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A
DRAMATIC SHIFT IS UNDERWAY BY R AYM O N D H I L L
in terms of where the global phar- A N D M A N DY CH U I
maceutical industry is turning for
growth and profitability. The cause is
all too familiar: While the so-called
major markets—the US and Canada, Britain and
Western Europe, and Japan—are expected to fuel
70 percent of global sales this year, their contri-
bution to global growth is forecast to drop to a
measly 16 percent by the end of 2009. Eclipsing
these once-dominant sales drivers are a group of
seven emerging markets—Brazil, India, Turkey,
Mexico, Russia, South Korea, and, of course,
China. These new engines are forecast to gen-
erate a phenomenal 51 percent of 2009’s global
growth, albeit while adding only 11 percent to
global sales (see "The Growth Gap").
Call these the tier-1 emerging markets—or
“pharmerging,” for short. Meanwhile, tier-2,
which includes 21 far-flung nations ranging from
Venezuela to Vietnam, Chile to the Czech Re-
public, is on tap to deliver an impressive 22 per-
cent of 2009’s global growth and 6 percent of its
global sales (see “Pharmerging Fast Followers").
Though for a long time it's been only a minor industry con- Big Pharma, Big Wake-Up Call
cern, the rest of the world is now emerging as pharma’s great While the pharmerging markets represent virtual virgin
bright hope; these 28 nations, in particular, are expected to forests for healthcare sales, most global drug companies
carry industry growth and contribute mightily to profitabil- remain underexposed in these opportunity-rich markets,
ity for the next decade. indicating that the contribution of revenues from these
markets is much less than the potential of the markets.
So Far, So Pharmerging In part due to their colonial ties, European pharmas such
However wildly they differ from one another in culture or as Britain’s GlaxoSmithKline and France's Sanofi Aventis
politics, the seven pharmerging markets have in common have an advantage over their US-based competitors, with
more than just their above-
average growth in the THE GROWTH GAP
Pharmerging and tier-2 emerging markets will contribute three quarters of global growth in 2009
pharma sector. They also
MATURE PHARMERGING TIER-2 EMERGING REST OF WORLD
share disease profiles that
100%
are markedly different from 9% 11%
90%
10% 10%
17% 2009 MARKET SHARE, US$
that of the major pharma 5% 6% 9%
markets. Their public health 80% 7%
11% 10% 22% REST OF WORLD
programs are expanding, 70% 19%
TIER- 2
along with access to medi- EMERGING
21% 12%
60%
cines for their populations. 6%
And the main focus of each 50%
PHARMERGING 11%
market is on primary care 40%
79%
73% 51%
and generics. Together with MATURE 71%
30% 61%
the tier-2 "early emerging" 52%
markets, the pharmerging 20%
exploding middle-class
population—and its po- PHARMERGING FAST FOLLOWERS
tential buying power—in The 21 tier-2 “early emerging” markets
fact less than one tenth of 2003 2008 2013 MARKET SIZE (CONST US$BN) AND % CAGR 2008-2013
A CLASS ANALYSIS
The top five therapy classes in each pharmerging market
BENIGN PROSTATIC
ORAL MUSCLE HORMONAL
ONCOLOGICS HYPERTROPHY INTERFERONS ANTIPSYCHOTICS
ANTIDIABETICS PRODUCTS RELAXANTS CONTRACEPTIVES
SOURCE: IMS HEALTH, MIDAS, MAT DEC 2008. •LEADING THERAPY CLASSES RANKED BY CAGR 2004-2008 GROWTH AND SIZE
manager is in place, they'll
BRITAIN VS. INDIA do well. However, with a
Glaxo’s two drug portfolios for the two nations weren’t exactly separated at birth mediocre manager, they run
the risk of losing touch with
BRITAIN INDIA the market.
R3F B2-STIMULANTS & CORTICOIDS J1D CEPHALOSPORINS & COMBINATIONS 2. Strengthen HR and Train-
R3A B2-STIMULANTS J1C BROAD SPECTRUM PENICILLINS ing Comprehensive programs
J5C HIV ANTIVIRALS D7B TOPICAL CORTICOSTEROIDS COMBINATIONS are required to retain talent
A10B ORAL ANTIDIABETICS N2B NON-NARCOTIC ANALGESICS and develop bench strength
N3A ANTI-EPILEPTICS H2A PLAIN CORTICOSTEROIDS to take on junior and middle-
management roles. Keeping
J7A PURE VACCINES A2B ANTIULERANTS
the team happy requires not
N2C ANTI-MIGRAINE PREPARATIONS D6A TOPICAL ANTIBIOTICS/SULPH.
only monetary compensation
N4A ANTI-PARKINSON PREPARATIONS P1B ANTHELMINTICS
but also a focus on career de-
R3D CORTICOIDS A11E VITAMIN B COMPLEX velopment. The commitment
N7B ANTISMOKING PRODUCTS J7A PURE VACCINES to focus on people must come
R1A TOPICAL NASAL PREPARATIONS A12A CALCIUM from senior management. Per-
D7A TOPICAL CORTICOSTEROID PLAIN H3A THYROID PREPARATIONS sonnel must be reviewed on a
N6A ANTIDEPRESSANTS & MOOD STABILIZERS R6A ANTIHISTAMINES SYSTEMIC regular basis, and comprehen-
sive talent development plans
J1C BROAD SPECTRUM PENICILLINS B3A HAEMATINICS, IRON & COMBINATIONS
must be put in place. To suc-
N2B NON-NARCOTIC ANALGESICS R5C EXPECTORANTS
ceed, a company needs to be
SOURCE: IMS HEALTH, MIDAS, MAT DEC 2008
perceived as a place where ca-
reer development is an integral
Likewise, Schering-Plough scored notable success in Chi- part of the culture. In addition to providing superior products,
na, aggressively pursuing an over-the-counter strategy that, successful firms distinguish themselves by providing long term
along with its prescription business, grew the company’s career growth and personal development opportunities, as well
sales more than five-fold, from $20 million to $100 mil- as demonstrating a sustained commitment to the region, includ-
lion, in a five-year period. The company made significant, ing the continued investment in expanding manufacturing fa-
well-targeted investments in sales and marketing resources, cilities and setting up R&D centers.
as well as in consumer spending for its OTC business, to 3. Local Government Affairs Team Recruiting former gov-
achieve this high rate of growth. ernment employees is an attractive option for many compa-
nies. These candidates offer an invaluable understanding of
The Right Organizational Model the regional policymaking processes, and have access to key
As pharmerging markets gain increasing attention, their im- government stakeholders and authorities.
portance within a pharma’s overall corporate structure rises. 4. Stable Senior Leadership A stable senior leadership team
Business leaders for the pharmerging markets are today in is critical for successful execution. This provides continuity, con-
some cases reporting directly to CEOs, as growth and profit- sistency, and commitment for the company’s long term growth.
ability are increasingly linked to tapping these new markets.
Tactical execution is 80 percent of the game in pharmerg- The Global Economic Crisis Angle
ing markets. Even though a strategy is sound, it could still While the global pharmaceutical industry navigates a challeng-
fail miserably because of challenges in on-the-ground execu- ing economic climate, it’s worth noting that economic conditions
tion. Four points to watch for are: affect markets to varying degrees. The extent of the economic
1. Regionalization To overcome differences among re- impact on each pharma market is influenced by the healthcare
gions in purchasing power and business practices, adopt a burden borne by patients, and the short and long term policy
regional strategy for management, with sales force, market- responses that governments implement. In this regard, the impor-
ing, commercial, human resources, and government affairs tance of some pharmerging markets may actually increase with
teams structured by region. This will ensure that they will the global recession.
adopt practices suitable for that region, and react promptly For example, the effect of the global economic crisis on Rus-
to the changing environment. Companies that regionalize sia has been much different from that on China. Forty percent
only their sales force run the risk of relying too much on first- of Russia’s GDP is comprised of oil and gas revenue, which has
line sales managers in the region. If a very competent sales made the country much more vulnerable to the steep recession.
Smashing China! an increased focus on disease preven-
tion and better control of the spread of
nies, for their part, prepared dossiers
and launches for their own continent
W
ith a population of 1.3 billion and infectious disease. before turning their sights on the US,
aggressive government health- Enlarging the population covered un- with the rest of the world again a minor
care reforms, China’s untapped der basic health insurance is projected consideration. But with China now on
market has pharma execs licking their to help double the size of China’s phar- the verge of entering top-five status,
chops. As pharmaceutical sales in West- maceutical market over the next five such myopia no longer serves. True,
ern Europe and North America tally single- years. It’s estimated that the essential the market is evolving rapidly. True, his-
digit growth, the stats for this rising tiger drug list will comprise some 400 drugs, torical information is limited; key data
are exploding—with a compounded annual about half of which contain chemi- are still emerging. But companies that
growth rate of 22.6 percent from 2003 cal molecules currently sold by global do not broaden their drug development
to 2008, reaching $24.5 billion. China’s pharmas. As the government works to and launch planning process to include
pharmaceutical market, which was the reduce pressure on overcrowded city in-depth, early-on analyses of China
world’s eighth largest in 2006, is projected hospitals by building new ones, these are shortchanging themselves.
to climb to third place by 2013. By 2020, hospitals will also purchase more
China is set to be the world’s largest econ-
omy, with GDP growth steadily rising faster
than other pharmerging
equipment—in turn, promoting better
prevention and earlier diagnosis of con- 1 Engage As Early As Possible
Global brand development teams
should begin tracking a
countries like Brazil, India, HEALTHCARE REFORM CHINA-STYLE new product’s potential
A five-point plan for 1.3 billion folks
and Russia. in China in Phase II or
REFORM FOCUS KEY INITIATIVES
III. There are more than
Basic Medical Increase coverage of medical insurance
High-Speed up to over 90% by 2011
enough questions to
Insurance System
Healthcare Reform answer: What would it
At the center of China’s National Essential Essential Drug list will be centrally purchased take to sell a product in
Drug List and distributed by the government
healthcare metamorpho- China, and what are the
sis is its $125 billion Primary Health More investment in CHCs, drive primary care potential rewards? What
stimulus package, which Care Provision patients from hospitals to CHCs might be the business
aims to offer health cov- opportunity? What steps
More Basic
erage to more than 90 Healthcare Provision
Enlarge NRCMIS, build more county hospitals must be taken now—in
percent of China’s popu- the laboratories, with
lation by 2011. The gov- Public Hospital Pilot reforms in public hospitals in 2009 clinical, regulatory as
Reforms with zero mark-up, and roll out by 2011
ernment plans to invest well as commercial de-
that $125 billion in the partments—to ensure
next three years to pro- timely registration and
vide basic, affordable healthcare ser- ditions such as cancer, cardiovascular commercialization? How well are Chi-
vices for the public (see "Healthcare disease, hepatitis, and diabetes. Medi- nese physicians positioned to treat the
Reform China-Style," this page). This cal equipment, diagnostic reagents, disease targeted by the product? What
capital will be directed at medical in- and vaccine manufacturers will benefit do patients understand about their
surance (46 percent), healthcare orga- from this massive initiative. own condition? How must the develop-
nization (47 percent), and public health ment program be adjusted to account
(7 percent). Healthcare coverage will Launching a Global Brand in China for anticipated clinical requests of lo-
expand greatly; essential drugs will be More often than not, “building the mar- cal health authorities? Which potential
reimbursed by insurance, and the price ket,” rather than “taking share from the joint-venture partners might be contact-
of essential drugs will be determined competition,” is the name of the game ed, which suppliers might be tapped,
by tenders with no distribution margin. for launching pharmaceutical products which distribution networks would help
More than 2,000 county hospitals and in China. facilitate?
clinical centers in rural areas will come There was once a logical sequence Local teams can provide the on-the-
online, along with improved capabili- for those who led pharmaceutical com- ground analyses of specific disease
ties at existing community hospitals, panies. US-based companies sought states that US- and Europe-based man-
support for specialized hospitals, and to penetrate the US market first, pur- agers need. They should be brought
experimentation on the elimination of sue Europe second, and the rest of the into the development and launch cycle
the hospital drug markup. There will be world would follow. European compa- early, as key members of the team.
OUT OF POCKET INSIDE CHINA
2 Become Truly
Global
At the same time,
Private healthcare payout are 50 percent—compared to 90 percent in India and 35 percent in the US
GOVERNMENT HEALTHCARE EXPENDITURE SOCIAL HEALTHCARE EXPENDITURE PERSONAL HEALTHCARE EXPENDITURE
3 First Build the Market at the fast-growing network of commu- designed to address the medically needy.
The business of tapping a market nity hospitals, where more patients are
such as China’s isn’t as simple as un- likely to seek care in the future.
In conclusion, launching a global
brand in China means treating the na-
veiling a first-to-market product—even Affordability also remains a key fac- tion as what it potentially is—the locus
if research demonstrates a huge poten- tor, as US and European prices are likely of the next generation of blockbuster
tial market of millions of people for the to prove incompatible with the Chinese products. —RH & MC
Additionally, industry experts question the Russian government’s of the global economic crisis. However, growth in publicly
ability and resolve to improve health insurance coverage and funded markets is likely to ameliorate some of the stress,
reimbursement for low-income groups. By contrast, the Chi- potentially offering a positive uptick in market growth going
nese government recently laid the groundwork for substantial forward. The era of blockbuster drugs may be coming to an
healthcare reform through enactment of a $125 billion stimulus end, but the pharmerging markets can provide great value
package. This landmark package aims to provide near-universal and new opportunities as they gain an increasing share of
coverage and substantial improvement to the nation’s healthcare the global market.
infrastructure, especially in rural areas (see "Smashing China!").
Raymond Hill is General Manager, Consulting & Services, at IMS Health; he
Expectations for 2009 economic growth in the 15 key de- can be reached at rhill@imshealth.com. Mandy Chui is Senior Principal, Con-
veloped and emerging countries have declined since the onset sulting & Services, at IMS; she can be reached at mchui@us.imshealth.com
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