Crunch TIme for Emerging Markets - Pharmaceutical Executive


Crunch TIme for Emerging Markets

Pharmaceutical Executive

As the pace of price regulation continues, the danger is a global convergence—in the form of a pricing race to the bottom. China's National Development and Reform Commission (NDRC) is conducting an investigation of production costs and drug pricing at 60 domestic and foreign-based manufacturers to determine whether China, with its relatively low GDP per capita, might be ­paying too much for its medicines compared to other countries. The inquiry includes a comparison of local prices against those in nine other countries. Adoption of a system of international reference pricing seems a logical consequence once the commission's findings are made public, along with plans to overhaul the drug registration process, later this year.

Overall, finding the "right" price for a product and then securing access to patients is destined to become a bigger headache for Big Pharma in emerging markets. The task is made more complicated by another, little-noticed trend: the majority of the world's poor now reside in a few of the biggest emerging countries—China, India, and Nigeria—that are also becoming richer. Politically sensitive "tiered" pricing schemes vulnerable to price leakage among consumers with vastly different buying power within countries appear to be the only way out of this conundrum.

This makes it more important to maintain a balance in the P&R process overall, by limiting global exposure to price points that reflect the lower level of purchasing power in emerging markets; if you tilt too far toward the latter, it could have a disastrous impact on prices in the rich countries where Big Pharma still derives most of its profits. Industry market access managers must operate in a world where no country wants to pay more: everyone wants to be ­"average." The risk is that a mishandled pricing strategy in individual emerging markets can drive that average way down. From a strictly organizational view, P&R is one function that has to be managed globally, even if your local management might prefer it otherwise.

Testing the boundaries on patent rights. Just a few years ago, emerging markets were lionized for introducing basic patent protection for biopharmaceuticals, accomplished largely through their ratification of the 1994 WTO Agreement on Trade-Related Intellectual Property Rights (TRIPS). Today, much of that optimism has faded. Industry encountered an early setback in November 2001, when WTO members unanimously adopted a ministerial declaration, on TRIPS and public health, allowing developing country governments to defer certain IP protections (including restrictions on compulsory licensing) in the event of a vaguely defined "public health emergency."

Use of this public health exemption has exploded in the last 18 months, mainly in the form of compulsory licenses that neutralize enforcement of a drug patent and/or compel the transfer of production rights from the originator to a generic competitor. While India remains the chief culprit—local patents have been revoked on products owned by Roche, Merck, Novartis, Pfizer, Bayer, Allergan, and GSK—the practice is now occurring in other countries, including Indonesia, Thailand, and the Philippines. China, which has a compulsory licensing provision in its new IP law but as recently as March said it had no plans to use it, imposed a license in July against the Gilead ARV drug, Viread. The decision has been interpreted as a means to promote local generic alternatives and drive down prices for a treatment that is critical to containing the growing incidence of HIV and Hepatitis B in China.

Due to the uncertainty it creates, this backsliding on IP has a cascading negative impact on the basic "back office" infrastructure required for any country that wants to compete globally on innovation. Foreign patent holders will hesitate to make important seed investments in local clinical trials, also limiting growth prospects for key innovator support functions like CROs. It complicates due diligence in negotiating research partnerships with the local private sector and academic institutions that rely on such links to facilitate basic science and entrepreneurship. Finally, concerns that exclusivity will be violated tends to knock the country down the list in any Big Pharma "go to market" launch strategy, which means that patients wait much longer to get access to the latest treatments.

Pfizer agrees. "The only way to shift the balance in our favor is by showing that patent protection will increase the range of options—from medicines to service platforms and new delivery technologies—required to treat and cure neglected diseases. It's not the entire solution; its just part of the fabric of confidence that clothes the response," Roy F. Waldron, Pfizer's senior vice president and chief IP counsel told Pharm Exec.

China is a good example. A sketchy record of enforcement against patent violators means that, despite an investment in local R&D that now surpasses $1 billion, most foreign drug companies have erected internal "firewalls" that prevent the more promising breakthrough compounds from being tested in the country. The result is that China may be punching below its weight on drug innovation. Most experts believe it unlikely the government will achieve its goal of introducing a new "made in China" biologic to the world market before 2020.

Urge to mature

Taken together, these trends suggest that the emerging countries are actually entering a "maturing" phase—some are even beginning to exhibit structural characteristics of the industrialized country markets. Despite a slowdown in economic growth, the ascent of the middle-class consumer interested in obtaining more Western medicines will continue; many of these consumers are also aging, meaning that disease patterns between the West and the pharmerging countries are converging. This in turn will force governments in these countries to seek the same kind of policy solutions to healthcare financing and supply found in the United States and Europe—solutions that by definition will require more overt involvement from drug makers in expanding access to care, and not just for pharmaceuticals.

A key question for Big Pharma in emerging markets is how far it is willing to go in stretching for sales beyond the top tier, to the vaster set of opportunities found in the "middle of the pyramid." Success here requires abandonment of an operating principle that industry used to regard as sacrosanct: that is, we do nothing beyond developing and selling the pill. Instead, expanding sales is going to depend on offering something extra to the customer, the most important element of which is making that product affordable—and hence accessible—to a population base that is still more aspirational than affluent.

Key to access: alternative funding

Despite having an advanced biologics portfolio that carries a stiff price premium in Western markets, Roche has made significant sales inroads in poorer countries like China, Brazil, and India by following this approach to business development. Struck by the fact that many cancer patients in China had to pay directly out of pocket for medicines they could not really afford, especially for a full course of treatment, Roche recently negotiated a new service model with the global reinsurer giant Swiss Re. With health data, testing and screening tools supplied by Roche, Swiss Re has set up insurance contracts with five Chinese insurers to provide private, reasonably priced individual drug coverage as a supplement to the government subsidized hospital treatment for certain types of cancer. The goal is to have 12 million enrollees in China by the end of this year, a small but still measurable dent in the access challenge that fosters goodwill from the government and other stakeholders while serving as a precedent for something larger in the future.

Roche has also been successful in offering its personalized diagnostics capabilities to narrow the range of patients eligible for its oncology medicines. This has resulted in government-backed funding for its breast cancer treatments in countries ranging from Brazil to India to the Philippines. "What Roche has proved is that there is a viable business in emerging markets for high-end products—the catch is finding innovative purchasing solutions that align with governments and deliver a market where there was not one before," says Guagenty.

You don't think the business of Big Pharma should play any role in healthcare reform? The message from emerging markets is, well, think again. In the end, what is going to make the most difference here is the same as anywhere else Big Pharma chooses to play: reducing that lengthy time to market. You've got to engage to get paid.

And the best way to do that is by adding others to the dance card. "Launching new products jointly with a reputable domestic partner is here to stay as the big differentiator against the prevailing paradigm of offering only your off-patent, late in life-cycle drugs," concludes Les Funtleyder of Poliwogg Investment Advisers.

William Looney is Pharm Exec's Editor-in-Chief. He can be reached at


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