The emerging-markets fix
As European governments restrict spending on healthcare, pharmaceutical manufacturers are increasingly turning to emerging
markets to provide the impetus for top-line growth in the coming years. From the standpoint of large multinational pharmaceutical
companies, margins and operating profits from emerging markets are typically much lower than those in developed nations. Seventy
percent of global spending on generic drugs is expected to come from developing markets by 2015. Off-patent branded generic
drugs are popular in developing nations because brand names are associated with quality, which is appealing in markets where
domestically manufactured drugs often lack the same level of quality control.
Developing nations, generally speaking, have been enjoying rapid growth rates in gross domestic product and rising levels
of disposable income. An increasing number of people in such countries are able to buy goods and services they previously
could not afford. Healthcare expenditure, including spending on pharmaceuticals, typically increases with rising standards
of living. Furthermore, these populations are now becoming subject to ailments and conditions—such as cardiovascular disease,
cancer, and diabetes—that previously have primarily affected those in developed nations.
Emerging markets also yield additional benefits in terms of raw materials and production. Often, developing nations provide
opportunities for attractive low labor-cost manufacturing bases. This allows multinational drug makers to establish new manufacturing
plants where pharmaceuticals may be sold to other emerging markets, as well as to developed countries.
Despite positive growth prospects for emerging markets, multinational pharmaceutical manufacturers still face some obstacles.
Although significant progress has been made in recent years, protecting intellectual property (IP) rights and enforcing patents
remain distinct challenges. Increased pricing and market-access issues will also negatively affect growth in emerging markets.
Figure 1a: Anticipated outsourcing trends by geographic sector in 2012.
Primary research data from Nice Insights' recent Pharmaceutical and Biotechnology Outsourcing survey reveals the desired market
when outsourcing 23 services (see Figures 1a–1c). With domestic profitability concerns, established European pharmaceutical
companies may look to emerging markets for outsourcing partners or as locations for expansion. Any treatment of emerging
markets would be incomplete without a discussion of the EM–7 regions, China, India, Brazil, Russia, South Korea, Mexico, and
Turkey. Currently, the most prominent emerging markets include Brazil, China, India, Russia, Turkey, Mexico, and South Korea.
These markets are uniform in that per-capita drug consumption is low, and each country's healthcare infrastructure is still
evolving, relative to more mature markets. However, each country has its own unique economic, political, and cultural issues
that help define its pharmaceutical market. Thus, to succeed in the EM–7, multinational pharmaceutical companies have to adapt
differently depending on the distinctive needs of each country.
Figure 1b: Anticipated outsourcing trends by geographic sector in 2012, continued.
Rising per-capita GDP correlates strongly with rising per-capita healthcare. The EM–7 regions are attractive in this regard,
as their GDP in aggregate is forecast to nearly triple by 2020. Nice Insight's research provides perspectives on issues associated
with partnerships in these markets, and projects the portion of their anticipated spending, as outlined below.
Figure 1c: Anticipated outsourcing trends by geographic sector in 2012, continued.