Pharma’s emerging focus

Throughout the pharmaceutical industry, 56% of respondents of ICD Research's Global Pharmaceutical Industry Outlook Survey 2011-12 are 'more optimistic' about revenue growth for their company over the next 12 months compared with the previous 12 months. Low GDP growth rates, reduced consumer spending and decreased government expenditure slowed the growth of the pharmaceutical industry in 2009.

As national economies began to recover from the global economic crisis, revenue growth expectations increased during 2010 and rose further in 2011. As a result, multinational corporations are no longer viewing emerging economies as mere production locations, but more as significant customer bases.

Although the US market will have the largest share of consumer spending in the global market, emerging markets are likely to have the highest growth rates, with China expected to record double-digit growth due to increased government and consumer expenditure.

According to 46% of the survey's pharmaceutical manufacturer respondents, China is considered the most important region for growth among emerging markets, along with Brazil and India, which accounted for 38% and 33% of respondent opinion, respectively.

China

In 2011, China is expected to be the third-largest market for prescription drugs. An ageing population, a rising rate of chronic diseases, expanding healthcare insurance coverage, urbanisation and increasing investment in rural healthcare services are major drivers for the growth of the country's pharmaceutical industry. The Chinese Government is expected to invest $125bn over the next few years for the development of its health system, with the goal of providing basic healthcare facilities to its 1.3 billion citizens.

Domestic companies are competing with multinational companies in the Chinese market; for example, Zhuhai United Laboratories, a Hong Kong headquartered pharmaceutical manufacturing company, expects to invest $151.42m in the development of the domestic insulin market, which is usually dominated by foreign players.

According to 42% of survey respondents from the CRO and CMO industry, China and India were identified as the most important emerging markets. The growth of China's pharmaceutical industry offers high potential for the growth of the contract manufacturing business. As a result, multinational companies deem it profitable to outsource manufacturing functions to China as they have an established market to cater for.

Furthermore, in the last year, contract manufacturing companies registered double-digit growth in China; for example, Wuxi PharmaTech, a noted CRO and CMO, posted a 16% growth in revenues for the first quarter of 2011.

India

Companies that expect to outsource research operations to low-cost countries prefer India to China, because of its proven capabilities in the pharmaceutical sector. The Indian pharmaceutical market comprises companies that market branded generics to multiple countries across the globe via the development of various drugs; this is a direct result of effective R&D capabilities. Improved production capability, easier access to destination countries and low costs supports the growth of Indian CMO industry.

The Indian pharmaceutical market has progressed from being an industry that reverse engineered key products due to lenient patent laws, to that of a significant location for R&D and contract manufacturing. A competent workforce, strong patent laws, strong manufacturing capabilities, double-digit growth of the industry and an increase in the population's income are supporting the growth of the Indian pharmaceutical industry.

Leading pharmaceutical companies have entered India through acquisitions: the Indian Government allows 100% foreign direct investment in the pharmaceutical industry; for example, US-based Abbott Labs acquired the branded generics business of Piramal Healthcare for $3.72bn in 2010, nine times higher than the value of the unit.

Brazil

Brazil is the third-largest market in the American continent; the country's pharmaceutical market is growing at a rate of 12% and is expected to be the world's fifth-largest market by 2015. An expanding population, improved access to healthcare and an upwardly mobile generation that is increasingly opting for branded drugs are key factors supporting growth in the industry.

The Brazilian Government spent 10.8% of the country's GDP on retail and hospital-prescribed pharmaceuticals in 2009. Interestingly, it is the government that purchases 90% of the total amount of vaccines and 20% of other drugs sold in the country.

Merging with or acquiring local companies is considered the best way to enter the market as these firms have knowledge of industry issues and strong relationships with distributors, pharmacy chains, hospitals and local authorities; for example, Amgen, a US-based pharmaceutical company, acquired Bergamo, a privately held pharmaceutical company for $215m.

Eastern Europe

Respondents from the CRO and CMO industry identify Eastern Europe as the next important market for growth. Availability of low skilled labour, established infrastructure and government policies, superior intellectual property rights protection and an increasing uptake of biologics and generics are key factors for growth in Eastern Europe; however competition from low-cost Asian countries remain a significant challenge for companies in this region.

Supplier demand

China and India were identified as the most important emerging markets by 22% and 21%, respectively, of respondents from the supplier segment of the drug manufacturing industry. As the outsourcing of manufacturing activities to India and China grows, multinational companies prefer to procure raw materials such as API and fine chemicals locally due to comparatively lower prices and reasonable lead times to reach manufacturing facilities; for example, AstraZeneca, a UK-based drug manufacturing company, decided to completely outsource its API needs over the next five to ten years; India and China were identified as its sourcing centres.

Merck, another major pharmaceutical company from the US, announced a shutdown of six manufacturing units in Italy, Portugal, Mexico, Brazil and Singapore. It expects to outsource the functions from these facilities to China and India.

Demand by region

Respondents with companies that operate in North America and Asia-Pacific consider China, India and Brazil to be the most important markets for growth, while respondents with companies operating in Europe consider Eastern Europe to be more important than Brazil.

The Middle East, Brazil and Mexico are identified as the most important markets by respondents whose companies operate in the rest of the world.

Demand by company turnover

Respondents from companies with different turnovers identify China and India as the most important emerging markets; however, respondents from companies with a turnover of more than $100m turnover identify Brazil as the next important market for growth, whereas respondents from companies with turnovers of less than $100m consider Eastern Europe to be important.