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Emerging countries are expected to drive pharma's earnings next year.
Emerging markets--places like China, India, and the Russian Federation--will spur almost a third of pharma's growth next year, a reality to which industry must adjust.
These countries, and others with a gross national income of less than $20,000, are expected to contribute about 30 percent of pharma's growth in 2007, and represent 17 percent of the total market, according to IMS Health, which yesterday introduced its 2007 global forecast.
In contrast, emerging markets contributed five percent of pharma's growth just five years ago.
"Every company needs to have a strategy for the emerging markets, and have a business model to take advantage of that growth," said Murray Aitken, IMS' senior vice president of corporate strategy. "The issue for Big Pharma is: How do you play that?"
Aitken noted that there has been "further slowdown" of the market overall, with total growth expected to be five to six percent, rather than the six to seven percent seen in 2006.
Growth in the United States is lagging, contributing just 36 percent of total market growth compared with 54 percent five years ago.
Emerging markets currently are largely generics markets. But they spell opportunity for branded companies: For instance, they may be ripe for launching biogenerics, which are stymied by regulatory barriers in the United States.
While some companies like Sanofi-Aventis, Pfizer, and GlaxoSmithKline are well positioned to tap into these markets--with staff and offices already in place--others, like Wyeth, are not. Many industry executives have been cautious about investing in these countries because of concerns about political and economic security and intellectual property protection.
Moreover, developed countries, many of which offer financial incentives like tax breaks, are luring pharma's investments.
To date, about 60 percent of drug industry executives have spent less than $50 million in China and India, according to a survey of 218 senior industry executives that appeared in Ernst & Young's 2006 Progressions report.
"The biggest promise of emerging markets is still in the future," said Carolyn Buck Luce, global pharmaceutical sector leader at Ernst & Young Pharma. "The actual current purchasing of pharmaceuticals is still very modest because the middle class is small but growing."
Nevertheless, Luce attested to the growing number of partnerships with biotech companies headquartered in these emerging markets. She noted, however, that pharma is at "the beginning of that journey" as well.
Ernst & Young's report found that 43 percent of pharma respondents are concerned about reputation risks in China, and 41 percent are concerned about reputation risks in India.
The report emphasized the importance of having a local presence to respond to regulatory and compliance challenges in each region, while still maintaining a centralized command structure. Pharma companies already testing the emerging-market waters appear to be following that advice: About 67 percent maintain local compliance staff in at least half of their international offices.
"More and more," said Luce, "stakeholders are looking at ... safety, integrity, transparency, and compliance with a variety of rules and regulations."