By Joseph Pategou
Estimated to exceed by 1.3 trillion in 2020, the global pharmaceutical market will continue to grow at a compound annual growth rate of 4-5%. There are primarily two kinds of markets in this sector – mature and emerging, each with different structures and dynamics. So far, a modest growth in mature markets has been observed due to several factors. These factors include moderate economic growth, healthcare funding constraints, compelling pricing pressures, public scrutiny accompanied by growing availability, and the use of cheaper generics.
Pharmerging markets
Pharmerging markets are showing chances of an exponential growth, from holding an 18% market share in 2010 to a 31% share in 2020. This is the result of economic and demographic development, rising health expectancy, access to healthcare services, and improving public-private healthcare funding. It is clear that developing countries are key drivers of the global pharmaceutical market.
Even though drug companies of the emerging market are not at par with pharmaceutical leaders of the current mature market, their rise is indicative of a shift in global pharmaceutical spending and research activity in middle-income countries. These companies generally produce generic drugs. However, now they are focusing on establishing themselves in their domestic markets.
Growing R&D capabilities are also supporting the development of local pharma and biotechnology industries, especially in larger developing markets. While overall trends in emerging markets point to growing opportunities, healthcare access and market growth will remain uneven between countries.
To conquer an emerging market
Market leaders are trying hard to enter emerging countries. Mergers and acquisitions help pharma giants take advantage of established local sales and distribution networks. Further, it will help foreign companies win local tenders. For example, BMS has entered into technology transfer agreements with the Brazilian government for AIDS medication, a beneficial step for the company. Merck aims to lower production costs and enter the Chinese market through Simceres distribution network.
To enter middle-income economies, companies are redistributing the allocation of resources. AstraZeneca has been shifting resources since 2002, changing a 16% workforce to 50% in the emerging market in 2015. Post the 2008 economic crisis, most OECD countries reduced their public debt. In most high-income economies, high public debt levels and public healthcare financing force governments to cut back on funding. The US is a special case among mature economies, with high public debt but low public healthcare financing. However, current policy changes which are aimed at increasing public healthcare financing are likely to raise the bar. Low public debt levels in fast emerging markets leave enough room for an increase in public healthcare financing.
Reign of the five
Five leading countries dominate these markets: China, Brazil, Russia, India, and South Africa. Pharma exports of developing countries remain quite low as compared to developed countries. However, the growth rate is faster than in high-income countries, and has been three times faster than developed countries in the past decade. This reflects their integration into the global pharmaceutical value chain, local markets, and various domestic drug companies.
India, a major emerging economy ranked 16th for global export market share calculations in 2004, and has been part of the top 10 since 2013. The country tripled its share of worldwide exports over the past decade and held 3.4% share of worldwide exports in 2015. India has seen a rise in export levels due to proactive - though partly controversial - policies in the form of price controls or non-recognition of drug patents. This has transformed the country into a major exporter of low-cost drugs and generics.
The road ahead
Emerging markets have a lot of potential, but also present numerous challenges. Growing wealth, huge population, increasing life expectancy, unhealthy lifestyles, more spending on health care, and slow stagnation of mature market are a few advantages. On the flip side, a lack of healthcare infrastructure, intellectual property protection and stable regulations, lack of affordability, local competition, lower public investment in healthcare, and fake drugs pose a challenge to emerging markets.
Sustainable demand growth in emerging pharmaceutical markets has created major opportunities. Further, local government policies designed to support domestic manufacturers have also raised various challenges and hurdles that increase competition for leaders in this sector. Despite these provocations, emerging markets are a clear indication of the changing global pharmaceutical landscape.
Joseph Pategou is a consultant specialised in the pharmaceutical industry at Wavestone. He is fascinated by healthcare and the experience of many companies to develop new types of drugs with the aim of saving lives.
Main topics of passion in healthcare: Strategy, Digital, Innovation and Biosimilars
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