Pharma Strategy Blog

In December, we started a series on new trends in the pharmaceutical industry and kicked off with a review of the growth in generics.

Today, we're going to take a look at the second big growth trend: emerging markets.

In a sense, one drives the other, because as you can see from the earlier post, the generics share has increased to over 70% and growing, while CAGR in developed countries for Pharma has flattened.  In order to drive or even maintain profit margins, manufacturers must therefore seek new opportunities elsewhere.  

This leads us to a new trend: the growth of emerging markets, particularly in the BRIC countries (Brazil, Russian, India and China).  Part of this is driven by demand as a burgeoning middle class emerges.  

Changing diet and lifestyle (usually more Westernised) also brings with it different medical conditions. For example, by 2025, a number of Pharma colleagues told me that they believe 50% of new patients in high growth therapeutic areas such as diabetes and oncology will come from BRIC.  That's an astonishing statistic and I'm not even sure it's feasible, but undoubtedly the number is on the rise.

Attractive market dynamics usually mean new market opportunities:

• Fast growing economies with strong GDP growth – pharma market growth is strongly correlated with accelerating GDP growth 
• Demographic changes 
• Expansion of government healthcare coverage 
• Increasing purchasing power of growing middle class 

The size of a blockbuster, however, is much lower than in developed markets: $25M in India and $100M in China, for example; but affordability is key to successful market access and ultimately, growth.

It isn't all plain sailing though, the markets may be both different and more complex:

• Improving but challenging IP environment e.g. Patent enforcement 
• Investment in local infrastructure required 
• Differences in local regulatory/healthcare environment

India has the most challenging IP market, but Russia and Brazil are much more respectful and China has improved in leaps and bounds over the last 10 years.

The huge investment required to enter new markets essentially means that big Pharma with its considerable resources and a global infrastructure are more likely to compete than small Pharma and Biotech companies who may still be expanding their operations outside of their home market. 

Partnerships and joint ventures with local companies are one way forward for companies looking to expand overseas.  Sanofi-aventis just announced one such deal with Minsheng Pharmaceuticals in China, for example, while Pfizer also appear to be eyeing opportunities in China, according to a recent WSJ article.  It was interesting that Pfizer saw one key part of success was to develop good relationships with the government and healthcare providers in China:

"For instance, during the SARS crisis of 2003, Pfizer provided China with emergency supplies of anti-fungal drug Vfend, which was used to treat some secondary infections caused by the virus. That drug is now widely used around China despite not having a local patent."

In many ways, big Pharma companies with a strong generics arm may have an advantage, because the initial opportunity will be in marketing generic drugs and vaccines to the new markets.

GSK is focused on developing joint ventures in China to market its vaccines for MMR and flu.   Last June, a joint venture with Shenzhen Neptunus Interlong Bio-Technique Co. Ltd (Shenzhen Neptunus) was announced to market flu vaccines.  Then in October, a new joint venture was announced with the Jiangsu Walvax Biotech Company (Walvax) to develop and manufacture pediatric vaccines such as MMR.  Under the terms of this deal, GSK stated in the press release:

"Specifically, GSK will provide access to its proprietary adjuvant system which helps to improve efficiency and optimise production by increasing the number of vaccine doses that can be produced using a smaller amount of antigen.  Shenzhen Neptunus will provide additional local manufacturing capacity and R&D expertise.  Both companies will provide further investment in manufacturing."

Who are the big players in the emerging markets, you might well be wondering?  Me too, and a nifty chart in one of the sanofi-aventis analyst presentations provides the answer (I'm assuming the data came from IMS):

In many ways, this is the new frontier and the race is on to compete in emerging markets as they start opening up to big Pharma.  Interestingly, several of the above companies are strong in generics as well a branded pharmaceuticals.  

My pie in the sky prediction is that these emerging markets won't stay cheap for long though, they never do and no one wants to feel they live in a poor and developing nation.  The new emerging markets are vibrant and energetic, part of a new world order where the long term shifts and patterns are already changing.

Before closing, I'll leave you with an absolutely fascinating Ted talk from a Professor of Global Health who makes data sing, Dr Hans Rosling.  He is from the highly renowned Karolinska Institute in Sweden. He covers this concept with gusto and brings it to life – the emerging markets are stronger than many believe, while the old world order is much more fragile than it appears:

As Sting would say, "There is a deeper world than this, listen to me girl…."