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How can pharma succeed in emerging markets?

Published on 10/10/15 at 10:00am
GSK offices in Rio de Janeiro, Brazil

In recent years, the major pharma companies have been forced to react to the maturation and cost-cutting, plus regulatory pressures, of their stalwart developed markets. With growth flatlining, and the patent cliff hitting hard, drugmakers frantically rushed for new sources of revenue and growth.

Where the US and Europe had peaked, emerging markets were very much in upward trajectories. With more than 70% of the world’s population living in these markets, it was a no-brainer to better monetise their health problems. The industry quite rightly spied opportunity, and set to expanding their presence in the so-called BRIC markets: Brazil, Russia, India and China.

These countries, viewed as the top tier of the emerging markets, all share desirable factors from a business perspective, in their huge, ageing, increasing affluent populations, and emergent middle classes with greater disposable income to spend on medicines.

And these are medicines they will undoubtedly require, with health in some cases suffering from greater consumer choice. For as the economies of these developing countries started to more closely resemble those of established players, so too did the picture of the health problems they faced.

Increased affluence leads to increased spending on luxury or fast foods and other negative lifestyle choices, in turn leading to increasing cases of chronic health issues already rife in the developed world, like obesity, diabetes, cancer and heart disease. Instances of cancer and diabetes are predicted to grow by between 25% and 40% in India alone in the next decade.

But although these developing markets share some of the characteristics of established ones, their complexity and diversity means specific strategies must be developed for each. Many large companies, in their haste to gain a foothold, neglected to fully develop sufficiently tailored approaches for each market segment, and thus paid the price of disappointing results.

Unique challenges are faced in each country, all of which have different demographics, geographies, regulatory environments, distribution channels, taxation policies, levels of access to skilled labour, cost structures for patient access to medicines, and greater regional variations than most developed nations.

Big pharma has in some cases suffered for its failure to perform proper risk assessments and planning to overcome these factors, and to recognise the difference between short-term and sustainable growth.

Getting it right

The information and technology services company IMS Health, which helps pharma companies with their strategies for emerging markets, does however recognise some instances where the approach has been correct: pointing to GSK’s “going local” strategy in India as the right way to do things.

An early entrant to the country, GSK focused on “small” drugs that would be described as low-value in developed markets, but met local needs.  It built a product portfolio in India markedly different from its global one, and remains one of the top players there.

However, for contrast, we may now point to the same company’s recent troubles in China, where it was fined £297 million last year in a bribery scandal, as an instance where it has perhaps shown itself too keen to dominate the competition in emerging markets at all costs, and not adopted such a watertight strategy.

It can be said that nearly all successful programmes implemented in emerging markets by the big pharma players have been as a result of substantial forward-planning with local populations and significant investment in staff training. Both take up time and resources, so the returns are hard-won.

In 2013, Pfizer demonstrated this fact with the closing of its specific Emerging Markets business unit, restructuring its businesses there around different therapeutic franchises in acceptance that these regions vary far too much to be managed as a single segment.

Success- to a point

Despite such challenges, to an extent, the shift of more resources towards the top-tier emerging markets did pay off. Large pharma companies have recently seen falling sales in developed markets counterbalanced by growth in these new ones.

Today, though their growth is slowing, emerging markets now account for close to a third of global pharma sales, and some of the largest companies are now reliant on these locations for comparable proportions of their revenues, as sales fall in developed markets. Sanofi reaps 32% of its revenue from the 17 regions or countries classed as ‘emerging’, while AstraZeneca takes 27% and Novartis 26%.

Research firm Bernstein & Co. recently analysed the performance in emerging markets of seven of the top pharma companies, and found that while growth there is slackening, pharma sales in these markets are still comfortably outpacing those seen everywhere else.

AstraZeneca topped the tree, with sales in the developing world growing 14% over the last year; much of that growth coming from China, which now accounts for almost half of the company’s emerging markets sales.

The seven companies averaged 8.8% growth in emerging markets for the first quarter and 9.4% over the past four, and while this represents a slowdown from the heady days of double-digit growth enjoyed just a few years ago, it is without doubt more attractive to investors than the 1.3% average decline in sales for the same companies in the US for Q1 2015.

The future

Despite the teething troubles, there is reason to believe that big pharma has learnt from the past to create effective strategies to succeed in emerging markets, and with sales struggling in mature markets, indeed it must if it is to continue growth.

The BRIC countries still lead the way in emerging market sales and are expected to do so for at least the rest of the decade. Pharmaceuticals account for nearly half of all healthcare spending in China, at $170 billion: a figure which has grown hugely in recent years alongside reforms which saw the percentage of the population with access to health services rise from less than half to around 90%.

But elsewhere, the number of emerging markets earmarked for significant growth in pharma spending has expanded significantly to include new economic stars from ‘tier 2’ like Mexico, Argentina, Colombia, Turkey, Poland, Oman, South-east Asian countries like Singapore, and parts of Africa- particularly Nigeria.

The pharma markets of the 17 countries now considered ‘emerging markets’ expanded some $90 billion combined between 2009 and 2013.

Opportunity is more widespread than ever, but investing heavily into BRIC and tier two markets remains a risk for large pharma companies, although their ongoing development should make things easier.

Strengthening economies means better-funded and better-structured healthcare systems, and greater spend on pharmaceuticals. Patients will have access to affordable drugs, including in remote rural areas thanks to increased government spending and medical infrastructure, and new business models for the rural areas.

Brazil, for instance, created the Universal Health System (SUS) in 1989 and Family Health System five years later. Its constitution guarantees access to high quality healthcare and economic growth means it is now in a much stronger position to deliver this promise efficiently and affordably to all.

Recognising this, leading pharma companies including Pfizer, GSK, Sanofi and Amgen, have invested in, or partnered with, Brazilian generics manufacturers, and facilities in the country.

India remains a challenge, with strict laws limiting the ability to obtain patents, and the elimination of ‘evergreening’ practices, aimed at preserving low prices and increasing public access. Several large companies have suffered high-profile court defeats over patents in India and the debate is ongoing as the government tries to strike the right balance to prevent high drug prices while not deterring investment.

The 2015 report from Cambridge Consultants: “Emerging markets: an opportunity for pharma to drive sustainable growth” revealed the views of Indian-specific and multinational senior pharma personnel towards the potential of emergent markets.

The Cambridge Consultants workshop group agreed that innovation and technology will be important differentiators for companies trying to drive sustained growth in emerging markets.

It predicts the innovation focus and process will be determined by the overall objectives of the organisation, aligned with market needs and backed by ‘voice of the customer’ inputs from patients or other stakeholders such as governments, physicians or insurance companies.

In summary, it is clear that to reap the rewards today, pharmaceutical companies must work to the markets of today: their patients and governments’ needs and goals, and develop, manufacture, and distribute drugs that fit the current target audience and are affordable and relevant to the consumers of whichever location they wish to succeed in.

Joel Levy

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