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PHARMERGING MARKETS
Pharmerging markets
Picking a pathway to success
PHARMERGING MARKETS
$LC Bn
1,200
600
13%
7%
2%
400
2%
1,000
800
200
0
2008
2012
2017 (F)
CAGR (F) %
2012-2017
Pharmerging markets
Source: IMS Health Global Market Prognosis, May 2013, at ex-manufacturer price
levels, constant local currency (LC) $. Contains Audited + Unaudited data
Pharmerging definition:
The study first divided the global economy
into developed and emerging sectors, using a
per capita GDP threshold of US$25,000.
Countries classified as emerging were then
sub-divided using market data forecasts from
IMS Market Prognosis, which are based on a
rigorous evaluation of the key events
impacting the pharmaceutical and healthcare
industries worldwide. The latest and refined
definition ranked Pharmerging markets on
the basis of their minimum anticipated added
value to the total pharmaceutical market
between 2012 and 2016. Latest evaluation
was done in December 2012.
PHARMERGING MARKETS
Pharmerging markets will move from representing a fourth of the global pharma market in 2012
to a third by 2017, with growth mainly driven by government healthcare investment, private and
out-of-pocket spend, and the increasing burden of chronic disease.
Tier 1:
China. Alone it will account for nearly half of
Pharmerging market growth and is expected to
become number two in the world pharma
rankings in 2015 (including formulated
traditional Chinese medicines). It is one of the
worlds fastest growing pharma markets with a
CAGR of 16.7% forecast between 2012 and
2017. Despite the recent EDL (Essential Drug
List) revision and associated policies, growth will
be driven by the additional investment in
healthcare from the Chinese government and
the rising affluence of patients paying out-ofpocket for premium products. The government
is implementing a four-year plan (2012 to 2015)
for the prevention and control of chronic
diseases which already account for the bulk of
healthcare spending in the country.
17%
300
200
12%
100
9%
11%
2008
2012
2017 (F)
CAGR (F) %
2012-2017
Tier 1 (China)
Tier 2:
Brazil. Despite a slowdown in economic growth, price pressures and government cost containment
measures, private healthcare, consumer medicines and the enhancement of current public
healthcare provision will continue to drive forecast growth of a CAGR of 12.7% between 2012
and 2017.
india. India is forecast to grow at a CAGR of 12.5% between 2012 and 2017. By 2016, health insurance
is planned to reach half of the Indian population (630 million people), mainly by broadening basic
healthcare provision to families living below the poverty line. Urban middle class private healthcare
plans will also expand further. Both are helping to drive growth.
russia. IMS forecasts 10.1% CAGR between 2012 and 2017. This is mainly due to a significant
investment in healthcare by the government, which announced plans to increase healthcare
spending from 5.6% of GDP in 2012 to 7.5% by 2020, including a national health insurance scheme
covering drugs in the retail setting. Growth is, however, slowing due to price controls and a
slowdown in the overall economy, which is heavily dependent on oil and gas export prices.
PHARMERGING MARKETS
Tier 3:
These 17 markets represent a wide array of income levels, growth rates and healthcare sophistication.
In this study, we classify Tier 3 countries into two groups based on average pharmaceutical spend per
capita to highlight differences between them.
Countries with 2012 pharma sales above $85 per capita: Poland, Argentina, Turkey, Mexico,
Venezuela, Romania, Saudi Arabia and Colombia. IMS forecasts these eight countries will grow at
9% CAGR in 2012-2017 reaching a combined market size of $82bn in 2017.
Countries with 2012 pharma sales below $85 per capita: Vietnam, South Africa, Algeria,
Thailand, Indonesia, Egypt, Pakistan, Nigeria and Ukraine. IMS forecasts these nine countries will
grow at 11% CAGR reaching a combined market size of $45bn in 2017.
PL
AR
TR
MX
VZ
P
Population
opulation (2012)
GDP (PPP 2011)
GDP per pop (PPP 2011)
P
Pharma
harma C
CAGR
AGR 2012-2017
Pharma
2017 P
harma Sales
Sales
Pharma
P
harma sales per capita rrange
ange
RO
2012 P
Pharma
harma
harma sales <$85 per capita
SA
CO
397Mn
397M n
$6.4Tn
$6.4Tn
$14.9k
9%
$82Bn
$96-$222
Over
urban
population
O
ver half ur
ban popula
tion
Higher
government
healthcare
H
igher go
vernment healthcar
e spend
SStricter
tric ter cost
cost containment
containment measures
measures
Typically
better
intellectual
property
protection
Ty
ypically bett
er in
tellec tual pr
oper ty (IP) pr
otec tion
VN
ZA
AL
TH
ID
EG
PK
NG
P
opulation (2012)
Population
GDP (PPP 2011)
GDP per pop (PPP 2011)
P
harma C
AGR 2012-2017
Pharma
CAGR
2017 Pharma
Pharma Sales
Sales
Pharma
Pharma sales per capita rrange
ange
UA
982M n
982Mn
$4.3Tn
$4.3Tn
$5.9k
11%
$45Bn
$7-$81
Over
O ver half rural
rural population
population (except
(except AL & ZA)
ZA)
Higher
H igher poverty
pover ty rrate
ate
Higher
Higher out of pocket healthcare
healthcare spend
More
More limited
limited access
access to
to healthcare
healthcare
PHARMERGING MARKETS
Tier 3 countries
2012: $3.0Bn
2017 (F): $4.3Bn
Growth drivers
Continued government investment in a sophisticated
healthcare system (79% of spend is public)
Private medical insurance
Saudi Arabia
2012: $4.6Bn
2017 (F): $7.0Bn
Colombia
2012: $4.3Bn
2017 (F): $5.3Bn
Nigeria
2012: $1.4Bn
2017 (F): $2.6Bn
IMS Health Global Market Prognosis, May 2013, at ex-manufacturer price levels, LC$. Contains Audited + Unaudited data
PHARMERGING MARKETS
Frontier countries
Further business opportunities can be seen in the Frontier markets. Frontier markets have the potential
to become important markets as companies look for further growth opportunities. Combined, IMS
forecasts these markets will add an additional $9.1bn in annual sales by 2017. With half of the Frontier
markets in Africa and the Middle East, the potential of this region is becoming more evident.
Latin America
$2.5Bn incremental
east europe
$0.8Bn incremental
Middle east
$1.7Bn incremental
Africa
$1.9Bn incremental
Country
CAGr 2012-2017
Philippines
$3.0Bn
3.8%
Malaysia
$1.6Bn
8.3%
Bangladesh
$1.3Bn
10.4%
Chile
$2.3Bn
8.2%
Peru
$1.5Bn
7.8%
Ecuador
$1.3Bn
8.6%
Kazakhstan
$1.3Bn
10.3%
Iran
$2.6Bn
5.0%
U.A.E
$1.3Bn
8.9%
Lebanon
$0.8Bn
6.6%
Morocco
$1.2Bn
4.5%
Tunisia
$0.8Bn
10.0%
Ghana
$0.8Bn
12.4%
Kenya
$0.5Bn
16.9%
Ethiopia
$0.4Bn
10.0%
Source: IMS Health Global Market Prognosis, May 2013, at ex-manufacturer price levels, LC$. Contains Audited + Unaudited data
Africas potential will reward commitment, engagement and a business model that strengthens
the path to market and patient.
Hurdles notwithstanding, there is a very real opportunity for the pharmaceutical industry in Africa. This
will require long-term commitment and willingness to navigate the complexities and make difficult
decisions to optimize margins, volumes and the investment required to build the path to market and
patient. Engagement with this market now and in the long term will provide a robust platform for
companies to shape the pharmaceutical industry dynamics alongside the broader healthcare
environment in Africa.
Source: IMS White paper Africa: a ripe opportunity, IMS Health, December 2012
PHARMERGING MARKETS
529
93
2008
110
2009
127
2010
143
2011
557
580
598
593
2010
2011
2012
162
2012
2008
2009
CAGR 2010-2012
Pharmerging
Mature
Original brands
8.6%
-0.7%
Other
17.2%
2.7%
Generic
15.0%
9.2%
Segment
Source: IMS MIDAS, MAT 2012, LC$, Market Segmentation + LIC countries. LIC Countries are Argentina, China, Colombia, Egypt, Indonesia, Pakistan, Saudi Arabia, Thailand
and Venezuela. Excludes Vietnam, Romania and Algeria. No data for Ukraine & Nigeria. Top 8 includes EU5, Japan, USCan. Non retail panel included for Brazil and Mexico
CONSUMER MEDICINES
The consumer medicines market represents approximately 30% of Pharmerging Markets sales
(depending on definition). It does not face the same pricing threats as the Rx segment and benefits
from high rates of self-medication and the power of brand equity. It is a highly competitive market
with dynamics that vary by country and by product category and is growing faster than original
prescription products. We will examine this market in an upcoming white paper on this topic to be
published in 2013.
PHARMERGING MARKETS
MACROECONOMIC FACTORS
There are several reasons why generics will remain strong in these countries:
Affordability is a substantial challenge for both governments and patients and the cheapest options
are typically generics
Weaker IP protection in some countries expands the playing field for generics companies
Government policies and behaviors often favor local manufacturers, which are generally
manufacturers of generic products rather than originals
30
25
20
Brazil
India
15
China
Tier 3 - low spend
10
Russia
0
0
10
15
20
25
30
PHARMERGING MARKETS
Despite the challenges, several MNCs remain attracted by the size and growth rates of generic market
companies in Pharmerging countries. In almost all of these countries, physicians still write branded
prescriptions that drive growth for unprotected originals and branded generics. MNCs that sell branded
generics are often looking for synergies, market power and efficiencies of scale by promoting
unprotected original brands alongside branded generics. The brand acts as a guarantee of quality to
doctors and patients concerned about poorly manufactured or counterfeit drugs that may be ineffective
or unsafe. Multinationals reputation for quality products counts in their favor.
Local and regional players in the generic sector are growing faster than MNCs in all Pharmerging
markets. Their large portfolios, integrated distributors, fast decision-making, and strong
stakeholder relationships help them out-compete foreign manufacturers.
There is significant merger and acquisition (M&A) activity, especially in China and India (Figure 9), as some
companies consolidate to gain scale and others use acquired companies as a market entry strategy to
expand across countries. Large multinationals represent a small share of overall M&A activity, with over
90% of deals in Brazil, India and China conducted by smaller foreign companies and local players. Local
manufacturers in these countries, especially China, remain fragmented and consolidation will continue.
FIGURE 9: DEALS IN KEY ASIAN AND LATIN AMERICAN MARKETS (JAN 2008 - FEB 2013)
No.
No. Deals
Deals in key A
Asian
sian & La
Latin
tin American
American markets
markets (Jan
( Jan 2008-F
2008-Feb
eb 2013)
La
Latin
tin A
America
merica
Br
azil
Brazil
48
M
exico
Mexico
21
54
75
A
Argentina
rgentina
V
enezuela
Venezuela
3 21 24
102
96
28 35
A
sia
Asia
China
360
IIndia
ndia
184
166
42 226
IIndonesia
ndonesia
16
34 50
V
ietnam
Vietnam
11
33 44
Deals
D
eals in
involving
volving local ccompanies
ompanies
D
Deals
eals in
involving
volving ffor
foreign
oreign ccompanies
ompanies only
SSource:
ource: Analysis
Analysis based on deals contained
contained in IMS P
PharmaDeals
harmaDeals da
database;
tabase; all deal ttypes
ypes included
526
PHARMERGING MARKETS
To build generic business in Pharmerging markets, it takes many years to accumulate a large product
portfolio organically, to have an effective infrastructure to manage complex supply chains, and to
develop the necessary stakeholder relationships. As a result, companies (including local players with
regional ambitions) typically acquire or partner with local players and invest to expand, rather than
starting from scratch. For example, Teva is scaling up in Pharmerging by acquiring companies in China
and other Pharmerging and Frontier countries. In a recent interview, Tevas Chief Financial Officer Eyal
Desheh said: Well have to go one by one, a lot of footwork, country by country. None of these will be
huge acquisitions and this push may take a few years. (Bloomberg)
Nevertheless, integrating an acquired company with an existing affiliate can be a challenge, with high
transaction costs, loss of key talent and other problems. Rather than integrating operations, one strategy
has been to transfer unprotected original drugs and other assets to the acquired company, with the
expectation of better sales results. Joint ventures, out-licensing and other types of commercialization
deals are more common as MNCs look to access cost-efficient and effective sales and marketing power
without the risk of a major investment.
Acquisitions of local players typically fulfill operational challenges in the generic segment and
strategic objectives such as regional expansion or access to a product portfolio to sell globally.
Joint ventures and other partnerships are more common, delivering less control and retained
margin but also reduced risk.
FUTURE TRENDS
Looking ahead, several trends will change the face of generics in Pharmerging markets:
Decline of branded
generics
1.
Improved
manufacturing
standards
Branded generics business growth will slow down due to payer pressure to reduce costs via the
commoditization of the generics market, with two important caveats:
In many countries it will be years if not decades before the balance shifts from the branded model to
a commodity model
Brands will remain strong in the out-of-pocket and OTC market segments
PHARMERGING MARKETS
2.
improved manufacturing standards will reduce the power of the brand as a surrogate for
product quality:
3.
With more consistent quality standards, branded generics will lose part of their value
proposition, and the price differentials between branded and unbranded generics will narrow.
Some unprotected original products will take large price cuts to compete, while others will see
fast erosion of share
Many local players will find GMP compliance difficult and may be bought or exit the market
A few dominant players and business models will emerge as generics markets commoditize,
though many companies will pursue more than one:
4.
10
Some manufacturers have or will reach sufficient size to be one of a small number of players in
each country with the economies of scale and market power to drive larger profits in a price
competitive arena
Companies can focus on more differentiated prescription products (e.g. reformulations, devices)
and consumer medicines where brand power will remain strong. Non-original biologics will be
an important niche within this business model
Some companies will drive costs down low enough to win simply on price alone, though the
margins will be low and the cost structures difficult to replicate for more diversified or
sophisticated multinationals
Partnerships and acquisitions will remain an important mode of entry for MNCs that do not already
have a substantial local presence in generics:
Local players can act as the commercial arm of multinational companies, using their distribution,
sales and marketing capabilities to deliver strong top-line results
PHARMERGING MARKETS
11
MACROECONOMIC FACTORS
Demand for quality medicines has always existed in these traditionally under-served markets. Two
significant trends enable innovative companies to serve a growing number of patients:
Economic growth increases the size of the affluent population that can afford out-of-pocket (OOP)
payments or private insurance, and increasing tax revenues increase governments ability to
reimburse drugs
Governments are responding to citizens demands for healthcare by improving infrastructure, which
in turn improves diagnosis rates and the supply of qualified personnel to administer the more
complex treatment protocols associated with some innovative drugs
China is often held up as the dominant Pharmerging market, but ranking countries on original brand
sales instead of total sales reveals a different picture. While some of the large but less-developed
countries, such as India and Indonesia, drop down the ranking, Brazil, Mexico, Russia and Turkey together
have more than double the original products sales in China. Business practices in these countries are
closer to the developed country norms that MNCs know best.
10
15
20
25
30
35
45
50
10
15
20
China
Brazil
Russia
India
Mexico
Turkey
Venezuela
Poland
Argentina
Indonesia
S. Africa
Thailand
Egypt
Saudi Arabia
Colombia
Pakistan
Large Pharma
Other Players
Source: IMS Health, MIDAS, Full Year 2012, LC$ Note: MIDAS reports different figures from Market Prognosis. Excludes Vietnam, Romania and Algeria as no market
segmentation available for these countries. No data for Ukraine & Nigeria. Non retail panel included for Brazil and Mexico
PHARMERGING MARKETS
12
Top 20 brands
The top 20 brands in Pharmerging markets present an interesting mix of products:
Sales in $M FY 2012 0
9%
14%
20%
17%
13%
11%
30%
13%
29%
6%
12%
6%
8%
-13%
43%
20%
3%
23%
15%
19%
Seretide
Humira
Crestor
Abilify
Enbrel
Nexium
Remicade
Lantus
Cymbalta
Mabthera
Avastin
Plavix
Spiriva
Singulair
Copaxone
Neulasta
Lyrica
Januvia
Herceptin
Atripla
Source: IMS MIDAS, Full Year-2012, LC$. No data for Ukraine & Nigeria
4,000
6,000
8,000
7,462
7,268
6,972
6,613
6,608
6,429
6,380
5,536
5,443
4,827
4,590
4,303
4,279
4,149
4,126
3,934
3,853
3,790
3,757
3,741
1%
20%
3%
12%
10%
-8%
11%
20%
24%
7%
3%
-49%
11%
-26%
11%
3%
14%
25%
7%
10%
2,000
Source: IMS MIDAS, Full Year-2012, LC$. Top 5EU, USCAN, Japan
PHARMERGING MARKETS
13
58.0%
USA
1.1%
Turkey
0.6%
0.2%
0.4%
0.5%
0.6%
China
Mexico
Russia
India
12.5%
6.5%
7.8%
4.6%
3.5%
Japan
France
Germany
Spain
Italy
Canada
Australia
UK
South Korea
1 Year
n=220
Six pharmerging markets contributed only 3.5% of global first year sales
This is less than the cumulative contribution of any single European country
NOTE: NCE launches from 2004 to 2011, Country contribution is calculated based on the accumulative sales of these launches
All launch years normalized for each country. The 16 selected countries are representing 80% of the total global pharmaceutical market
Source: IMS Launch Excellence IV
What does the market for original brands look like without NCE launches and how does it compare to the
top eight mature markets?
Excluding launches since 2008, Pharmerging markets CAGR for original brands in 2008-2012 would
have been 7.0%, instead of 9.8%. The impact of new launches in the top eight mature markets was similar,
with a 3.5% difference. The importance of launch in Pharmerging markets is therefore nearly as big as in
mature markets.
PHARMERGING MARKETS
14
399
28
2008
32
35
38
41
2009
2010
2011
2012
2008
418
430
439
424
2009
2010
2011
2012
CAGR 2008-2012
Sales of original brands by launch year Pharmerging
Top 8 Mature
5.3%
-6.9%
7.0%
-2.0%
Recent Launches
9.8%
1.5%
Source: IMS Health, MIDAS, Full Year 2012. Excludes Vietnam, Romania and Algeria. No data for Ukraine & Nigeria, launch categorisation recent launches between
2008-2010, drugs launched between 2003-2008 and drugs launched before 2003
Steep price cuts, such as those enforced for reimbursed drugs in Turkey
Competitive tenders, such as those run by states under Seguro Popular in Mexico
Incentives that create price competition and lead to low reimbursed prices for listed drugs, such as
those covered by Farmcia Popular do Brasil and likely to be emulated by the national health
insurance plans announced in Russia and Indonesia
PHARMERGING MARKETS
15
Companies respond by cutting prices to compete with generics, as seen with Cozaar sold under Farmcia
Popular do Brasil. Others keep prices high and compete in the smaller-volume private or out-of-pocket
segments. The impact is greatest on primary care and widely-prescribed specialist care drug classes as
these are priorities for governments expanding healthcare access.
ACCESS HURDLES
IMS Consulting recently conducted a survey of 85 senior pharmaceutical executives in emerging markets
to identify the key challenges they face. Pricing and market access issues dominated with about half of
all mentions.
# of mentions
# of mentions
70
86
28
Competition
29
Regulatory
25
15
Competition
18
Regulatory
The role of price cuts in driving access and volume growth is increasingly being recognized in
Pharmerging markets. GSK created a Developing Countries Unit that, among other strategies, caps prices
at no more than 25% of the UK price and reinvests 20% of any profits back into the healthcare
infrastructure of the countries it covers (GSK website). Price reductions [in China] are in many ways very
important in driving the access and take-up of healthcare coverage, GSK Chief Financial Officer Simon
Dingemans said, adding we see very good volume response to that, which shows the strategy is
working (Bloomberg).
PHARMERGING MARKETS
16
Historically, many companies tried to protect the price points of innovative treatments, leading to prices
in Pharmerging markets that were out of reach for the majority of patients paying out-of-pocket.
For governments to fund these products would have caused excessive stress on their budgets.
Governments in Pharmerging markets have most often responded with severe restrictions on the funds
available for these drugs. They have also purchased drugs through tenders to hide the true purchase price
from public view and allow companies to sell at lower prices that are not referenced formally or informally
by other payers.
Despite the price flexibility shown to date, many governments are concerned about affordability and
have responded with a variety of moves, ranging from complex outcomes-based deals to simple rejection
of funding for specific drugs. Compulsory licensing is one of the most severe and visible responses. After
the original actions targeting HIV drugs in Brazil and South Africa in 2001, the focus has shifted to include
oncology drugs. The greatest threat is in India which has used compulsory licensing and patent
revocations to allow generic versions of nine high-priced drugs to date.
Governments are also looking to encourage local investments in innovative products. Many extend local
manufacturing requirements to include innovative products while realizing that companies will not
duplicate production lines for more complex products. The largest countries are taking actions in other
parts of the value chain, such as Russia and China demanding local clinical trials prior to approval, and
Brazil creating strong incentives to execute technology transfer deals to local companies.
FIGURE 15: TIMELINE OF COMPULSORY LICENSING AND PATIENT REVOCATION IN EMERGING MARKETS
Timeline
Timeline of compulsory
compulsor y lic
licensing
ensing and pa
patent
tent rrevocation
evocation in emer
emerging
ging mar
markets
kets
Compulsory
licensing
provisions
Compulsory lic
ensing pr
ovisions
d
in WTO
3rd
W TO TRIPS authorizes
authorizes a 3r
party
make,, use or sell a
par
ty tto
o make
patented
patent
pa
tented drug without the pa
tent
owners
o
wner s cconsent
onsent
1994
2005
2007-2008
Mar.
M
arr. 2012
Tamiflu
Licensed
Tamiflu Compulsory
Compulsory Lic
ensed
in Taiwan,
Taiwan, Korea
Korea and China
Onc
ology therapies
therapies Compulsory
Compulsory
Oncology
Lic
ensed in Thailand
Thailand
Licensed
Nexavar
Nexavar Compulsory
Compulsory
Licensed
Licensed in India
India
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Apr.
A
prr. 1994
N
Nov.
ov. 2001
W TO TRIPS
WTO
Agreement
Agreement
Signed
Signed
Doha Declaration
Declaration
Doha
Signed
Signed
2002-2010
Sept.
Sept. Nov.
Nov. 2012
Patent
Patent Infringement
Infringement
of Pegasys,
Pegasys, Sutent,
Sutent,
and Tarceva
Tarceva in IIndia
ndia
ARVs
ARVs Compulsory
Compulsory Lic
Licensed
ensed acr
across
oss
Latin
Latin America,
America, A
Africa,
frica, and SE A
Asia
sia
Oc
Oct.
t. 2012
2007
Oncology
Oncology
HIV/AIDS
Other
O
ther TTA
TAs
As
P
Plavix
lavix C
Compulsory
ompulsory
Lic
Licensed
ensed in TThailand
hailand
Compulsory
Compulsory Licensing
Licensing of HIV
and HBV
HBV Drugs in Indonesia
Indonesia
SSource:
ource: IMS C
Consulting
onsulting Group
Group white
white paper
paper,, SSecuring
ecuring IP and Access
Access to
to Medicine:
Medicine: Is Oncology
Oncology the Next
Next HIV
PHARMERGING MARKETS
17
Originators often address the affordability hurdle by lowering the net price using discounts and rebates
that do not affect the list price, which can create price reference challenges in mature markets. Several are
trying more innovative approaches with price-volume agreements, outcomes-based pricing models and
risk sharing agreements. Issues of corporate social responsibility also come into play, with companies
providing extensive patient access programs, gifts of free goods or at-cost sales. Companies aim to
improve patient access and create a positive perception. For example:
Genzyme, a unit of Sanofi, donates Cerezyme to Project HOPE, a humanitarian organization, which
distributes the product to patients through its international infrastructure. It also has other free drug
programs all over the world, particularly in the most needed geographies.
Novartis has been running a worldwide patient assistance program for Glivec. For example, in Egypt,
Glivec was priced so that for each bottle dispensed, patients receive three bottles free. The expected
outcome is that it will strengthen partnerships with different stakeholders.
Roche has found an innovative way to make cancer drugs affordable for millions in China by
partnering with Swiss Re to create oncology-focused private insurance.
Payers and R&D players are trying to find a trade-off between innovation and affordability. IMS
recommends a collaborative approach with government and third party organizations to gain
better access.
FUTURE TRENDS
In future, IMS expects original brand usage to evolve towards a more mature market model (Figure 16). In
this journey, we expect Tier 3 higher-spend markets such as Russia and Brazil to evolve faster than India and
Tier 3 lower-spend markets. The shift will proceed slower in the less developed countries because of their
lower quality healthcare infrastructures and the large populations they have to cover. Chinas growth is
partly a reflection of its increasing maturity as the government invests heavily in the healthcare system.
Mature market
referencing
guaranteed by authorities)
Costs controlled via sophisticated price
evaluations and access rules
PHARMERGING MARKETS
18
Looking further ahead, we expect Pharmerging markets to continue towards a more sophisticated model:
Decline of prescribed
unprotected originals
1.
Greater direct competition with generics as governments use tenders and/or forced pharmacy
substitution to reduce the cost of expanding retail drug reimbursement
Rising generic manufacturing standards diminishing the quality perception that originals
currently enjoy
High price specialty drugs will benefit from greater sophistication of healthcare providers
3.
Higher affordability
2.
Greater sophistication
of healthcare providers
The expanding middle and upper classes in each country will increasingly be able to pay for
innovative drugs, either out-of-pocket or via employer-provided coverage. According to the
Economist Intelligence Unit, by 2020 three-fourths of urban Chinese households will be considered
middle class. In India, the middle class population is expected to reach one billion by 2025. They will
continue to be a strong driver of demand.
PHARMERGING MARKETS
19
Top 20 companies
FIGURE 17: CORPORATION REVENUE PERFORMANCE ACROSS PHARMERGING MARKETS
Pharmerging share of global sales (15%)
22
Astellas Pharma
20
18
Teva
16
Takeda
Novo Nordisk
GSK
Daiichi Sankyo
12
Merck KGAA
Abbott
Roche
14
AZ
Sanofi
BI
10
Pfizer
Bayer
Novartis
Servier
Merck & Co
6
J&J
Lilly
BMS
2
0
0
10
15
20
25
30
35
40
45
Share of pharmerging sales vs. mature markets sales for each corporation, %
Source: IMS Health MIDAS, MAT Dec 2012.No data for Ukraine & Nigeria, non retail panel added for Brazil and Mexico
FIGURE 18: TOTAL OF DEALS BY LARGE PHARMA IN PHARMERGING MARKETS OVER THE
LAST 5 YEARS 2007 - 2012
10
8
5
4
2
M&A
Joint Venture
BI
Manufacturing
MNCs have a wide range of contribution from pharmerging markets to their overall sales. The
largest companies with over 20% contribuion are Sanofi and Bayer, which have both invested
heavily over many years. Both companies have driven sales through large consumer health arms,
and SANOFI also has a substantial generics business supported by some large acquisitions of local
players such as Medley in Brazil and Kendrick in Mexico. Servier has a strong position thanks to its
historic presence and long term vision with an adapted portfolio in fast growing therapy areas
such as vascular, osteoporosis and diabetes.
PHARMERGING MARKETS
20
M
Mature
ature mar
markets
kets
Pharmer
Pharmerging
ging markets
markets
Frontier ccountries
ountries
Frontier
COUNTRY PRIORITIES
Success in mature markets is still the top priority for innovative products as it remains the lions share of
MNCs revenues. Pharmerging markets represent the greatest growth opportunities for companies, and
MNCs should continue to invest to maximize prospects. The choice of which to pursue is a case of
matching the companys capabilities, existing portfolio and corporate ambitions.
Companies that already have significant presence in Pharmerging markets have begun to increase their
investments in Frontier markets, which will become more important drivers of growth. Frontier markets,
plus the least developed Pharmerging countries such as Vietnam, Pakistan and Nigeria, will continue to
offer the promise of huge populations and high growth rates. However, they also present the operational
challenges of working in undeveloped healthcare systems and often difficult business environments.
Product
protection
Product
specialisation
Priority
Investments
Partnerships
Organisation
Protected originals
Consumer
None
None
None
Single Entity
Unprotected
originals
Primary care
Via distributors
Portfolio licensing
Sales
Business Units
Branded generics
Specialty care
Minimal presence
Local manuf.
Manufacturing
INN generics
Niche
Full aliate
Local acquisition /
stake
Other
Separate
operating
entities
PHARMERGING MARKETS
21
PORTFOLIO PRIORITIES
FIGURE 20: PORTFOLIO CONSIDERATIONS
Mature Portfolio
New Launches
Original Brands
Branded
Generics
Differentiated
Commodity
Consumer Medicines
Companies have to achieve an effective scale of commercial operations to maximize the value of their
products and achieve the cost efficiencies that improve profitability. While the scale depends on the size
of the country, different types of products also have different scale requirements:
PHARMERGING MARKETS
22
BUSINESS STRUCTURE
The question facing a smaller multinational company, or a company entering a new market segment, is
how do we achieve that scale? The hurdle for niche specialty products is not too high, and an increasing
number of biotech companies are establishing their own affiliates in Pharmerging markets instead of
licensing out their brands. For the other market segments, companies look for shortcuts to achieve the
commercial capabilities or portfolios that will deliver the scale they need. This is a major driver of the large
number of partnerships, joint ventures, acquisitions and other deals taking place each year across these
countries. As the affiliates grow and deals are struck, each company must also assess the organization
design, determining the best structure of business units, operating companies and the assignment of
commercial responsibilities across the organization and its partners.
Each company has to set the strategy that builds on current strengths and to make targeted
investments to support it. The most successful ones will also make their business models evolve
in order to anticipate evolutions and guarantee their future success.
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