The first-ever BRIC Economic Summit was held this week in Yekaterinburg, Russia, further signaling the importance of Brazil, Russia, India, and China, collectively known as the BRIC countries, in the current and future direction of the global economy. Some predict that the BRIC countries will surpass the leading economies by 2050, according to a recent New York Times article. The seeds of change already have been planted in the pharmaceutical industry, where pharmaceutical market growth in emerging economies is projected in the double-digits in 2009, compared with declining to anemic growth in established markets. Big Pharma is attuned to the shifting market dynamics. Many companies have clearly stated their strategic intent to enhance their positions in emerging markets. But what are the implications for pharmaceutical manufacturing? We may have gotten a glimpse into the future with some recent moves by Pfizer and GlaxoSmithKline (GSK).
First the numbers. The US prescription drug market, the single largest national market in the world, grew only 1.3% in 2008 to $291 billion, according to IMS. For 2009, the US pharmaceutical market is projected to contract 1-2%, representing a historic low, according to IMS estimates issued in April 2009. The compound annual growth rate in the pharmaceutical markets of Canada, France, Germany, Italy, Spain, the United Kingdom, and Japan is projected at 1–4% during the next five years, according to IMS. Pharmaceutical industry growth in the seven “pharmemerging markets,” which include the BRIC countries as well as Turkey, South Korea, and Mexico, will collectively grow 13–16% through 2013 and will contribute more than half of global market growth in 2009 and sustain an average 40% contribution to the global pharmaceutical market through 2013. China, which is currently the sixth-largest pharmaceutical market, will become the third largest by 2011, predicts IMS.
Although it is clear Big Pharma will seek ways to increase its product positions in emerging economies, what is not yet evident is how it will align its manufacturing strategy with these plans. In considering the options, certain underlying fundamentals need to be considered. Although growth in emerging economies is strong, the product value mix is not comparable with that of Western countries. Higher per-capita spending on prescription drugs and higher-priced drugs in the West are matched against lower per-capita spending and greater penetration of lower-priced drugs, including generics and traditional medicines, in developing nations. In keeping with overall cost-savings plans, Big Pharma companies have recently rationalized their global manufacturing network, particularly in small-molecules and solid-dosage manufacturing, with large investments only in select biopharmaceutical projects.
Reflecting product mix and cost issues, new investment in greenfield manufacturing sites in emerging markets, therefore, is not likely. More likely are strategic alliances, a course recently pursued by GSK and Pfizer. Earlier this week, GSK announced a partnership with India’s Dr. Reddy Laboratories, one of India’s largest pharmaceutical companies, under which Dr. Reddy will manufacture and supply drugs to GSK, which will license and co-market the drugs in various countries in Africa, the Middle East, Asia-Pacific, and Latin America. The pact applies to more than 100 products in Dr. Reddy’s existing portfolio and pipeline. Last month, Pfizer announced partnerships with two Indian pharmaceutical manufacturers, Aurobindo Pharma and Claris Lifesciences. Under the deal with Aurobindo, Pfizer acquired the rights to 55 solid oral dose products and five sterile injectables in 70 emerging markets and will commercialize the products. Pfizer also acquired the rights to 15 generic injectables from Claris Lifesciences.
Joint ventures, alliances, or other forms of partnerships offer a far less risky path to emerging markets than outright acquisitions or resources for capital projects. Japan’s Daiichi Sanyko’s troubled acquisition for a majority stake in India’s Ranbaxy Laboratories shows such perils. Daiichi sought out Ranbaxy, one of India’s largest pharmaceutical companies, to provide it with a low-cost manufacturing base and an established network in emerging markets, particularly India. During the acquisition process, Ranbaxy was investigated by the US Food and Drug Administration for manufacturing violations. The agency later cited violations and imposed an import alert of products manufactured from some of the company’s facilities and halted review of drug applications from one of the facilities for allegedly using false data. It was surprising to see such problems coming from Ranbaxy, an established generic-drug manufacturer.
It is clear that emerging markets represent a significant part of future growth for the pharmaceutical industry, and how the leading pharmaceutical companies will position themselves into those markets is something of current and future importance.