In the pharmaceutical sector, the global financial recession has had worse consequences for mature markets than emerging ones. Markets in the US, UK and Germany continually declined during 2009, while developing economies in China, India and South Korea are still experiencing strong levels of growth – albeit at a slower pace than in recent years.
Such circumstances have forced the industry to re-evaluate its short- and long-term options. For global healthcare analysts IMS Healthcare, this meant readjusting previously made market forecasts and compiling a new picture of the industry's possible future.
The firm reported in April 2009 that the global pharmaceutical market is expected to grow 2.5–3.5% on a constant-dollar basis during 2009, which is -2% less than it initially predicted back in October 2008. It also said that global pharmaceutical sales will exceed $750bn by the end of the year – a reduction of $70bn on 2008's figures.
According to IMS senior vice-president of healthcare insight Murray Aitken, the sector is currently feeling the impact of the economic climate but is likely to rebound from 2010 onwards.
"To the now-familiar factors impeding market growth such as patent expirations, a slowdown in innovative product launches and hurdles imposed by payers on market access and acceptance, we can now overlay the economic downturn," he explains.
"There is a clear correlation between demand for medicines and key macroeconomic variables such as GDP, consumer spending and government expenditures.
"We see the worldwide financial crisis contributing to record-low sales growth this year. The pharmaceutical industry is not recession-proof but it is insulated to a greater extent than other industries where spending is more discretionary."
At the same time, IMS expects the face of the pharmaceutical market to alter rapidly in coming years. In particular, a new pharmaceutical world order is emerging that could see developing markets collectively grow by 13–16%, spurred on by significant government investment.
The 'pharmerging markets'
According to Aitken, the economic crisis has added another layer of complexity to the already challenging market environment. "To strengthen their resilience, pharmaceutical manufacturers [during the economic crisis] must adapt their strategies and tactics – re-evaluate commercial models, pursue opportunities in emerging markets strengthen the value proposition of their medicines in ways that resonate with payers and patients," he says.
Brazil, China, India, Mexico, Russia, South Korea and Turkey are areas IMS says it believes will experience strong growth in the next five years. The firm has labelled this group the 'pharmerging markets' and has predicted a number of these countries to rapidly climb the pharmaceutical world league tables. In particular, IMS says the Chinese market will rise from its current world ranking of fifth to third by 2013, while Brazil will climb two positions to eighth and Russia will leap four spots to 16th.
According to IMS Health senior principal for emerging markets David Campbell, a huge 51% of the predicted global growth for the pharmaceutical sector in 2009 is now coming directly from these seven regions. "This is a significant shift in terms of the dynamics of the global pharmaceutical market," says Campbell. "Even given the fact that the economic crisis is hitting the pharmaceutical sector globally, our expectations are that at least four of the seven markets will grow in double digits over the next five years."
Further illustrating the transition, the current pharmerging markets' contribution to global growth of 51% stood at just 16% in 2006. This means their overall market share is now 12%, equating to roughly $80bn.
In essence, the growth has been transferred from the US market, which still has a staggering 39% share of the global market. However, it witnessed its contribution to global growth drop drastically from 52% in 2006 to its current negative influence of -19%.
One contributing factor to growth in these areas is the large scale investment from governments towards the healthcare sector. "The Chinese government, for example, has reiterated its intention to invest over $120bn on healthcare expenditure going forward to 2012," says Campbell. "The market there and in surrounding countries, such as South Korea, will be driven extensively by the value of the Chinese economy."
Quick to react
IMS analysts say they now feel companies face the new challenge of determining how to maximise business in these pharmerging markets. IMS has found strong evidence to suggest that pharmaceutical companies have historically failed to prioritise emerging markets, in particular highlighting that only a third of 420 new chemical entries (NCE) have reached the seven countries.
It goes on to claim that the industry as a whole is guilty of viewing such countries as being second-tier markets – identifying that the trend is for a company to launch a product in a mature market in Europe, the US or even Japan, before introducing it to a pharmerging nation.
But those who do take the chance could reap the benefits, according to Campbell. "In the last 12 months, some companies have been reprioritising how they run their commercial organisation in emerging markets," he said, adding that many companies now see it as an urgent matter that could lead to better rates of success.
Evidence of this is found in the recent business activities of UK pharmaceutical giants GlaxoSmithKline (GSK). The company recently signed a $418m deal with the South African firm Aspen Pharma, which allows for a transfer of assets between the two companies. In January 2009, GSK announced the acquisition of UCB's marketed product portfolio across Africa, Middle East, Asia Pacific and Latin America, while back in December 2008 it also acquired BMS Pakistan.
Likewise, GSK's rivals Sanofi-Aventis have also been aggressively investing to gain a leadership position in the emerging markets. The French pharmaceutical company's CEO Chris Viehbacher visited China in April 2009 and expressed interest in acquiring local companies there. It has also recently announced the acquisition of Medley in Brazil and Kendrick in Mexico.
Adapting to the local market
Despite all the pharmerging markets experiencing similar levels of growth, each of the countries possess unique attributes pharmaceutical companies must be aware of. The Chinese market, for example, has always featured traditional Chinese medicine and the sheer size of the country means reaching the widespread population with healthcare products, particularly in rural areas, is a huge challenge.
This is a contrasting picture to the Turkish market, which is aligning itself strongly with the EU and is beginning to experience significant investment. Brazil on the other hand, is a highly 'generisized' market which has a large number of local players targeting patients unable to afford branded medicine.
"We believe many of our clients are still wrestling with the complexities of each market," says Campbell. "As an industry, we have traditionally taken a business model from the mature market and essentially tried to drop it into an emerging one. I think what we are seeing now is that that doesn't work.
"As an industry, we need to start building new commercial models for each particular market. We need to understand how to make the best possible use of the products we have today for the broadest possible part of the population.
"This is a challenge that will only get more complex as we see the second tier of emerging markets such as Africa also arrive on the scene."
Adaptability is therefore a key attribute when entering any of the emerging markets. IMS points towards the importance of having the right people on the ground that know how to play the local market and are aware of any changes in infrastructure.
"The positive thing is that for the next five years, growth remains strong as a result of those pharmerging markets – which can shelter some of the impact from the financial crisis in the mature markets," Campbell adds