News

Maker of Generics Adds Spice to Drug Business

By: David Luhnow
Published: The Wall Street Journal
Date: February 14, 2005
Website: www.wsj.com

MEXICO -- Victor González has come up with a novel prescription for business success here: cheap drugs, cheap doctors and a dose of sex.

His Farmacias Similares drugstores, one of Latin America's fastest-growing retail chains, stock only generic drugs, including many that González manufactures. Next door to most of the stores are clinics that he subsidizes, staffed by doctors who charge US $2 a visit and write prescriptions for generic drugs.

This arrangement is fine with Lorenzo San Juan, a 40-year-old textile worker. On a recent day, he paid a total of US $8 for a doctor to examine his 10-yearold son, and for antibiotics to treat the boy's cough at a Farmacias Similares in Mexico City. "This is the only place that we can afford to buy our medicines," says San Juan, who, like many Mexicans, earns about US $4 a day.

On his way out of the pharmacy, San Juan made sure to pick up the drugstore's pin-up calendar of the "Simi Chicas."

The suggestively dressed models appear on billboards and in newspaper ads endorsing Simi brand condoms, Simi telephonecalling cards, Simi diapers and Simi tequila shot glasses.

RESHAPING

González, 57, is shaking up the nation's health-care system and changing the way drugs are sold here. By spotting gaps in the country's drug market and regulations, he is able to offer lowcost medicines and inexpensive care to millions who lacked both. By raising awareness of generics as an alternative to pricey brandname drugs, he has revived the fortunes of domestic makers and posed a threat to the U.S. and European pharmaceutical companies that dominate Latin America.

Until González opened his first pharmacy in 1997, generic drugs were available only at government-run hospitals and clinics, not at retail stores. That forced some 50 million Mexicans who aren't covered by the public insurance system which until recently only covered people who are formally employed to pay top dollar for brand-name drugs at pharmacies.

While his impoverished customers see him as a champion of the poor, some competitors view him as vaudevillian-style promoter, and have questioned the quality of his drugs. "The products are cheap in every sense of the word," says Julio Portales, head of corporate affairs at the Mexican unit of Eli Lilly & Co. "If I have to buy four times as much of this guy's aspirin to make it work as well as one Bayer, where's my value for money?".

González denies such claims. He says a new law requiring testing of generics will settle the matter once and for all. But the controversy lingers. Jorge Salas, a doctor who works at a clinic set up by González, says that although most Similares medicines work well, he'll tell a patient facing an emergency to "go take a Pfizer pill instead of the generic."

In building his empire of 2,550 stores, González has made the business a lot more colorful. He has tangled with anti-abortion groups and now he has launched a long-shot bid for the presidency in 2006, using universal health care as a rallying cry.

González has created an alternative health-care system. His stores stock mostly older drugs that have lost their patent and can be copied cheaply in Mexico. He subsidizes about 1,900 clinics, catering to those who can't afford the US $30 or so that private clinics charge for a visit. Some 800,000 Mexicans visit his clinics every month, according to the Metropolitan Autonomous University. The clinics are run by a nonprofit group set up by González, and doctors keep the money paid for visits.

In Mexico's US $9 billion-ayear pharmaceutical market, the world's ninth largest, branded drugs such as those sold by New York's Pfizer Inc. and the United Kingdom's GlaxoSmithKline PLC, make up about 80 percent of sales by value, according to local drug makers. But González is chipping away at foreign companies' domination. In seven years, his company has gained about a 4 percent share of drugs sold, compared with Pfizer's leading 8 percent share, according to the nation's Pharmaceutical Industry Chamber, a trade group.

"Before we appeared on the scene, poor people in Mexico used to pray to the Virgin to get better because they couldn't afford the medicines," says González. "Now they come to us." He says Farmacias Similares had US $400 million in sales in 2004, but won't disclose earnings.

González recently opened 11 drugstores and clinics in Argentina and 36 in Central America, where he recruited Guatemalan Nobel peace prize winner Rigoberta Menchu to be a spokeswoman.

UPBRINGING

The youngest of five children, González worked for years at his family-owned drugstore chain, founded in 1875 by his greatgrandfather. But he didn't get along with his oldest brother Javier, who ran the business. Gonzalez left in the 1980s to run another family firm, Laboratorios Best, which sold generics to the government. Because he has a speech impediment and admits to abusing alcohol in the past, he says his family never expected him to amount to much.

Eventually he bought Laboratorios Best from his family. But he realized the prospects of domestic drug makers were limited because they sold generics solely to the public-health system, at slender markups. Although there was no legal ban on their selling generics, retail pharmacies stocked only branded drugs, which are made by foreign companies and have much fatter margins.

"I realized I was in the wrong business," says González. "I had to sell my generics at the retail level and forget about the government."

Within weeks of opening his first store, sales were so brisk he had to enlist other local drug makers to make medicines. Now, González's Laboratorios Best provides about one-fifth of Farmacias Similares's drugs, with the rest made by local companies.

Six tablets at 20 milligrams of omeprazol, a popular anti-acid drug, goes for US $3.50 at Farmacias Similares versus US $20 at a conventional pharmacy for the same dose of Prilosec, the branded drug made by the U.K.'s AstraZeneca PLC.

As sales have grown he opened 1,248 stores last year alone González has generated plenty of controversy. In 1999, the National Pharmaceutical Industry Chamber, which represents foreign as well as some domestic drug companies, denounced Similares's drugs as inferior. In response, González erected billboards across Mexico saying multinationals were trying to block access to cheap medicine.

"Say no to corruption. Say yes to helping the poor," the billboards read. The trade group soon ceased its attacks.

González focuses his marketing on consumer trust, and created a cartoon character, "Dr. Simi," as the chain's logo.

A grandfatherly figure in a white lab coat, Dr. Simi appears regularly in newspaper ads. Every day, there are 2,000 or so workers who dress in 7-foot-tall Dr. Simi costumes and stand outside the stores, gyrating to salsa music and beckoning shoppers. The character stars in his own comic book and a TV show called "The Dr. Simi Hour," hosted by one of the Simi Chicas, Romanian-born actress Joana Benedek.

MARKETING STRATEGY

González's creation of the Simi Chicas give his products a bit of sizzle. Besides arriving at publicity events arm-in-arm with González, the Simi Chicas represent different company themes such as "quality" or "honesty," which they talk up in lectures at schools and clinics. After a speech by González at a trade school in Acapulco, the audience of mostly young men had no questions until Benedek offered a kiss in exchange for each question. About 20 hands shot up.

"This guy is a marketing genius," says Eric Hagsater, head of the National Pharmaceutical Industry Chamber. "Dr. Simi appeals to moms and kids, and the Simi Chicas to men."

A new law may resolve questions that have dogged González's company. Until last month, Mexico only required its generic-drug makers to show they used the same active ingredient as a branded medicine. They weren't forced to do testing to ensure the drugs work as well in the human body a process called "bioequivalency." U.S.- and European-made generic drugs have to undergo such tests.

González says he welcomes the new rule, which requires Mexican companies to also show bioequivalency. He says all of his company's drugs that have been tested so far about 15 percent of the medicines he sells have already passed the tests, which cost about US $65,000 each.

González hardly shies from other fights. When Fidel Castro recently denied him permission to open stores in Cuba, González responded with full-page newspaper ads in Mexico attacking Castro as a "fake" champion of the poor. Rocio Gálvez, head of a Catholic anti-abortion group, last year denounced González for selling low-priced condoms, which she said promoted a liberal sexual culture. González shot back with ads thanking her for introducing his product to the public, and featuring a picture of her holding up his condoms at a news conference.

After Gálvez sued him for slander, González tripled the level of advertising using her image and sent dozens of employees to stand outside the courthouse with signs that read "Long Live Condoms!" Gálvez, who declined to comment, later dropped the lawsuit.

Dozens of other Mexican drugstore chains have begun to mimic Farmacias Similares. Among them is González's estranged brother, Javier who calls González "the Tasmanian devil" because "he picks fights with everyone." Javier, who runs traditional pharmacies, recently opened a chain of drugstores stocking generics, with clinics that offer a checkup for US $1.

González is now trying to capitalize on his popularity among the poor to run for president. He publishes his own surveys of Farmacias Similares's customers showing him with 39 percent support, but most independent polls put him at 2 percent. At a recent campaign rally in Acapulco, about 4,000 people turned up to cheer González and his entourage of Simi Chicas. "I think the Simi Chicas will make fine first ladies," joked the divorced González, drawing cheers.

Some rivals speculate González will end up endorsing another candidate in return for a deal on health-care policy.

Last year, with the help of the Green Party, which is run by his nephew, González led a move in the Congress to cut the patent on medicines made by foreign companies to 10 years from 20. It narrowly failed. He vows to try again.

González says he's not worried about juggling the demands of a presidential campaign with a fast-growing company. "I'm a businessman in the morning, a politician in the afternoon, and a lover in the evening."

Copyright ©2005 Dow Jones & Company, Inc.

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