Understanding the New World Order of Emerging Markets

The shape of the global market for pharmaceuticals is undergoing a rapid change. As recently as 2006, more than half of the market growth was in the US, according to IMS Health. But this year, they are predicting that the US market will decline by up to 2 percent, and 52 percent of growth will come in the seven so-called Pharmerging markets-Brazil, Russia, India, China, Mexico, Turkey and South Korea -where growth in 2006 was just 16 percent. At today’s prices, these countries still only account for 12 percent of the global dollar value of the pharma industry (about $80 billion), but that still represents a significant shift in market dynamics.

Despite the current economic crisis, most of these seven markets are expected to continue growing, and David Campbell, senior principal, emerging markets platform at IMS Health, believes that at least four of them will experience double-digit growth. “The Chinese and South Korean markets are now expected to surpass the predictions we made in September 2008,” he says.

The main factor driving this growth is government policy-notably the recent Chinese commitment to invest $123 billion in reforms that will improve healthcare provision for its 1.3 billion citizens. IMS predicts that by 2013, China will be the third largest pharmaceutical market worldwide in value terms-up from ninth in 2003.

Many pharma companies are now realizing that a lot of future growth is likely to occur outside their core markets, and are placing focus on these rapidly growing areas. However, Campbell says, the industry has never been good at maximizing its opportunities in these markets, and only fairly recently-since about the mid-1990s- has there been talk of emerging markets’ potential to drive future sales.

The potential for increasing revenue is enormous, as these pharmerging markets represent about 45 percent of the world’s population, and half a billion of the people living there can afford Western medicine. That’s more than the population of the European Union. “[These countries] will be very important in driving growth,” says Campbell. “We are seeing an urgency among our clients to increase the profile of emerging markets in their commercial organisations.”

Part of the problem facing companies is that they have traditionally considered the global pharma market as a two-tier model; they only think of launching a drug in emerging markets once it’s on sale in developed ones. Indeed, according to IMS data, only two-thirds of the 420 NCEs introduced between 1997 and 2008 have yet reached emerging markets.

An additional problem is that emerging markets are complex and different, both from the established markets and each from the other. In China, for example, traditional medicine is still very important, and the widespread population provides an extra layer of difficulty. While healthcare is readily available in \big cities, it is in remote, rural areas. Turkey, meanwhile, is investing heavily in its healthcare system as it tries to join the European Union, and that country’s new model is much more stable and transparent. Brazil’s market is highly genericized, with many local players targeting low-income consumers.

“[Pharma companies] are still wrestling with how to understand the markets,” Campbell says. “They have tried to duplicate their existing development strategies, but we have already seen that does not work.”

Europe-based companies have a head start over their US rivals. Bayer, for example, has been operating in the Chinese market since the late 19th century, thanks to its chemicals business; this has led to a strong pharma presence. “US companies have historically done well in US markets, and European ones less well,” claims Murray Aitken, senior vice president, healthcare insight, at IMS. This meant that in the past European companies were more inclined than their US counterparts to look elsewhere for additional sales. “While there was robust growth in the US, why should [US companies] bother with emerging markets? The urgency has not been there. That will change. Some of the companies most dependent on the US market are now in trouble.”

Emerging markets provide new challenges for pharma companies, but the rewards are there if they pick the right products and look to meet unmet medical needs. This doesn’t have to mean cheap generics-Campbell cites an example of a client who is launching a major innovative biologic in African countries such as Senegal and Côte d’Ivoire-but it does mean picking the right strategy for the right market.

“We believe we are facing a new world order in emerging markets coming up the global rankings,” he says. “This is an indication that we are going to have to shift expectations from making money in established markets. The industry is going to have to adapt.”