Tier 2: Brazil, Russia, India—Hot on the Heels

Brazil, Russia, and India are each expected to add $5 billion to $15 billion to the pharmaceutical market through 2013. Prospects aside, balancing the relative benefits and risks of these markets will be paramount to developing a clear position for successful entry or expansion.

Brazil has achieved consistent double-digit pharmaceutical growth over the last few years, growing to 20 percent in 2008. The market benefits from a high percentage (85 percent) of city dwellers, where access to medicine is higher, public health insurance covers around 90 percent of the population, and there is increased uptake of supplementary private health insurance. However, out-of-pocket healthcare costs are high, and income distribution is poor, limiting the number of people who can pay for innovative therapies. The local environment has seen a number of recent changes, including growing competition from generic medicines, increased government investment in state-owned pharmaceutical plants, and greater emphasis on cost-containment initiatives which tend to favor local companies.

In India, a number of recent developments have helped foreign drug investors, not least of which is the establishment of intellectual property rights (IPR), as well as a rising middle class, emerging rural markets, and improvements in medical infrastructure. The worry is the dominance of local generic firms and lack of enforcement of IPR regulations. Competition from copycat generics and low-cost biosimilars are also problems, which is accentuated by the absence of a transparent drug approval process.

Tier 3: The Fast Followers

Following behind the Tier 1 and Tier 2 markets are a group of 13 far-flung nations ranging from Argentina to Vietnam. Generating GDP of under $2 trillion in 2008, with an anticipated cumulative contribution of $1 billion to $5 billion to global drug sales through 2013, these lesser-known pharmaceutical markets offer rich opportunities for growth.

Romania, for example, has been a consistently high-performing market relative to its Central and Eastern European peers and is currently growing at nearly 23 percent. Notwithstanding a reduction in the healthcare budget and challenging new price regulations, a number of major changes will positively impact the pharmaceutical sector over the next few years. These include improvements in public hospital quality, increases in health insurance contributions, healthcare decentralization, expanded reimbursement for pensioners, and healthcare screening for chronic diseases.

Although highly fragmented and with ongoing concerns over drug registration and IPR protection, Vietnam is also attractive. There are expanding opportunities in the over 65-year-old patient category, an enlarging private insurance market, and increased public funding that will boost growth in the hospital sector. Egypt, too, while long overdue for increased healthcare investment and tighter IP regulations, offers rising potential, with a fast-growing population, widespread access to healthcare, significant growth in the dominant retail market, and a relatively quick drug approval process. And

Untapped Potential

By and large, however, most global drug companies remain underexposed and underperforming in the pharmerging markets. In 2009, the top 15 pharmaceutical manufacturers derived just 0.9 percent of their combined sales from China; 2.9 percent from the Tier 2 markets of Brazil, India, and Russia; and 5.6 percent from the Tier 3 markets. In many cases, this reflects a continued focus on the premium section of the market rather than the typically larger-branded generics segment, where margins are lower. This is beginning to change, with some manufacturers now deciding to operate in the generics sector.

Over time, IMS predicts a big swing in industry revenues to the 17 pharmerging markets as they continue to gain share at the expense of the US and the top five European markets. Much of this will be volume growth, and the impact will be most pronounced in the short term. In fact, IMS expects a resurgence of growth in the mature markets by 2015 and beyond, with the US leading the way (see chart). The worst of the patent cliff will be over and new product introductions will help address a growing array of unmet medical needs that insurers will be more willing to pay for.

Assuming the IMS forecasts pan out, there is a premium on companies finding the right strategy. A Pharm Exec discussion with IMS anslysts on July 2 as well as feedback from key pharma players revealed seven basic principles that will help drive success in emerging markets.