FORM 20-F Grupo Casa Saba, S.A.B. de C.V.

Table of Contents
Selling prices since the latest financial year
As distributors, we do not establish selling prices. In Mexico, the Secretaria de Salud establishes a maximum public sales price at the point-of-sale that cannot be
exceeded without penalty. In Brazil, the CMED authorizes a maximum price increase once a year. Therefore the increase in selling prices are limited in these markets. In Chile, the
government lifted its price controls on pharmaceutical products in both the private and public sectors, leaving the market to set the price.
Since 1998, when the production of generic medicines was first approved in Mexico, generic penetration in Mexico has been minimal. However, several factors,
including the loss of patent protection beginning in 2010, and the lack of a full-scale economic recovery, are contributing to an increase in the demand for these products. As a result,
generics are gaining market share in Mexico and are poised for significant growth in the coming years. While their lower prices generate lower overall sales for both our retail and
distribution businesses, the margins on generic products are generally higher than branded products, which help strengthen our results.
In 2011, generic products had a market penetration of over 40% in Brazil. As is the case in Mexico, the demand for generics has been growing steadily in recent years
and is projected to continue to grow at rates above that of other types of products. Should this occur, their lower prices will contribute less to our overall sales but should have a
positive effect on our overall results. In addition, the recent consolidation among pharmacy chains in this country has been partly responsible for driving up discounts, which helps
lower costs for pharmacy patrons.
In Chile, beginning in 2008, the sale of branded generics as well as private label products has gained ground in the marketplace. Nevertheless, the higher price of
branded (originator) drugs and branded generics compared to unbranded generics and private label brands, continues to exert pressure on the market’s average price. In an effort to
help increase awareness and stimulate the demand for these products among the populace, the Chilean Health Ministry has begun conducting campaigns to promote generics. Our
strategy of increasing our private label and exclusive brands is in line with this strategy and should, therefore, enable us to benefit from any future growth in this sector.
During 2011, we also continued with our strategy of profitable growth and implemented a number of operating efficiency programs to maximize the profitability of our
operations. We applied profitability requirements to our clients and suppliers, even when this meant discontinuing operations with certain clients and suppliers that did not meet the
minimum parameters that we requested from them. In terms of our cost-saving programs, we successfully reengineered routes and optimized our distribution centers. We believe that
our profitability strategy will allow us to continue growing our divisions with acceptable margin levels and we will continue to focus our efforts on increasing profitability in the different
markets in which we operate.
In connection with the FASA Acquisition, we have incurred a significant amount of debt which may have an adverse effect on the price of our outstanding shares.
Such financing could, likewise, have important consequences to the Company, including an increase in our interest costs. The Acquisition Loan provides for a series of covenants
which, among other things, restrict the ability of the Company to pay dividends on the capital stock or redeem, repurchase or retire our capital stock; and to create any consensual
limitation on the ability of the Company’s subsidiaries to pay dividends, make loans or transfer any distribution, among other customary covenants and provisions. In August 2011, we
successfully refinanced the bridge loan as well as the collateral package executed to guarantee its obligation under the loan into a long-term loan with more favorable terms for the
Company.
On December 9, 2008, the Chilean Antitrust Authority or Fiscalía Nacional Económica initiated a procedure against FASA before the Chilean Antitrust Court or
Tribunal de Defensa de la Libre Competencia, such procedure intended, among others, to prove that FASA had agreed with its competitors, Cruz Verde and Salcobran a mechanism to
fix the price of medicines, to impose certain fines to FASA and to end the alleged agreement. On March 23, 2009, the Chilean Antitrust Authority and FASA filed a settlement agreement
before the Chilean Antitrust Court, which was approved on April 13, 2009. Although the investigation is now over with respect to FASA due to the approval of the settlement
agreement, this process continued in 2011 with respect to FASA’s aforesaid competitors. On January 31, 2012, Cruz Verde and Salcobrand were convicted by the Chilean Antitrust
Court and both companies challenged the applicable judgment; the Supreme Court Justice of Chile shall resolve this lawsuit.
77