The foreign bias
Our model did not explicitly focus on the competitive dynamics between Western and non-Western manufacturers, but these, too,
represent an important consideration for comparatively high cost, innovator products. Data from IMS Health indicate that Western
brands generally represent less than 40 percent of volume in emerging markets. While much of this volume comprises low-cost
generics, in countries like India and the Republic of Korea, nascent local biosimilar industries have emerged not only as
viable local producers but increasingly important global competitors.
Research conducted across multiple industries shows that emerging markets present distinct segments of opportunity. A small,
wealthy segment of "global" consumers, generally concentrated in major cities and exhibiting consumption patterns and brand
preferences comparable to consumers in developed countries, sits atop the pyramid. At the opposite end of the spectrum lies
the much larger "bottom of the pyramid," with limited income and purchasing power. Historically, manufacturers of high-cost
therapies have concentrated on the "global" segment, maintaining Western price levels and capturing whatever revenue could
be generated. In the middle, however, lies the emerging middle class.
As noted, without some form of health coverage, the middle class cohort will remain limited in commercial value. Nonetheless,
it bears watching because this is an important "battleground" segment, one in which local companies will compete directly
with Western manufacturers on price, quality, and possibly even indication and product features. Moreover, as in India, local
governments may pursue policies designed to support the continued growth and development of local manufacturers, conceivably
at the expense of Western innovators. At minimum, steadily rising local regulatory hurdles—ironically designed in part to
keep out cheap Chinese imports—will, over time, translate into locally manufactured products that can match Western innovators
on quality and safety.
As a consequence, the potential competitive challenge presented by local manufacturers will continue to grow, especially as
these companies begin to enter other emerging markets, as Dr. Reddy's has recently done with its version of Rituxan (rituximab)
in Peru.
Opportunity: look long term
Can Emerging Markets Emerge Fast Enough?
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Although the developers and marketers of innovative biopharmaceuticals increasingly acknowledge the presence of meaningful
challenges in emerging markets, they nevertheless present real opportunities. Realizing these opportunities will, however,
require a nuanced understanding of the complexities on the ground. While topline growth, buoyed by dynamic macroeconomic expansions
across most emerging countries, will remain robust, the majority of this growth will reflect sales of low cost generics, often
manufactured locally. As implied in our findings, we see that economic growth, by itself, is not a predictor of the market
potential for high-cost innovator products. Rather, the increase in government financing for health care, usually a by-product
of economic growth, that signals increased opportunity. As in the United States or Japan, few potential patients can afford
a product like Herceptin (trastuzumab) or Neulasta (pegfilgrastim) without insurance. The rapid expansion of an "emerging
middle class" will not, in the absence of good reimbursement schemes like those in Taiwan or Venezuela, translate into significant
market expansion.
Governments must also seek to manage a broad range of competing priorities and stakeholder demands, which will further influence
the pace and scale of market expansion. Governments still struggling to eradicate the most extreme poverty and its associated
health consequences will be less likely to devote scarce resources to paying for biologic therapies that offer only incremental
improvements in progression-free survival. Similarly, governments hoping to foster the continued growth and development of
a job-creating local biopharmaceutical industry may not automatically assume that Western products offer the most meaningful
advantages in terms of quality and safety.
Nevertheless, the rapid economic growth across Asia, Latin America, and, increasingly, Africa represents both an unqualified
advance in human development and an important commercial opportunity for manufacturers. That capitalizing on this opportunity
will be complex and challenging simply reinforces this: Anything as valuable as a growing market representing billions of
potential customers will be hotly contested. A realistic, on-the-ground assessment of underlying incentives and the culture
of medical practice are a critical first step toward realizing the potential of biologics as a global asset, with market potential
across all regions.
Thomas Baker is Senior Principal at IMS Consulting. He can be reached at tbaker@imscg.com
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