Living in an AMC World
Sales of pharmaceuticals in Brazil, Russia, India, China, Indonesia, Mexico, and Turkey are expected to account for 20 percent
of the global market by 2020. And even before they hit that level, the relatively rapid growth of pharma sales in these countries
(combined with the stagnation of the US and European markets) is pushing companies to explore new frontiers.
For example, GSK recently contracted with UCB Pharma to acquire the right to market UCB products in 50-plus emerging countries.
The agreement offers GSK access beyond the middle-income markets and into less-developed nations in Latin America, Asia, Africa,
and the Middle East—places where pharma needs to pursue a new model based on high volumes and low margins. How high and how
low? According to a paper authored by David Bloom, an economist who chairs Harvard's department of global health and population,
Wyeth distributed 100 times more Prevnar in the developing world through UNICEF and the Pan American Health Organization (WHO's
regional office) than in the US, for about half the revenue. And those figures aren't necessarily a bad thing. "Vaccines are
a core growth driver of the industry, if you can deal with the economies of scale," says Cameron Durrant, worldwide vice president,
virology global strategic marketing for Johnson & Johnson.
Efficiency of manufacturing will dictate much of the flexibility in pricing, and the AMC gives companies more confidence to
invest in appropriate scale-up. "Over the last five to seven years, we've invested $1 billion to $2 billion dollars to increase
our manufacturing capacity to meet the demand for today and look to the future as we expand," says Jim Connolly. "We also
hope that our cost of goods will come down as our volume increases and our facilities become more efficient."
Companies that want to compete in developing markets must also adopt pricing strategies that capture subtle differences between
markets. "Most companies have a price for the first world, a price to third one, and that's it," says Thomas Nagle, a partner
at the Monitor Group who specializes in pricing. "But companies can open up markets around the world if they can get countries
to pay indexed to per capita [income]."
GSK, the largest supplier of vaccines to UNICEF, says it uses a hybrid volume-driven model that includes tiered pricing matched
to a country's ability to pay and the value of the vaccines. Even before buying UCB's portfolio of drug rights, it had begun
to use tiered pricing in low- and middle-income countries to ensure the greatest availability of its products, while still
recovering R&D costs from those who are able to pay. GSK's vaccine pipeline may be an indication of how confident the company
is about where the market is going.
As in developed markets, companies will have to learn how to deal with generics companies, both as competitors and as partners.
In the past few years, for example, GAVI has obtained an increasing share of its drugs from suppliers coming from Brazil,
Cuba, China, and India, says Nina Schwalbe. Today, half of its vaccines come from multinational companies and half from companies
in developing countries.
"Essentially, what we're talking about is creating a healthy marketplace," says PATH's John Wecker, who helped establish
industry-sponsored HIV access programs in Africa earlier in his career. "Making sure that there are multiple manufacturers
participating in the market is, from my perspective, one of the best ways to really address the long term issue of pricing."
Other companies are watching. Merck, for example, offers no-profit pricing on RotaTeq and Gardasil in the developing world,
but is exploring other options. "If you're able to compete at very low prices, you can have some profit over time and incentives
to continue to build capacity," McGlynn says. "It's a potential transition, we have to see how this evolves."