 1,806,750 1,849,016 1,898,320 1,934,056 Private Insurance -- -- 78,364 81,486 82,287 Public Health (ASSE) 1,308,593 1,192,580 1,281,123 1,226,422 --

Source: S.N.I.S – The State Health Services Administration (ASSE)

It is worth remembering that the number of users within the health insurance schemes and

private health insurance, among other things, increase their power of negotiation before the

laboratories. It is also worth remembering that in the health insurance channel prices received

by laboratories are significantly lower than those received in the private channel (pharmacies

and drugstores). Therefore, it is feasible that the way to gain access to health benefits by users

of the system, or the type of chosen benefit, can determine changes in the means of access to

medicines, and thereby changes in the relative participation of each of the channels in the sales

structure. Thus, an increase in the participation of the health insurance and state channels, due

to a greater use of pharmacies from health insurance schemes or access to medicines through

public health (ASSE) could affect the profitability of the laboratories on an aggregate level,

especially for those that aim at the domestic market.

Another aspect which could have an impact on the Uruguayan pharmaceutical industry is the

regulations and controls from the Ministry of Public Health on medicines and pharmaceutical

laboratories. In this sense, article No.7 of the 18.211 law, states:

43

"The national medicines policy shall have the objective to promote its rational and sustainable use. The

Ministry of Public Health shall adopt a pharmacopeia which will contemplate the levels of healthcare and

establish the compulsory prescription by International Non-proprietary name according to its active

principles; rationalize and optimize the registration of medication processes and enhance the inspection

and monitoring activities of pharmaceutical companies and drug surveillance".

In particular, it is noted that one of the first policies implemented in the early stages of the

reform process was to reduce the price of the copayment, paid tariffs for the acquisition of

medicines in pharmacies within the health insurance schemes to a 40%. The drop of copayment

price received by health insurance providers was transferred to a great extent, to the price

received by the laboratories (clearly depending on the negotiation abilities of each health

insurance institution).

44

6. Prospects for the Pharmaceutical Sector in Uruguay

As mentioned above, the national pharmaceutical industry has experienced a sustained growth

in recent years, driven by the increase of sales to the domestic market and exports, together

with a significant increase in investments.

The development of the latter, together with the establishment of new projects and the

improvement of the sector through the lines of action raised within the framework of the

sectoral industrial plans developed by the local Government, enables to expect the continuation

of the sector’s growth, which began nine years ago.

In this sense, Brunini (2011) prepared a prospective case study regarding the expected

development of the pharmaceutical sector for the period 2010-2020, establishing different

minimum and maximum scenarios for this sector.

According to this case study, the sector's turnover would expand in the period 2010-2020, at an

annual average rate of 3% to 9%, minimum and maximum scenario respectively, reaching an

amount estimated between US$ 481 - US$ 848 million of dollars. In comparison to the overall

performance of the economy, in the scenario with less dynamism, the growth of the sector

would be slightly inferior than the one observed for the economy as a whole, while on the

maximum scenario the sector’s growth duplicates the economy’s performance, increasing their

participation and impact in the national productive structure.

With rein regard to the production orientation, or which market will fraction the production

growth, both in minimum and maximum scenarios, sales to foreign markets would be

responsible for the production growth, which is explained mainly by the small size of the

domestic market together with an aging demographic structure (similar to those of developed

countries), with reduced demographic growth, which necessarily leads to the fact that sectoral

expansion is driven by the increase in exports.

Also, the growth expected in the production would be accompanied by significant increases in

the productibility of the companies, as a result of a greater “technification” and incorporation of

new technologies. A moderate increase in the concentration at businesses-level is expected,

simultaneously with a larger presence of foreign capital on businesses property.

In relation to the structure of prices in the sector, it is expected that they continue to be the

lowest in the region, although they will present an upward trend in coming years.

45

7. Research and Development Centers

Traditionally Uruguay was not characterized by having developed great skills in the area of

innovation and development, because historically the country always maintained low levels

of investment in science and technology. However, in recent years, the country experienced

a strong increase in the levels of investment regarding research and development (R&D), as

a result of a key policy for the promotion and development of the country’s innovative

capacities.

Graph No.21- Expenditure on Investment and Development as a Percentage of GDP

Source: Ibero-American Network on Science and Technology Indicators

However, R&D levels in Uruguay are still lower than those observed in most developed

countries (United States, Canada, Spain and Portugal) or countries in the region such as

Brazil. Furthermore, about 70% of investment in R&D is carried out by public entities or

public financing.

46

Chart No.25-Ibero-American Investment in R&D

Countries 2008

United States 2.77%

Canada 1.84%

Portugal 1.58%

Spain 1.34%

Brazil 1.09%

Ibero- America 0.86%

Uruguay 0.64%

Latin America and the Caribbean 0.62%

Argentina 0.52%

Cuba 0.49%

Costa Rica 0.40%

Ecuador 0.25%

Panama 0.21%

Colombia 0.15% Source: Ibero-American Network on Science and Technology Indicators

The increase of resources invested by the State in science and technology has been

accompanied by the establishment of new research centers; the opening in 2006 of a

subsidiary of the Pasteur Institute in Montevideo stands out for its importance and

international recognition. The Megafarma project is equally important because of its

magnitude and the expected impacts on the development of the pharmaceutical industry.

Likewise, the sectoral plan for the development of the pharmaceutical industry has as one

of its primary objectives to promote the attraction of foreign direct investment in intensive

knowledge, through the promotion and dissemination of research centers established in

Uruguay, the availability of high-level human resources, and the regional geographical

positioning, in pursuit of developing any initial phase of the pharmaceutical chain in the

national territory enhancing scientific activity at national level and creating "spillovers" in

the industrial sector.

For its part, according to the third survey of innovation activities in the Uruguayan industry

for the period 2004-2006, current available data, in 2006, the Uruguayan chemical industry,

of which the pharmaceutical industry is part of, constitutes the second sector of the

domestic industry where companies have the highest predisposition to invest in science and

technology. Also, as a percentage of the chemical industry sales, R&D expenditure

accounted for 0.4% of said sales, establishing at the same time, one of the highest records

for the entire industry.

47

Some of the main tools available to the national pharmaceutical industry in order to carry

out research activities in Uruguay are mentioned above.

Intellectual Property Network

The Intellectual Property Network22 is formed since 2008 by public, decentralized public

entities and private institutions and provides assistance to companies, researchers and

inventors regarding the international situation of technologies and inventions.

If a company wants to develop a product, the network will provide a report regarding the

latest technologies patented in the field, which includes also information about what are

the competitors doing at international level, in which markets this technology does not exist

and where to export. This allows entrepreneurs or researcher to not waste time or

resources by investigating things that are already being investigated and really achieve an

innovative product.

Pando Technology Pole

The Pando Technology Pole (PTP) developed by the School of

Chemistry from the Universidad de la República (UDELAR), is a

modern research and development center that provides small

and medium-sized enterprises (SMEs) from the

pharmaceutical, veterinary-pharmaceutical, agro- processing, and chemical sectors, among

others, that have poor capabilities to perform research and development on a sustainable

basis. These companies are in a particular situation due to the limitation of scale, access to

infrastructure and high-cost technology services.

22

The Network is formed by: The National Directorate of Industrial Property, The Copyright Council, Cluster of science of Life (PACPYMES Program), Productive Specialization Program from the Ministry of Industry, Energy and Mining (MIEM), Universidad de la República through the intellectual Property Subcommittee, Faculty of Chemistry, Pando Technology Pole, National Agency for Research and Innovation (ANNI), Uruguayan Technological Laboratory (LATU),National Agricultural and Livestock Research Institute (INIA), Uruguayan Chamber of Industry and the Latin-American Center for Human Economy (CLAEH).

48

The Pando Technology Pole provides relevant, efficient and effective services in regards to

Research, Development and Innovation to public and private companies, which sign

agreements with the public university of Uruguay (UDELAR). The strategy to promote R&D

activities involves two modalities:

Businesses Incubator

Creation of Joint Ventures

The first modality consists of a program for the promotion of innovative ventures in fields

related to chemistry and biotechnology, mainly related to pharmaceutical, food and

environmental issues, providing scientific and technological professional support, and advice

in regards to production, logistics, finance, trade and marketing, and credit operations, etc.

The second modality has recently become very common, as a way to finance R&D activities

oriented towards innovation. Through these joint ventures, companies can share resources,

risks and benefits, as mentioned earlier when talking about mergers in the pharmaceutical

sector, in order to achieve common goals, such as the access to a niche market that can lead

to a business opportunity.

On the one hand, companies bring their experiences and knowledge related to markets,

productive processes, resources needed to finance R&D, and on the other hand, the pole

provides the necessary infrastructure such as scientific and technological equipment, state-

of-the-art laboratories, highly trained personnel and first-rate specialized researchers.

The results obtained in the projects are monitored and shared by parties, company and

pole, according to their respective contributions and specifications of the concluded

contract.

Currently, the pole has associations with several laboratories including Celsius S.A., Athena

and Libra. They are working on the development of drugs, production of active ingredients,

synthesis of organic compounds and R&D services provided to local and global innovative

companies, as well as bioequivalence studies, among others.

49

Institut Pasteur

The Institute Pasteur of Montevideo (IPM) inaugurated in 2006 a

modern building with core facilities for scientific research, which

became an international centre of biomedical research and

training of investigators. The Institute combines the potential for

biomedical research in the molecular area at a post-genomic level, with resident research

groups and an assessment program that can ensure high levels of scientific excellence.

The IPM is an international community of resident scientists, through agreements and

collaboration with national and regional institutions, including public research organizations,

universities and the Institut Pasteur of Paris together with its international network.

The internal organization of the Institute was conceived as a flexible structure that enables

the implementation of multidisciplinary research programs in relevant topics such as cancer,

degenerative and genetically transmissible diseases. The IPM comes through as an excellent

environment for the conduct of biomedical research. The different technological units were

designed to allow the conduct of multidisciplinary research on topics related to molecular

and post-genomic medicine. In coming years, research groups led by young and "senior"

scientists regarding relevant sanitary issues such as cancer, degenerative and transmissible

diseases, among others, will be established. This enables the existence of multiple

opportunities for future collaborations.

An attempt is being made for technological capabilities of the IPM to contribute to the

improvement of the competitiveness of enterprises through the use of biotechnology and of

pharmaceutical companies, of services in the biomedical and veterinary sector for carrying

out development projects or processes in an associated form.

Among the modalities of collaboration with the interested companies, they will have access

to the use of the technological platforms of the institute (selling of services); expert advice

by the technicians of the IPM, development of mixed component projects in the Institute’s

laboratories with the company's own staff.

The projects must represent an innovation or a substantial improvement of products or

existing processes, using or adapting any biotechnology tool that could be provided by the

IPM.

50

Examples of some of the foreign companies that work together with the Pasteur Institute:

The Spanish company Biopolis, for which a system of outsourcing

of animal models (mice) was developed in 2009; for the study

and preclinical analysis of molecules and biotechnological

ingredients requested by their European customers.

The French company Danone, which since 2008 through their

worldwide center for research and development (Danone

Research), has established a joint development in the Institute

Pasteur of Montevideo, for a highly predictive biotechnology models platform for

the study of dairy food prototypes with beneficial effects on human health.

Parque de las Ciencias (Science Technology Park)

In September 2009 the Government authorized the creation of a new free zone which will

focus exclusively on life sciences. This project was driven by Mega Pharma, a strategic

alliance formed by the laboratorios Roemmers, Rowe Poen Medihealth, Panalab, Raymos,

among others. The Alliance has strong commercial presence in all Latin America countries

and has a portfolio of more than 1,800 pharmaceutical and biotechnological products. Its

aim is to promote the creation, acquisition and the development of enterprises based on

knowledge and innovation. The idea is to develop the

concept of “cluster” in the pharmaceutical industry. The

park aims to generate an area of infrastructure and

services based on excellence, development of industrial

business, exchange and generation of knowledge in the

scientific and technological field according to the highest

quality standards in life sciences and health (human, veterinary and phytosanitary) and

high-tech-oriented.

The project guarantees a minimum investment of 93 million of dollars in two stages. The

first must be carried out until 2014 and will require the investment of approximately 55

million, and the second must end before December 31, 2019. More than 2,600 direct and

indirect jobs in the construction field are estimated, and 700 once the project begins

operating. Likewise, exports between 50 and 70 million of dollars are expected, values

which would duplicate the total current exports. While performed under the free zone

51

regime, a number of benefits will be granted, including exemption from taxes, which

motivates the investor. With this project, Uruguay adapts to worldwide changes that are

taking place in the industry. The objective is to seek alliances and cooperation between

enterprises to benefit from the synergy.

Clemente Estable Institute

The Biological Research Institute Clemente Estable (IIBCE) is an institution dedicated to

fundamental biological research. The IIBCE constitutes an excellent scientific environment,

with a broad national and international recognition, in which important contributions to the

scientific universal knowledge in the biological field have been made, and where several

generations of researchers have been trained and who now occupy positions of prominence

in other institutions abroad.

Its main objectives and tasks are:

To conduct scientific research to obtain new knowledge in the field of biological

sciences.

To provide training and scientific and technological information in the field of life

sciences.

To Participate in the training of human resources and promote new researchers

and technicians in their various specialties.

The institution research teams are focused on three areas of biology which have always

been of great interest not only for scientists but for the entire society: Neurosciences,

Microbiological Sciences and Genetics and Molecular Biology.

In the last fifteen years the Institute has maintained a close relationship with the

pharmaceutical industry. Highlighting projects developed jointly with Celsius and Dispert

laboratories, on the neuroprotective properties of boldine, research on the properties of the

Marcela herb jointly with Urufarma laboratory, as well as one of their molecules, quercetin,

among others.

52

Annex – Strategic Plan for the Pharmaceutical Sector23

The vision of the pharmaceutical sector is: “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 allow us to gain access to the most demanding markets worldwide and

continue to provide high quality medicine at affordable prices for all Uruguayans”.

Based on the aforementioned, different objectives and goals are set out below:

I) Objective: Strengthening of the National Productive Chain of the Pharmaceutical Sector.

Goals 2020 Risks Indicators

1. That companies have reference bodies at a regional and global level regarding Registration and Control of products and the authorization of plants.

• That the Ministry of Public Health and the Ministry of Livestock, Agriculture and Fishery do not engage with this goal, by not being one of its priorities.

• Acceptable time period for the registration of products (6 months).

• Lack of public- public coordination.

• Number of registered products per year.

• Acceptable time period for the authorization of plants (1 year).

• Authorized Plants per year.

2. Generate availability of technicians and operators specialized in the production of plant, machinery maintenance and registration activities, among other capabilities.

• Failure in the implementation by not having efficient coordinating bodies and with available resources.

• New Courses per Year.

• Graduates that started working in the pharmaceutical sector per year.

3. To Promote the increase in volume of new business.

• Limitations in the HH.RR Quality.

• New businesses per year.

4. To reduce partial tariffs barriers for Mercosur exports.

• That Uruguay may not have negotiating power with the rest of the Mercosur members.

• Regional partners exports per year. • Number of Uruguayan products registered in the regional partners per year.

23 Source: Productive Cabinet (www.gp.gub.uy)

53

II) Objective: Innovation and Development.

Goals 2020 Risks Indicators

5. Development of specific components suppliers.

Not having critical volume to develop these suppliers.

% National components on national product.

Number of national components suppliers.

6. Direct Foreign Investment Attraction specially for R+D+I.

That foreign capital may not consider our market attractive in this sector due to amenable problems.

DFI in the sector per year.

Patents per year.

7. Update the sectoral production model according to the requirements of the Intellectual Property and Mercosur-UE agreements and others.

That new regulations on Intellectual Property limit, restrict and/or stop the growth of the national productive sector.

Average price of exported medication (Increase).

III) Export Development of the Sector.

Metas 2020 Riesgos Indicadores 8. Use the State’s Purchasing Unit (UCA) as a tool to leverage the strategic development of the sector with an export objective.

• That the MEF and MGAP may not prioritize this objective. • That the UCA buy Asian medicines by price, replacing the national laboratories that are our historical providers, and they may have to close production lines, with the "loss of national sovereignty of the medicine". • Sanitary, by not monitoring 100% of the imported products.

• % of the State’s purchase to national suppliers. • % of imported controlled lots (should be 100%).

54

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