Who can pay for biologics?

Our research identifies three factors that explain the majority of the observed variation in per capita biologics sales. First, per capita total expenditure on healthcare highlights the ability to pay for premium-priced innovator molecules. More investment in health correlates with better opportunities for higher-priced innovator products.

Second, we found that as per capita government expenditure rises, so too do sales of premium-priced products. Higher government expenditure generally signals the presence of at least some formal reimbursement mechanism facilitating access to therapies otherwise out of reach for the majority. The third factor—the percentage of the population living on less than $2 per day—is sensitive not only to incomes but a number of other development indicators. Where the poverty rate is low, not only are incomes higher and more equitably distributed, but populations are more urbanized, making the distribution of biologic products more feasible. We also believe that where the poverty rate remains high, governments will continue to prioritize health sector investment in primary care and the elimination of transmissible diseases.

China shares some of the same traits, but income and investment levels are more than double those in India, translating into a somewhat better opportunity. As China's government expands coverage to medicines, the market for biologic products will expand. Even today, the market exceeds $1 billion in sales, driven largely by province- and city-level reimbursement programs, often aided or augmented by thoughtful manufacturer access programs.

In contrast, a number of other countries, including many in Latin America, represent near-term opportunities, characterized by comparatively high median incomes and rapidly expanding formal subsidized coverage. These countries include Mexico, Brazil, Colombia, Russia, and Argentina, among others. And although the global economic slowdown has affected growth rates, especially in Mexico, Venezuela, and Russia, stated government objectives include broader coverage for biologics in high-profile conditions like cancer.

Watch the government gap

Our analysis suggests some reasons that emerging markets growth has proven more challenging than many manufacturers had hoped. The role of governments in healthcare financing, for example, appears a critical determinant of market potential. While higher per capita investment in healthcare remains important, where the government finances the majority of healthcare consumption, sales of innovative biologics are higher. Looking at it another way, as patients' out-of-pocket costs rise as a share of total expenditure, total per capita expenditure falls, reinforcing the importance of reimbursement. We can, as a result, conclude that the expansion of the middle class itself does not lead automatically to increased volume sales of Western innovator products. Indeed, even in the West, sales reflect insurance coverage, the majority of which, even in the United States, is financed by governments.

Our finding that the poverty rate represents an effective brake on market potential is also significant. Since government financing is so important to market potential, where there are critical competing priorities—both within the health sector or more broadly, such as poverty alleviation—the allocation of scarce budgetary resources may not be optimized to support Western product sales. Indeed, in low income countries the majority of deaths in children under five result from some combination of measles, malnutrition, malaria, chronic diarrheal disease, and acute respiratory infections—all of which can be alleviated or eliminated with low cost interventions such as vaccination, bed nets, and basic caregiver training. Many organizations providing advice and financing to emerging market governments—from WHO to the Gates Foundation—rightly continue to focus policymakers' attention on these pressing needs.

Medical practice drives access

Against such a backdrop, biologic opportunities in some therapeutic areas may be limited, even in the face of steadily "Westernizing" epidemiologic patterns. For instance, the prevailing Western model of oncology product development may be less relevant in emerging markets. Whereas in the US and Europe, manufacturers have grown accustomed to commercializing—and commanding significant price premiums for—sophisticated new technologies that offer modest incremental benefit, it is not assured that health sector decision-makers in emerging countries will value these products in comparable fashion. In addition, major differences in how health services are paid for can influence the incentives to include biologic drug therapy in treatment. For example, advanced medicines that help keep patients out of hospitals may not be valued as much when hospital charges comprise a smaller portion of total health care spending. Among advanced oncology therapeutics marketed in Brazil, only Glivec (imatinib) enjoys full coverage under the prospective payment system, a testament to that product's strong clinical value proposition.