#future of pharmaceutical industry
The Future of the Pharmaceutical Industry is in Emerging Markets
When growth at home slows, smart companies expand abroad.
Stagnation suffocates a company’s growth, so when profits start to level out after years of growth, smart companies immediately begin to scour the globe for new sources of revenue to move their organizations back into a more profitable position. For the pharmaceutical industry, expanding into emerging markets is inevitable and will prove to be a critical step in the industry’s evolution, despite initial growing pains.
Let’s take a step back and look at the commonly accepted business model for pharmaceutical companies in a mature economy, such as the U.S. market. A pharmaceutical company establishes a fully integrated system including the research and development processes all the way to the finished goods facilities owned by the same company. The up- front investment is large, but controlling all assets in the process has traditionally served as a reliable model in the long run.
Fast-forward to the 2012 patent cliff with the overwhelming volume of patent expirations and what seemed to often be insurmountable regulatory roadblocks that put a hard stop on the promise of growth in the US market. From 2002 – 2012, the value lost by products going off patent far exceeded the value created by new products entering the market creating a disconcerting financial situation for many.
In light of that, pharmaceutical companies began looking to the promise of growth abroad in the BRICs (Brazil, Russia, India, China). These countries comprise the top tier of emerging markets in the world because they are projected to be the most economically stable and with the likelihood of becoming similar to the US market, in time. As their economies matured, the most prevalent health conditions in the BRICs began to mirror those in the developed countries, such as the US. Issues such as chronic disease, diabetes, and obesity are becoming more prevalent as the middle class grows and life expectancies increase. This changed need opens a whole new host of consumers for pharmaceutical treatments that have traditionally been marketed to Western patients.
From purely a financial perspective, the strategic decision to move to the BRICs was well substantiated, with over 70 percent of the world living in developing or emerging markets, many of these nations of which required products to treat the influx of new medical disorders they now confronted. It’s daunting to imagine the potential new customer base and endless opportunities for growth.
Proceed With Caution
There have been growing pains, which should be expected. Despite the enticing financial incentives in these countries, many top pharmaceutical companies have already lost substantial revenue from seeking to operate in these emerging markets without proper risk assessments and planning prior to implementation. This could be due to the fact that the supply chain operations, manufacturing processes, and regulatory requirements are vastly different from that of the Western world.
With a primarily out-of-pocket payment system for healthcare services due to the underdeveloped nature of emerging market health infrastructure, pharmaceutical companies stand to both improve the standard of living of patients in the BRICs while also expanding their company’s global reach and customer base. Providing the expanding middle class with high-margin generics from Western brands is the hallmark of this sort of expansion. While it seems to be a simple solution, the key to success involves significant strategy rather than a “one size fits all” approach.
Several companies have successfully implemented programs in the BRIC markets, but those case studies all involved substantial groundwork with the populations and rigorous training of staff.
The key to facilitating a successful pharmaceutical expansion to BRIC countries is for the organization to accept that every emerging market is different and that the landscape of the government, regulatory, and policy structure of the country and more specifically, the region, where the company seeks to expand must be audited. There is no standard recipe for market expansion, as each requires unique knowledge of the current infrastructure and technologies available. Like always, the devil is in the details.
The BRICs have been implementing the necessary strategies to further develop their healthcare sectors, but their work is still far from over. Government-influenced growth coupled with the growing middle class, creates a need for increased public engagement and focused efforts on the specific needs of the population group. Pharmaceutical companies must develop, manufacture, and distribute drugs that fit the target audience and are affordable to consumers in that particular market.
Prior to creating an operation in an emerging market, companies must conduct detailed research to identify market segments within the country with proper adaptation to buying patterns, education needs, training, and threshold for purchase. Often, healthcare infrastructure is not well established, creating a disparity between cost of the drug and ability to pay. Understanding the needs and education required to implement change are a critical foundation for ensuring that demand for a product will exist in these volatile environments.
Companies must choose their population, select their focus areas, and then provide the absolute best product for an affordable price. Simply importing Western medicine that is unaffordable to the general community will not prove an effective or economically sound solution.
Above all, education is key. In developing countries, access to inexpensive, generic drugs is critical to many patients. Pharmaceutical companies have the opportunity to improve quality of life for patients while also growing their bottom line. If a company plans to enter the market, a disease management program must be implemented to help ensure the both physicians and patients understand their condition and why a particular medication is necessary to treat it.
For example, submarkets within a country can be identified as a customer cluster with a specific health need. If the customer cluster does not understand the need for medication or treatment, the pharmaceutical company should then focus on the needs of these consumers by providing educational materials and training to teach both physicians and patients how to use the medication, this practice promotes disease prevention while increasing healthcare consumption within the sub market.
With pharmaceutical exports from India totaling $15 billion in the 2014 fiscal year, the opportunity for success in emerging markets is real, as long as companies understand that growth in these countries have proven to be more complicated than originally expected and take the appropriate measures to ensure success. The combined effect of the 2012 patent cliff in the US, limited healthcare systems in the BRIC, growing middle class in the BRIC, and chronic disease becoming a growing problem in developing countries led to an increased need for drugs in these expanding markets at the same time US Big Pharma needed another avenue for expansion.
Not all expansion attempts have been immediately successful, but the consistent theme seems to be that through singular, strategic approaches based on a thorough population analysis, patient and physician education, and therapeutic niche, emerging market offer the best long-term growth opportunity for companies willing to put the work in.