Emerging Markets – Will it Emerge?

I think mention of emerging markets was more of a corporate agenda to ensure organizations’ strategic thinking and line-of-sight of industry’s future business trends till about 3 - 5 years ago. Today the thoughts and clarity on emerging markets have matured further and pharmaceutical corporations around the world have started their investments to cash-in the business opportunities.

Let us start with some data – MAT Mar 2009 revenue growth of US and Europe (Big 5) pharmaceutical markets is 4.8% and IMS health forecasts the growth to taper down further and start declining by 2010! In other words by 2010 the key markets of yester years – US and Europe, will start eroding the global pharmaceutical market place. Reasons are many for this scenario – both external (economic situation, high and growing healthcare expenditure, demographics of the population, already high healthcare penetration etc.) and internal (lack of new blockbusters, reducing R&D productivity, existing high costs and overheads etc.). We will not dive in to the details of these now.

Let me give you one more piece of data – IMS Health states when US and Europe start declining their pharmaceutical revenue by 2010, emerging markets will be adding 51% of absolute growth to the global pharmaceutical market!!! Voila. This means the major growth is expected to come from the emerging markets from 2010 onwards. Who would not want to ride this wave and cash-in? So if you see the corporate agenda of the big pharmas today, emerging markets is one of the top 3 if not the top one.

Some basic thoughts on Emerging Markets (EM)

EM includes more than 100 countries in 5 regions – Latin America, Eastern Europe, Africa, Asia and Middle East.
One cannot generalize methods, processes, trends etc. for 100 countries and thus EM is a highly heterogeneous classification of markets
The key markets in EM have to be dealt with individually as the differences among these markets are more prominent than common traits. Some of the critical areas where differences are prominent are:
Preferred products, classes
Prescribing points
IP frameworks
Regulatory guidelines
Epidemiology
Sales uptake and downturn trends
Insurance & reimbursements
Healthcare access
Pricing
Affordability
Openness for doing business etc.

· Major EM like BRIC, Mexico, S Korea & Turkey are showing phenomenal business growth and opportunity
· When developed markets like US and Europe grow at low single digits, these markets are pacing at 15 - 20% growth year on year

Big Pharmas are keen at building their presence in EM now and the focus is on building a fitting portfolio to cash-in the opportunity. Companies are following different paths to achieve this – acquisition, alliances, EM-focused R&D etc. Presence can be in various ways to tackle the market opportunity:
· Branded Generics
· INN (plain) generics
· Biosimilars (even though clarity on regulatory guidelines are less even today)
· Manufacturing & R&D support
· Raw material sourcing, etc.

How would tomorrow be?

US clocked pharmaceutical revenues of approximately $250 Bn last year and EM $80 Bn. If EM will grow at a CAGR of 12% (current CAGR is 16%) and US will grow at a CAGR of 1% (current CAGR is 5%), by 2020 both EM and US will have equal pharmaceutical revenues. WILL THIS HAPPEN?

IT MIGHT à
If companies could not bridge the revenue trough anticipated during 2010 – 2016 ($140 Bn). Thanks to the patent cliff.
If companies go for severe cost-cutting in US due to reduced revenue. This would dampen future revenue, brand image, business morale etc.
If the governments in US and Europe gets more aggressive in controlling drug price and healthcare costs
If the trend in number of new products approvals/year remains the same and/or further erode
If the big pharmas start making good additional revenue (to the tune of $3 - $5 bn) in the next 5 years (2015) from EM
If the big pharmas can embrace the new business models in EM and build up their competency in generics and branded generics play with minimal lead time
If the economic revival and investor confidence remain maintained in EM in the coming days
If foreign entrants and local companies can tie-up to synergize the competencies in EM

IT MIGHT NOT à
If big pharmas could not manage the heterogeneity in EM and could not cash-in the market opportunity at the right time
If governments and authorities in EM show a closed approach to the foreign investments coming in from big pharmas in to the markets
If the macroeconomic situations in major markets of EM deteriorates in the coming days
If some NCEs (say about 8-10) are able to reach blockbuster status (revenues >$ 1bn) in the coming years in the US

The above reasons, which I am sure is not an exhaustive one, gives a feel of how tomorrow’s pharmaceutical market would be. I am sure of one thing – sharpen your knowledge and exposure in EM, better would be your career prospects for the next at least 10 years in the pharmaceutical industry.

Please put your comments and opinions to this topic, as your views would certainly enlighten my understanding and of many others.

Thanks. Cheers.