The pharmaceutical industry is seeking to increase its profit margins and replace an estimated $157bn worth of sales from drugs soon to reach their patent shelf-lives, and the E7 countries may hold the key.
The "Emerging Seven" – China, Indonesia, India, Turkey, Russia, Brazil and Mexico – are some of the fastest-growing economies in the world. They are new markets with ageing populations demanding better and more developed healthcare.
A report by RNCOS, Emerging Pharmaceutical Markets Globally, published in April 2008 says that the pharmaceutical markets in E7 countries are anticipated to grow at a compound annual growth rate of 11.5% between 2008 and 2012.
This growth rate is more than double of that in so-called G7 markets.
The total disposable income of the E7 countries is anticipated to grow twofold by 2012 and was already sitting at US$4.4t in 2007.
Although the E7 markets are not new to the pharmaceutical industry, more interest is being aimed in their direction.
Pfizer takes the lead
Pfizer has had a presence in India, Brazil and Turkey since the 1950s, China since the 1980s and Russia since the early 1990s.
But it was only in November 2008 that the company's chief executive Jeffrey Kindler said that it now recognised these emerging markets are likely to be, not withstanding the current global situation, the fastest growing economies in the world.
"We do believe that growth in emerging markets will continue to outpace the US, European and Japanese markets, not withstanding the global recession," Kindler said He said Pfizer's focus is on countries with strong potential, in particular China, Turkey, Russia, Brazil, Mexico and India. "There are billions of potential customers in these areas as disposable incomes increase, health systems evolve and infrastructure is created," he added.
The established products market was worth $271bn in 2007 and is expected to grow to $532bn around the same time as Pfizer's Lipitor – the world's best-selling drug – comes off patent. The emerging markets were already accounting for the majority of this market. "We're making strong progress," Kindler said.
In the first nine months of 2008, Pfizer's market in Brazil grew 38%, China 78%, Russia 40% and Turkey 28%, the latter where the company also launched nine new products.
"We see enormous opportunities as the middle class grows, as healthcare expands and as intellectual property protection improves," explained Kindler.
The report from RNCOS says medical infrastructure throughout the E7 has developed tremendously in the past decade. Consequently, a large number of clinics and hospitals have opened in these countries. With these additional services and physicians, patients are increasingly taking advice from professionals instead of following self-medication and conventional therapies. As a result, pharmaceutical sales are surging.
Besides that, the report says an improvement in the medical infrastructure has directly impacted the smaller towns and villages where the majority of E7 countries' population resides. The volume of retail pharmaceutical stores in small towns and villages has substantially expanded in the past decade, providing quality and affordable drugs in these areas.
The pharmaceutical market in most of these regions is still dominated by acute therapies but the growth rate of chronic therapies is much higher, so the market share is likely to be very different in the next five years, say RNCOS' analysts. It also claims the markets in India, China, Russia and Indonesia are dominated by generics. These, however, have a lower penetration in Brazil, Mexico and Turkey.
A significant hurdle still to contend with is protection of intellectual property, while the large-scale prevalence of counterfeit drugs remains a major challenge. Novo Nordisk's international marketing director Jesper Hoiland says that within a ten-year period the E7 nations will be in the company's top ten countries in terms of sales. For Novo Nordisk the E7 countries have given 10% of achieved turnover and these markets are characterised by sales growth of 20–30%.
PricewaterhouseCoopers (PwC) estimates that by 2020 the E7 could account for as much as a fifth of global sales. The firm says the number of diabetes suffers in India is projected to reach 73.5 billion in 2025, with the direct cost of treating each individual about $420 per person per year. PwC says if these costs remain the same, India's total bill for diabetes alone would be about $30bn by 2025. Of course, as economic wealth grows and standards of care improve, treatment costs are also likely to rise.
The markets of the emerging economies are changing even more rapidly than those in the industrialised world. As the average life expectancy in these countries increases, obesity becomes more of a problem and people become less physically active, the demand for drugs to treat associated illnesses goes up.
PwC gives an example of how fast the landscape is changing by stating in 2004 that an estimated 639 million people lived with hypertension. By 2025, that figure is forecast to reach at least one billion. Demand for medicines that treat illnesses traditionally associated with more industrialised nations is increasing. At the same time, these countries are becoming wealthier and making the E7 countries look especially attractive.
"Our economic modelling suggests that the real GDP of the E7 countries will triple from $5.1t in 2004 to $15.7t in 2020," says PwC. The firm also observes that in 2004 the E7 countries spent 0.94% of their GDP on prescription medicines and collectively accounted for 8% of the $518bn market.
By 2025 this is expected to jump to 14%. Of course, E7 populations are ageing faster, with an estimated 338 million people expected to be at least 65 by 2020 compared with 152.8 million people in the G7.
"One thing is clear from these broad brush calculations, the financial clout of the E7 countries is improving significantly," says PwC's report. "The economic demographic and social changes of the next decade will make them much more appealing places in which to make and market pharmaceuticals."
According to a report from Datamonitor, rapid economic growth on the back of a strong export drive has contributed to making South Korea one of the largest markets in Asia after Japan, China and India. The country's pharmaceutical market is beginning to open up to multinationals, a trend set to gather momentum as regulatory and IP changes take hold, potentially putting the domestic industry under threat.
While the E7 may not be an entirely new frontier for the pharmaceutical industry, as the populations' ages increase and economic growth continues, the figures suggest it may be a profitable one.