How to get ahead in 'pharmerging' markets
Just seven countries accounted for more than 50 percent of global pharmaceutical growth in 2009, according to IMS Health. New business models are needed to succeed there.By Dec 10, 2009 on
Just seven countries accounted for more than 50 percent of global pharmaceutical growth in 2009, according to IMS Health. New business models are needed to succeed there.
The seven emerging markets of Brazil, China, India, Mexico, Russia, South Korea and Turkey are estimated to have contributed an unprecedented 51 percent of global pharmaceutical growth in 2009, according to IMS Health, a leading provider of market intelligence to the pharmaceutical and healthcare industries. On the other hand, the conventional major or mature pharmaceutical marketsNorth America, Western Europe and Japanaccounted for just 16 percent of the global growth. This is in sharp contrast to 2001 when these so-called pharmerging markets accounted for only seven percent of global growth, compared to 79 percent contributed by mature markets.
In terms of sales, the mature markets will still have an estimated 71 percent market share in 2009, compared to 11 percent forecast for pharmerging markets. Nevertheless, IMS Health predicts future growth will be fuelled by pharmerging markets. IMS estimates that while global pharmaceutical sales will grow between 4 and 7 percent annually from 2010 to 2013, the pharmerging markets are expected to grow by 12 to 14 percent in 2010 and 13 to 16 percent over the next five years after that. Rapidly growing GDP is a key driver for pharmaceutical growth in pharmerging markets, according to David Campbell, senior principal at IMS Health. Another driver comes from the fact that governments in pharmerging nations are aggressively trying to improve healthcare access, thus creating new demand.
China, for example, has budgeted $125 billion for 2009-2011 to provide primary healthcare for at least 90 percent of its 1.3 billion people. IMS estimates that Chinas pharmaceutical market will grow at more than 20 percent annually, and contribute 21 percent of overall global growth through 2013. This will make China the third largest pharmaceutical market after the US and Japan by 2013. Given statistics like these, Western pharmaceutical companies are repositioning themselves to focus on pharmerging markets.
Growth opportunities in these markets differ from country to country. Some markets have a significant proportion of reimbursed sectors while others have a significant out of pocket market. For example, Turkey is an almost 100% reimbursement market, while the out of pocket market is dominant in India (90%), Mexico (83%), Brazil (80%) and Russia (60%). China is in the middle with 49% of the market out of pocket. Reimbursed markets offer more opportunities for generics as governments try to contain costs, according to Campbell. He says branded generics wont only come from traditional generics players with brand names, but also from other multinational drug-makers moving into the value generics space.
Campbell also points to changing demographics, such as ageing populations and shifting disease profiles, which present new growth opportunities. A number of chronic diseases, such as cancer, cardiovascular ailments and diabetes, which are prevalent in mature markets, are becoming important in pharmerging markets, too. In contrast, other conditions that previously drove growth, like sexually transmitted diseases, are becoming more controlled in these markets.
Though pharmerging markets offer huge growth opportunities, they are very complex in nature and succeeding in these markets is not easy. Campbell says pharmerging markets present three key challenges for multinational companies. First, there is tough competition from local players who have better knowledge of the local system and often outperform Western companies. Second, there is competition from early-mover multinational companies. Third, each of these markets has different access rules and the complexity of understanding different stakeholders and who controls and influences healthcare provision is immense.
Campbell says that pricing is crucial, too. For example, the Turkish government recently issued a price decree that could potentially change pricing models there. Similarly, Russia introduced a pricing decree, which comes into effect from January 1, 2010, aimed at tightening regulation of medicines on the essential drugs list through mandatory registration and price disclosure for the same drugs in foreign markets.
As a result, multinational companies need new business models for pharmerging markets. Companies that thought they could use the traditional mature market business model in these markets are struggling, he says. Key success strategies include tailoring product portfolios to local needs and conditions, careful pricing decisions, and smart marketing strategies. Hiring the right managers who understand the local market and speak the local language is also important. Glaxos example in India is cited by many as a demonstration of how multinationals can succeed in pharmerging markets. Glaxo entered the market early, developed an India-specific product portfolio to meet local needs, and focused on value drugs. The company is now the third largest player in India.
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