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PHARMERGING MARKETS

Pharmerging markets
Picking a pathway to success

PHARMERGING MARKETS

With slow growth for pharmaceutical sales in developed markets, multinational

companies (MNCs) have placed substantial organic and inorganic investments into
emerging markets in recent years. The revenue driver at almost all MNCs remains the
innovative medicines portfolio, despite some companies diversification into generics,
consumer medicines, diagnostics and other related healthcare markets. However,
generics account for half the sales and more than half of the growth in emerging
markets. The wide range of potential for generics and originals, and the differences in
healthcare and business environments across the countries, make it a challenge to
prioritize those investments and build the product portfolios to succeed. In this paper
we characterize more precisely the areas of greatest opportunity for multinational
companies in these markets and describe strategies for profitable growth.

1. Where is the future growth for pharmaceuticals?

In 2010, IMS Health redefined the Pharmerging markets by identifying the 17 key geographies based on
macroeconomic metrics and pharmaceutical market forecasts. In the latest IMS Health evaluation, we
increased the count to 21 countries with the addition of Algeria, Colombia, Saudi Arabia and Nigeria.
These 21 Pharmerging countries will together add $187bn in annual sales between 2012 and 2017. This is
two thirds of global pharma growth and will increase the pharmerging markets global share from 23% in
2012 to 33% in 2017, with all 4 BRIC (Brazil, Russia, India, China) countries in the top 10 by sales value.

FIGURE 1: GLOBAL PHARMA SALES

$LC Bn

1,200

600

13%
7%
2%

400

2%

1,000
800

200
0

2008

2012

2017 (F)

CAGR (F) %
2012-2017

Pharmerging markets

Other emerging markets

Other developed markets

Top 8 Mature markets

Source: IMS Health Global Market Prognosis, May 2013, at ex-manufacturer price
levels, constant local currency (LC) $. Contains Audited + Unaudited data

Between 2012 and 2017, Pharmerging markets have

growth rates far higher than in mature markets: forecast
13% CAGR 2012-2017 vs. 2% for the top 8 mature markets.

IMS HEALTH. PHARMERGING MARKETS - PICKING A PATHWAY TO SUCCESS

Pharmerging definition:
The study first divided the global economy
into developed and emerging sectors, using a
per capita GDP threshold of US$25,000.
Countries classified as emerging were then
sub-divided using market data forecasts from
IMS Market Prognosis, which are based on a
rigorous evaluation of the key events
impacting the pharmaceutical and healthcare
industries worldwide. The latest and refined
definition ranked Pharmerging markets on
the basis of their minimum anticipated added
value to the total pharmaceutical market
between 2012 and 2016. Latest evaluation
was done in December 2012.

PHARMERGING MARKETS

Pharmerging markets will move from representing a fourth of the global pharma market in 2012
to a third by 2017, with growth mainly driven by government healthcare investment, private and
out-of-pocket spend, and the increasing burden of chronic disease.

Tier 1:
China. Alone it will account for nearly half of
Pharmerging market growth and is expected to
become number two in the world pharma
rankings in 2015 (including formulated
traditional Chinese medicines). It is one of the
worlds fastest growing pharma markets with a
CAGR of 16.7% forecast between 2012 and
2017. Despite the recent EDL (Essential Drug
List) revision and associated policies, growth will
be driven by the additional investment in
healthcare from the Chinese government and
the rising affluence of patients paying out-ofpocket for premium products. The government
is implementing a four-year plan (2012 to 2015)
for the prevention and control of chronic
diseases which already account for the bulk of
healthcare spending in the country.

FIGURE 2: PHARMERGING MARKET SALES

400

17%

300

200

12%

100

9%
11%

2008

2012

2017 (F)

CAGR (F) %
2012-2017

Tier 1 (China)

Tier 2 (BR, RU, IN)

Tier 3 Higher drug sales

per capita

Tier 3 Lower drug sales

per capita

Source: IMS Health Global Market Prognosis, May 2013, at ex-manufacturer

price levels, constant local currency (LC) $. Contains Audited + Unaudited data.

Tier 2:
Brazil. Despite a slowdown in economic growth, price pressures and government cost containment
measures, private healthcare, consumer medicines and the enhancement of current public
healthcare provision will continue to drive forecast growth of a CAGR of 12.7% between 2012
and 2017.
india. India is forecast to grow at a CAGR of 12.5% between 2012 and 2017. By 2016, health insurance
is planned to reach half of the Indian population (630 million people), mainly by broadening basic
healthcare provision to families living below the poverty line. Urban middle class private healthcare
plans will also expand further. Both are helping to drive growth.
russia. IMS forecasts 10.1% CAGR between 2012 and 2017. This is mainly due to a significant
investment in healthcare by the government, which announced plans to increase healthcare
spending from 5.6% of GDP in 2012 to 7.5% by 2020, including a national health insurance scheme
covering drugs in the retail setting. Growth is, however, slowing due to price controls and a
slowdown in the overall economy, which is heavily dependent on oil and gas export prices.

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PHARMERGING MARKETS

Tier 3:
These 17 markets represent a wide array of income levels, growth rates and healthcare sophistication.
In this study, we classify Tier 3 countries into two groups based on average pharmaceutical spend per
capita to highlight differences between them.

Countries with 2012 pharma sales above $85 per capita: Poland, Argentina, Turkey, Mexico,
Venezuela, Romania, Saudi Arabia and Colombia. IMS forecasts these eight countries will grow at
9% CAGR in 2012-2017 reaching a combined market size of $82bn in 2017.
Countries with 2012 pharma sales below $85 per capita: Vietnam, South Africa, Algeria,
Thailand, Indonesia, Egypt, Pakistan, Nigeria and Ukraine. IMS forecasts these nine countries will
grow at 11% CAGR reaching a combined market size of $45bn in 2017.

FIGURE 3: 2012 PHARMA SALES PER CAPITA IN TIER 3 COUNTRIES

harma
2012 P
Pharma
har
ma sales >$85 per capita

PL

AR

TR

MX

VZ

P
Population
opulation (2012)
GDP (PPP 2011)
GDP per pop (PPP 2011)
P
Pharma
harma C
CAGR
AGR 2012-2017
Pharma
2017 P
harma Sales
Sales
Pharma
P
harma sales per capita rrange
ange

RO

2012 P
Pharma
harma
harma sales <$85 per capita

SA

CO

397Mn
397M n
$6.4Tn
$6.4Tn
$14.9k
9%
$82Bn
$96-$222

Over
urban
population
O
ver half ur
ban popula
tion
Higher
government
healthcare
H
igher go
vernment healthcar
e spend
SStricter
tric ter cost
cost containment
containment measures
measures
Typically
better
intellectual
property
protection
Ty
ypically bett
er in
tellec tual pr
oper ty (IP) pr
otec tion

VN

ZA

AL

TH

ID

EG

PK

NG

P
opulation (2012)
Population
GDP (PPP 2011)
GDP per pop (PPP 2011)
P
harma C
AGR 2012-2017
Pharma
CAGR
2017 Pharma
Pharma Sales
Sales
Pharma
Pharma sales per capita rrange
ange

UA

982M n
982Mn
$4.3Tn
$4.3Tn
$5.9k
11%
$45Bn
$7-$81

Over
O ver half rural
rural population
population (except
(except AL & ZA)
ZA)
Higher
H igher poverty
pover ty rrate
ate
Higher
Higher out of pocket healthcare
healthcare spend
More
More limited
limited access
access to
to healthcare
healthcare

IMS Health Global Market

Market Prognosis,
Prognosis, May
May 2013, at
at ex-manufacturer
ex-manufacturer price
price levels,
levels, constant
constant local currency
currency (LC)
(LC) $. Contains
Contains Audited
Audited + Unaudited
Unaudited data,
data, CIA Factbook,
Factbook, IMF

IMS HEALTH. PHARMERGING MARKETS - PICKING A PATHWAY TO SUCCESS

PHARMERGING MARKETS

FIGURE 4: PHARMERGING MARKETS

Tier 1 & 2 countries

Tier 3 countries

New Tier 3 countries

FIGURE 5: GROWTH DRIVERS FOR NEW TIER 3 COUNTRIES

Pharma sales (LC$)
Algeria

2012: $3.0Bn
2017 (F): $4.3Bn

Growth drivers
Continued government investment in a sophisticated
healthcare system (79% of spend is public)
Private medical insurance

Saudi Arabia

2012: $4.6Bn
2017 (F): $7.0Bn

Increased lifestyle diseases

New 5 year healthcare plan
Well-funded national tenders

Colombia

2012: $4.3Bn
2017 (F): $5.3Bn

Nigeria

2012: $1.4Bn
2017 (F): $2.6Bn

Social health insurance coverage increase

Demand for quality healthcare from a growing
wealthy middle class
Economic growth driven by oil exports

IMS Health Global Market Prognosis, May 2013, at ex-manufacturer price levels, LC$. Contains Audited + Unaudited data

IMS HEALTH. PHARMERGING MARKETS - PICKING A PATHWAY TO SUCCESS

PHARMERGING MARKETS

Frontier countries
Further business opportunities can be seen in the Frontier markets. Frontier markets have the potential
to become important markets as companies look for further growth opportunities. Combined, IMS
forecasts these markets will add an additional $9.1bn in annual sales by 2017. With half of the Frontier
markets in Africa and the Middle East, the potential of this region is becoming more evident.

FIGURE 6: FRONTIER COUNTRIES

FORECAST SALES $0.25 - $1.0BN INCREMENTAL IN THE NEXT 5 YEARS
expected sales increase
2012-2017
Asia Pacific
$2.2Bn incremental

Latin America
$2.5Bn incremental
east europe
$0.8Bn incremental
Middle east
$1.7Bn incremental

Africa
$1.9Bn incremental

Country

Pharma Sales 2012

CAGr 2012-2017

Philippines

$3.0Bn

3.8%

Malaysia

$1.6Bn

8.3%

Bangladesh

$1.3Bn

10.4%

Chile

$2.3Bn

8.2%

Peru

$1.5Bn

7.8%

Ecuador

$1.3Bn

8.6%

Kazakhstan

$1.3Bn

10.3%

Iran

$2.6Bn

5.0%

U.A.E

$1.3Bn

8.9%

Lebanon

$0.8Bn

6.6%

Morocco

$1.2Bn

4.5%

Tunisia

$0.8Bn

10.0%

Ghana

$0.8Bn

12.4%

Kenya

$0.5Bn

16.9%

Ethiopia

$0.4Bn

10.0%

Source: IMS Health Global Market Prognosis, May 2013, at ex-manufacturer price levels, LC$. Contains Audited + Unaudited data

Africas potential will reward commitment, engagement and a business model that strengthens
the path to market and patient.
Hurdles notwithstanding, there is a very real opportunity for the pharmaceutical industry in Africa. This
will require long-term commitment and willingness to navigate the complexities and make difficult
decisions to optimize margins, volumes and the investment required to build the path to market and
patient. Engagement with this market now and in the long term will provide a robust platform for
companies to shape the pharmaceutical industry dynamics alongside the broader healthcare
environment in Africa.
Source: IMS White paper Africa: a ripe opportunity, IMS Health, December 2012

IMS HEALTH. PHARMERGING MARKETS - PICKING A PATHWAY TO SUCCESS

PHARMERGING MARKETS

2. How are multinational companies performing in the

originals and generics market segments?
Sales growth in Pharmerging markets is attractive: the top 50 pharmacos grew at 9% across these countries
in 2012 but shrank -2% in the top eight mature markets. While all promote their original brands, efforts
behind other types of products vary. For example, Pfizer and Sanofi have invested in generics, Novo
Nordisk and Roche stick predominantly to their innovative specialty portfolios, and Boehringer Ingelheim,
Bayer, GSK and Teva (through its partnership with Procter & Gamble) have high consumer health sales.
The product mix in Pharmerging markets is very different to that in mature markets, as shown in Figure 7.

FIGURE 7: PRODUCT MIX IN PHARMERGING MARKETS

Pharmerging Sales, LC$Bn

Top 8 mature markets sales, LC$Bn

529

93

2008

110

2009

127

2010

143

2011

557

580

598

593

2010

2011

2012

162

2012

2008

2009

CAGR 2010-2012
Pharmerging

Mature

Original brands

8.6%

-0.7%

Other

17.2%

2.7%

Generic

15.0%

9.2%

Segment

Source: IMS MIDAS, MAT 2012, LC$, Market Segmentation + LIC countries. LIC Countries are Argentina, China, Colombia, Egypt, Indonesia, Pakistan, Saudi Arabia, Thailand
and Venezuela. Excludes Vietnam, Romania and Algeria. No data for Ukraine & Nigeria. Top 8 includes EU5, Japan, USCan. Non retail panel included for Brazil and Mexico

CONSUMER MEDICINES
The consumer medicines market represents approximately 30% of Pharmerging Markets sales
(depending on definition). It does not face the same pricing threats as the Rx segment and benefits
from high rates of self-medication and the power of brand equity. It is a highly competitive market
with dynamics that vary by country and by product category and is growing faster than original
prescription products. We will examine this market in an upcoming white paper on this topic to be
published in 2013.

IMS HEALTH. PHARMERGING MARKETS - PICKING A PATHWAY TO SUCCESS

PHARMERGING MARKETS

A. Multinationals in the generics segment

Generics delivered sales of $74bn at list price in 2012 in Pharmerging markets, accounting for more than
half of sales growth. The explosive growth seen in recent years has slowed down. But at 15% in 2010 to
2012 generics still outpace originals and remain attractive for many companies.

MACROECONOMIC FACTORS
There are several reasons why generics will remain strong in these countries:

Affordability is a substantial challenge for both governments and patients and the cheapest options
are typically generics
Weaker IP protection in some countries expands the playing field for generics companies
Government policies and behaviors often favor local manufacturers, which are generally
manufacturers of generic products rather than originals

2010-2012 CAGR Multinational companies

FIGURE 8: PHARMERGING MARKETS GENERIC SEGMENT

GROWTH DYNAMICS
Importance to customers, tight control of
costs, and rapid responses to changes in prices
or competitive environment are all important
levers for success when selling generics. Local
and regional players outpace international
players in this sector across pharmerging
markets (Figure 8). They often have large
portfolios, integrated distributors, strong
stakeholder relationships, and quick decisionmaking processes to help out-compete foreign
manufacturers.

30
25
20
Brazil

India
15
China
Tier 3 - low spend

10

Russia

Tier 3 - high spend

0
0

10

15

20

25

2010-2012 CAGR Local and regional companies

Bubble size = 2012 total generic market sales

Source: IMS Health, MIDAS, Full Year 2012, Corporation categorization.
Excludes Vietnam, Romania, Algeria, Ukraine & Nigeria,
Non retail panel included for Brazil and Mexico

30

Local business practices can also act as a

barrier for foreign companies. Several
Pharmerging countries, including Algeria,
Indonesia, Russia, Saudi Arabia and Turkey,
have policies that provide price or access
advantages to companies that manufacture
locally. This creates a significant hurdle to
foreign companies looking to import generics
manufactured cheaply elsewhere.

IMS HEALTH. PHARMERGING MARKETS - PICKING A PATHWAY TO SUCCESS

PHARMERGING MARKETS

Despite the challenges, several MNCs remain attracted by the size and growth rates of generic market
companies in Pharmerging countries. In almost all of these countries, physicians still write branded
prescriptions that drive growth for unprotected originals and branded generics. MNCs that sell branded
generics are often looking for synergies, market power and efficiencies of scale by promoting
unprotected original brands alongside branded generics. The brand acts as a guarantee of quality to
doctors and patients concerned about poorly manufactured or counterfeit drugs that may be ineffective
or unsafe. Multinationals reputation for quality products counts in their favor.
Local and regional players in the generic sector are growing faster than MNCs in all Pharmerging
markets. Their large portfolios, integrated distributors, fast decision-making, and strong
stakeholder relationships help them out-compete foreign manufacturers.
There is significant merger and acquisition (M&A) activity, especially in China and India (Figure 9), as some
companies consolidate to gain scale and others use acquired companies as a market entry strategy to
expand across countries. Large multinationals represent a small share of overall M&A activity, with over
90% of deals in Brazil, India and China conducted by smaller foreign companies and local players. Local
manufacturers in these countries, especially China, remain fragmented and consolidation will continue.

FIGURE 9: DEALS IN KEY ASIAN AND LATIN AMERICAN MARKETS (JAN 2008 - FEB 2013)
No.
No. Deals
Deals in key A
Asian
sian & La
Latin
tin American
American markets
markets (Jan
( Jan 2008-F
2008-Feb
eb 2013)
La
Latin
tin A
America
merica
Br
azil
Brazil

48

M
exico
Mexico

21

54
75

A
Argentina
rgentina

V
enezuela
Venezuela

3 21 24

102
96

28 35

A
sia
Asia
China

360

IIndia
ndia

184

166
42 226

IIndonesia
ndonesia

16

34 50

V
ietnam
Vietnam

11

33 44

Deals
D
eals in
involving
volving local ccompanies
ompanies

D
Deals
eals in
involving
volving ffor
foreign
oreign ccompanies
ompanies only

SSource:
ource: Analysis
Analysis based on deals contained
contained in IMS P
PharmaDeals
harmaDeals da
database;
tabase; all deal ttypes
ypes included

IMS HEALTH. PHARMERGING MARKETS - PICKING A PATHWAY TO SUCCESS

526

PHARMERGING MARKETS

To build generic business in Pharmerging markets, it takes many years to accumulate a large product
portfolio organically, to have an effective infrastructure to manage complex supply chains, and to
develop the necessary stakeholder relationships. As a result, companies (including local players with
regional ambitions) typically acquire or partner with local players and invest to expand, rather than
starting from scratch. For example, Teva is scaling up in Pharmerging by acquiring companies in China
and other Pharmerging and Frontier countries. In a recent interview, Tevas Chief Financial Officer Eyal
Desheh said: Well have to go one by one, a lot of footwork, country by country. None of these will be
huge acquisitions and this push may take a few years. (Bloomberg)
Nevertheless, integrating an acquired company with an existing affiliate can be a challenge, with high
transaction costs, loss of key talent and other problems. Rather than integrating operations, one strategy
has been to transfer unprotected original drugs and other assets to the acquired company, with the
expectation of better sales results. Joint ventures, out-licensing and other types of commercialization
deals are more common as MNCs look to access cost-efficient and effective sales and marketing power
without the risk of a major investment.

Acquisitions of local players typically fulfill operational challenges in the generic segment and
strategic objectives such as regional expansion or access to a product portfolio to sell globally.
Joint ventures and other partnerships are more common, delivering less control and retained
margin but also reduced risk.

FUTURE TRENDS
Looking ahead, several trends will change the face of generics in Pharmerging markets:

Decline of branded
generics

1.

Improved
manufacturing
standards

Fewer players and

business models

Branded generics business growth will slow down due to payer pressure to reduce costs via the
commoditization of the generics market, with two important caveats:
In many countries it will be years if not decades before the balance shifts from the branded model to
a commodity model
Brands will remain strong in the out-of-pocket and OTC market segments

IMS HEALTH. PHARMERGING MARKETS - PICKING A PATHWAY TO SUCCESS

PHARMERGING MARKETS

2.

improved manufacturing standards will reduce the power of the brand as a surrogate for
product quality:

3.

With more consistent quality standards, branded generics will lose part of their value
proposition, and the price differentials between branded and unbranded generics will narrow.
Some unprotected original products will take large price cuts to compete, while others will see
fast erosion of share
Many local players will find GMP compliance difficult and may be bought or exit the market

A few dominant players and business models will emerge as generics markets commoditize,
though many companies will pursue more than one:

4.

10

Some manufacturers have or will reach sufficient size to be one of a small number of players in
each country with the economies of scale and market power to drive larger profits in a price
competitive arena
Companies can focus on more differentiated prescription products (e.g. reformulations, devices)
and consumer medicines where brand power will remain strong. Non-original biologics will be
an important niche within this business model
Some companies will drive costs down low enough to win simply on price alone, though the
margins will be low and the cost structures difficult to replicate for more diversified or
sophisticated multinationals

Partnerships and acquisitions will remain an important mode of entry for MNCs that do not already
have a substantial local presence in generics:

Local players can act as the commercial arm of multinational companies, using their distribution,
sales and marketing capabilities to deliver strong top-line results

IMS HEALTH. PHARMERGING MARKETS - PICKING A PATHWAY TO SUCCESS

PHARMERGING MARKETS

11

B. Multinationals in the original brands segment

Despite the power and dominance of generics in Pharmerging markets, original products still hold a
substantial share of sales and experience growth rates far higher than in developed countries. This is true
for both products that have generic competition and those that are protected. Governments are pushing
down prices in almost all Pharmerging markets, so growth is driven mostly by volume. Many of the sales
and marketing activities to promote innovative products in Pharmerging markets are similar to those in
mature markets. Two important differences are the continuing strength of original brands even after
generic competition and the additional challenges to achieve desired prices and access funding,
especially for niche products.

MACROECONOMIC FACTORS
Demand for quality medicines has always existed in these traditionally under-served markets. Two
significant trends enable innovative companies to serve a growing number of patients:
Economic growth increases the size of the affluent population that can afford out-of-pocket (OOP)
payments or private insurance, and increasing tax revenues increase governments ability to
reimburse drugs
Governments are responding to citizens demands for healthcare by improving infrastructure, which
in turn improves diagnosis rates and the supply of qualified personnel to administer the more
complex treatment protocols associated with some innovative drugs

China is often held up as the dominant Pharmerging market, but ranking countries on original brand
sales instead of total sales reveals a different picture. While some of the large but less-developed
countries, such as India and Indonesia, drop down the ranking, Brazil, Mexico, Russia and Turkey together
have more than double the original products sales in China. Business practices in these countries are
closer to the developed country norms that MNCs know best.

FIGURE 10: MARKET VALUE COMPARISON

2012 Total Pharma Market Value
LC$Bn 0

10

15

20

25

30

35

2012 Original Brand Market Value

40

45

50

10

15

20

China
Brazil
Russia
India
Mexico
Turkey
Venezuela
Poland
Argentina
Indonesia
S. Africa
Thailand
Egypt
Saudi Arabia
Colombia
Pakistan

Large Pharma

Other Players

Sales ranked by pharma market value (MIDAS)

Source: IMS Health, MIDAS, Full Year 2012, LC$ Note: MIDAS reports different figures from Market Prognosis. Excludes Vietnam, Romania and Algeria as no market
segmentation available for these countries. No data for Ukraine & Nigeria. Non retail panel included for Brazil and Mexico

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PHARMERGING MARKETS

12

Top 20 brands
The top 20 brands in Pharmerging markets present an interesting mix of products:

Most are for chronic conditions, such as hypertension and diabetes

A larger number are older products (>20 years) than in mature markets, including Voltaren
and Augmentin, launched over 30 years ago
The top two brands, Plavix and Lipitor, are both still growing despite widespread generic
competition
Despite affordability challenges, several biologics make the list, with Herceptin, Mabthera,
Lantus, Novomix and Lovenox all in the top 12
Despite only being available in China, three formulated traditional Chinese medicine (TCM)
products make the list
The top 20 brands still benefit from average growth of 15% versus 5% in mature markets

FIGURE 11: TOP 20 BRANDS BY 2012 SALES

Top 20 Drugs in Pharmerging markets
Sales in $M FY 2012 0
Plavix
Lipitor
Lantus
Nexium
Voltaren
Seretide
Mabthera
Augmentin
Herceptin
Crestor
Novomix
Lovenox
Cialis
Glivec
Shen Jie
Shu Xue Ning
Diovan
Xue Shuan Tong
Betaloc
Pantozol

Top 20 Drugs in top 8 mature markets

100 200 300 400 500 600

549
528
502
495
489
486
479
434
384
378
375
363
338
316
308
303
298
287
267
263

Sales in $M FY 2012 0
9%
14%
20%
17%
13%
11%
30%
13%
29%
6%
12%
6%
8%
-13%
43%
20%
3%
23%
15%
19%

Seretide
Humira
Crestor
Abilify
Enbrel
Nexium
Remicade
Lantus
Cymbalta
Mabthera
Avastin
Plavix
Spiriva
Singulair
Copaxone
Neulasta
Lyrica
Januvia
Herceptin
Atripla

11-20 years ago

Source: IMS MIDAS, Full Year-2012, LC$. No data for Ukraine & Nigeria

4,000

6,000

8,000

7,462
7,268
6,972
6,613
6,608
6,429
6,380
5,536
5,443
4,827
4,590
4,303
4,279
4,149
4,126
3,934
3,853
3,790
3,757
3,741

1%
20%
3%
12%
10%
-8%
11%
20%
24%
7%
3%
-49%
11%
-26%
11%
3%
14%
25%
7%
10%

Average growth year on year = 5%

Average growth year on year = 15%

0-10 years ago

2,000

21-30 years ago

30+ years ago

Source: IMS MIDAS, Full Year-2012, LC$. Top 5EU, USCAN, Japan

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PHARMERGING MARKETS

13

LAUNCHING NEW PRODUCTS

In a recent study, Launch Excellence IV, IMS Health showed that BRICMT countries account for only 3.5% of
first year sales of recently launched New Chemical Entities (NCE). This number should increase as the
markets mature but it will be many years before widespread reimbursement and healthcare spend levels
can support a substantially larger share of new launch value. Pharmerging markets represent
approximately 10% of the global market for original drugs and new drugs face significant challenges in
terms of affordability, IP protection and delays. For these reasons, Pharmerging countries are not a major
contributor to global launch success.

FIGURE 12: PHARMERGING MARKETS SHARE OF GLOBAL LAUNCH SALES

Pharmerging Markets Sales

58.0%

USA

Six pharmerging markets contributed only 3.5% of

global first year sales
Brazil

1.1%

Turkey

0.6%
0.2%
0.4%
0.5%
0.6%

China
Mexico
Russia
India

12.5%
6.5%
7.8%
4.6%
3.5%

Japan
France
Germany
Spain
Italy
Canada
Australia
UK
South Korea

This is less than the cumulative contribution of any

single European country

1 Year
n=220

Six pharmerging markets contributed only 3.5% of global first year sales
This is less than the cumulative contribution of any single European country

NOTE: NCE launches from 2004 to 2011, Country contribution is calculated based on the accumulative sales of these launches
All launch years normalized for each country. The 16 selected countries are representing 80% of the total global pharmaceutical market
Source: IMS Launch Excellence IV

What does the market for original brands look like without NCE launches and how does it compare to the
top eight mature markets?
Excluding launches since 2008, Pharmerging markets CAGR for original brands in 2008-2012 would
have been 7.0%, instead of 9.8%. The impact of new launches in the top eight mature markets was similar,
with a 3.5% difference. The importance of launch in Pharmerging markets is therefore nearly as big as in
mature markets.

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14

FIGURE 13: CONTRIBUTION OF NEW LAUNCHES TO ORIGINAL BRAND SALES

Pharmerging original brand sales, US$Bn

Top 8 Mature original brand sales, US$Bn

399

28

2008

32

35

38

41

2009

2010

2011

2012

2008

418

430

439

424

2009

2010

2011

2012

CAGR 2008-2012
Sales of original brands by launch year Pharmerging

Top 8 Mature

Products over 10 years old

Only products >10 years old

5.3%

-6.9%

Products 5-10 years old

Only products >5 years old

7.0%

-2.0%

Recent Launches

All products, including recent launches

9.8%

1.5%

Source: IMS Health, MIDAS, Full Year 2012. Excludes Vietnam, Romania and Algeria. No data for Ukraine & Nigeria, launch categorisation recent launches between
2008-2010, drugs launched between 2003-2008 and drugs launched before 2003

GROWTH FOR UNPROTECTED ORIGINAL DRUGS

Original products in Pharmerging markets can enjoy success long after generics enter. In some countries
it has been common for generic versions, legal or otherwise, to be present before the original even
launches. Yet many older brands continue to thrive. In aggregate, original drugs launched more than five
years ago are still growing despite widespread generic competition.
However, unprotected original drugs are coming under increasing pressure from governments and
payers, who want patients and their budgets to benefit from the cost savings from generics. This trend
will continue as healthcare reforms increase reimbursement for retail-dispensed drugs. These can take
several forms. For example:

Steep price cuts, such as those enforced for reimbursed drugs in Turkey
Competitive tenders, such as those run by states under Seguro Popular in Mexico
Incentives that create price competition and lead to low reimbursed prices for listed drugs, such as
those covered by Farmcia Popular do Brasil and likely to be emulated by the national health
insurance plans announced in Russia and Indonesia

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PHARMERGING MARKETS

15

Companies respond by cutting prices to compete with generics, as seen with Cozaar sold under Farmcia
Popular do Brasil. Others keep prices high and compete in the smaller-volume private or out-of-pocket
segments. The impact is greatest on primary care and widely-prescribed specialist care drug classes as
these are priorities for governments expanding healthcare access.

The importance of launching new innovative products in Pharmerging markets is nearly as

great as it is in mature markets as we see unprotected original drugs coming under increasing
payer pressure.

ACCESS HURDLES
IMS Consulting recently conducted a survey of 85 senior pharmaceutical executives in emerging markets
to identify the key challenges they face. Pricing and market access issues dominated with about half of
all mentions.

FIGURE 14: CLIENT ISSUES SURVEY RESULTS

Over the next 12 months

Over the next 35 years

Market issues category

# of mentions

Market issues category

# of mentions

Pricing & Market Access

70

Pricing & Market Access

86

Volatile business environment

28

Competition

29

Regulatory

25

Volatile business environment

15

Competition

18

Regulatory

Shift in demand (chronic therapy and

older population)

The role of price cuts in driving access and volume growth is increasingly being recognized in
Pharmerging markets. GSK created a Developing Countries Unit that, among other strategies, caps prices
at no more than 25% of the UK price and reinvests 20% of any profits back into the healthcare
infrastructure of the countries it covers (GSK website). Price reductions [in China] are in many ways very
important in driving the access and take-up of healthcare coverage, GSK Chief Financial Officer Simon
Dingemans said, adding we see very good volume response to that, which shows the strategy is
working (Bloomberg).

IMS HEALTH. PHARMERGING MARKETS - PICKING A PATHWAY TO SUCCESS

PHARMERGING MARKETS

16

Historically, many companies tried to protect the price points of innovative treatments, leading to prices
in Pharmerging markets that were out of reach for the majority of patients paying out-of-pocket.
For governments to fund these products would have caused excessive stress on their budgets.
Governments in Pharmerging markets have most often responded with severe restrictions on the funds
available for these drugs. They have also purchased drugs through tenders to hide the true purchase price
from public view and allow companies to sell at lower prices that are not referenced formally or informally
by other payers.
Despite the price flexibility shown to date, many governments are concerned about affordability and
have responded with a variety of moves, ranging from complex outcomes-based deals to simple rejection
of funding for specific drugs. Compulsory licensing is one of the most severe and visible responses. After
the original actions targeting HIV drugs in Brazil and South Africa in 2001, the focus has shifted to include
oncology drugs. The greatest threat is in India which has used compulsory licensing and patent
revocations to allow generic versions of nine high-priced drugs to date.
Governments are also looking to encourage local investments in innovative products. Many extend local
manufacturing requirements to include innovative products while realizing that companies will not
duplicate production lines for more complex products. The largest countries are taking actions in other
parts of the value chain, such as Russia and China demanding local clinical trials prior to approval, and
Brazil creating strong incentives to execute technology transfer deals to local companies.

FIGURE 15: TIMELINE OF COMPULSORY LICENSING AND PATIENT REVOCATION IN EMERGING MARKETS
Timeline
Timeline of compulsory
compulsor y lic
licensing
ensing and pa
patent
tent rrevocation
evocation in emer
emerging
ging mar
markets
kets
Compulsory
licensing
provisions
Compulsory lic
ensing pr
ovisions
d
in WTO
3rd
W TO TRIPS authorizes
authorizes a 3r
party
make,, use or sell a
par
ty tto
o make
patented
patent
pa
tented drug without the pa
tent
owners
o
wner s cconsent
onsent

1994

2005

2007-2008

Mar.
M
arr. 2012

Tamiflu
Licensed
Tamiflu Compulsory
Compulsory Lic
ensed
in Taiwan,
Taiwan, Korea
Korea and China

Onc
ology therapies
therapies Compulsory
Compulsory
Oncology
Lic
ensed in Thailand
Thailand
Licensed

Nexavar
Nexavar Compulsory
Compulsory
Licensed
Licensed in India
India

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Apr.
A
prr. 1994

N
Nov.
ov. 2001

W TO TRIPS
WTO
Agreement
Agreement
Signed
Signed

Doha Declaration
Declaration
Doha
Signed
Signed

2002-2010

Sept.
Sept. Nov.
Nov. 2012

Patent
Patent Infringement
Infringement
of Pegasys,
Pegasys, Sutent,
Sutent,
and Tarceva
Tarceva in IIndia
ndia

ARVs
ARVs Compulsory
Compulsory Lic
Licensed
ensed acr
across
oss
Latin
Latin America,
America, A
Africa,
frica, and SE A
Asia
sia

Oc
Oct.
t. 2012

2007

Oncology
Oncology

HIV/AIDS

Other
O
ther TTA
TAs
As

P
Plavix
lavix C
Compulsory
ompulsory
Lic
Licensed
ensed in TThailand
hailand

Compulsory
Compulsory Licensing
Licensing of HIV
and HBV
HBV Drugs in Indonesia
Indonesia

SSource:
ource: IMS C
Consulting
onsulting Group
Group white
white paper
paper,, SSecuring
ecuring IP and Access
Access to
to Medicine:
Medicine: Is Oncology
Oncology the Next
Next HIV

IMS HEALTH. PHARMERGING MARKETS - PICKING A PATHWAY TO SUCCESS

PHARMERGING MARKETS

17

Originators often address the affordability hurdle by lowering the net price using discounts and rebates
that do not affect the list price, which can create price reference challenges in mature markets. Several are
trying more innovative approaches with price-volume agreements, outcomes-based pricing models and
risk sharing agreements. Issues of corporate social responsibility also come into play, with companies
providing extensive patient access programs, gifts of free goods or at-cost sales. Companies aim to
improve patient access and create a positive perception. For example:

Genzyme, a unit of Sanofi, donates Cerezyme to Project HOPE, a humanitarian organization, which
distributes the product to patients through its international infrastructure. It also has other free drug
programs all over the world, particularly in the most needed geographies.
Novartis has been running a worldwide patient assistance program for Glivec. For example, in Egypt,
Glivec was priced so that for each bottle dispensed, patients receive three bottles free. The expected
outcome is that it will strengthen partnerships with different stakeholders.
Roche has found an innovative way to make cancer drugs affordable for millions in China by
partnering with Swiss Re to create oncology-focused private insurance.

Payers and R&D players are trying to find a trade-off between innovation and affordability. IMS
recommends a collaborative approach with government and third party organizations to gain
better access.

FUTURE TRENDS
In future, IMS expects original brand usage to evolve towards a more mature market model (Figure 16). In
this journey, we expect Tier 3 higher-spend markets such as Russia and Brazil to evolve faster than India and
Tier 3 lower-spend markets. The shift will proceed slower in the less developed countries because of their
lower quality healthcare infrastructures and the large populations they have to cover. Chinas growth is
partly a reflection of its increasing maturity as the government invests heavily in the healthcare system.

FIGURE 16: TYPICAL USAGE CHARACTERISTICS FOR ORIGINAL DRUGS

Developing market

Mature market

Restricted by healthcare access

Innovative drugs considered a luxury good
Out of pocket or via special funding
Mainly for the affluent
Preference for the brand (mark of quality)
Costs controlled through price cuts and

Easy access to specialists for serious conditions

Innovative drugs considered a right
Reimbursed
For everyone, regardless of income
Receive generic where available (quality

referencing

guaranteed by authorities)
Costs controlled via sophisticated price
evaluations and access rules

Countries move towards a more mature market model

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PHARMERGING MARKETS

18

Looking further ahead, we expect Pharmerging markets to continue towards a more sophisticated model:

Decline of prescribed
unprotected originals

1.

Greater direct competition with generics as governments use tenders and/or forced pharmacy
substitution to reduce the cost of expanding retail drug reimbursement
Rising generic manufacturing standards diminishing the quality perception that originals
currently enjoy

High price specialty drugs will benefit from greater sophistication of healthcare providers

3.

Higher affordability

The value of prescribed unprotected originals will decline due to:

2.

Greater sophistication
of healthcare providers

Continued government investments in healthcare will improve standards

Investment by drug and medical devices manufacturers in training programs and conference
attendance to help up-skill specialists
Appearance of new tertiary referral centers and private hospitals, often associated with famous
Western hospitals, and expansion of existing ones

The expanding middle and upper classes in each country will increasingly be able to pay for
innovative drugs, either out-of-pocket or via employer-provided coverage. According to the
Economist Intelligence Unit, by 2020 three-fourths of urban Chinese households will be considered
middle class. In India, the middle class population is expected to reach one billion by 2025. They will
continue to be a strong driver of demand.

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19

Top 20 companies
FIGURE 17: CORPORATION REVENUE PERFORMANCE ACROSS PHARMERGING MARKETS
Pharmerging share of global sales (15%)

2010-2012 CAGR in pharmerging markets, %

22

Astellas Pharma

20
18

Teva

16

Takeda

Novo Nordisk

GSK

Daiichi Sankyo

12

Merck KGAA

Abbott

Roche

14

AZ

Pharmerging overall growth (14%)

Sanofi

BI

10

Pfizer

Bayer

Novartis

Servier

Merck & Co
6

J&J
Lilly

BMS

2
0
0

10

15

20

25

30

35

40

45

Bubble Size = 2012 Pharmerging Sales ($US)

Share of pharmerging sales vs. mature markets sales for each corporation, %

Source: IMS Health MIDAS, MAT Dec 2012.No data for Ukraine & Nigeria, non retail panel added for Brazil and Mexico

FIGURE 18: TOTAL OF DEALS BY LARGE PHARMA IN PHARMERGING MARKETS OVER THE
LAST 5 YEARS 2007 - 2012
10
8
5

4
2

Sanofi GSK Merck Bayer J&J Amgen

M&A

AZ Daiichi Roche Novartis Takeda Abbott

Joint Venture

BI

Lilly Pfizer BMS Novo Teva Servier Merck

Nordisk
KG

Manufacturing

Source: IMS PharmaDeals

MNCs have a wide range of contribution from pharmerging markets to their overall sales. The
largest companies with over 20% contribuion are Sanofi and Bayer, which have both invested
heavily over many years. Both companies have driven sales through large consumer health arms,
and SANOFI also has a substantial generics business supported by some large acquisitions of local
players such as Medley in Brazil and Kendrick in Mexico. Servier has a strong position thanks to its
historic presence and long term vision with an adapted portfolio in fast growing therapy areas
such as vascular, osteoporosis and diabetes.

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20

3. How to pick winning strategies to maximize results?

There are different winning strategies depending on the companys corporate culture, existing geographic
presence, portfolio, appetite for risk and willingness to invest for the long term. However, the questions
remain the same for every company. At the highest level, companies need to prioritise countries, set the
portfolio priorities and determine the business structures that will support their ambitions.
Emer
ging mar
kets
Emerging
markets
Geographical
Footprint

M
Mature
ature mar
markets
kets

Pharmer
Pharmerging
ging markets
markets

Frontier ccountries
ountries
Frontier

COUNTRY PRIORITIES
Success in mature markets is still the top priority for innovative products as it remains the lions share of
MNCs revenues. Pharmerging markets represent the greatest growth opportunities for companies, and
MNCs should continue to invest to maximize prospects. The choice of which to pursue is a case of
matching the companys capabilities, existing portfolio and corporate ambitions.
Companies that already have significant presence in Pharmerging markets have begun to increase their
investments in Frontier markets, which will become more important drivers of growth. Frontier markets,
plus the least developed Pharmerging countries such as Vietnam, Pakistan and Nigeria, will continue to
offer the promise of huge populations and high growth rates. However, they also present the operational
challenges of working in undeveloped healthcare systems and often difficult business environments.

FIGURE 19: STRATEGIC DECISIONS FOR MULTINATIONALS IN PHARMERGING MARKETS

Portfolio Priorities

Local Business Structure

Typically decided regionally or globally

Typically decided for each country separately

Product
protection

Product
specialisation

Priority

Investments

Partnerships

Organisation

Protected originals

Consumer

None

None

None

Single Entity

Unprotected
originals

Primary care

Via distributors

Portfolio licensing

Sales

Business Units

Branded generics

Specialty care

Minimal presence

Local manuf.

Manufacturing

INN generics

Niche

Full aliate

Local acquisition /
stake

Other

Separate
operating
entities

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21

PORTFOLIO PRIORITIES
FIGURE 20: PORTFOLIO CONSIDERATIONS

Mature Portfolio

The main source of revenue and growth in Pharmerging Markets

for multinationals
Strong price pressures as reimbursement expands

New Launches

Launches in Pharmerging Markets do not currently contribute

much revenue
However, launches are needed to refresh the protected portfolio
for future success

Original Brands

Branded

Generics

The largest and fastest growing segment

Under threat in many countries

Differentiated

More complex manufacturing and regulatory requirements

Limited scope of products

Commodity

The future dominant generics form in Pharmerging markets,

as it is in mature markets

Consumer Medicines

Approximately 30% of Pharmerging Markets sales

(depending on definition)
Does not face the same pricing threats as Rx segment
Highly competitive market with dynamics that vary by country
and by product category

Companies have to achieve an effective scale of commercial operations to maximize the value of their
products and achieve the cost efficiencies that improve profitability. While the scale depends on the size
of the country, different types of products also have different scale requirements:

Niche specialty products are often sold effectively by smaller organizations

Widely-prescribed originals and branded generics are best served by large sales forces that require
valuable portfolios to justify the cost either local blockbusters or a large number of products
(preferably both)
Commoditized generics (and often branded generics, depending on the country) benefit from large
portfolios and high volumes to drive cost efficiencies, but also to raise their importance to customers
(payers and pharmacy chains)
Marketing for consumer products typically looks for scale on a product-by-product basis to support
the cost of media campaigns in some countries in-person physician or pharmacy promotion also
drives overall franchise economies of scale

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22

BUSINESS STRUCTURE
The question facing a smaller multinational company, or a company entering a new market segment, is
how do we achieve that scale? The hurdle for niche specialty products is not too high, and an increasing
number of biotech companies are establishing their own affiliates in Pharmerging markets instead of
licensing out their brands. For the other market segments, companies look for shortcuts to achieve the
commercial capabilities or portfolios that will deliver the scale they need. This is a major driver of the large
number of partnerships, joint ventures, acquisitions and other deals taking place each year across these
countries. As the affiliates grow and deals are struck, each company must also assess the organization
design, determining the best structure of business units, operating companies and the assignment of
commercial responsibilities across the organization and its partners.

Each company has to set the strategy that builds on current strengths and to make targeted
investments to support it. The most successful ones will also make their business models evolve
in order to anticipate evolutions and guarantee their future success.

For further information, please contact the authors:

Charlotte Pineau, Principal, Global Pharma Solutions at cpineau@fr.imshealth.com
or Charles Rink, Principal, IMS Consulting Group at crink@imscg.com
IMS Health supports clients in pharmerging countries with the worlds largest international
team of on-site healthcare experts. We understand the unique dynamics of local markets, and
apply the sophisticated expertise of a global leader
For more information, visit our website at www.imshealth.com/pharmerging

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