Top 10 Drugmakers in Emerging Markets

Print 26 November 2014
FeircePharma

It seemed like a match made in heaven. A few years ago, as the patent cliff neared and drugmakers were looking for new sources of revenue, market researchers were toting up growth prospects around the world. The answer, for both, was emerging markets. Drug spending would more or less stagnate in mature markets such as the United States and the European Union. But in the developing world, drug spending was just taking off.

Like miners rushing to California in the 1880s, drugmakers raced to capture their share of those markets. While cutting costs, shuttering facilities and laying off thousands in the U.S. and EU, pharma companies hired on in China, India, Mexico--to the point where laid-off sales reps joked about moving to Asia to find a pharma job.

But just as those gold miners discovered that staking a claim is no guarantee of striking it rich, drugmakers have run into some unexpected snags. It's not that pharma companies were naive enough to expect emerging markets to be easy. But governments have proven capricious, and the fast pace of change has spawned its own challenges. In China, for instance, the demand for good sales reps is so high, drugmakers train their new employees only to watch them jump ship for another pharma company down the street.

Still, the promise of emerging markets is real. In reporting their recent financial results, several Big Pharma companies saw dismal U.S. sales propped up by growth in the developing world--even if that growth wasn't as much as they wanted, or even expected.

"We still see significant growth coming from these countries," said Waseem Noor, IMS Consulting Group's VP of Strategy and Portfolio Analysis. "I think we see it's much harder to be successful in these countries than originally expected. To be an active player and a winning player is a completely different ballgame."

Pharma's growth prospects in emerging markets didn't appear out of nowhere. For years the so-called BRIC countries had been fingered as economic stars. Growth spawned middle-class consumers able to pay for their own meds. It enabled governments to invest heavily in their neglected--or all but nonexistent--healthcare systems. Meanwhile, populations were growing. And chronic diseases common in the U.S. and Europe were spreading.

All these trends converged into one welcome fact: Demand for prescription drugs was on the rise in up-and-coming countries--and quickly. Just as sales growth slowed to the low single digits in pharma's biggest markets, it was projected to rev up into the teens in China, India, Brazil, Russia, and more. Indeed, IMS Health identified 7 "pharmerging" markets expected to grow more than 7.5% per year through 2011, to become 12% of the global market. Four years later, the list expanded to 17, still led by the BRIC countries, but followed by such sudden pharma stars as Poland and Turkey. China's drug spending was growing by more than 25%. That market alone was expected to double in size by 2013; all together, those 17 countries were pegged for a $90 billion expansion from 2009 to 2013.

So, drugmakers did what companies do. They moved into--or expanded into--those promising countries. Some, such as GlaxoSmithKline ($GSK) and Sanofi ($SNY), ramped up in consumer healthcare and over-the-counter drugs as well as prescription meds. Others, like Merck & Co. ($MRK) and Roche ($RHHBY), stuck to the usual vaccines and medications. Every Big Pharma and plenty of their smaller rivals put hundreds of millions into M&A, building projects, joint ventures and licensing deals.

Those investments are paying off for many, and those markets are still growing, if not all at the same pace. According to the IMS Institute for Healthcare Informatics, drug sales in emerging markets are still expected to grow by up to $165 billion between 2012 and 2016.

But while some countries wholeheartedly welcome the interest--and investment--from foreign drugmakers, others have grown more skeptical. Some, like India, that seemed most hospitable at first have turned prickly over time. Patent officials have been pulling IP protections, and the government there issued its first-ever compulsory license allowing a generic version of an on-patent drug, Bayer's cancer treatment Nexavar. Meanwhile, China launched a high-profile investigation of corruption and pricing in the pharma industry, roping in one Big Pharma after another as whistleblowers stepped forward. China, India, Turkey and others have rolled out new price cuts.

The snafus in India and China belie long-term cooperation between drugmakers and public health officials, one of multinational pharma's key strategies for growth in emerging countries. "It doesn't give a strong sense of partnership when you see this," Noor points out. "You don't see, 'We're trying to solve this together.' It's more of a one-way thing."

So, between political issues and price-cutting--not to mention the long-standing, basic lack of healthcare infrastructure and funding in many countries--emerging markets have proven to be complex beasts. At least in the short term, Noor believes that success in these countries requires tight focus--whether in a therapeutic area, a geographic area, or a market segment. As an example, he cites Novo Nordisk ($NVO), the Danish drugmaker with a big diabetes business. "When you try to be in all therapeutic areas, in all segments, and everywhere, it's tough to move the needle as fast," he explains. "We see faster success with companies driving these singular strategies."

Take a look at our Top 10 and let us know your opinions about their emerging markets strategies. We ranked the companies not by total sales in emerging markets but by the percentage of their total sales derived from developing countries. We found sales numbers and percentages in regulatory filings, annual reports, earnings-call transcripts, quarterly releases and in direct correspondence with the companies. Be warned: Every company defines "emerging markets" a bit differently. But their numbers show how each judges its own performance in the markets it considers "emerging." Currencies were converted to dollars using the exchange rate on Dec. 31, 2012.

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