Pharma’s emerging markets1 February 2012
India and China are leading a group of emerging nations that are set to play a key role in pharma’s future growth. LogiPharma reviews Ernst & Young’s latest industry report.
Breaking into emerging markets has increasingly been the secret to success across almost every segment of the global pharmaceutical industry in recent years. With phenomenal growth during the past decade, what were once considered niche emerging markets now form a critical element of future growth strategy, particularly in light of the looming 'patent cliff'.
A recent Ernst & Young report, entitled 'India Emerging: Pharma's Evolving Business Models', claimed that India and China would figure in the world's top ten pharmaceutical markets by 2015. It identified India as the top choice for pharma outsourcing in terms of late-stage drug discovery, shared services and complex manufacturing. China, it noted, has been the preferred market for building blocks and intermediaries.
The report listed Brazil, Russia, Venezuela, Turkey and Korea as the world's other major emerging markets. With increasing mergers and acquisitions activity, the contribution of emerging markets to the global growth of pharmaceuticals has doubled several times over. Developing economies accounted for just 8% of pharmaceutical sales worldwide in 2003, while last year's figure was around 40%.
China and India: deals leaders
China and India have risen to become by far the top two countries for the pharma industry's mergers and acquisitions activity. Over the past few years, China has accounted for the largest number of takeovers, though India has also seen a host of major deals unfold. A few examples outlined by Ernst & Young include Abbott's acquisition of Piramal, Reckitt Benckiser's takeover of Paras, and Daiiichi buying Ranbaxy. The high valuations on such developments can be attributed to the limited availability of attractive assets in India, the report stated.
"Global multinational corporations that have entered India have developed a deep understanding of their target customers," says Ajit Mahadevan, partner in life sciences practice at Ernst & Young. "They have broadened the range of their products, adopted unconventional partnership models to increase access, and tested new pricing and marketing approaches."
Vast opportunities for pharma firms
The report also revealed that India presents vast opportunities for pharma firms, with successful companies overcoming challenges in the areas of pricing, and access to new products and markets.
"As emerging markets become increasingly important and India's role among them becomes more significant, pharmaceutical companies will need to adapt their business models, organisations and processes to align with these new environments," says Tapan Ray, director general at the Organisation of Pharmaceutical Producers of India. "Companies have adopted multiple levers to tap emerging markets for product portfolios, sourcing or innovation."
According to the report, India is one of the few markets where drug prices are expected to increase over the next few years, unlike in major developed economies. As well as having lower price points than most Western markets, it also has lower price points compared with many of its rival emerging countries.
The report also suggested that product development trends over recent years indicate a waning of intellectual property risk in the Indian pharmaceuticals market. According to the figures, while Indian firms were able to launch the most patented products in the years leading up to 2005, wider enforcement has resulted in fewer on-patent launches.
Between 2005 and 2011, it is estimated that on-patent launches accounted for just 21% of new products brought to market, compared with a figure of 55% in the previous five years. While some pharma giants have shown reluctance regarding the enforcement of the patent regime in India, others have been successful in launching patented drugs in the country. Whether such prosperity can continue as the experts predict remains to be seen.