Today, many seem to regard emerging markets as the pharma industry’s “promised land.” (For the latest IMS Health data, see table, right). By 2017, they are expected to account for nearly a third of the global pharma market. They offer large and growing populations, increasing levels of prosperity, improving longevity, and increased demand, with a shift from basic to more affluent “lifestyle diseases.” It’s no surprise that these markets are attractive to companies suffering from mature market stagnation, patent expirations and increased regulatory hurdles.

Although these regions offer huge untapped potential, they differ widely in their stages of development, particularly with regard to their healthcare infrastructure, government policies, regulatory environment, supply chain planning, manufacturing and distribution.
At every pharma board room, there are discussions of how best to approach these markets—for instance, should one play as big pharma or as a generic player? There is no single answer, and there is no “one-size-fits-all” approach to emerging markets. The three main clusters of markets are: BRIC (Brazil, Russia, India & China); Second Tier Countries (Indonesia, Thailand, Vietnam, Mexico, Poland & Turkey); and Africa.    

The BRIC group is expected to remain the dominant force, although Southeast Asia is increasing in relevance. The growth figures are positive and infusing investments in these markets.

Markets like China which ranked ninth in 2005 are now ranked second in the world. Similarly India which was not ranking in top 10 markets in 2005 & 2010, is now in eighth place.

Mergers & acquisitions offer a fast track for adapting to emerging markets.  Sanofi, for instance, took this approach.  However, for other companies, a hybrid approach combining organic growth and mergers has been the answer: currently, Mylan has half of its staff working out of India, where it has made huge investments in API and finished drug manufacturing, in R&D, and sales.

The movement toward alliances, M&A, either for complete operations or specific therapies, is being seen in China, Brazil, Mexico and Turkey. The CAGR growth trends in emerging is between 14 to 17% vs. 4 to 6% for matured regions.

Emerging markets also alleviate the negative impacts of blockbuster patent expirations, such as Lipitor, Vioxx and Zoloft. They offer considerable opportunities, since they collectively count for 70% of the world’s population, generate 31% of GDP and will account for 30% of the global pharma spending by 2016.

The pressure of positioning in these markets is on-going, and not all players will succeed. New entrants soon discover that selling and operating in these markets present numerous challenges. Market access requirements such as supply-chain, manufacturing, logistics & distribution can be varied and complex for each new region. The complexities of regulatory environment, government policies, taxation and import barriers can be significant. Also, reimbursement, product pricing, and talent pool are becoming obstacles to growth and positioning. 

Let’s take India as an example. The Indian pharma industry has been growing at CAGR of more than 15% over the last five years and has significant growth opportunities. First, branded generics dominate, making up for 70 to 80% of the retail market. Second, local players have enjoyed a dominant position by formulation development capabilities and early investments. Third, price levels are low, driven by intense competition. Driving the Indian market’s growth are:
a. Population growth at around 1.3% every year and a steady rise in disease prevalence, which is expected to increase the patient pool by nearly 20% by 2020.
b. More affordable drugs, reflecting sustained growth in incomes and increases in insurance coverage. Acceptability of modern medicine and newer therapies will increase due to aggressive marketing. Players will shape the patient funnel, especially for chronic therapies such as cardiovascular and neuropsychiatry. Increased patient awareness and education for biologics and diagnosis. Vaccines can grow at over 20 % over the next decade. The biologics market will also grow rapidly to become a 3 billion segment by 2020.             
c. Government sponsored programs focused on the “below poverty line” (BPL) segment and health education. Many health programs and education initiatives are focusing on rural regions of the country.
d. Growth in medical infrastructure and new business models. Currently, the Indian government is spending $1 billion to create and upgrade its medical infrastructure.

Together with its neighbors Pakistan and Bangladesh, the Indian subcontinental pharma market will account for 1.6 billion people, 24% of the world population. This offers a huge potential to Big Pharma players besides Sanofi and Novartis, today’s front runners.  Those who fare best in these dynamic new markets will be companies whose leaders know how to best balance their global competences with tailored approaches for local markets.