The legal framework regulating pharmaceuticals and medical devices is largely federal in Mexico, and includes the following laws and regulations:
The main authority responsible for enforcing human health pharmaceutical and medical devices regulation is the Federal Commission for Protection against Sanitary Risks (COFEPRIS), which is part of the Ministry of Health.
In addition, there are other authorities that play a key role in both the public and private pharmaceutical market. The crucial one is the General Health Council (HGC), which is an autonomous body (but formally headed by the Ministry of Health) that is in charge of two key functions:
Decisions from the regulatory bodies that apply and enforce pharmaceutical and medical device regulations may be challenged through the following optional appeal proceedings:
The formal requirements for challenging a decision vary depending on the nature of the decision being challenged, but generally the appeal lawsuit shall include: identification of the affected party; identification of the challenged decision; identification of the authority that issued the decision; a description of the facts; and the available evidence. However, the most important requirement for litigating regulatory decisions is to have an interdisciplinary team of lawyers and pharmaceutical chemists, so that both the science and the law can be properly understood and argued in each case.
There is a general impression that there has been no significant litigation relating to decisions taken by health regulators, but this is not an entirely accurate perception, as litigation has always existed in this area. However, it is true that, as the regulatory framework has evolved into a more complete set of legal rules and as regulatory work is now being undertaken not only by technical professionals such as pharmaceutical chemists, but also by lawyers, companies have felt increasingly confident to challenge regulatory decisions that affect their interests.
It is important to understand the historic context behind those perceptions. On the one hand, given its highly technical content, regulatory work was mainly undertaken by pharmaceutical chemists, both in companies and in regulatory agencies. On the other hand, the law in this area did not evolve as quickly as the science and the market did. Regulatory decisions frequently had to be made not on the basis of existing legal rules, but exclusively upon technical criteria, which led to a highly discretionary system. Although decisions were vulnerable, the concern was that challenging a decision over one product would affect other pending administrative decisions over other products.
Fortunately, the situation has changed in recent years. New administrations have aimed at keeping the legal framework up to date and have brought in more lawyers, in an effort to achieve a Rule of Law in health law and regulation. This means that litigation matters have been increasing, which is reflected in the specialisation of Courts. In fact, the Federal Administrative Tribunal has a Specialised Chamber to appeal decisions made by COFEPRIS.
The administrative review, annulment action and amparo trial would also be the applicable appeal proceedings to challenge the decisions of federal regulatory bodies that involve other products, such as foods, beverages and dietary supplements.
The borderlines between pharmaceuticals and other regulated products are drawn by their ingredients, intended use, primary function and advertising claims. There are definitions for each product, but COFEPRIS has the authority to reclassify a product if there is evidence that shows it belongs to another regulatory category. The most important restriction is that cosmetics and nutritional products cannot claim to have therapeutic properties, which is reserved for drugs. At the same time, there are different lists of ingredients that define what can and cannot be contained in specific products.
If it is not clear in which regulatory category a product belongs, it is possible to apply for a ruling request, through which the authority will confirm the regulatory category for a concrete product.
In Mexico, functional foods and nutraceuticals are not regulated specifically. Locally, the only formally recognised regulatory categories are plain foods and dietary supplements. Plain foods are permitted to make indirect health claims, without reference to a disease or therapeutic effect, but dietary supplements are not allowed to make any type of claims, including health claims.
Specialised nutritional foods (eg, food for diabetics) is an intermediate category, in which it is allowed to make limited disease-related claims, provided they can be substantiated with clinical data. Similar to pharmaceuticals and medical devices, specialised nutritional foods are also subject to a marketing authorisation and more substantive evaluation, including safety and efficacy. The convergence between pharmaceuticals and food products seems to be taking shape in Mexico through this regulatory category.
There are two basic categories of pharmaceuticals: prescribed and non-prescribed drugs. In addition, controlled substances require a special prescription.
Medical devices are divided into three classes, according to the risk they represent to human health:
The regulation of clinical trials includes the following key instruments:
In general, clinical trials (Phases I-IV) shall be:
In addition, they must obtain the relevant approvals of the Health Institution, the Ethics Committee and COFEPRIS.
Historically, the operation of Ethics Committees was largely self-regulated and based on international best practice. There was also a lack of co-ordination between COFEPRIS and the National Bioethics Commission (ConBioetica). However, the Decree for the Operation of Ethics Committees (2012) provides a clearer legal framework, establishing their structure, their objectives, the role of their members and the requirement to be registered before both ConBioetica and COFEPRIS.
Notably, the Guidelines for Good Clinical Practice (2012) make a clear reference to international best practice, including standards developed by the International Conference on Harmonisation (ICH). It is important to note that these GCPs will be the basis to move towards a certification system, for which COFEPRIS has already started to conduct inspections of research sites.
The operation of Contract Research Organisations (CROs) is not fully regulated, with references only found in the Guidelines, but there are ongoing initiatives to address this.
In addition, other regulatory measures have been introduced to promote Mexico as a place for conducting clinical research, including the following:
The same rules regulate both medical devices and pharmaceuticals.
The procedure for securing authorisation to undertake a clinical trial of a pharmaceutical or medical device is comprised of three basic steps, which are sequential and cannot be applied for in parallel:
Currently, after their protocols have been authorised by COFEPRIS, most trials are recorded in the National Registry of Clinical Trials (RNEC). The information contained in the RNEC is collected by COFEPRIS in collaboration with those responsible for conducting the clinical trial (Sponsor, CRO or healthcare institution). The RNEC publishes an electronic database that includes only general information about the clinical trials. Although limited, this shows significant progress, as until very recently there was almost no local information made publicly available. Confidential information is not included in the RNEC, nor is the health information of patients, which will be regarded as sensitive personal information under Data Protection Laws and will be protected accordingly.
On the other hand, there is no binding provision to disclose or publish the results of clinical trials, but the Code of Ethics of CERTIFARMA does contain a specific obligation for Sponsors to disseminate the positive and negative results of the trials, particularly the adverse events.
There are no specific restrictions regarding online clinical trial platforms. However, it would be important for the platform to comply with the regulations regarding recruiting and interaction with patients enrolled in a clinical trial, if those functionalities are included in the platform. Additionally, this platform could involve other regulatory implications, such as the advertising of health inputs, services and privacy protection, so it is important that its content is reviewed on a case-by-case basis.
The resulting data from the clinical trial would be considered as personal if the patients enrolled in the clinical study were identified. If the results of the clinical trial are presented without providing information or images that could lead to the identification of the patients, those results would not be considered as personal data.
No response provided.
It is permitted to transfer the resulting data of the clinical trial to a third party or to an affiliate, as long as the Privacy Notice reveals that such a transfer will occur and identifies a justifiable purpose for that transfer. When sensitive personal data is involved, the data controller must obtain the express written consent for processing, through his or her signature, an electronic signature, or any authentication mechanism established for that purpose.
The creation of databases that contain sensitive personal data must be justified and follow legitimate and concrete purposes that correspond to the activities and explicit objectives of the data controller. These kinds of databases are not subject to authorisation before starting operations.
The GHL provides a general definition for pharmaceuticals. In this respect, any product that falls into such definition should be considered as a pharmaceutical. According to the GHL, a medicine is any substance or mixture of substances of natural or synthetic origin which have any therapeutic, preventative or rehabilitative properties, which is presented under any pharmaceutical form and is identified as such for its pharmacological activity and physical, chemical and biological characteristics.
On the other hand, the definition contained in different legal instruments for medical device is as follows: "The substance, material, apparatus, or instrument (including software), used on its own or in combination, for the diagnosis, monitoring or prevention of diseases; or as auxiliaries for the treatment of diseases and disabilities; as well as for the replacing, correction, restoring or modification of the anatomy or physiological processes of humans." Initially, any product that falls into that definition should be considered as a medical device.
It is also important to remember the List of Products that for its Nature, Characteristics and Uses are not Considered Health Inputs. If the relevant product is found in this List, it will be excluded from the regulation of medical devices.
There are other categories that are recognised in practice (eg, combination products), but these are not formally regulated through mandatory instruments.
In general, there is only one type of marketing authorisation for pharmaceuticals for human health and for medical devices, which is granted by COFEPRIS. The same requirements of quality, safety and efficacy apply, regardless of whether the product is allopathic, homeopathic, herbal or a vitamin pharmaceutical. However, a significant difference would exist between the extent and scope of safety and efficacy data that would be required for an innovator product than for a subsequent product, and the specific requirement for releasing biologic products after importation. Biotech drugs are also subject to a pre-submission regulatory meeting with the New Molecules Committee of COFEPRIS.
The period of validity of any marketing authorisation for pharmaceuticals and medical devices is five years. After this period, marketing authorisations may be renewed every five years. At any time, marketing authorisations may be revoked by COFEPRIS, for instance when a new risk to human health is found, if an infringer repeatedly disregards safety measures; or if false information is submitted.
In general, the procedure for obtaining a marketing authorisation for pharmaceuticals includes filing the marketing authorisation application form at COFEPRIS, along with evidence of the following:
In addition, for products manufactured abroad it is necessary to file a representation letter granted to the holder.
The application to obtain a marketing authorisation for medical devices must be submitted with the following:
In addition, for products manufactured abroad it is necessary to file a free sale certificate, a representation letter issued by the manufacturer of the product, a certification of analysis, sanitary notification of the distribution warehouse, and notification of the sanitary official of the distribution warehouse.
Approval times are as follows:
These approval times can be extended if COFEPRIS requires additional information, and can also be reduced significantly if applicants include a prior favourable opinion issued by a Third Authorised Party.
For class I medical devices, the decision must be granted within a term of 30 days; for class II, the decision shall be taken within 35 days; for class III, the decision shall be taken within a maximum term of 60 days. As with pharmaceuticals, these approval times can be extended if COFEPRIS requires additional information, and can also be reduced significantly if applicants include a prior favourable opinion issued by a Third Authorised Party.
There is no mandatory requirement to conduct clinical trials in a paediatric population or to obtain a waiver from this requirement in relation to individual pharmaceuticals. This is completely optional and subject to stricter requirements.
The variation of marketing authorisations is classified under administrative or technical modifications. Technical modifications are those relating to changes in the formulation, indication or manufacturing process. Administrative modifications include variations such as changes to the corporate name or address of the holder, or changes to the Information to Prescribe. An assignment of marketing authorisation is regarded as an administrative modification. Each application to modify a marketing authorisation shall contain the technical and legal documentation supporting the relevant change.
There are a limited number of cases where an unauthorised product can be imported into the country and be supplied to patients, including low prevalence diseases, donations (eg, in natural disasters), personal use, experimental products for clinical research, and medical use.
Additionally, if the relevant product is included in the List of Products that for its Nature, Characteristics and Uses are not Considered Health Inputs, it would not be considered as a pharmaceutical or medical device and consequently would not require a marketing authorisation.
Holders of marketing authorisations must comply with good manufacturing practices, stability, pharmacovigilance or technovigilance and labelling standards and regulations; they must also comply with advertising regulations applicable to pharmaceuticals or medical devices.
In general, both pharmaceuticals and medical devices are subject to post-approval vigilance. These obligations are developed in Technical Standards, which generally specify rights and obligations for holders of marketing authorisations, distributors, research sites, health institutions, physicians and patients to monitor adverse events or incidents, investigate them, and report them. It is also required to have a pharmacovigilance or technovigilance unit, someone responsible for pharmacovigilance and someone responsible for technovigilance, and a pharmacovigilance or technovigilance manual.
On the other hand, Phase IV data is only required for more complex products (eg, complex biologics or biotech drugs), which is decided by the New Molecules Committee.
COFEPRIS has periodically published lists of applications, and of granted or rejected marketing authorisations. However, these lists are not updated regularly, and frequently contain limited information that excludes confidential information. Full access to individual files is only granted to the applicant.
Although third parties have long been able to file Public Information Requests in relation to any file held by COFEPRIS, under the mechanisms overseen by the National Institute for Access to Public Information and Data Protection (INAI), COFEPRIS had historically resisted providing access to most of the files of marketing authorisations, which it regarded as being confidential in their entirety. Nevertheless, through several INAI decisions, an increasing number of data elements can now be accessed. Fortunately, however, COFEPRIS has now begun to populate a public database on its website that displays key data contained in the marketing authorisations for pharmaceuticals.
Confidential information is protected by several special laws, including privacy intellectual property, administrative procedures, labour and criminal law.
Relevant legislation includes a combination of the Health Law, the Federal Consumer Protection Law and the Federal Criminal Code. These legislative bills provide jurisdiction to other government agencies to undertake enforcement actions upon the notice of existence of falsified or illegal goods that could affect healthcare. The action that can be triggered will depend on the specific facts of the case and the illicit goods involved, as it could be within the legal authority of any of the above-mentioned laws.
In essence, the bills provide a legal framework to file and start complaints, through a potential infringement of either the Consumer Protection Law or the Health Law. These investigations shall be based on a hazard against health or a consumer protection liability, rather than intellectual property infringement. Please note that other actions, such as a damages claim for unlawful conduct that affects a company or damages its prestige and reputation, could be explored in a subsequent stage, provided that an infringement is found to have existed, and depending on the direct liability of the offender.
As a general note, it is important to note that the actions available under these bills are not in the title-holder’s control; instead, they are under the control of the relevant agency, such as COFEPRIS, the Federal Attorney General Office (PGR), the Federal Consumer Protection Agency or the Federal Police. In this regard, the title-holder/manufacturer is entitled to present a complaint for the relevant agency to start an investigation, which could be a joint investigation with Law Enforcement Agencies, depending on the facts of the case. The agency will be in control of the investigation, while the title-holder/manufacturer can assist with the investigation and provide relevant information that will help build the case, although they will not be in control of the investigation and its outcome.
As a result of the above, depending on the investigation’s outcome, there can be injunctive relief such as seizure of illicit goods, or temporary closure of the factory or retail store. These options will be taken by the Administrative Agencies or the Law Enforcement Agencies ex officio, as the title-holder is not part of the case. For these situations, it is important that the title-holder follows the official investigation closely to ensure that the Administrative Agencies or the Law Enforcement Agencies will liaise in due course.
A combination of provisions found in international free trade agreements, the Mexican Industrial Property Law and Customs Law provide the possibility of filing border measures against counterfeited pharmaceuticals and medical devices, provided a recognised IP right is at risk, which includes trade marks, patents and industrial designs. The system is operated through detection technology and databases that are built or fed by title-holders, who will be alerted to suspected goods.
In Mexico, the private and public markets for medical products have separate rules depending on whether or not the products are patented. However, this mainly applies to pharmaceuticals and may change during the new federal administration.
The very general legislative bases of the dual system are contained in two laws: the GHL (Article 31) and the Federal Economic Competition Law (Article 9). However, the rest of the rules are largely contained in separate regulatory instruments of lower hierarchy, including the Addendum to the Agreement for Drug Pricing Co-ordination signed in 2004 between the Ministry of Economy and the National Chamber of the Pharmaceutical Industry (CANIFARMA), the Presidential Decree that created the Co-ordinating Commission for Negotiating the Price of Medicines and other Health Inputs (CCPNM), and the Internal Rules of Operation of the CCPNM and the technical standard for labelling of drugs NOM-072-SSA1-2012.
Patented drugs for the private market are subject to a hybrid system that is largely self-regulated and voluntary. Under this system, companies compile their own information about their prices in other jurisdictions and submit that to the authority, which monitors the accuracy of the data.
The manufacturer is required to stamp the price on the label of the product at the end of the manufacturing process. PROFECO (Agency for Consumer Protection) verifies that the prices at the point of sale – ie, at pharmacies – do not exceed that price.
Generic drugs, off-patent products and medical devices in general are not part of this pricing regulation, being subject to direct price competition in the market. Newly launched products are initially exempted, as explained below.
Patented pharmaceuticals for the public market are subject to a different process of annual negotiation with an entity created in 2008 called the Co-ordinating Commission for Negotiating the Price of Medicines and other Health Inputs (CCPNM), which gathers all major public institutions buying drugs in Mexico, as well as the Ministries of Public Administration, Finance, Economy, and Health.
Based largely on economic data, the price negotiated therein becomes mandatory for each and every public procurement of drugs and medical devices undertaken by the Federal Government. However, State institutions can also adhere to the scheme.
The estimated price for generic and off-patent products is initially defined by those public institutions co-ordinating the public procurement exercise, based on their market research. However, the price will be influenced by the discounts offered by the participating bidders, and will ultimately be determined in the acquisition award and contract.
An overall description of the process currently operating on the private market for drugs is described below. First, an International Reference Price (IRP) is calculated by the company as the weighted average of ex-factory prices in six reference countries. The manufacturer takes this information to an external auditor to get it verified and then submits it on an annual basis to the Ministry of Economy. A Reference Price for Sales (RPS) is then calculated by multiplying the IRP by a factor that corresponds to what is typically considered the combined average wholesale and retail margin in Mexico. Based on that, a Maximum Retail Price (MRP) set by the manufacturer is registered before the Ministry of Economy and is then included in the label of the product. The MRP cannot exceed the RPS. This process has not been applied for medical devices prices, which are regulated directly by price competition in the market.
A general description of the system on the public market is given below. The process at the CPNM is triggered once the product has obtained a marketing authorisation from COFEPRIS and been incorporated into the Basic Formulary administered by the General Health Council (GHC), and the patent has been published in the Intellectual Property Official Gazette, which is managed by the Mexican Institute of Industrial Property (IMPI).
On an annual basis, the CPNM compiles information that includes:
Based on that information, a report is prepared as the basis for issuing an Annual Calendar of Negotiations with the pharmaceutical companies.
As stated previously, newly launched pharmaceuticals for the private market are initially exempted from the Maximum Retail Price system, given that in principle they would not have a comparator. The manufacturer can initially set the price, subject to a re-evaluation three months after the product launch. The review is conducted to verify whether the product exists in the international market. If this is confirmed, then an RPS and MRP will be estimated. If this occurs, the price of newly launched products will be influenced by prices for the same product in other countries, but not based on a health technology assessment. As mentioned, the price regulations for medicines do not apply to medical devices.
The Mexican system does not operate through a model of reimbursement, but through a model of public procurement of drugs and medical devices.
There is a comprehensive legal regime for public procurement in Mexico that is overseen by the Ministry of Public Administration, in co-ordination with the purchasing entity. However, this may change during the new federal administration. In general, it operates through three different mechanisms: (i) public bidding, with either a national or international scope; (ii) invitation to at least three persons; and (ii) direct awards.
Whereas public bidding is the general rule, purchasing by invitation or direct award is allowed under certain circumstances, which are listed in the Federal Law for Procurement, Leases and Services of the Public Sector. One of the exemptions refers to the case where there are no substitute products, there is only one possible supplier or the required product is patent protected.
It is worth noting that accessing the public market for pharmaceuticals does not begin directly with public procurement. There are other key regulatory steps to be met before that, given that public procurement works through Product Codes granted by other health authorities. The GHC administers the Basic Formularies of pharmaceutical products and medical devices, but at the same time there are other Institutional Formularies administered by individual entities, such as IMSS and ISSSTE. The process for incorporating a product to the Basic Formulary and then to Institutional Formularies can take two to four years. The decision here is largely based on economic evaluation. Only after a Code has been allocated to a given product can that product be part of a public procurement exercise. It is noteworthy that these codes are assigned per active ingredient in the case of pharmaceuticals.
As described above, the decision to incorporate a product into the Basic Formularies, or any other Institutional Formularies, is now largely based on economic analyses.
The original methodologies included cost-minimisation, cost-effectiveness, cost-utility and unitary prices. Following the publication of the Guide, unitary prices were excluded and cost-benefit analyses were added.
This means that the economics analysis regarding pharmaceuticals and medical devices is relatively new in Mexico. Although certainty has increased in relation to the Basic Formularies, this is not the case regarding the Institutional Formularies.
It is worth noting that, although value-based proposals have been explored in recent years in Mexico, mainly by embedding special conditions into the instruments through which the public procurement exercises are materialised, there are still large challenges to be overcome, including the higher administrative complexity in managing these innovative but also more demanding schemes, the significant turnaround of public officers, which makes it difficult to consolidate competencies, and inconsistencies between the multiple pieces of legislation that control the different aspects of these proposals.
The regulatory framework links the rules of prescription and dispensing with those of substitution at the point of sale. There are two different scenarios for the private and public markets.
For the private market, the first rule is that prescribing by the active ingredient or generic name is mandatory, and that the use of the distinctive name or trade mark of the product is optional for the health professional. The second and perhaps most important rule is that if the prescription contains only the generic name, the pharmacists are allowed to substitute the product. Conversely, if the product was prescribed by its distinctive name, then substitution at the point of sale is forbidden.
In contrast, for the public market, although the basic rule structure is the same, there is no reference to the option of prescribing by trade mark, which means that substitution is always allowed. At the same time, it has also became a long-held practice in the public sector to prescribe using the Product Code allocated in the Basic Formulary, which is also based on the active ingredient. There are provisions allowing prescriptions to be made under different conditions, but the respective institution would need to authorise such decisions, which is not commonly used.
The basic regulatory instruments governing the advertising of pharmaceuticals and medical devices include the General Health Law (GHL), the Health Advertisement Secondary Regulations (HASR) and the Federal Consumer Protection Law. These are mandatory provisions.
In contrast, promotional activities are regulated in Codes of Conduct of the pharmaceutical and medical devices industry, as mentioned below.
For prescribed products, advertising can only be aimed at health professionals and requires filing a prior notice before COFEPRIS.
For non-prescription products such as OTCs, medical devices, herbal remedies or homeopathic products, advertising can be aimed at the general public but is subject to a prior permit from COFEPRIS.
A similar mechanism exists for medical devices, except that, instead of having the prescription as the defining factor, it is the Advertising Conditions (decided for each product in its marketing authorisation) that define whether the product can be advertised to healthcare professionals only (subject o a notification) or to the wider public (subject to a permit).
The Council for Ethics and Transparency of the Pharmaceutical Industry (CETIFARMA), which is an internal body of the National Chamber of the Pharmaceutical Industry (CANIFARMA), issues and oversees compliance with the Code of Good Promotional Practices. For medical devices, the Mexican Association of Innovative Industries of Medical Devices (AMID) issues and promotes compliance with the Code of Interaction with Healthcare Professionals. These Codes provide a wider regulation of the promotion of pharmaceuticals and medical devices, including interaction with healthcare professionals and hospitals.
Generally, a breach of advertising regulations would be sanctioned with a fine. The fines that could be imposed for advertising drugs or medical devices without filing an advertising notice or without obtaining an advertising permit, as applicable, could go up to approximately USD67,000. The same fine amount could be imposed if the content of the adverting material breaches the specifications established in the GHL and the HASR for the advertising of medical devices or pharmaceuticals.
Regarding safety measures, the regulator can order the suspension of the advertising messages (eg, television and radio advertising) and also the seizure and destruction of advertising materials that do not comply with the advertising regulations (eg, brochures).
The mandatory health advertising regulations are enforced by COFEPRIS.
A breach of the self-regulatory provisions regarding advertising of pharmaceuticals could be sanctioned with a warning, a monetary sanction that could rise to approximately USD170,000 (in case of severe infringements), or a temporary or definitive suspension of CANIFARMA's affiliate rights. The sanction procedure initiated by CANIFARMA has different timeframes depending on the specific case. In contrast, the Code of AMID does not specify a sanctioning procedure or timeframe in case of violations.
The sanctions regarding mandatory advertising regulations are imposed in a sanction procedure initiated by COFEPRIS. The duration of the procedure would depend on the complexity of the infringements and on the arguments constructed by the likely infringer. The duration of the sanction procedure could be from two to four months. It is important to mention that the sanction could be challenged by an annulment action submitted before the Federal Administrative Tribunal. The action conducted at the Federal Administrative Tribunal would take approximately four to six months. In turn, the decision taken by the Federal Administrative Tribunal could be challenged in a Federal Court with a direct amparo; the amparo trial would take from three to six months to be resolved.
For pharmaceuticals, the Code of Good Promotional Practices of CETIFARMA limits the gifts to objects related to the medical practice, whose cost does not exceed approximately USD40. This same regulatory body exempts articles such as books or educational materials contained in optical, magnetic or electronic sources, which cannot exceed the price of approximately USD200. However, the new local rules for anti-corruption have largely limited the possibility to provide gifts to public officers.
On the other hand, for medical devices, the Code of Interaction with Healthcare Professionals issued by AMID prohibits the giving of gifts to healthcare professionals, but does allow healthcare professionals to be provided with materials that facilitate their comprehension and instruction, with only scientific and educational purposes. The price of these materials is limited to approximately USD40.
Additionally, both Codes allow the provision of sponsorships to healthcare professionals, following certain guidelines. Some of the most important restrictions are as follows:
In relation to disclosure, it is not mandatory to disclose interactions with healthcare professionals. The Code of CANIFARMA contains a general provision that requires companies to endeavour to get the healthcare professional to agree to the relevant disclosure, which is only made to CANIFARMA. This means that, in Mexico, the privacy of the healthcare professional still prevails over transparency concerns, therefore requiring its consent for disclosing its personal financial information. Discussions are being held to introduce a stronger disclosing system, but this would require more significant legal changes.
One of the most common issues is regarding digital advertising. In Mexico, the digital advertising of pharmaceuticals and medical devices to the general population is subject to an advertising permit, which is often not obtained. When COFEPRIS becomes aware of any irregular advertisement, it often, first, requests the withdrawal of the information from the platform (eg, company official web page or social network). Once the advertising material has been removed, COFEPRIS would usually start a sanction procedure against the brand owner of the advertising.
The advertising of pharmaceuticals and medical devices is also regulated by general consumer protection laws. Federal Consumer Protection Law (FCPL) and its Secondary Regulations establish that advertising regarding goods, products or services that is disseminated through any media shall be truthful, verifiable, clear and devoid of text, dialogue, sounds, images, brands, origin denominations or other descriptions that could or may induce error and confusion through being misleading or abusive.
The FCPL defines misleading advertising as any advertisement that refers to characteristics or information presented in relation to a good, product or service that could or could not be truthful, or could induce error and confusion to the consumer through being inaccurate, false, exaggerated or partial.
No specific regulation has yet been issued establishing clear criteria to determine when the regulations of medical devices should apply to online platforms or apps that have heath-related functionalities. However, in order to determine the regulatory status of the platform or app, it is relevant to assess whether the product:
In order to obtain official confirmation of the regulatory status of the online platform or app, depending on the particular situation, it may be recommended to prepare carefully and obtain a ruling confirmation.
There are no special rules for telemedicine as yet; a technical regulation was drafted at some point but it was withdrawn. That failed attempt did not fully address the physician-to-patient private market interaction, covering only a clinic-to-clinic scenario, mainly to address an urban-to-rural public institutions vision.
The absence of special new rules for telemedicine means that the existing rules and requirements for the provision of health services and the exercise of medicine are applicable, including the existence of a physical consulting room from which the health service is provided, and the need to be licensed in Mexico in order to practise medicine.
The same legal instruments that are applicable to printed regulated advertising material apply for online content. However, there are additional guidance documents that were produced by the regulator, which include provisions that refer to digital advertising, advertising on social networks and permits for online portals.
At this point in time, electronic prescription is in general only explicitly provided for a small category of medicines: controlled substances. This was introduced to promote the availability of medicines used for palliative care. Only decentralised public institutions, which have greater flexibility to introduce their own rules, have been exploring e-prescription systems for the wider population.
The online sale of medicines and medical devices is closely linked to the issue of whether the retail of a product category is restricted to a particular point of sale.
In that context, there would essentially be three groups of medicines:
In contrast, there would be two groups for medical devices: those that are restricted to specialised shops (ie, orthopaedic devices), and those that can be sold elsewhere, including pharmacies.
From there, it is important to note that there is not yet any regulation addressing the online sale of medicines; the existing rules applicable for physical pharmacies would apply.
Thus, the regulatory set-up to support an online sale of products would have to take into account the existence of a retail control for the relevant medical product and the existing rules for certain specialised retail shops.
There are multiple legal instruments to consider, including technical standard NOM-004-SSA3-2012 on health records and NOM-024-SSA3-2012 on the electronic health record. However, there are still gaps in the regulation, including more flexible mechanisms to account for the electronic signature of such records.
A pharmaceutical manufacturing plant is subject to a licence, and a medical device manufacturing plant is subject to submitting a notice of operation. COFEPRIS is the authority responsible for granting the manufacturing licence and receiving the notice of operation.
To obtain the manufacturing licence, a COFEPRIS inspection visit to the manufacturing plant must first be requested, to review whether it complies with the Technical Standard NOM-059-SSA1-2015 of good manufacturing practices of pharmaceuticals. If in the inspection visit COFEPRIS determines that the facility is in compliance, it would grant a certificate, which shall be included in the manufacturing licence application. Once the application is submitted, COFEPRIS shall not take more than 60 business days to grant the manufacturing licence. The activities approved by the manufacturing licence are the manufacture and warehousing of pharmaceuticals in the same facility. The operation licence does not have an expiry date.
The notice of operation for a medical device manufacturing plant needs only to be submitted to COFEPRIS, and becomes valid the moment it is filed. The notice of operation requires the appointment of a sanitary officer, who shall be in charge of the facility. The activities covered by the notice of operation are the manufacture and warehousing of medical devices in the same facility. The notice of operation does not have an expiry date.
As a general rule, the establishments involved in the wholesale of pharmaceuticals and medical devices are only required to submit a notice of operation before COFEPRIS. As mentioned above, the notice of operation enters into effect at the moment of filing. The notice of operation does not have an expiry date.
The exception to the general rule is warehouses dedicated to the wholesale of controlled pharmaceuticals (eg, psychotropic and narcotics) and biological products for human use, which are subject to a licence.
As mentioned above, pharmaceuticals are divided into the following six classes in relation to their prescription status:
There is vast body of law, secondary regulations, technical standards and administrative decrees controlling the area of foreign trace and customs law. These are not necessarily co-ordinated with the health regulation, creating frequent issues for companies in the pharma and medical devices sectors.
Depending on the moment and the type of regulation to which the goods are subject, the following authorities could be involved:
Imports must be carried out by an individual or legal entity that is registered in the Importers' Registry, which is administered by the Tax Administration Service.
Depending on their tariff classifications, certain goods – including certain chemical products, radioactive goods, chemical precursors and essential chemical products – may be subject to registration in the Specific Sectors of the Importers' Registry. This registration is subject to additional requirements, which depend on the sector in which the importer is to be registered.
Imports of most pharmaceuticals and some medical devices are subject to the obligation of securing specific import permits.
While they are normally administered by the Ministry of Health through COFEPRIS, depending on the type of products, they may also be subject to other types of import or export permits, including those imposed by the Ministry of Economy, the Ministry of Agriculture, Livestock and Natural Resources, the Ministry of Defence, the Federal Commission of Telecommunications, etc.
Among others, the following exceptions to the obligation of being registered in the Importers' Registry or securing an import or export permit may apply: importing for personal use, importing for donations, importing for experimental use, or importing for low-prevalence diseases.
In Mexico, non-tariff regulations and restrictions, such as import permits, licences, etc, are imposed based on the tariff classification (HTS Code) and the description of the goods to be imported or exported.
Pursuant to the Mexican Constitution, the Executive Power may regulate or restrict the importation or exportation of products, provided that Congress grants it such authority. By the end of each year, the use of that authority needs to be approved by Congress.
In terms of the Foreign Trade Law, Congress grants this authority to the Executive Power, with the condition that, in order for a non-tariff regulation or restriction to be imposed, the corresponding decree or administrative regulation must be published in the Federal Official Gazette (Diario Oficial de la Federación), and the goods subject to such regulation or restriction must be listed both by tariff classification and by description.
Pursuant to the Export Controls Regulation, exports of software and technologies related to regulated goods are subject to regulation by the Ministry of Economy.
The Mexican legal framework – specifically the Export Controls Regulation – covers exports of biological materials, toxins, genetically modified organisms, pathogens, chemical products and/or equipment to handle these types of products.
Mexico is currently an active party to the Pacific Alliance (along with Chile, Colombia and Peru). The Pacific Alliance and its framework agreement have specific provisions on regulatory co-operation in the cosmetic and pharmaceutical industries, and have a specific agreement for inter-institutional co-operation among the sanitary authorities of the four member states in the latter. This has started a very promising regulatory harmonisation/convergence process in the region.
In addition, Mexico recently signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (the revised Trans-Pacific Partnership Agreement), which also contains promising provisions on the regulatory co-operation side. However, this still requires ratification by the Mexican Senate.
Mexico applies economic sanctions to specific countries, individuals and legal entities. Currently, such sanctions are based on the economic sanctions issued by the UN Security Council.
Most of the restrictions set forth in the Embargoes Regulation refer to defence goods. Notwithstanding, in September 2017, the Ministry of Economy published an amendment to the Embargoes Regulation that implements certain restrictions applicable to North Korea.
While there are no specific restrictions on the exportation of pharmaceutical products or Mexican devices to a specific country, Mexico currently imposes restrictions on the exportation to North Korea of goods covered by resolutions 1718 (2006), 1874 (2009), 2094 (2013), 2270 (2016), 2321 (2016) and 2371 (2017) of the Security Council, which include, among others, certain chemical products.
Patents are regulated by the Industrial Property Law (IPL), and are granted by the Mexican Institute of Industrial Property (IMPI).
In Mexico, the issues most frequently encountered by companies when trying to apply for patents include the intention of some examiners to try to limit the scope of protection of the subject-matter as exemplified in the specification of the invention. Understanding both the law and the science behind the invention is required to overcome this. This requires having in-house technical expertise.
One of the critical issues with regard to pharmaceutical patents is the need to obtain patent protection for second and subsequent medical uses. This is accepted in Mexico, but there are still some consistency problems. Although Swiss-type claims have traditionally been accepted, now that a new drafting method for second use claims has been introduced in line with developments in Europe, there is still no common application among examiners, which introduces important uncertainties that need to be tackled.
Any activity conducted in relation to the protected second use, without proper consent, will constitute an infringement.
In Mexico there are no patent term extensions based on regulatory delays. However, this may change with the USMCA, which contains provisions in this regard.
The following activities constitute patent administrative infringements:
It is worth noting that, in Mexico, only actual infringement is actionable. The threat of infringement is not considered by the IPL.
The Bolar Exemption was incorporated not in the IP regime, but in the health regime. The Health Supplies Secondary Regulations (HSR) grant this protection to an application of a generic drug that is submitted during the last three years of a patent over an active ingredient, and to an application of a biosimilar drug that is submitted during the last eight years of a patent over the active ingredient.
This is different to the Research Exemption found in the IPL, which stipulates that a patent shall not have effect against any third party who, in the private or academic field, and not for commercial purposes, engages in scientific or technological research for purely experimental, testing or teaching reasons.
Under the Mexican IP regime, compulsory and emergency licences are available.
With regard to compulsory licences, the IPL provides that, three years after the date of the grant of the patent or four years from the filing of the application (whichever happens first), any person may apply for the grant of a compulsory licence to use the invention when it has not been used, unless there are justified reasons for not having used the invention.
However, prior to granting the first compulsory licence, IMPI shall give the patent owner the opportunity to exploit the patent within a period of one year, counted from the date the compulsory licence request was notified. If the patent is not exploited after that year, there will be a hearing, and IMPI will decide whether to grant the compulsory licence. If it decides to do so, IMPI shall specify its duration, terms and scope as well as the royalties payable to the patent-holder.
With regard to emergency licences, the IPL provides that, for emergency reasons or national security, and for as long as the relevant situation continues, including serious diseases designated as such by the General Health Council, IMPI shall publish in the Federal Official Gazette a declaration whereby certain patents can be exploited by means of granting a public use licence. This is for cases where, if such a declaration is not made, the production, supply or distribution of the patented product would be prevented, hindered or made more expensive for the public.
In the case of an emergency caused by serious diseases that may harm national security, the General Health Council shall make a declaration of priority treatment. Once the declaration is published in the Federal Official Gazette, pharmaceutical companies may request from IMPI the right to exploit the corresponding patent. IMPI would then have 90 days to decide whether or not to grant the emergency licence, after hearing the parties and evaluating the circumstances.
The Ministry of Health shall establish the conditions applicable to the production, quality, duration and scope of the emergency licences, as well as the qualification of the technical capacity of the applicant. IMPI shall establish a reasonable amount for the royalties to be paid to the patent-owner.
In relation to important procedural considerations, the following points are worth noting:
The patent infringement procedure is essentially composed of two stages: first, obtaining an infringement declaration through an administrative proceeding before IMPI, and then obtaining damages before a civil court.
An invalidity defence is available in the Mexican IP regime if the patent being enforced was: (i) granted in violation of the provisions on requirements and conditions for the grant of patents; (ii) granted in violation of the provisions of the law in force at the time the patent was granted; (iii) abandoned as an application during its prosecution; or (iv) granted by error or to someone not entitled to it.
In practice, invalidity is invoked by the defendant when answering the infringement complaint.
In Mexico there are no pre-launch declaratory actions, requirements to notify a patent holder, or requirements to clear the way.
Patent linkage was introduced in Mexico in 2003, through a parallel amendment of both the RIS and the Secondary Regulation of the Industrial Property Law (SRIPL).
The amendment to the RIS introduced a patent linkage that excludes process patents and includes explicitly only product patents over the active ingredient. However, through litigation, protection has been extended to patents over formulation, doses and use.
The amendment to the SRIPL created a Special Edition of the Intellectual Property Gazette, issued by IMPI, where all relevant and valid patents for active ingredients are listed.
The trigger for protection is the inclusion of a relevant patent in the Special Gazette. The extended protection mentioned before was achieved through litigation aimed at the inclusion of patents over formulation, dosing and use in the Special Gazette.
At the same time, the amendment to RIS mandates all applicants for a marketing authorisation of a drug to submit full information on the status of patent protection relating to its product. Applicants must demonstrate that they are either the owner or the licensee of the relevant patent, if any. For this, applicants must produce and sign a sworn oath that they do not infringe patent rights. Then, when receiving an application for a drug approval, COFEPRIS is obliged to make an internal consultation to IMPI in relation to the patents that may be directly relevant to that product.
However, the provisions are not very clear. The ambiguities have created a system that has led to numerous litigations and to a situation where the burden of proof is essentially carried by users. Patent-holders have to litigate inclusions and, if successful, they have to inform COFEPRIS of the results, in order to have an impact on the drug approval system.
Assuming that a patent infringement action has already been initiated, there are a couple of additional measures that can be taken in order to obtain extra protection against the counterfeit of protected pharmaceuticals and/or medical devices. One of these measures is the seizure of the infringing goods, both in actual commerce and in customs. Alternatively, the confiscation of packaging, stationery, advertisements and similar objects that might be used to infringe the protected rights, as well as the seizure of instruments used for the manufacture and commercialisation of those infringing products, is also possible, according to the Mexican IP Law.
Criminal procedures can be triggered against the following:
Once the trade mark registration has been obtained from the Mexican Trademark Office, no direct restrictions can be actioned against the use of those rights, unless a prior annulment declaration has been issued by the proper authority. However, limitations on the use of a trade mark can be caused by infringement actions against unfair competition practices or trade dress violations. Additionally, parallel importation restrictions could affect the use of brands, but only when the owner of the trade mark abroad is not the same as the one in Mexico, or when both parties do not belong to the same corporate structure. Since prior use rights are recognised under the Mexican IP law, restrictions on the exclusive use of a protected trade mark could be updated as well, as prior users are not regarded as infringers.
Antitrust, consumer welfare and sanitary restrictions could affect the use of trade marks too, although they do not jeopardise the validity of the IP registration. For instance, the name of a pharmaceutical product could first be protected by a registered trade mark, but eventually not be allowed by COFEPRIS to be used as the distinctive name for the approved medicine, due to the different approval criteria (eg, the health law regime forbids names that contain the same three letters in a word, or generally any reference to organs and diseases on the respective product's name).
There are no restrictions under trade-mark law on the importation or distribution of non-counterfeit, genuine pharmaceutical or medical device products, as long as the imported goods have been commercialised abroad by the foreign trade mark-owner or licensee, and such person is the same trade mark-owner as the one in Mexico (or both parties either belong to the same corporate structure or have licence agreements).
Trade dress can be indirectly protected through infringement actions against any individual who uses signs, operative elements and image combinations that are employed to identify goods or services that are confusingly similar to previously registered ones, being that such usage deceives consumers, making them believe the existence of a commercial relation between the owner of the rights and the unauthorised user. No "trade dress trade mark" is available in Mexico.
Protection for the design of pharmaceuticals and medical devices, as well as their packaging, can be achieved through the registration of a trade mark (design or 3D) and/or an industrial design (ornamentation arrangements in 2D and 3D).
According to the Mexican IP law, data exclusivity for pharmaceuticals is protected under the terms of the international treaties to which Mexico is a party (ie, NAFTA and G-3 Free Trade Agreement). The protection is granted for five years from the date of the approval, but the regulator as a matter of policy has only recognised it for new chemical entities, excluding orphan drugs, biologics and biotech drugs. However, the protection for these can be obtained through litigation.
Although there have been a couple of investigations (ie, insulin, alendronate, chemotherapy), neither the Mexican Competition Commission ("Cofece") nor its predecessor have sanctioned unilateral conduct in the pharmaceutical or medical devices sectors under the Mexican Competition Law ("MCL").
Notwithstanding this, given Cofece's recently released Annual Work Plan for 2017, which includes actions aimed at enhancing competition in strategic and key sectors for the economy and society (one of these sectors being healthcare and, more specifically, the medicines market and the closely related government procurement processes), it is foreseeable that investigation activity will increase substantially in the near future.
In this regard, the following types of unilateral conduct could be investigated and sanctioned under the relative monopolistic practices provisions of the MCL:
As the time of writing, pay-for-delay agreements have not yet been analysed by Cofece under an investigation proceeding for relative monopolistic practices. However, in the recent Market Investigation (not to be confused with an investigation into monopolistic practices or illegal concentration, as no violation triggered this process, which was initiated under the new powers of Cofece, incorporated in the 2014 Mexican Competition Law – the full content of the results is available at: www.cofece.mx/cofece/ingles/attachments/article/38/Studies-drug%20markets_vF-BAJA.pdf), published by Cofece on 9 August 2017, Cofece analyses the degree of competition in the private drug markets once the patent of the original drug expires and the effectiveness of generic drugs to enter both private and public health markets and reduce prices, including negative effects of strategies from laboratories to delay generics' entrance to the market, such as pay-for-delay agreements.
As with pay-for-delay agreements, although they have not yet been analysed by Cofece under an investigation proceeding for relative monopolistic practices, in the recent Market Investigation published by Cofece on 9 August 2017, Cofece analyses life-cycle strategies of originators versus generic drug companies in relation to the degree of competition in the private drug markets once the patent of the original drug expires and the effectiveness of generic drugs to enter both private and public health markets and reduce prices. However, no theory of harm was developed, as the analysis was only qualitative in nature.
An investigation into a breach of the MCL involving monopolistic practices (ie, cartel or unilateral conduct) or illegal concentrations can be triggered by a complaint filed before Cofece by any third party, but Cofece is also able to initiate this type of procedure on its own initiative.
An investigation into monopolistic practices or illegal concentrations would be followed by an administrative proceeding in the form of a trial whenever there are enough elements to presume the existence of a violation and, after this administrative stage finalises, Cofece must rule on the case, either sanctioning the violation or closing the file if no elements to evidence the violation are found. Cofece's ruling could then be challenged before Specialised Courts on competition issues through an amparo trial.
Cofece is also able to conduct a diverse proceeding to eliminate barriers to competition (not to be confused with entry barriers) or to regulate access to essential inputs, without the need of an illegal conduct triggering them. However, this type of proceedings may only be initiated on Cofece's own initiative or following a request from the Federal Executive Branch.
The pharmaceutical industry has become an area of increased interest for Cofece, as evidenced by several actions and cases concluded or initiated recently, including the following:
On the Contractual Side
Share deal and asset deal: as in other countries, the principal distinction between an asset deal and a share deal is that, for share acquisitions, the buyer will assume the entire liability from the target company, while in an asset acquisition, the buyer will generally only absorb liability on the assets acquired (subject to an exception with respect to the acquisition of a business as a going concern, as described in 13.6 Tax Treatment of Asset Deals Versus Share Deals, below).
In an asset transaction, the seller might need to obtain consent from a contracting party in order to transfer certain contracts to the buyer. In a stock/share acquisition, contracts are generally unaffected by the transfer of shares, unless the contract contains a change of control provision. Similarly, the licences, permits and authorisations of the target company will remain unaltered in a share acquisition. In contrast, in an asset acquisition, certain permits and authorisations held by the target company could be difficult to transfer because of the need to obtain consents from the issuing government agencies. In some cases, it will be necessary to obtain a new permit or authorisation. Based on this, provisions in an acquisition agreement dealing with consents and the transfer of permits and authorisations have to be carefully negotiated based on the structure of the deal.
The relevant provisions to be considered in joint ventures include those related to pre-emptive rights, restrictions to transfers, drag-along rights, take-along rights, the appointment of management, voting percentages to adopt resolutions, dead lock resolution mechanisms and exit provisions.
Provisions that could be important to licence agreements include exclusivity or non-exclusivity terms, life term, territory, sub-licence rights and the authority to enforce licensed intellectual property rights. For practical purposes, it is recommended for the parties to prepare a short-form version of the licence agreement which may omit information deemed confidential and which will be used for filing the agreement with the Mexican intellectual property authorities.
Finally, in connection with commercial agreements, the specific type of agreement is relevant in order to define key provisions. General provisions would clearly determine (among others) place, time, specifics, terms and conditions where the services or products are delivered or rendered, payment terms (eg, currency and interests), inventory, handling, storage, recalls, regulatory responsibility (if applicable), the term and termination causes, and would confirm or clarify which is the main governing document in case of discrepancies considering that there may be an agreement, purchase orders or quotations. It is important to ensure that compliance with laws and anti-bribery provisions is part of such commercial agreements.
On the Antitrust Front
Non-compete provisions are to be taken into consideration, especially in share and asset deals, as Cofece is very reluctant to authorise those that exceed a three-year term (except in rare cases when longer terms can be authorised, provided there is a strong justification submitted to Cofece).
In addition, provisions regulating information exchanges shall be carefully reviewed in joint ventures, licences and commercial agreements between competitors to include adequate controls to avoid risks of being engaged in cartel conduct.
Finally, those undertakings with a dominant position must consider carefully any provisions involving relative monopolistic practices, such as exclusivities, rebates, discriminatory treatment, tying agreements, etc.
Different scenarios may be considered and tied to a company's performance, including references to net working capital, Net Present Value (NPV), EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation), earn-outs and other similar indicators. Third-party official valuations may also be previously agreed by the parties, with a possibility of a variation range. Incentives to management to reach certain goals may also be contemplated.
The purchase-price adjustment mechanisms may be based on a financial measure, such as net working capital, net worth, net assets or similar parameters, once certain future conditions are met.
The type of deal-protection agreement depends on the transaction, but customary deal protection agreements in Mexico include deferred consideration (earn-out) and escrow arrangements.
Only those transactions that meet the following thresholds are subject to mandatory merger control authorisation:
Those transactions not meeting the above-mentioned thresholds could be reported voluntarily to Cofece. This would be convenient to evaluate, for instance, when dealing with transactions among competitors that would imply information exchanges in R&D, joint purchase or commercialisation agreements, as well as for other transactions that could imply risks for collusion.
The transfer of assets is a taxable event in Mexico and can trigger income tax for the seller/transferor (assuming a gain is obtained). From the buyer’s perspective, a purchase of assets is the route to the fastest tax recovery (via deducting expenses, depreciation or amortisation). Inventory is deductible in the year it is sold; the principal depreciation rates vary, depending on the type of assets.
Under the applicable Mexican tax laws, goodwill is deemed as an intangible good, so in acquisitions involving intangible assets, it will be important to review the nature and type of intangibles that will be acquired. Caution must be exercised when goodwill is involved as part of the acquisition, since it cannot be amortised, even when acquired from third parties, and while it may be subject to VAT, VAT paid is not recoverable.
VAT is triggered on a cashflow basis and applies on the purchase of assets (tangible or intangible) – and can be recovered during the course of the Mexican transferee’s operations. A few sales transactions qualify for exemption from VAT, and some others are zero-rated (as opposed to attracting the standard VAT rate of 16%). With respect to real estate, VAT is levied on the purchase price of properties.
Real estate-related taxes
The purchase and sale of real estate is subject to real estate transfer tax, payable by the person or entity that acquires the real property. The applicable tax rate varies, depending on the location of the property (rates range from 1.5%–4.9%). The real estate’s tax base is calculated on the purchase price, the value registered with the land registry office, and the property’s fair market value, whichever is higher. In addition, the transfer of ownership of real estate requires a notarial deed prepared by a notary public and the registration of the deed with the public registry of property (PRP). The PRP will charge registration fees to record the notarial deed.
Acquisition of a business as a going concern
According to the Mexican Federal Tax Code, acquirers of going concerns or businesses could be deemed jointly and severally liable with the seller for past tax obligations of the seller and its business. Therefore, the acquisition should be structured to mitigate the acquirer’s exposure to that risk of joint and several liability. For instance, in certain circumstances, it may be advisable to break down the various components of the going concern – such as inventory, fixed assets, accounts payable and receivables, employees, goodwill (or a covenant not to compete) – and have different entities in the buyer group purchase/acquire each of those components. Alternatively, only certain assets could be acquired, attracting joint and several liability for only those essential parts of the business.
Purchase of Shares
Generally, under domestic tax law in Mexico, the transfer of shares (or equity interests/quotas) of a Mexican company is subject to Mexican income tax, regardless of the country where the sale takes place. Additionally, the transfer of shares (regardless of the tax residency of the issuer) will be subject to income tax in Mexico if the book value of those shares is represented, directly or indirectly, in more than 50% of real estate property located within Mexico.
Non-Mexican residents who transfer shares in Mexican companies are subject to a 25% tax on the gross proceeds of the sale, or to 35% tax on the net gain derived from the sale if the foreign resident opts for this tax and has a local representative in Mexico. Note that this net gain taxation treatment is not an option for foreign sellers domiciled in a tax haven jurisdiction or a jurisdiction with a territorial taxation system.
Net gain is determined by subtracting the seller’s tax basis in the shares sold (adjusted for inflation and for other factors as determined by the Income Tax Law) from the gross sale proceeds. If the transferor elects to be taxed at 35% on the net gain derived from the sale, the party transferring the shares or quotas must appoint a legal representative in Mexico and must file a tax return with respect to the sale, as well as a fiscal notice and certification (dictamen fiscal) signed by a Mexican certified public accountant to certify that the gain reported on the tax return has been calculated correctly.
Where transactions are made between related parties, a certified public accountant must certify in a dictamen fiscal that the adjusted tax cost of the shares has been calculated correctly and that the shares have been properly valuated in accordance with the arm’s-length principle set out in the Mexican tax law for the purposes of determining the shareholder’s gain or loss on the exchange.
Under certain conditions, it may be possible to request permission from the tax authority to defer payment of taxes on transfers of shares in reorganisations between members of the same group of companies. That permission must, however, be requested (and granted) before the transfer of shares.
Mexico has entered into multiple tax treaties to avoid double taxation. Depending on the tax residence of the transferor, therefore, some treaties may provide a reduction on the tax rate or an exemption on taxes applicable on transfers of Mexican shares.
The purchase or sale of shares (or equity interests/quotas) in a Mexican company is not subject to VAT.
The protection of licensees in the insolvency of a licensor is a matter that has to be expressly agreed by the parties in the agreement. If the licensor becomes insolvent during the term of the agreement, the licensee may have a choice between keeping or rejecting the licence, without further liability to the affected party.
Although Mexican prosecutors and authorities have not publicly stated whether they are focusing on specific industries or acts of corruption, it has been noticed that these authorities are focusing on ex-government officials who take private-sector jobs in related industries or in the industries they regulated, without waiting for a one-year period to elapse.
According to the latest amendments to criminal legislation, the Prosecutor may target the companies as being liable for commission of a crime. In these cases, the compliance programmes and internal policies to prevent crimes must be analysed by the Public Prosecutor in order to temper the sanctions in case a guilty verdict is issued by the Criminal Court.
The most important do’s and don’ts in an investigation include the following.
Mexico does not have a common-law system in which cases are reported. Most relevant cases have come to light in the news media but, as it is also reported therein, such cases rarely result in convictions. For instance, in one relatively recent case, different media sources widely reported that a general director of a diversified multinational pharmaceutical company was removed from his position after allegations of corruption but, ultimately, the person was not convicted.
Criminal investigations follow the same rules in Mexico regardless of the industry or business. The strategy performed by the Public Prosecutor depends on the nature of the investigated crime and the evidence required to prove the facts.
Nonetheless, it is important to point out that the pharma industry is heavily regulated in Mexico and other jurisdictions. There are constant interactions with government officials – not only with respect to the regulatory aspects pertaining to the manufacturing and marketing of a pharmaceutical product, but also because many customers are stated-owned instrumentalities or healthcare professionals that are employed by state-owned hospitals and are consequently considered government officials. Accordingly, the opportunities for corruption in the pharma industry could be greater than with respect to other industries in Mexico.
Furthermore, the pharma industry has been a favourite for political promises and activities for many years. As a result, news media coverage is especially heavy, and tends to be sensationalist. This underlines the importance of confidentiality in internal investigations to avoid leaks and to preserve the integrity of the investigation.
Finally, because of the often high margins in the pharma industry, opportunities for corruption are often more common. Although detailing is technically not permitted in state-owned hospitals, most government doctors also have private practices and shall be treated in such a way as to avoid any inappropriate influences on such government officials.
In Mexico, there is no special legal regime on liability for pharmaceuticals, except for damages caused to a person as a result of a clinical trial.
Please note that, in terms of Articles 5.14 of the Official Mexican Standard for Clinical Trials NOM-012-SSA3-2012, and Article 4.14 of the Guidelines for Good Clinical Practices, when determining a budget for clinical research, medical institutions and/or sponsors should include a specific line item for payment of medical assistance and damages to persons suffering a medical condition as a result of clinical trials.
Additionally, secondary legislation regulates the contractual responsibility and non-contractual liability which applies for pharmaceuticals concerning compensation for damages. The first one prevails in relations that arise from a contract; the second starts in the facts or conducts not derived from the contract that produces damages to a certain person.
Also, following a Decree of Amendments and Additions to the Federal Civil Code, published in the Federal Official Gazette on August 30, 2011, Mexican legislation establishes a new series of procedural rules to be followed in the case of class actions related to product liability, which could apply to pharmaceuticals.
With regard to contractual liability, Article 77 of the Federal Consumer Protection Law establishes that all the goods and services with a guarantee must fulfil the provisions of this Law, as well as those agreed between suppliers and consumers; for that reason, the Law recognises the existence of two types of guarantees:
In addition to the contractual responsibility established in the Federal Consumer Protection Law, Article 2142 of the Federal Civil Code establishes that the seller has the obligation to correct any hidden defects found in the good conveyed.
However, Article 2148 releases the supplier from paying damages when they did not know the vices of the product; in this case, the supplier would have to reimburse the price of the assets and pay the expenses of the agreement, if the consumer paid them.
Non-contractual liability can be found in Article 41 of the Federal Consumer Protection Law, which establishes the objective liability of the supplier. This provision states that products shall include an instruction or advertisement when they are considered potentially dangerous for consumers or harmful to the environment, or if their danger is foreseeable. Otherwise, the supplier will be responsible for the damages caused to the consumer.
Also, Article 1913 of the Federal Civil Code regulates the objective liability by establishing that a person that “uses mechanisms, instruments, machines, or hazardous substances because of the speed they develop, their explosive, or flammable nature, the electrical energy they produce or other analogous causes, is required to respond for the harm or injury that he causes, even if not acting illegally, unless he demonstrates that the harm or injury occurred due to the fault or inexcusable negligence of the victim.”
In addition to the objective liability, article 1910 of the Federal Civil Code regulates the subjective liability by establishing that a person who acts illegally or against moral convention and causes harm or injury to another is forced to repair it, unless he or she demonstrates that the harm or injury took place as a result of the fault or inexcusable negligence of the victim.
In both the objective and subjective civil liability cases, the supplier or manufacturer will be released from their responsibility to pay damages if they demonstrate that the harm or injury took place as a result of the fault or inexcusable negligence of the victim.
Finally, the Federal Law of Metrology and Normalisation establishes the obligation of manufacturers to comply with the Official Mexican Standards provided for in the competent authorities, which are defined in Article 3 as the technical regulation of obligatory observance established by the competent authorities.
If the manufacturer fails to comply with the Mexican official standards and causes damages, the consumer will have the right to claim for the payment of damages, according to article 1910 of the Federal Civil Code.
Class actions were recently introduced to Mexican Law.
Class action legislation affects companies in a large number of sectors, as it provides for class action claims to redress three situations:
Class actions must be filed by a group of people undergoing the same factual conditions in respect of the cause that resulted in damage to such persons.
Such actions may only be filed, in certain cases, by a class or group comprised of at least 30 members.
A class action can be commenced by a representative from the class members. However, standing is also provided to certain non-class-member entities to commence a proceeding on behalf of a class. In particular, standing is provided to non-profit associations whose corporate purpose includes protecting the rights under the alleged threat of violation, and also to the federal attorney general and other government officials charged with protecting consumer rights, users of financial services, competitive markets and the environment (for example, the Agency for Consumer Protection).
There may be voluntary adherence during the prosecution to all stages of the proceedings and for up to 18 months after the judgment or settlement agreement becomes final and conclusive.
The legal regime related to product liability is the same for pharmaceuticals and other products in Mexico.
There are no prerequisites for a potential liability for pharmaceuticals.
With regard to contractual and non-contractual liability, in terms of Article 79 of the Federal Consumer Protection Law, the potential liable persons are: “[…]The producer, importer or distributor of a good or service…”
In accordance with Article 2110 of the Federal Civil Code, damages must be the immediate and direct consequence of the failure to perform an obligation, regardless of whether or not they have been caused or must be necessarily caused. Therefore, there is not a presumption of causation.
There are no specific defences available regarding liability for pharmaceuticals or medical devices; please see 15.2 Standard of Proof for Causation.
No specific regulatory compliance defence is recognised. Nevertheless, defendants usually argue that all regulatory requirements have been complied with, and that the plaintiff was fully informed and warned about the risks associated with the product in order to evidence that any harm took place as a result of the fault or inexcusable negligence of the victim.
There is no market share liability under Mexican Law. Nevertheless, in the event that the damages are caused by several parties in common, they will be jointly liable before the affected party, meaning that the court may render a judgment awarding the reparation of damage or sums for compensation, and such obligations can be enforced against any one, several, or all of the guilty parties. The plaintiff can recover the entire amount from one party or split it among the other liable parties.
As to the actions set forth in the Federal Consumer Protection Law, in accordance with article 14, the general statute of limitations is one year, starting on the day on which the harm was caused. In the event of harm caused to teenagers and children, the statute of limitation will expire in ten years.
In the case of civil actions, the statute of limitations will expire in two years, starting on the day on which the harm or injury was caused, according to Article 1934 of the Federal Civil Code.
The statute of limitations of class actions is three years and six months, a term that will start running from the day the damage was caused. It is provided that, in cases where the damage is constant, the term will start running as at the last day of occurrence of the damage causing the harm.
There is no specific claim for information against manufacturers. However, in terms of the Federal Consumer Protection Law, consumers have the right to know accurate information related to quantity, characteristics, composition, quality and price, as well as the risks of the products. If the information is not properly provided to the consumers, they can claim damages for breach of agreement and damages to manufacturer.
Consumers have the right to request information regarding pharmaceuticals from the Federal Institute for Access and Protection of Information (IFAI), but information registered as confidential will not be given. According to the Federal Law of Transparency and Access to Public Government Information, the request shall be complied with by the corresponding courthouse during the following 15 working days, a period that can be extended for another 15 additional labour days if necessary.
Under Article 2108 of the Federal Civil Code, damage (daño) is defined as the loss or detriment of a person’s assets caused by the non-performance of an obligation – for example, costs incurred to receive medical treatments as a result of a medical condition caused by pharmaceuticals.
Also, under Article 2109 of the Federal Civil Code, loss (perjuicio) is the deprivation of any lawful gains that should have been obtained upon the performance of such obligation. Lost of profits is the clearest example.
Please note that, in accordance with Article 2110 of the Federal Civil Code, damages (including the damages and losses as defined by Articles 2108 and 2109 of the Federal Civil Code) must be the immediate and direct consequence of the failure to perform an obligation, regardless of whether or not they have been caused or must be necessarily caused.
Consequently, only damages caused precisely as a direct consequence of the non-performance of the obligation can be claimed, while indirect or consequential damages cannot.
Mexican law also contemplates moral injury (daño moral), which is defined as the injury caused when, due to an unlawful act arising from intention or negligence, one or more of the rights inherent to one’s personality is violated. This type of liability can be limited in an agreement when it derives from a contractual liability, but not if it derives from extra-contractual acts.
Moral injury is established in Article 1916 of the Federal Civil Code establishing that whenever an unlawful event or omission produces moral injury, the person liable for it shall have the obligation to repair it through money indemnities, regardless of any material damage caused, in both contractual and extra-contractual liability.
The amount of moral indemnities shall be determined by the Judge at his or her discretion, taking into consideration any rights impaired, the degree of liability, and the economic position of the responsible person, and that of the victim.
Consequential and/or punitive damages are not recognised by Mexican legislation, but since 2013 the Mexican Supreme Court has ruled in favour of sentencing parties paying for punitive damages under a new interpretation of Article 1916 of the Federal Civil Code determining that punitive damages are regulated as a classification of moral injury. So, regardless of the fact that the Mexican legislation does not expressly recognise punitive damages, under recent resolutions the Mexican Supreme Court has declared and sentenced parties to pay under the concept of punitive damages.
Damages will be available in cases in which personal injury has not materialised when the plaintiff proves that such damages will necessarily be caused as a result of the use of pharmaceuticals.
Article 1915 of the Federal Civil Code establishes that restitution of damages might consist, at the election of the victim, of reparation of the assets to its original estate, if possible, or payment of damages and losses.
The Federal Civil Code does not establish a maximum limit on the damages caused under contractual liability, but please note that Mexican law allows contracting parties to limit the amount of the contractual civil liability (ie, damages and losses). As a matter of fact, the Federal Civil Code sets forth that the parties may freely agree on the amount or limit of the damages. There are no reported Mexican court decisions on limitation of liability where a court refused to enforce the parties' contract in the absence of evidence of fraud or serious wrongdoing.
Please note that only civil liability is susceptible to limitation or negotiation; criminal and administrative liability may not be negotiated. In other words, it is possible to negotiate in an agreement who will pay for damages to the other party, and to what extent, or expenses suffered by such party when caused by an action of the other party, but it is important to note that the agreement does not exclude administrative or criminal liability, since this may not be negotiated.
When parties did not agree a limit of liability, the Judge will set the amount that shall be paid in these cases, at his or her discretion, but always taking into account the detriment suffered in the victim’s assets and/or profits, and the deprivation of any lawful gains that should have been obtained, provided always that such detriment or deprivation is the immediate and direct consequence of the breach of the agreement, the illicit act and/or the use of dangerous mechanisms, instruments or hazardous substances.
Please note that the Federal Civil Code regulates the amount of damages relating to bodily harm by referring to the Federal Labour Law. This law states that the compensation for harm is based on a table integrated by the type of harm and a number of days of minimum salaries as compensation for each case.
In 2012, a Federal Circuit Court issued a legal precedent related to claims against doctors or medical institutions claiming damages as a result of the pharmaceuticals they prescribed. The Court established that doctors or medical institutions should prove that they act diligently when prescribing pharmaceuticals. The reason behind this obligation is to destroy the legal presumption that they acted negligently when they prescribed pharmaceuticals that caused damages.
Judges hear liability actions. Please note that Federal Judges hear class actions in an “exclusive” manner – District Judges (in first instance) and Unitary District Courts (in an appeal degree).
In the past, Mexico has not allowed discovery proceedings. However, discovery may now be allowed in class actions.
Also, Article 79 of the Federal Code of Civil Procedures establishes that the Court has the mandate to require any person, including the parties, to present a document as evidence. The only restriction is that evidence must be recognised by the Law and must be related to the dispute. The Court might issue coercion measures like arrest or fines against the parties if they do not collaborate by disclosing evidence. Please note that Judges are conservative when requesting documents from the parties.
Currently, there are no draft initiatives in Mexico directly addressing the issue of pharmaceutical products liability.
However, as mentioned above (15.9 Maximum Limit on Damages), since 2013 the Mexican Supreme Court has ruled in favour of sentencing parties paying for punitive damages under a new interpretation of article 1916 of the Federal Civil Code determining that punitive damages are regulated as a classification of moral injury. So regardless of the fact that the Mexican legislation does not expressly recognise punitive damages, under recent resolutions the Mexican Supreme Court has declared and sentenced parties to pay under the concept of punitive damages.
The legal framework regulating privacy and data protection in Mexico includes the following laws and regulations:
The Mexican National Institute for Access to Information and Personal Data ("INAI") has the power to initiate any action to verify compliance with the FDPL by data controllers, upon the petition of interested parties or ex officio.
INAI has the following responsibilities:
Health-related information is regulated as sensitive data by the FDPL, which considers any personal data that reveals racial or ethnic origin, present or future health conditions, genetic information, religious, philosophic or moral beliefs, union affiliation or sexual preference, and in general any information related to the intimate life of the Data Subject as sensitive data.
It is worth mentioning that sensitive data may also include any data that may affect the inner core intimacy of a person, or information that, if wrongly used, may place the Data Subject in a dangerous situation or in a position of being subject to discrimination. It is noted that express, written consent is required for the collection and transfer of this type of data.
As sensitive personal data, health-related information is subject to stricter regulations, some of which are provided below:
Fines and Penalties
INAI has established a strong pace as an enforcement authority. Between January and June of 2016, it imposed 22 fines on different companies, for an amount of up to USD2.8 million, with the banking, insurance and education services industries being the most penalised.
Inspections can be initiated either ex officio or at the request of a party (generally after a claim is filed by a data subject). Before the issuance of an inspection order (the "Inspection Order"), INAI must adopt a resolution where the initiation of a inspection is approved (the "Resolution"). The Resolution must include the scope and purpose of the investigation. The Inspection Order must describe the purpose and scope of the investigation, and must include reference to penalties for obstruction.
According to the FDPL, data processing is generally allowed. Data processing comprises the collection, use, disclosure or storage of personal data, by any means. The use includes any action of access, handling, use, transfer or disposition of personal data. Therefore, the transfer and storage of personal data (including international transfers of personal data) is generally allowed, as long as the Privacy Notice reveals that such transfer will occur and the purpose of such transfer. Nonetheless, when sensitive personal data is involved, the data controller must obtain the express written consent for processing, through a signature, an electronic signature, or any authentication mechanism established for that purpose.
If the Data Processor is a cloud-based services-provider, and the Data Controller will merely adhere to a contract, certain minimum requirements must be included in the standard terms contract. Otherwise, Mexican companies are prevented by Law from contracting with such providers.
The minimum requirements to be contained in standard terms contracts are two-fold:
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