The fast-growing emerging markets - Brazil, Russia, India, China, and South Africa among others - are becoming the new pharmaceutical market heavyweights, termed as “pharmerging markets”.

1. Opportunities for the pharma supply & support network in Emerging Markets
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Emerging markets – the new pharmaceutical heavyweights
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The fast-growing emerging markets - Brazil, Russia, India, China, and South Africa among others - are becoming the new pharmaceutical market heavyweights, termed as “pharmerging markets”.
Today, multinational pharmaceutical companies are targeting these markets as a primary source of sales and consequently establishing a presence in these regions.

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Big Pharma - expansion into emerging markets
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Time
The pharmaceutical sector faces two big challenges:
•Declining prescription drug sales, especially in the U.S.
•Loss of patent protection for many profitable drugs.
To make up for these down drifts, the industry increasingly relies on new markets:
•Asia
•Latin America
•Africa
Drugmakers benefit from favourable tax breaks in new markets and inducements to encourage investment in production facilities such as:
•Russia’s proposal to give preference to locally-made medicines in the national reimbursement system thus reducing reliance on imports. Low interest rates also encourage spending on new capital investments.
Globally many large companies are investing significant amounts to build manufacturing and laboratory facilities in emerging markets (EMs). However, the purpose of these plants is evolving:
•At one time the intention was to export most of the production to Europe and North America
•Now there is a shift towards establishing facilities primarily to serve local markets.

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Emerging Markets - the drive towards local presence
•EMs were previously viewed as newer markets in which to sell existing products.
•This viewpoint has changed – today these markets increasingly being used for research, development and manufacturing.
•The need for increased localization in EMs is fuelled by government policies and frameworks to strengthen the domestic players and ‘encourage’ the multi-national corporations to make substantial, long-term investments in these markets – for example:
The Chinese SFDA is encouraging the localization of R&D and manufacturing by implementing stronger GMP policies, enhancing IP protection, and providing tax benefits and incentives.
In Russia, the foreign pharmaceutical manufacturers are encouraged to set up local production facilities following the adoption of the Strategy of Pharmaceutical Industry Development 2020.
Similar government reforms in Brazil aim to strengthen the country’s pharmaceutical industry and are also pushing for localization of manufacturing technologies and preferential purchase schemes through the Productive Development Policy (PDP) program.
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China
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The Economist Intelligence Unit (EIU) projects $166 billion in drug sales in China by 2017, making it a natural market for companies looking for further growth.
China is the world's second largest pharmaceutical market after the US.
Drugmakers have poured resources into China over the past decade as rising incomes have made health care more affordable for many. The number of Chinese earning $5,000 or more a year will reach 339 million by 2016, according to projections from IMS. At the same time, the government has spent $180 billion since 2009 to advance its goal of providing basic care for more than 90 percent of its citizens.
But China is not an easy market - companies need to develop new strategies and skills to be successful here.
A growing middle class in China can pay for branded meds.
Despite the recent political pressures - even despite new pricing pressures - China remains one of the world's most promising drug markets.

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India
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India is the second most populous country in the world with about 1.27 billion people, and is projected to surpass China by 2028.
Over the past decade, India’s economy grew above OECD average - attributed to rising average income levels, an expanding middle class, and a drive toward urbanization.
The Indian pharmaceutical market was estimated at $18.4 billion in 2012 and is expected to almost double by 2016.
Although India’s market is currently dominated by generic drugs, rising incomes, enhanced medical infrastructure, and insurance coverage could provide a valuable opportunity for manufacturers’ higher-priced branded healthcare products moving forward.
Despite the challenges of this market, major pharmaceutical companies recognize the long-term prospects and continue launching new patented drugs and pursuing unique business opportunities in India.
To encourage future investment, the government has made tax breaks available to the pharmaceutical sector, including a weighted tax deduction of 150% for any R&D expenditure incurred.

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Russia
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Russia’s pharmaceutical market - valued at $24.29 billion in 2013 - continues to be one of the most attractive in the Emerging Europe region, primarily due to its sheer size, plus a growing economy and increasing government investment in healthcare.
The Russian pharmaceutical market is import oriented – but the country’s 2020 vision hopes to address this imbalance by giving preference to locally-made medicines in the national reimbursement system.
Key drivers of market growth include programmes to fund medicines for specific segments and disease groups, and the pledged introduction of a universal medicines insurance system.
Big pharma is making a play to become entrenched in-country - building and buying facilities are the chief means - the Association of International Pharmaceutical Manufacturers in Russia expects global drugmakers to drop a combined $1 billion on setting up local production.

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Africa
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The size of the market is still small. However, the rapid growth of many big cities offers interesting opportunities for development.
Pharmaceutical spending in Africa may reach $30 billion by 2016, from approximately $18 billion today (EIU). Spurred on by a convergence of demographic changes, increased wealth and healthcare investment, this market potentially represents a US $45 billion opportunity by 2020.
According to WHO, Africa has 11% of the world’s population, yet it accounts for 24% of the global disease burden.
Morocco has enacted legislation to attract foreign investment in the country.
Morocco launched RAMED in 2012, offering economic assistance to pay for medical care to 8.5 million people (28% of the population)
At a country level, there are 4 established markets which together represent more than half of the pharmaceutical sales in the continent: Morocco, Egypt, South Africa and Algeria.
Algeria is reaping the economic benefits of escalating oil prices.
There are several rising economies including: Nigeria, Kenya and Botswana.

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Middle East
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Medical products companies such as GE Healthcare, have described the region as a “hidden jewel,” citing rapid spending growth by the various government ministries, resulting in new and growing hospitals.
While the Middle Eastern environment remains unsettled, the market for pharmaceutical products is still expected to grow in many countries across the region.
Qatar went from spending US$1561 per capita on healthcare in 2010 to US$1920 in 2011. Qatar has also announced plans to introduce a form of social health insurance by 2016.
Jordan serves as a major manufacturer of pharmaceuticals, exporting the majority to other Arab countries.
GE recently opened their new headquarters in Dubai Internet City, as well as a production facility in Saudi Arabia to manufacture diagnostic imaging systems.
Leading international biotech companies, including Amgen and Genzyme, have set up operations in DuBiotech (Dubai Biotechnology & Research Park), with smaller companies certain to join them.
The government of Turkey is drawing up a program in coordination with the pharmaceutical industry to create ways to make the country a regional production center for pharmaceuticals serving Europe, Central Asia, and the Middle East.
Turkey’s recent investment successes include: Amgen's $700-million takeover of Mustafa Nevzat Pharmaceuticals; the formation of a partnership between Otsuka of Japan and Abdi Ibrahim of Turkey; and a decision by Zentiva, a Czech subsidiary of Sanofi, to make Turkey a production base for generic drugs.

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Latin America
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Getting older and wealthier by the day, Latin Americans increasingly visit their pharmacy.
Brazil, the largest pharmaceutical market in the region, grew by 10% in 2010 and now generates sales of $26 billion, according to IMS Health.
It is anticipated that Brazil will become the 4th largest global market for pharmaceuticals by 2016.
The Latin American market is estimated at $70 billion in sales and it will continue to grow.
The pharmaceutical market of Argentina continues to grow as well as those of Chile, Colombia, Venezuela and Peru.
The Colombian pharmaceutical market was worth U.S. $4.35 billion in 2013 and is expected to grow at a CAGR of 7.3% to reach U.S. $5.37 billion by 2016.
Argentina's pharmaceuticals market is forecast to grow from around US$5.6 billion in 2012 to $15 billion by 2020.
Since 2008, the region is by far the fastest growing pharmaceutical market - with Brazil and Mexico amongst the most emerging pharmaceutical markets in the world.

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Pharma activity
Company
Sales in Emerging Markets %
Sales in Emerging Markets 2012
Comments
Bayer HealthCare
33.2%
€6.17 billion
($8.1 billion)
Invested >€100 million in China since 2009 to build up regional headquarters and a global R&D center in Beijing.
Struck a strategic partnership with Medsintez in Russia to make and commercialize drugs, including anti- infectives and diagnostic imaging products. The two companies plan to build new plants and manufacture from existing facilities.
Strong performing markets for Bayer include: Singapore, Vietnam, Pakistan an Turkey.
Sanofi
31.9%
€11.14 billion ($15 billion)
Between 2008 - 2012, the company spent €39 billion on deals in emerging markets. It now has ~40 manufacturing sites in emerging countries.
It’s latest additions to international manufacturing include 4 plants in China - and one each in Vietnam and Algeria.
The new $95 million plant in Algeria will be its 3rd in that country and its biggest in Africa.
Sanofi also recently opened a €20 million, 12,000-square-meter distribution center in Morocco.
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Pharma activity
Company
Sales in Emerging Markets %
Sales in Emerging Markets 2012
Comments
Merck KGaA
29% (34% with materials division)
€1.74 billion ($2.3 billion)
Merck Serono is focusing on growth in the Middle East. As part of its localized- production strategy, the company partnered with an Abu Dhabi-based manufacturer, Neopharma, to turn out branded drugs for the region.
GlaxoSmithKline
26%
£6.78 billion ($11 billion)
The idea is to tailors prices to a market's pocketbook so as to build up GSK's reputation now so that the company can cash in later when emerging economies begin to grow.
Novartis
24%
$13.84 billion
In 2010, Novartis announced a new $150 million manufacturing plant outside St. Petersburg, Russia - part of a $500 million push in the country.
In Singapore, the company's Alcon division recently opened a new production site.
Plans were also announced for a $500 million state-of-the-art biotech manufacturing facility in Singapore as its pipeline of drugs fills up with treatments based on biologics.
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Pharma activity
Company
Sales in Emerging Markets %
Sales in Emerging Markets 2012
Comments
Johnson & Johnson
23%
~$16.8 billion
The company has set up R&D and manufacturing centres in the fastest- growing pharma markets: China, India and Brazil.
Novo Nordisk
22.4%
17.48 billion kroner
($3.1 billion)
The company has operated a Chinese affiliate since 1994. It opened an R&D center there in 2002.
The company has been investing big money in local manufacturing, R&D and sales and marketing.
In 2012, it opened a $100 million expansion of its R&D complex in China.
In Russia, the company started building a $100 million insulin-cartridge plant in the Kaluga region the year before last.
It sees Vietnam as the new mini-China.
AstraZeneca
21%
$5.75 billion
AstraZeneca has expanded its R&D facilities in China and India, among other places, to ramp up local research.
A new, $200 million plant in China is expected online soon, along with new production capacity in Russia.
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Pharma activity
Company
Sales in Emerging Markets %
Sales in Emerging Markets 2012
Comments
Pfizer
20.2%
$11.97 billion
Pfizer has expanded in some markets via acquisition; it bought Brazil's Teuto in 2010.
In 2012 it forged an alliance with China's Zhejiang Hisun Pharmaceutical to produce branded generics for the country.
Roche
20%
9.342 billion francs
($10.2 billion)
Roche has spent serious time, money and people-power on the Chinese market.
Overall, Roche is most focused on 7 fast- growing countries, which it calls the "E7." Besides India and China, that group comprises Brazil, Mexico, Russia, South Korea and Turkey.
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Conclusion
•“Numerous forces are reshaping the environment in which the industry operates and dictating the need for a different sort of supply chain,” – PwC Pharma 2020.
•Moving forward traditional markets are not where the focus of the pharma business is going to be:
–Today multinational pharmaceutical companies are targeting EMs as a primary source of sales and consequently establishing a presence in these regions
–Companies are establishing local commercial operations as well as R&D and manufacturing
–Where big Pharma goes then small and mid-sized companies are sure to follow – along with the service supply network such as CROs, analytical labs, Bioanalytical labs, CMOs, etc.
•The drive is towards ‘localisation’ and the support & supply companies need to be in on it!
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How can Parioforma help?
•We could assist your company in understanding:
–The size and scale of this opportunity
–Where the potential geographical “hotspots” are likely to be and the potential timeframes
–The type of expansion – R&D centres, laboratories, commercial and/or manufacturing
–How to realise this opportunity – steps to be taken by a Western player:
•How to do business in EMs
•Local partner identification, selection and negotiation support
•Strategy development - 5 year plan
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About Parioforma
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•Founded in 2000, Parioforma is an international business consultancy.
We assist business units to maximise the return on research spending by tailoring projects to actual needs. In addition we interpret results into business implications – what does this mean for our client?
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We cover traditional as well as emerging & complicated markets
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From our London base we are able to provide a global footprint by utilising our extensive network of associates across:
•North America
•Western Europe
•Australia & Japan
In addition we have strong capabilities in emerging and complicated markets:
•Central Europe, Baltic States, Russia & CIS
•South East Europe including Turkey
•Middle East & Africa
•Latin America
•India, Pakistan, Malaysia, Thailand, etc.

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