GlobalData A Blip or Stark Reality? Pharmaceutical Companies Re-Evaluate Emerging Markets

Published: Aug 24, 2012

LONDON, UK (GlobalData), 24 August 2012 - Pharmaceutical companies, who have previously been allaying the growing fears and concerns of their investors regarding the seemingly inevitable reduction in revenues upon patent expiry, may want to slow down and avoid making unrealistic promises. They believe that by virtue of their rapid growth and industrialization, emerging markets, including China, India, Brazil, and Russia, are the ‘go-to’ places in terms of offsetting revenue loss due to the introduction of generic variants. However, recent reports from Wall Street indicate that actual drug sales in these countries could fall short of forecasts as a result of decelerating economies, intense local competition and stringent government measures aimed at controlling healthcare costs and supporting domestic companies. GlobalData believes the recent wave of austerity in Europe could also have contributed to this development as governments are now unwilling to pay as much for pills. In some cases, new laws are pressuring companies to prove the efficacy of their drugs or risk having them dropped from the coverage list, or covered at a lower rate. Consequently, this has a ripple effect on emerging markets as their governments refer to prices set in Europe to determine their own. Analysts believe that as much as a $47 billion gap could exist between what drug makers expect to make in emerging markets, and the actual realizable revenue.

As explored in GlobalData’s 2012 Pharmaceutical Benchmark Report, the major pharmaceutical players are progressively exploring other options outside of the developed markets for sales growth. The maturity of the US drug market, an upsurge of generic drug sales, and an uncertain regulatory environment have contributed to slower revenue growth from the top 25 pharmaceutical companies, increasing by only 2.6% in 2011 to $259 billion. Consequently, large pharmaceutical companies including Pfizer, Merck, Sanofi, and GSK currently depend on emerging markets for a substantial share of their revenue. These markets presently account for about one-third of GSK’s annual sales and the company has declared its intention to double its revenues from China and India within the next five years. To accomplish this, it has been increasing its sales force in emerging markets and trimming sales teams in developed markets. Pfizer’s emerging-market business yielded $2.6 billion in revenues in Q2 2012, up 8% from Q12012. GlobalData believes that the recent investments by pharmaceutical companies in mergers, acquisitions, and collaborations with generic manufacturers in emerging markets is an indication of their readiness to focus on ‘low-hanging fruit’ and strengthen their presence in those markets rather than relying on the ‘high-risk, high-return’ blockbuster model. In February 2012, Merck formed a joint venture with Supera Farma Laboratorios, a Brazilian pharmaceutical company, to market, distribute and sell generic drugs solely in Brazil. In October 2010, Pfizer spent $240m in purchasing a 40% stake in Brazilian generics manufacturer Laboratorio Teuto Brasileiro,. Meanwhile, in April 2009, Sanofi acquired Medley Pharmaceuticals, Brazil’s largest domestic generics manufacturer, for $600m, giving it a 12.0% market share in Brazil at the time.

GlobalData believes that although selling drugs in emerging markets could potentially be a way to exploit the huge growth potential of countries like China, India, and Russia, pharmaceutical companies must tread with caution by considering the present economic climate and being more realistic in their projections. Drug sales in emerging markets are vulnerable to policy changes as most hospitals and health insurance are managed by the government. Also, it seems unlikely that pharmaceutical companies will be able to meet some of the conditions that have been laid down by countries such as Russia. One such condition is that foreign pharmaceutical companies build local factories before receiving the government’s approval for sale and reimbursement. Currently, some of the companies have been re-examining their forecasts and presenting more representative data regarding sales growth. Pfizer recently cut its growth projections in emerging markets to high single digits from the low double digits predicted in early 2011. In a similar development, Eli Lilly has declared that slower growth in China and pricing pressures in certain countries are affecting sales and could have an impact on its goal of doubling 2010 emerging market sales to $4.6 billion in 2015. Although China, India, and Russia might be unable to boast having the world’s largest pharmaceutical companies, their economies might yet determine the fate of pharmaceutical companies worldwide.

Related Research: Global Healthcare Policy Analysis 2012 – Regulatory, Pricing, and Reimbursement Assessment This expert insight was written by GlobalData's Healthcare Industry Dynamics Team analyst, Adefemi Adenuga. For more information or to inquire about an interview, please contact our press team via the details below.


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