emerging markets review 2012

“Together, the four BRICs may account for 41% of the world's market capitalization by 2030.”

- Jim O’Neill. Chairman, Goldman Sachs

Emerging Markets Review 2012 Brazil, Russia, India, China

June 2012

1

Em erging Markets Re vi ew 2 01 2 – Braz il , Russ i a, Indi a, C hi na


© FC Bus iness Inte ll ig ence Ltd 2 01 2

Author Tony Brown M.D., PhD, MBA

Thushani Kumarasinghe, Vice President Craig Sharp, Editor

Disc laimer The information and opinions in this report were prepared by eyeforpharma (FC Business Intelligence) and its partners. FC Business Intelligence has no obligation to tell you when opinions or information in this report change. eyeforpharma makes every effort to use reliable, comprehensive information, but we make no representation that it is accurate or complete. In no event shall eyeforpharma (FC Business Intelligence) and its partners be liable for any damages, losses, expenses, loss of data, loss of opportunity or profit caused by the use of the material or contents of this report. No part of this document may be distributed, resold, copied, or adapted without eyeforpharma’s prior written permission. © FC Business Intelligence Ltd 2012

2




Welcome

Thank you for your interest in the eyeforpharma Emerging Markets BRIC Review

2012.

With declining economies and shrinking sales forecasts in the developed world, the

sales potential in the fast growing economies of BRIC are not to be under

estimated.

Here at eyeforpharma we are launching a large emerging markets initiative. In order to foster further

discussion on this topic, we will continue to produce content which will include real-life examples of

experiences within these emerging nations as well as seminars dedicated to these regions.

This review is the first in a series which aims to present specific insight, from real experts with real

life experience in these BRIC markets.

We believe that through collaborative discussion pharma can provide a real service to the billions of

people who have a real need for access to healthcare.

I would love to get your feedback on this review or your general thoughts/experiences in relation to

the local challenges faced when penetrating these markets.

Thank you for reading,

Thushani

--------------------------------

Thushani Kumarasinghe Vice President eyeforpharma

Tel: +44 (0)207 375 7509 E: [email protected]

3




Table of Contents

Welcome…………………………………………………………………………………………………………….2

Table of Contents…………………………………………………………………………………….………….3

Introduction…………………………………………………………………………………………….………….4

Brazil………………………………………………………………………………………………………….……….5

Russia………………………………………………………………………………………………………….………8

India…………………………………………………………………………………………………………….…….12

China……………………………………………………………………………..…………………………….……14

Executive Summary Table Brazil and Russia……..……….………………………………….......17

Tables

Table 1: “Total Expenditures in Brazil in 2006, 2011, and 2016 projections”……..5

Table 2: “Total Expenditures in Russia in 2006, 2011, and 2016 projections”…....8

Table 3: “Total Expenditures in India in 2006, 2011, and 2016 projections”……..12

Table 4: “Total Expenditures in China in 2006, 2011, and 2016 projections”…….14

Table 5: Executive Summary of Challenges and Strategies for BRIC…………………17

4




Introduction

This review concentrates on the rapidly developing regions in Brazil, Russia, India and China. Utilizing the decades of collective experience and knowledge from industry experts local to each region, we demonstrate the strategic value of our research and resources to companies entering these geographical markets. At eyeforpharma we also utilize strategic economic indicators to guide our interpretation of market directionality.

Background

"In early 2011, [Jim O’Neill, Chairman at Goldman Sachs] decided that the

term ‘emerging markets’ could no longer be applied to the BRIC s…These

are now countries with largely sound government debt and deficit

positions, robust trading networks and huge numbers of people all moving

steadily up the economic ladder. For investors to understand the scale of

the opportunity here, and for policymakers to grasp what is changing in the

world, they must see these countries apart from the traditional ‘emerging

markets’. [He] decided that a more accurate term would be Growth

Markets." 1

1 Oneill, Jim. The Growth Map: Economic Opportunity in the BRICs and Beyond. Penguin Group. New

York. 2011. Introduction.

5




Brazil

Market Overview Brazil with an approximate population of 195 million represents only about

3.5% of worldwide pharmaceutical sales. With it robust national economy,

the largest in Latin America and the world's sixth largest, Brazil also has

a demographic that is steadily increasing in the elderly and middle

class sectors. Consequently, Brazil’s pharma markets are advancing a

double-digit growth rates, making it one of the fastest growing markets

worldwide.

Country

Total Healthcare

Expenditure (US

$ billions)

Compound

Annual

Growth Rate

(CAGR)

Forecasted

increase in

expenditure

Forecasted

percentage

increase in

expenditure

2006 2011 2014 2006-11

Brazil 125.5 144.2 216.6 2.8% 72.4 50.2%

Table 1: Total expenditures in Brazil in 2006, 2011 and 2016 predictions2

Challenges

Advertising Direct-to-consumer (DTC) drug advertising is not allowed in Brazil. On the other hand, Brazil does allow a company to emphasize its pharmaceutical solutions to specific medical condition in the form of brand campaigns. For instance, Pfizer highlights Cialis, while Lilly highlights Viagra for erectile dysfunction.

2Adapted from Global Demographics Healthcare Limited. http://www.global-dem-health.com/

Accessed 6/29/2012

6




Branded generics have established themselves on Twitter in Brazil, emphasizing their scientific initiatives and inviting physicians to engage. Consequently, social media plays an increasingly important role in awareness campaigns, but must be executed in a way that does not conflict with DTC restrictions on advertising.

Marketing Deciding whether to market to the public or private sector is prerequisite to understanding the stakeholders’ key roles and priorities. Regarding individuals, “it’s impossible,” says Market Access Group Manager, Takeda, Andre Bortoluci, “ to have an impact on all 300,000 doctors” so we must economize our efforts by focusing on key opinion leaders. Building on that, Carlos Grzelak, Jr., Sales and Marketing Director, Glenmark, suggests that for us to be effective, the sales force needs only “visit those doctors responsible for 70% of sales” three or four times per month.

As with marketing to organizations, we attract such leaders by developing medical society-backed educational programs and medical congresses. Further, we create advisory boards, and host regional symposia emphasizing clinical trials in Brazil. Directly approaching industry, for instance strategically engaging a percentage of Brazil’s 7000 private hospitals, of which 10% are specialty centers, has proven effective, especially when the product benefit is explained in the language of cost-effectiveness and efficacy.

With 60,000 pharmacies, Brazil has an astoundingly high pharmacy to inhabitant ratio of 1-to-3, 000. This is significant because the World Health Organization recommends a ration that is three times smaller. Despite Brazils alarming pharmacy-to-inhabitant ratio, it happens that 80% of national sales is accounted for by 10% of Brazil’s pharmacies. .

7




Opportunities Generics In Brazil, 20% of the total pharma sales can be attributed to generics, and 40% can be attributed to branded generics. At the expense of reference products, the rapid growth in this sector is presently advancing at a compound annual growth rate (CAGR) of over 20$ per annum. Robust growth such as this is a function of government policies promoting alternative, low-cost drugs and a delicate consumer price sensitivity. Similar to the United States Food and Drub Administration (FDA), in Brazil, reference products have exclusivity for 10 years from date of grant or 20 years from date of filing.

Competition is toughest in generics. Pharma companies are highlighting the existence of branded generics, when promoting alternative products, providing integrated advertising initiatives. Generic companies promote

the company name via mass marketing strategies instead of self-promotion. Brazilian football icon Ronaldo promotes generics company Neoquimica on his shirt. Similarly, Sanofi-Aventis, which recently bought Medley, uses racing cars and soccer shirts to broadcast its name. In the branded generics space, key players compete on promotional strategies and price, and also in sales force deployment. This is a sign of the extreme competition that exists in this space. Ache bought Biosintetica, which has a generic line of its own, and used that generic line as Ache’s brand name in the sector.

As to the sales strategies in the Brazilian pharma market, they differ greatly. Libbs and Glenmark, for instance, use smaller sales forces while focusing on sales force effectiveness. This reflects the pressure to avoid waste of sales calls and samples by targeting specific doctors. Retaining sales reps is crucial to maintaining long-term relationships with doctors, so bonus systems are designed to appropriately incentivize reps. These programs follow the common global pattern of encouraging monthly sales growth. Ache and Biolab, on the other hand, use more aggressive price and distribution strategies while deploying large sales forces.

8




Russia

Market Overview Russia is a hybrid market. While it exhibits double-digit growth similar to

the strongest emerging markets, its education level, average age, national

economy, and disease profile are similar to developed markets in Western

Europe. Russia has the oldest population among the BRIC countries, with

17% of its citizens aged 60 or older, the country also has the highest

prevalence rate of Western diseases—diabetes, cancer, cardiovascular

troubles, HIV/AIDS—in the major emerging markets.

Country

Total Healthcare

Expenditure (US

$ billions)

Compound

Annual

Growth Rate

(CAGR)

Forecasted

increase in

expenditure

Forecasted

percentage

increase in

expenditure

2006 2011 2014 2006-11

Russia 52.2 67.8 89.7 5.3% 21.9 32.3%

Table 2: Total expenditures in Russia in 2006, 2011 and 2016 predictions3

Challenges Increasing the Number of Sales Representatives Daniel Ghozzi, UCB’s Managing Director for the Commonwealth of Independent States emphasizes, “Russian physicians need the support of the pharmaceutical market and reps that provide resources and best practices are considered very valuable. A good sales force is absolutely required to grow a brand in Russia. Their pharmaceutical background is critical to create value.” Companies, therefore work to distinguish their sales forces to achieve a competitive advantage in the market.

3 Adapted from Global Demographics Healthcare Limited. http://www.global-dem-health.com/

Accessed 6/29/2012

9




If reps can position themselves as colleagues and specialists, they can communicate market intelligence as peers rather than promoters. “They are not sales people promoting a product,” says Olga Bogdanovich, Sales and Operations Analytics Manager at Janssen. “They are partners cultivating a very high level of cooperation between themselves and healthcare professionals.” Additionally, reps can positively influence prescribing behaviour by providing personally tailored presentations on digital detailing aids, while also providing compelling comparative analysis.

In BRIC countries like India and China, big pharma companies like GSK routinely lose 20% of their sales force to competing firms. Likewise, with similar attrition rates, it is difficult to retain high-performing reps in emerging markets such as Russia. This is significant because it endangers physician relationships and therefore growth, due to the extra time and cost associated with drops in productivity.

One of the reasons for such a high turnover rate is clear. “In Russia it is normal to see a director managing a whole business unit who is just 33 or 34,” says one expert in the Russian market. “If they do not see that growth potential, they will leave.” Reps in the Russian market have more ambitious expectations than their European peers. The pharm sector in Russia expands so quickly that employees expect similar advances in their salaries and career prospects.

In response to this, first-line manager routinely discuss career paths with reps and are very transparent about realistic goals and objectives. Raises and promotions come often and quickly to those high-performing reps that are willing to stay with their company, because, as the expert points out, “It is the only way to retain talent and protect the growth that comes with it.”

In an effort to strengthen the general rules regarding intellectual property, regulate data generated to win marketing approval and decrease the number of counterfeit drugs on the market, Russian passed intellectual property rights legislation in 2010. In 2011, Ron Kirk, the United States Trade Representative, placed China at the top of his Priority Watch List, with Russia as the number two country. The list designates those countries in which pirated merchandise is commonplace and intellectual property is poorly protected.

10




To date, the country is currently still relatively weak when it comes to enforcement, although they have enacted a new Bilateral Agreement on Protection and Enforcement of Intellectual Property, organizations need to be proactive in correlating international standards with local laws. Ghozzi reiterates that, “ensuring compliance is a crucial step to protect our patients and our reputation.”

As to the securing of federal reimbursement, some firms have choses to pursue a regional strategy. “We believe this regional focus will bring very good results,” says the Managing Director in Russia. Some of the available government money for drug purchases, for example, is distributed to regions to pursue healthcare spending as they see fit. The remaining funds are centrally designated. Consequently, stresses Ghozzi, “companies must target regional money but also initiate new programs to grow awareness and pull patients toward these brands.”

Opportunities Russia’s localized imports Russian currently contributes just 0.2% of the world’s supply of pharmaceuticals. According to Russian’s Pharma-2020 plan, the country aims to increase that to 3-5% by 2020, making them a significant manufacturer of biopharmaceuticals. By 2020, 90% of vital medicines will be manufactured locally, and 50% of drugs in circulation in Russian will be made domestically. Compared to the present statistics in which indicate that only 25% of gross sales are produced locally, this would constitute a major change. This means that 80% of the Russia’s federal drug supply funds are spent on importing pharmaceuticals.

Accordingly, companies such as Nycomed, Novo Nordisk and AstraZeneca have engaged the Russian government, informing them that they will invest in manufacturing in Russia. Likewise, other multinationals can successfully anticipate the coming shift by developing partnerships with local manufacturers to create localized imports to which Russia’s government is friendly.

11




The DSM Group forecasts that by 2015 the number of pharma importers with localized manufacturing will have grown from a negligible percentage today to 32%. This is because Russia has a very clear sense of economic strategy, claims UCB’s Ghozzi. For instance, multinationals that wanted to sell cars in Russia when the auto industry first arrived were told that they must support the Russian job sector and economy by establishing local manufacturing plants. Adds Ghozzi, ““It is the same story with pharmaceuticals now, and foreign companies should not overlook this because it will impact which brands receive reimbursement in the future.”

12




India

Market Overview India, with a population nearing 1.2 billion people has become one the

most potentially fertile markets with regard to pharma sales. The

healthcare system, historically characterized by a great demand-supply gap

is rapidly changing due to the middle class’ steadily increasing disposable

earning and purchasing power. India’s system of public health financing is,

like other emerging market is weak. It also has an underdeveloped private

insurance market. In 2010, the government only funded health

expenditures at a level of 1% of GDP. India has; however expressed an

intention to double or triple its expenditure by the end of 2012.

Country

Total Healthcare

Expenditure (US

$ billions)

Compound

Annual

Growth Rate

(CAGR)

Forecasted

increase in

expenditure

Forecasted

percentage

increase in

expenditure

2006 2011 2014 2006-11

India 41.0 60.4 117.7 8.0% 57.3 94.8%

Table 3: Total expenditures in India in 2006, 2011 and 2016 predictions4

Challenges Intellectual Property LawsIndia’s IP framework means that—in contrast to Western systems, where companies can rely on IP protection—the purpose of marketing is to create “brand differentiation in order to survive,” Rajashree Sharma, Partner at Corporate Law Group in India. “If the intrinsic value of the brand is high, and you visit the doctors and point this out, it will be very easy to penetrate this market.”


Accessed 6/29/2012

13




Chronic Disease The incidence of diabetes and cardiovascular disease is relatively high in India. This is true, despite the fact that the population has a median age of only 26 years old, lower than that of other BRIC countries. Most of the variation can be explained by considering cultural patterns of diet and physical activity, along with genetic predisposition. Drug therapies for such chronic diseases represent substantial and continuing market opportunities for pharma companies, particularly as the country’s vast population ages.

14




China

Market Overview China has a national heath system, but because government subsidy accounts for less that 1% of GDP, they system is vastly underfunded. This underfunding results in a wide disparity of need and access between patients of different geographic regions. For instance, the rural poor have access to the most basic healthcare and almost nothing else. These patients’ principal needs are acute care, however timely diagnoses and effective remedies are not strong points of the Chinese healthcare system.

Country

Total Healthcare

Expenditure (US

$ billions)

Compound

Annual

Growth Rate

(CAGR)

Forecasted

increase in

expenditure

Forecasted

percentage

increase in

expenditure

2006 2011 2014 2006-11

China 142.3 237.6 415.5 10.8% 180.9 71.7%

Table 4: Total expenditures in China in 2006, 2011 and 2016 predictions5

Intellectual property Generally, China has historically lacked effective intellectual property (IP) protection in many industries. However, since as in other countries, the IP framework impacts branding strategies, the government is now moving to strengthen that framework.Dr. Susan Wang, strategic director, Ricerca Biosciencies asserts that “it’s very important going forward for new molecules to apply for a China patent along with a US or other patent.” In the past, many branded drugs have found it sufficient to apply for US patent protection only. But today, such drugs that in that situation have


Accessed 6/29/2012

15




weak IP positioning. Thus, despite the delayed product launch, a Chinese patent is a must.

China does not have a separate category for branded generics. Instead, they operate on a two-tiered system that encompasses patented and generic drugs. For example, the government may regard a US drug as generic even though the company has marketed its product as a branded generic because of its superior quality control or manufacturing expertise. Still, just as with domestic companies, a significant price cut may be applied to its product.

Opportunities Government regulation “In China, the company name is much more important than the brand name itself,” notes an experienced observer of the Chinese market who currently works at a global pharma company in China. Pharma companies must make and maintain investments directed to “developing a company image and staking a claim to that part of the market. This continued exposure makes it clear that a company has experience in a particular area.” This means that companies new to China can either go it alone, or partner a Chines company already in the market. Dr. Wang insists “if you want to go it alone, it takes a long time and requires big investment.”

“The key issues” says the China-based pharma executive, “are that doctors understand what your product is. The drug company must understand how [doctors] feel about your product and what those doctors want and need.” This includes information about career development, clinical trials and research. Still, ethical standards that apply to international relationships prevent multinational pharmaceutical companies from making explicit quid pro quo agreements linking funding research to securing prescriptions.

Since China disallows the advertising of drugs directly to consumer, drugs are advertised in professional periodicals. Further, because China exercises strict control of Internet use, social networking strategies are equally constrained. Consequently, circulation of drug specific information is not permitted on the Internet. Instead, it is allowed to publish more general

16




information on diseases, their etiologies, pathophysiologies and treatments.

Companies must stay abreast of pharmaceutical-relevant government policies because direction and focus can change overnight given dynamic shifts in centralized government policy. Dr. Wang, explains this phenomenon be explaining that despite China’s economic liberalization, the political structure is highly centralize and it maintains a significant impact on the day-to-day life of citizens.

17




Ind

ia

Challenge Competition from generics as well as other pharma

A lack of IP

protection makes

it difficult to stave

off competition

Brand substitution – despite the initial prescription,

generics are often taken instead.

Strategy

Brand

differentiation – is

crucial where

aggressive pricing

strategies are

unsustainable

Clear commercial strategy –

whether to build, maintain,

harvest or exit a brand

Building brand

extensions – to

build on past

successes

Intimate customer

relationships and

brand awareness

strategies

Distribution policies –

encouraging pharmacies to

stock more products

Ch

ina

Challenge Where to begin

tackling the

market’s potential?

Pre-marketing/regulatory approval

Patients – price

sensitive, with an

existing preference

for surgical

intervention direct

advertising

Government policies subject

to change

Strategy

Targeting

continuing chronic

diseases (e.g. liver

disease)

Clear product focus: niche

product or not?

Engagement

with key

opinion leaders

for their

continued

support

Patient education

strategies and

flexible pricing that

redress the concern

that

pharmaceuticals are

a continuing

expense

Have a coherent plan, which

has the full support of

regional affiliates, yet

anticipate that change is

likely not inevitable

Ru

ssia

Challenge Geography Physician Support Rep retainment Corruption/ compliance

Strategy Digital strategies Pharmaceutical background for sales reps Incentivisation –

clear career paths

Bespoke international ethical

standards

Bra

zil

Challenge

Fragmented

pharmacy sector –

60,000 pharmacies

nationwide

Stakeholder drivers are not easily met first time

round

Market access

difficulties

Short brand life cycles –

leading to inevitable price

erosion

Strategy

Targeting pharmacy

networks – 10% of

pharmacies achieve

80% of sales

Stakeholder mapping – understand drivers and

mobilize your stakeholders

Co-promotion

partnerships

Focused business

development – need a

considered pipeline to

replace products

Table 5: Executive Summary of Challenges and Strategies for Brazil, Russia, India and China

18




About eyeforpharma

eyeforpharma (www.eyeforpharama.com) facilitates the change of pharmaceutical business models that place the needs of patients for affordable and accessible healthcare at the center.

As an ‘eye’ for and on the industry, eyeforpharma exists to help pharmaceutical companies stay clearly focused on the core reasons they exist to give them the strategic tools they need to be successful in truly serving patients with ingenuity and real value and to continue to innovate to meet changing healthcare realities.

We have organized conferences and offered strategic advice for the pharma industry since 2002 and have grown by an average of 50% per year since then. Our mission continues to be the advancement of communication and information exchange within this dynamic and ever-changing facet of the healthcare industry.

emerging markets review 2012

Documents