Global Pharma: is the "Emerging Market" a Dated Concept? (Part 1 of 5)

by Ben Comer, for Pharnaceutical Executive

As Big Pharma struggles through an endless cycle of market churn, a strategic question is whether the concept of an "emerging market" is a dated one. Many of these markets are no longer justemerging, but instead are firmly established, with the C-suite placing big bets on them as growth centers against diminished earnings over the next few years from the old mainstay markets of the US, Europe, and Japan. Drawing on insights from a May 31 roundtable with experts from IMS Health, our third-annual survey of the "pharmerging 17" adds some grouch to the gloss, concluding that profitability—the metric that counts—depends on how well companies deploy their portfolio strengths to separate themselves from the pack, drop that HQ comfort-zone mentality, and anticipate a growing list of built-in risks.

Fastest-Growing Emerging Markets

Like any passion play, the potential for big returns depends on the level of engagement, the cost of which is rising. Creating infrastructure, cultivating relationships, preserving a reputation for quality, and building a ground presence by mobilizing a large and conspicuous sales force is not cheap. At the same time, such investments don't mean that local payers—assuming you can identify them—will automatically pony up to pay for expensive brand drugs. The consensus is that "expensive"—in terms of commercial investment, portfolio positioning, and drug pricing—is an increasingly relative concept, dependent on a host of factors unique to each particular country. Making a decision about which emerging markets to enter requires as much of a studied self-examination of company assets and culture as it does an understanding of the market forces at work within a specific country. Going forward, it will take more than just showing up to make money.

Adaptability Pays 

The traditional selling model for US- and European-based companies has been to launch innovative products at a premium price, which can be more or less maintained through the lifecycle of the drug. Following on that model, biologics and specialty drugs targeting orphan diseases—priced at an even higher premium, to make up for smaller patient populations—have been a winning strategy for many companies in mature markets, where healthcare spending is backed by a critical mass of affluence.

This is not necessarily so in the emerging markets. While India is said to have the world's largest middle class, annual household income for this segment is still only between $5,000 and $22,000, a modest amount in relation to what middle-class patients are able to pay for a typical innovative medicine in the West. In addition, that Indian middle class usually has to pay the full cost of a drug out of pocket, due to the absence of any government safety net. While other governments might pay for innovative treatments, most of the highest growth geographies start at a low base, and favor generics over brand drugs. Big Pharma has had some success in emerging markets by sticking to the brand and muscling out generic competitors, but that window is closing as governments start intervening to curb drug prices and promote the interests of local generics companies. 

"China is planning to benchmark brand drug prices to the local generic, even if the brands are on the essential drug list," said Marc Benoff, vice president, IMS Consulting Group. Russia and South Africa are two other examples of countries where government has said it will extend healthcare and drug reimbursement to greater swaths of the population, says Benoff, but it's unclear how these initiatives will be financed without significant European-style austerity measures.