emerging markets second tier

8/10/2019 Emerging Markets Second Tier

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EMERGING MARKETS:THE SECOND TIER

n Analysis of the major challengeswhen launching products in secondtier emerging markets

n First-hand commentary from expertson how to navigate key territories

n Pharmaceutical market countryprofiles of Vietnam, Thailand,Indonesia, Pakistan and Ukraine


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2 | eyeforpharma: Emerging Markets: The Second Tier For more pharma business intelligence visit www.eyeforpharma.com

Author

Robert Imonikhe

Editor

Craig Sharp

Disclaimer

The information and opinions in this report were prepared by eyeforpharma (FCBusiness Intelligence) and its partners. FC Business Intelligence has no obligationto tell you when opinions or information in this report change. eyeforpharmamakes every effort to use reliable, comprehensive information, but we make norepresentation that it is accurate or complete. In no event shall eyeforpharma (FCBusiness 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 orcontents of this report.

No part of this document may be distributed, resold, copied, or adapted withouteyeforpharmas prior written permission.

FC Business Intelligence Ltd 2013


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For more pharma business intelligence visit www.eyeforpharma.com eyeforpharma:Emerging Markets: The Second Tier| 3

ContentsIntroduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Key considerations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

The right price?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Cultural challenges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Cultivating local talent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Build pockets of entrepreneurship. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Local Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Thinking beyond the pill in emerging markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Planning ahead. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Tailoring to local needs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Out of pocket expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Shifting Epidemiological patterns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Vietnam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Corporate landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Drug Regulation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Entering the market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Patient Assistance Programmes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Finding accurate data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Reimbursement challenges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Indonesia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Local competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Regulatory challenges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Accessing a rural population . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Key challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Pakistan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Ban on Indian generics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Ukraine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Who you know. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Brands vs Generics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

A market of its own . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Bespoke communications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Finding the right niche. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Building credibility in an opinion based system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Regulatory challenges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21A golden opportunity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22


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IntroductionOver the last decade, emerging markets have captured the attention and imagination of world business leaders,

becoming the stars of the global economy. In the pharma industry, the growing focus on emerging markets hascarried added potency borne from challenges in established territories. Developed markets face stifled growthprospects, symptomatic of economic malaise and slowing innovation. Industry analysts are split as to how acutethe slowdown will be. For North America, IMS Health anticipate a change of somewhere between 0.3% growthand -2.7% contraction in 2013. In Europe the organisation projects the pharmaceutical market will change in sizebetween shrinkage of -1.8% and growth of 1.2%. In response to this pharmaceutical executives are turning to newterritories to help deliver growth. A March 2013 survey of executives at pharma and generics companies, carried

out by Booz & Co, found that just over half of respondents expect more than thirty per cent of their global salesto originate in emerging markets by 2018.1The strategy is again rooted in the story told by growth forecasts: IMS

forecasts growth in Asia in 2013 between 11.4% and 14.4%, outpacing Latin America where expansion between 9%and 12% is expected.

Initially, the limelight fell on the largest developing markets, such as Brazil, Russia, India and China. Since 2001 when

Jim ONeill of Goldman Sachs coined the term BRICs for these high-growth nations, business appetite to establisha foothold there has been voracious. Armed with experience gained from breaking into these territories, and otherkey markets for the industry such as Turkey and Mexico, leaders in pharma are paying increasing attention to theso-called second tier of emerging markets - the countries outside of the larger BRICMT economies but excludingthe most risky third-tier regions including Africa. Multinationals have already established some presence insecond-tier markets, though now they are seeking to expand this foothold and capture more of the market. Thereis good reason behind the strategy, what the second tier countries lack in size, they make up for in opportunity;

with comparably less competitive environments than first tier emerging markets, high growth rates (between sixand ten per cent) as well as imports and consumer spending growing at twice the rate of developed economies.2

Incomes are projected to rise significantly in the years ahead across all of the countries specifically covered in thispaper: Indonesia, Thailand, Pakistan, Vietnam and Ukraine. In light of this fact, companies that wish to capitalize onthe larger pharmaceutical market opportunity on the horizon must invest now to cultivate positive reputations asreliable, long-term investors. Additionally, by moving early and acquiring market share in these regions, firms can

establish themselves before the rush and be first to capitalize on positive economic and demographic trends.

However, while many leading companies in the pharmaceutical industry are now generating significant chunksof overall revenue from emerging markets, the path to this achievement has been far from smooth. The marketaccess hurdles are multifarious; including nuances of culture, reimbursement restrictions, pricing issues andregulatory challenges. In addition to this, as Jamie Davies, Head of Pharmaceuticals & Healthcare at BusinessMonitor International (BMI), points out, they are a high-risk environment in which to do business. In a matter of

days, a second tier emerging market could conceivably go from being a highly attractive market to being politicallyunstable, halting progress in its tracks.

Recently, global macroeconomic trends have also impacted the attractiveness of emerging markets for multi-national enterprises. While the developed world is at last showing signs of crawling out of recession (the US,

Germany, France and the UK have all returned to growth), the second half of 2013 has seen emerging markets hitby large trade deficits, capital flight and depreciating currencies, according to the FT. Speaking to the paper, JorgenElmeskov, OECD deputy chief economist pointed to a widespread loss of momentum [in emerging economies] asresponsible for a sluggish global economic performance.

Recent hiccups in the growth trajectory of emerging markets should be considered in context, however. Emergingmarkets have always been volatile, in particular Brazil, which has attracted negative economic commentary.Looking at a longer-term period, the fundamentals remain consistent. Incomes are projected to rise and theepidemiological profiles of emerging economies are anticipated to fall closer in line with trends seen in developedmarkets, due largely to lifestyle and diet changes. Emerging markets suffer from a disproportionate level of politicalinstability. Because of the fluctuating economic growth and political challenges, undeveloped territories are risky for

businesses in all sectors. However, the overarching trends will continue to attract global players to the second andthird tier emerging markets. Also, as we will see, those who invest early on are likely to benefit from less competitiveenvironments and build trust with local stakeholders. According to analysis from Booz & Co and IMS, so called,second tier territories, in particular Vietnam, Indonesia, Thailand, Pakistan and Ukraine, are witnessing the strongestgrowth and are some of the most attractive threshold markets to enter.

1 Pharma Emerging Markets 2.0 How Emerging Markets Are Driving the Transformation of the Pharmaceutical Industry, Booz & Co, 20122 Securing the next level for growth, Second Tier Emerging Markets, Deloitte, 2012


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Recognizing the growing trend to gain access to second tier emerging markets and the intensity of challenges

there, this paper will seek to provide actionable insights. It combines data and information from recent studies aswell as first-hand experience of senior industry executives, to offer a guide to overcoming the key challenges and

tips to capitalize on rising opportunity. We will include a focus on some of the most promising, though least widelydiscussed second tier fast followers: Vietnam, Thailand, Indonesia, Pakistan and Argentina, putting forward solutionsto overcome the key issues pertaining to the healthcare systems within each of these individual markets. Whendeciding on which second tier countries to look at, we examined numerous reports and spoke to several sources;the final five were selected from a shortlist compiled of countries based on most frequent mentions plus predicted

economic growth.

Note: Bubble size is 2012 population, World BankSource: Booz & Co, World Bank, IMS Health Market Prognosis

Pharmaceutical markets growth vs market size (2012)


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Key considerations

The right price?The trend for international governments to crack down on high pricing by multinational drug manufacturerscontinues. Pricing is one of the biggest risks faced by multinational pharmaceutical firms when entering emergingmarkets, says Jamie Davies at BMI. When it comes to expensive pharmaceutical products, more and more, heexplains, Governments are saying the country (both public and private sector) just cant afford this.

This marks a departure from the approach traditionally taken by firms in the developed world, he points out,

whereby drug makers generally set the price of their products, having earned the right to have a monopoly. Afterinvesting heavily in research and development, theyve got the patent and can charge what the market will bear says Davies. Companies are only willing to drop prices, he adds, in exchange for higher volumes; furthermore itssomething that they are forced into rather than actively choose.

The growing trend to introduce price controls - either by reducing reimbursement allocation or other more complexmethods - accentuates the need to develop a clear and transparent relationship with government in order to find

solutions. When pricing controls come into play, some reduction in price is inevitable, though creative solutionscan help to find alternative sources of revenue or mitigate the impact. For example, later in this paper, the Head ofMarket Access for Roche in Vietnam shares his ideas about growing revenue from private health insurance.

Padmanabham Navuluri, Vice President of Strategy for the Life Sciences Practice at Genpact, notes that there isa considerable gap in world view between western pharmaceutical companies and emerging markets payers.One of the ways this divergence in thinking manifests itself is in the attitude towards patents that businesses haverelative to governments in emerging markets. From pharmas perspective, he says, patents are important to drive

innovation. Contrastingly, emerging market governments are dealing with extremely low per capita incomes andhealth budgets, stacked up against comparatively enormous costs for lifesaving therapies. They will inevitablyask, how are people going to afford a 50,000 cancer treatment? Governments in emerging markets operate ina different paradigm says Navuluri, and trying to understand this takes a little bit of rethinking. However, he ispositive about the role of even specialist pharmaceutical firms in the emerging and developing world. At the end

of the day, all pharma companies stand not only for big profits, they also want to supply products and drugs to thepatients. So the way forward involves, thinking about this bigger goal and in terms of local challenges.

Navuluri is not being Utopian; he is championing the importance of recognising the different perspectives ofthe person on the other side of the negotiating table. He notes that when negotiating pricing, while the profit-ability goal still remains, you also have to think about the perspectives and work a way around how you make

products available. He gives the example of a programme in India, where a major pharmaceutical firm gave awaya proportion of a treatment. In fact in that case he says, they had not been asked to give away drugs free, justto make them accessible. This strategy was flawed, because the company was, willing to give away some drugsfree as an outreach programme but not willing to price them later at a level where people can actually buy them.Communicating with regulators in emerging markets about these issues also requires understanding culturaldifferences and regional nuances says Navuluri.

Cultural challengesCultural challenges are a major barrier when entering emerging markets for all industries. The complexity ofpharmaceuticals makes this factor all the more pronounced. Conor Griffin, Managing Director of Straight LinesIntegrated Communications who has worked as Head of Corporate Communications for both Novo Nordisk and

Roche, gives us the example of a new country manager at Novo Nordisk attempting to instate the companyswork-life balance ethos in Japan. He called a meeting in the new office and told each employee to go home to hisor her family by half past six. Later on at half past eight, he came back to a full office, with workers still busy at theirdesks. His Japanese colleague explained to him that if workers go home before ten oclock their families will thinkthey are failures and they will lose a level of respect. According to Griffin, normally Novo Nordisk is highly effectiveat cultivating local talent and is sympathetic to different cultures. When you try to enforce your own culture in anemerging market, it doesnt work. The key to opening a new office, he advises, is to tread lightly, source local talent,

listen and make sure youre listened to by powers that be [internally]. He advocates moving slowly and consider-

ately; taking a long term approach.


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Corruption

One of the major risks currently threatening investment across second tier emerging markets is bribery

and corruption. Recent concerns stem from the uncovering of illegal practices in China by employees ofGlaxoSmithKline and other multinationals, including Eli Lilly, Novartis, Sanofi, Lundbeck and AstraZeneca.

While acknowledging the ethical implications of such corruption, Griffin also sees the recent accusations ofbribery faced by GSK in China as another example of cultural clashes. While he says he has never come across suchbehaviour in his career, in China as in Vietnam the fact is that currying favour by giving gifts and money is accepted

business practice. It may well be illegal, but people who have experience operating in emerging markets note that itoccurs frequently in business life. This practice is changing in China, and as pharmaceutical firms lobby governmentfor stricter rules it is likely to change across all growing markets, though it remains a challenge.

GSK has come out with strong statements against bribery, admitting that while some employees have broken the

law, that they share the desire of the Chinese authorities to root out corruption wherever it exists. Most multina-tionals, including GSK, already have clear and strict anti-corruption policies. Even still, recent revelations will have,huge ramifications for the industry [] not just in China but other emerging markets, says Jamie Davies of BMI. It

sounds like the Chinese are cracking down on it and undoubtedly other countries will follow. In addition, companiesthemselves will be looking at their practices. According to Wang Yaoguang, director of the pharmaceutical lawinstitute at Tsinghua University, quoted in China Daily, the issues in China stem from a lack of regulation. There are

no regulations guiding how a drug maker should promote a new product to hospitals and doctors.

Pierre Morgan, Chief Marketing Officer at Cegedim, advises pharmaceutical firms not to be afraid of cracking downhard on corruption. When management implement tougher practices to curb bribery, he says, the typical reactionfrom operations is that its the end of the world. However, in his career he says that in actuality it represents positive

progress from a business as well as ethical standpoint. The doomsday scenario never materialises, he says, particu-larly because most companies are cleaning up their practices. There may be a period of time when local playerscould have edge because they maintain dodgy practices, but it wont result in long-term success, says Morgon.

Cultivating local talent

Conor Griffin expounds the value of tapping local talent when moving in to the second tier emerging markets. Henotes that many multinational companies only trust their own home-grown people, when building a new office.Furthermore, he expresses the importance of country manager roles in emerging territories being seen more assomething you need to really earn such that they will attract the best people. Instead, Griffin reflects on one

example where a country manager was recently shipped out to manage the new office in a second tier market.Rather than being seen as a prestigious, key role, it was seen as a last resort option in terms of human resourcesmanagement. The ideal country manager, Griffin suggests, might be someone local who has risen through theranks, perhaps done a stint in head office with the intention of going back to run the country office.

Its also important that central management listen to regional expertise. Often, he notes, in terms of pricing andother key strategic issues, advice from local managers is not always listened to. Part of this comes back to ensuringthat you have good talent posted in challenging second tier markets or as Griffin says, you need people at everylevel who are trusted.

Build pockets of entrepreneurship

The long term approach to accessing emerging markets is mentioned by almost all of the contributors to thispaper. For Griffin, it means, overinvesting at the outset and building a more locally developed senior team. He alsoadvocates investing heavily in communications, marketing and branding. In developed markets, multinationalsdetermine this budget as a proportion of profits, but when trying to build a new presence he says, that doesntalways work. He advocates building pockets of entrepreneurship in key second tier territories, departing from theslow moving super tanker characteristics of many major firms in order to capitalise on opportunities fast.

Local Investment

Cyrus Chowdhury, CEO of pharmaceutical consultancy CBPartners, highlights the value of establishing some form

of manufacturing presence in your target region. When it comes to second tier emerging markets, he notes that,government [] needs to know that youre investing and having a positive impact. Part of this revolves aroundcreating opportunities in the labour market. Job creation, he says, is a big deal, in so far as it can help improve the

perception of your company in the eyes of government and other key stakeholders.


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Padmanabham Navuluri, advocates the value of securing a local partner, irrespective of whether or not the region

you are targeting absolutely demands it. This can be helpful in a number of ways, not least to get an understandingof local pricing levels. One of things thats most important for you when operating in emerging markets is to

recognise the different pricing environment. Navuluri indicates that in second tier emerging markets the samemolecule can be priced as much as ten times lower than it is in developed nations. As a result of this discrepancy,he says, you have to operate under a different business model and strategy. Developing a new business modelin response to a pressured pricing environment is a major feat, he accedes, one that often you cant do quickly,because companies are used to a certain cost structure. The key factors to consider when trying to deal with tight

margins though, are distribution and keeping manufacturing costs low. When it comes to these factors, a localpartner is useful not just because of their knowledge of regional operating requirements but also because, theycan help adapt the business model.

Wider industry research also points towards the benefits of investing in a local presence. One strategy highlightedby Booz & Company is to invest ahead of the market. This means building up local infrastructure and an influenceon health policy. This long-term approach requires significant initial investment, but can help lead to a larger marketshare and a lasting presence. There is wide variance in approaches among major pharmaceutical firms. At Pfizer

for example, emerging markets teams take direction from head office in the US, and there are a limited numberof regional offices. This approach means that the global influence on affiliates is considered to be quite strong

compared to that of other pharmaceutical companies.3MSD on the other hand, break down emerging markets into several country clusters. Booz & Co also report that the companys management are continuously on tour acrossemerging markets.

Roche and Bayer take a more localised approach. Roche has regional emerging market headquarters while Bayer hasheadquarters in the regions with strong influence. According to Booz & Co. Bayer relocated its primary-care businessunit to Beijing in 2011, recognising the disproportional relevance of emerging markets for that unit s products.Looking ahead, the consultants say they expect to see more companies act like Bayer shifting power from globalheadquarters to stronger regional organisations.

Thinking beyond the pill in emerging markets

Olivier Jarry, Managing Partner at Triple Bottom Line Consulting (3xBL) believes in taking a creative approach totap the opportunity presented by emerging markets. Thinking beyond the pill means drug companies beingmore than just manufacturers of products, and evolving into healthcare firms with an interest in other aspects ofthe wellbeing of the countrys population. This is the approach Jarry believes can help firms to develop a stronger

profile in emerging, as well as developed countries, and improve their perception among government. For example,he suggests, one company approached the government in a second tier market saying, education is poor onkey therapies among physicians, so let us work on educating them. This kind of programme builds trust withgovernment, though he notes, most companies are terrified of talking to government, because they fear that theyjust want to push back on price,

Planning ahead

Cyrus Chowdhury, Chief Executive Officer and Managing Director at CBPartners points out that the pharmaceutical

industry has been relatively slow to recognize the need to implement a global clinical trials strategy. He notes that,market access isnt really something that you even need to worry about until after phase two or phase three trials.However, you need to determine what the trial design is going to be six or seven years in advance of this time.

This is in order to create a body of evidence that will support your access in to a particular market. As this varies

across different territories, firms need to spend time considering a vast number of different regions and regulatorybodies even prior to trial phase for new medicines. Its a big issue notes Chowdhury, pointing out that, trying tounderstand what payers will want in six or seven years time is a major hurdle. Pharmaceutical firms continue to tryto tackle this question, though with the growing global spread of growth opportunities, it looks set only to grow inimportance.

Tailoring to local needs

Blindingly apparent from all of the contributions to this paper is that no market is the same. Success in Russia does

not set you up to enter the market in Ukraine, while similarly doing well in China will have no bearing on yourperformance across Southeast Asia. There can be wide variances in terms of culture, healthcare infrastructure and

3 Pharma Emerging Markets 2.0 How Emerging Markets Are Driving the Transformation of the Pharmaceutical Industry, Booz & Co, 2012


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the decision making process. Leaders in developed markets may not always be aware of the particular international

nuances and often this can slow down progress. The key lesson from this paper is not to simply repurpose previ-ously used marketing materials or strategy for a new territory. Instead, businesses must work in tandem with local

talent to devise a fresh approach that is unique to the particular country they want to enter.

Out of pocket expenditureOne of the key challenges across second tier emerging territories is navigating a marketplace where a significant

proportion of spending on pharmaceuticals comes from out of pocket expenditure. In Vietnam for example up totwo thirds of spending on drugs comes from household incomes, while in Pakistan there is also a major burden onhouseholds. This is changing at varying degrees of speed across all of the markets in this paper, though it presentscompanies with an immediate challenge with a number of critical touch points. Firstly, its crucial that global firmsprovide ethical, valuable information to healthcare consumers. This builds trust and sets out their position as along-term player in the eyes of all stakeholders. Educating consumers is something that some drug companies are

already actively engaged in, particularly supporting them to follow medical advice for prescribed medicines earlierin their il lness to avoid much larger expenses if conditions worsen or complicate. Secondly, companies need to

be realistic about how much they can charge for therapies if they know that consumers will be managing costsindividually. There are examples of patient assistance programmes and other cost-saving initiatives, which showthat there are economic alternatives to either sell ing very few units at a high price or not launching a product. Byengaging in the provision of more affordable drugs, firms also generate positive sentiment towards the company

while proving that the therapies work. As these markets grow and develop, firms with a well-nurtured profile will bebest placed to reap rewards.

Shifting Epidemiological patterns

As lifestyles in emerging markets catch up with those in the developed world, a corollary shift in disease patternsis to be anticipated. Pierre Morgon points out that sedentary lifestyles becoming more common will lead to anincrease, particularly in instances of non communicable illnesses such as diabetes and cardiovascular diseases. TheWorld Health Organisation anticipates that in Southeast Asia, mortality rates from cardiovascular diseases will rise

from 28% in 2008 to 35% by 2030. At the same time, mortality caused by infectious diseases, complications in child-birth and malnutrition in the region are expected to fall from 32% in 2008 to 14% by 2030. There will be significantvariances between emerging markets, though general disease patterns are projected to more closely reflect thosein developed countries in the years ahead. This will cause pharmaceutical firms to assess their strategy in line withtrends in given territories. Countries catching up fastest with western countries may be ideal grounds to extend thereach of products marketed in developed territories. On the other hand, all territories will require close monitoring

of disease patterns, supported by the most accurate data available. In this way pharmaceuticals firms can tailor theiroffering to market needs on an ongoing basis. The scenario to avoid is being left behind as disease patterns change,failing to meet healthcare needs and underperforming commercially as a result.


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Overview

There has been an almost four-fold increase in GNI (Gross National Income) per person in Vietnam over the last tenyears, as World Bank Data illustrates. In terms of pharmaceuticals, Vietnam one of the fastest growing markets inthe world, worth approximately $3bn in 2012. According to Business Monitor International (BMI), Vietnam is ranked13 of 175 countries for healthcare market spending growth. BMI anticipates that in 2013 pharmaceutical spendingwill increase by 16.6% compared to the previous year. In 2010, average spending per person on pharmaceutical

products was $104 per year. This figure is expected to double over the next few years, as the countrys affluencegrows and national health coverage is expanded from 65% of the population to 90%.

Jamie Davies, Head of Pharmaceuticals and Healthcare, Business Monitor International points out that increasinghealth coverage in south east Asian economies could be a major source of growth for the pharmaceuticals industry,but it may not bear fruit for over a decade. Vietnam is one of the countries pressing forwards to improve coverage,

however, as Davies points out, the problem is that doing it is much harder than saying you are going to do it. Henotes that while official statements may say, were going to have everyone covered in five years [] it will probablytake ten of fifteen -it never goes smoothly. The challenge, says Davies is that, it costs money and what works forone country doesnt necessarily work for another. As a result, each individual government must find its own wayout of the dark. Davies insists that its a positive step, compared to countries where universal healthcare isnt evenon the agenda, though the governments face obstacles principally because, they are more or less finding out for

themselves all of the things that can go wrong.

Despite its drawbacks, the Vietnamese pharmaceutical market is attracting growing attention from big pharma.Some firms are investing in manufacturing facilities in Vietnam, for example Japanese firm Nipro PharmaCorporation, which built a new pharmaceuticals and medical devices plant for a total investment of $250m in

2012. Others are buying their way into the market; such Netherlands based Stada Service Holding which lastyear purchased 25% Vietnamese drug maker, Pymepharco. Elsewhere, partnerships are the preferred route, withGlaxoSmithKline recently linking up with Vietnamese firm Savipharm who will distribute their products in thecountry.

Padmanabham Navuluri notes that Vietnam is a highly attractive market to many companies for a number ofreasons. Its a relatively open market he attests, suggesting that foreign companies with the will to enter themarket can do so. In addition to this, one of the major draws of the Vietnamese market is the relatively thincompetition. Competition is not as intense as say for example in India or Thailand, Navuluri comments. Part ofthis is because the local pharmaceutical industry is not massively developed. The local suppliers are not meeting

the entirety of demand [] approximately only 40% of demand is met by local suppliers. As a result, importsform a large proportion of pharmaceutical consumption in Vietnam, and furthermore, regulations prevent peoplefrom importing drugs from other hubs to sell in Vietnam. As a result of the regulatory structure of the Vietnamese

US$

1,700

1,600

1,500

1,400

1,300

1,200

1,100

1,000

Source: World Bank

2008

1070

2009 20112010 2012

VietnamVietnam GDP per capita

GDP per capita:$1,596 Growth:5% (2012) Population:88.8m Lifeexpectancy:75 (2011) IMR:17 deaths/1,000 live births Healthcarespending:

$2.6bn(2011) FDI: 16.3bn (2012) (increase of

4.7% on 2011)


11/24


pharmaceutical sector, Navuluri indicates that companies prefer to maintain only a skeleton presence in the

country rather than setting up big manufacturing plants.

Corporate landscape

Developments over recent years have streamlined the process for foreign pharmaceutical companies to set upbranches or subsidiaries in Vietnam. This loosening of regulation has helped support firms who wish to expand their

footprint in the region. For example, Roche has been building out its team in Vietnam over the last three years, saysNguyen Van Tung, Market Access & KAM Director at the Roche Representative Office in Vietnam. Year by year Rocheis fast developing in Vietnam and now were on track to become the third biggest pharmaceutical company inVietnam [] this year we have a full team including market access, medical and governmental affairs etc.

Drug Regulation

The Drug Administration of Vietnam (DAV), under the MoH, is the countrys primary drug regulatory authority. Inorder to have a chance of listing a product on the national reimbursement list, foreign companies must either:

partner with a local distributor, acquire a license to manufacture drugs within Vietnam or obtain a trading license.As with many foreign pharmaceutical firms operating in Vietnam, Roche opts to sell products through a Vietnamesedistributor.

Tung warns that the process of obtaining the necessary approvals to bring a drug to market in Vietnam is highlytime consuming, taking a minimum of five years. There are two main routes: firstly, when selling an existing productin Vietnam companies require five years of effectiveness data from outside of the country. Alternatively, pharma-ceutical companies must conduct a clinical trial in Vietnam. This, says Tung, is the first challenge for launching newproducts in Vietnam.

Entering the market

Under Vietnamese law, Foreign Invested Enterprises (FIE) are not allowed to distribute pharmaceutical productsin Vietnam. Therefore, foreign drug companies generally turn to Vietnamese distributors to sell their products

on the Vietnamese market. A number of firms are lobbying to change this law, under an organisation called thePharma Group, though progress to date remains slow. AmCham Vietnam, an independent association of American

and international businesses is another organisation attempting to improve the environment for multinationalsoperating within Vietnam.

Drugs are distributed via commercial channels (pharmacies) or hospitals in Vietnam. Which channels to focus yourattention on will depend on specific therapies and there target markets. For high price treatments, the key channel

to influence decision makers will be hospitals. Foreign companies take part in a bidding process to have their drugsprescribed at hospitals, though the process is far from transparent. A government inspection in 2010 uncoveredextensive corruption, with hospital authority members bribed by some companies.

Patient Assistance Programmes

Patient Assistance Programmes (PAPs), which assist individuals unable to pay the cost of their medication, are yet tobe widely implemented in Vietnam. There is evidence to suggest though that PAPs will become more common in

future, particularly after the success of initial attempts. Nguyen Van Tung of Roche states that his company has beenone of the first to implement such a programme in Vietnam. While this type of pioneering should be celebrated, headmits that it has brought a lot of challenges, and progress is on-going step by step.

Finding accurate data

Another key challenge with the Vietnamese market, as with other emerging markets, is the lack of availability ofquality patient data. Determining the number of patients with a specific therapy need, or their ability to pay for thattherapy is not a straightforward process. At present, pharmaceuticals firms must extrapolate from expert opinions,estimating the potential market for particular drugs. This makes marketing a challenge. Nguyen Van Tung, MarketAccess & KAM Director at Roche in Vietnam, reveals that in order to build a picture of the market they estimatebased on ideas collected from key opinion leaders and an advisory board.

Reimbursement challenges

Even if a drug obtains the necessary approvals for distribution in Vietnam, winning reimbursement from the


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government remains an uphill struggle for many multinational companies. Nguyen Van Tung points out that

reimbursement challenges arent only a feature in Vietnam, but everywhere governments are trying to limit expend-iture on high priced medicines. Because governments are obviously facing serious budget challenges, Tung believes

that the solution is not to ask the government for more funding. Instead, he advocates sourcing more revenuefrom private channels, holding up the new Chinese health insurance model as an example to follow in Vietnam. Theintroduction of private health insurance in China has been highly successful, according to Tung, and now aroundten million people have bought private health insurance. Tungs view is that this is one way companies like Rochecan share the burden with government going on to say that he supports the introduction of a similar scheme in

Vietnam from next year. According to a report by Booz & Company, Vietnam is implementing a centralized annualtendering program in 2013 and has introduced a price cap in order to help make drugs more affordable.

Olivier Jarry, Managing Partner at 3xBL notes that Vietnam is appealing as a booming economy. Jarry also points

to the attractiveness of a relatively undeveloped local pharmaceutical sector and few competitors. One of thechallenges in Vietnam is that a large proportion of the country dwells in rural, isolated locations. Another key issueis heavy government involvement and a high rate of corruption. There is still a persistent culture, Jarry notes offavouring local businesses or extracting money from rich foreigners. This leads to a slowdown of the progress for

companies in Vietnam says Jarry, though despite the roadblocks, the potential benefits of entering this marketstill outweigh the risks. Many companies are looking to enter the market but they are moving slowly, according to

Jarry and in many cases flip flopping between positive and hesitant rhetoric.


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Overview

The Indonesian pharmaceutical market is estimated to be worth approximately $5bn. The country is developing ata fast pace, with GDP growth in 2013 set to reach 6.2%. While recent downgrades in growth prospects for emerging

markets have slashed the perceived opportunity in many first tier countries, Indonesian growth is still anticipate tostay close to this level by the majority of economists and industry analysts. Driven by macroeconomic, social andpolitical factors the pharmaceutical sector is set to grow at between 12% and 13% this year. Indonesia is spending

more on healthcare as its economy develops. Annual pharmaceutical spending per capita is anticipated to rise fromjust $18 in 2010 to $125 per year by 2014.

Olivier Jarry believes that Indonesia is an appealing country for pharmaceutical companies, and a key secondtier emerging country because of its size (in terms of population), as well as the preferable government attitudeand regulatory system. As in other South East Asian economies, Indonesia is seeing the emergence of universalhealthcare, as the government boosts spending. In addition, the ministry of health plans to develop a nationalhealth insurance system with the aim to achieve universal coverage by 2019. Foreign companies are watching the

market carefully for the rules of the new system to be clarified.

Local competition

While in other second tier countries the local pharmaceutical market is relatively undeveloped, competition isstrong in Indonesia. Jarry notes that in contrast with Vietnams emerging pharmaceuticals sector, Indonesia is much

more advanced in that respect, they do have local industry including [] a few very powerful local manufacturersand distributors that make life challenging for foreigners. Nevertheless, he notes that this will or should not dissuade

foreign firms, thats competition and its fine he comments. Three quarters of domestic demand for drugs is metby companies operating within the region. The largest company Kalbe Pharma dominates with 15% of the market,while foreign firms Bayer, Pfizer and GSK hold just 8% together.

Regulatory challengesWhile the market is attractive, local regulations make accessing the market challenging. There are strict rules

governing foreign ownership of Indonesian businesses, which essentially rule out straightforward acquisitions asa route to entry, though would-be buyers can partner with local firms to do deals. Under the legislation, foreigncompanies are not permitted to hold more than 75% of domestic drug companies. The other 25% of a companymust be owned by an Indonesian national. Indonesias MOH has hinted that it wants to drop restrictions on foreign

ownership of Indonesian pharmaceutical firms. While this has not yet taken place, hopes are growing for a shift inpolicy. If restrictions on foreign ownership are lifted, many foreign pharmaceutical executives have said they would

like to expand their Indonesian operations. For example Novartis president revealed that the company would beinterested in opening R&D facilities in Indonesia if rules were relaxed. Evidently then, although there are ways to

US$

3,500

3,000

2,500

2,000

1,500

1,000

500

0

Source: World Bank

IndonesiaIndonesia GNI per capita (US$)

GDP per capita:$3,556.79 Growth:6.2% Population:247m Lifeexpectancy:69 IMR:27 deaths/1,000 live births Healthcarespending:$52.7bn

560

2,940

2000 2002 2004 20082006 20102001 2003 2005 20092007 2011


14/24


overcome the rule, it has discouraged potentially transformative investment. In other policy areas the Government

has been more progressive. Investors in the country have welcomed reforms to legislation. Until recently, all drugsregistered in Indonesia had to be locally manufactured, which meant that firms had to invest in major facilities

or partner with a local manufacturing company in order to gain access. A few years ago however, the Indonesiangovernment altered its definition of local manufacturing to include packaging and labelling activities. This meansthat foreign companies who wish to build up a presence in the country no longer need to invest in expensivemanufacturing plants but can meet local regulatory requirements by building more basic packaging facilities.

Navuluri notes that Indonesia has a relatively complimentary regulatory and tax regime compared to othercountries in the region. This said, he welcomes the recent change in the definition of local manufacturing, whichhas made it easier for foreign companies to enter the country. While company ownership laws and the law onmanufacturing are sti ll restrictive, multinationals cannot ignore, Indonesia, Navuluri believes. With a population of

nearly two hundred million people, its an important market and firms must find ways to navigate the regulatorychallenges. He points to one of his clients, a top ten pharmaceutical firm globally, as an example. Managing thewidely differing challenges in Southeast Asian markets, They have a hub in Vietnam and a manufacturing plant inIndonesia thereby approaching each country in terms of its individual nuances and demands.

Accessing a rural population

One of the other challenges posed by the Indonesian market, according to Olivier Jarry, is that it is geographicallycomplex. There are very few large cities and while these are relatively straightforward to cover, the rest of the

country is more challenging in terms of organising a system, compared to countries like India or China. Whilesecurity in Indonesia was historically a major problem (Jarry reflects on race riots in the country thirteen years ago)nowadays it has calmed down and is OK for doing business, he says.

Pierre Morgon points out that one of the biggest challenges for market access in Indonesia is navigating themultiple layers of regulatory approvals created by the countrys geography and disconnected authorities.Companies must work on two different levels for market access, he notes. The first is the national level, wherethe decision makers are the ministry of health which is fairly standard. However, the unique challenge with theIndonesian market is that parliament must also approve medical spending. This can be a long process, so Morgonadvises foreign players with an interest in gaining access to Vietnam to consider ways to accelerate it. This meansunderstanding who is pulling the strings in the political system, in terms of which committees hold the greatest

influence. In addition, its helpful to understand what kind of rhetoric is being published surrounding drugs and forVaccines, which is Morgons area of speciality who has been using vaccination as part of their election messages.Beyond this national level though, there are regional provinces, who can opt in or out of a vaccine that hasnt beenapproved at national level. In a way this is a positive, says Morgon, because if you fail nationally you can try at a locallevel. The key though is to ensure that you build national dialogue as well as influence decision makers regionally,avoiding any accusations of discriminating against certain regions which may be less lucrative.

More and more foreign drug companies are looking to Indonesia for future profits. Despite restrictions on manufac-turing and ownership, more than 50 international pharmaceutical companies have business in Indonesia. Wyeth,Sanofi and Merck all have a considerable presence in the country. In October 2012, Merck opened a $21 million

packaging plant in Indonesia. It expects annual sales in the country to increase by up to 18% in 2013. Other Westerncompanies, like Novo Nordisk and Novartis, are heavily engaged in community outreach and education activities.For example, Novo Nordisk recently launched an extensive diabetes education campaign for doctors, healthcareprofessionals and the public. Novartis is running a similar program for communicable diseases.


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Overview

Thailand boasts the largest market for pharmaceuticals in Southeast Asia, with strong growth prospects. In 2012 themarket was valued at a total of $4bn. The industry is expected to grow at a compound annual growth rate (CAGR) ofapproximately 11% between 2011 and 2020, by which point analysts expect its value will have reached $9bn.

Positive macroeconomic trends, coupled with social reform are the key drivers behind the improving outlook for

the drug sector. Per capita income has risen by more than seventy per cent over the last decade, while healthcarespending reached $205 per capita in 2012, up from just $74 per person in 2002. According to the World HealthOrganization, the total expenditure on healthcare was about 6.6% of Thailands GDP in 2010. As with other SouthEast Asian economies, the Thai government have been moving towards universal sponsored healthcare coverage:

today, almost all of Thailands population are covered.

Thailand has a relatively well-established local pharmaceutical industry, however the attractive regulatory regimemeans there are many foreign firms are active in the market. The major market players in the Thai pharmaceuticalindustry include Pfizer, GlaxoSmithKline, Merck, Novartis, Thai Meiji, Greater Pharma, and Sanofi-Aventis among the

many others. Other foreign firms active in the region include Japanese pharma player Daiichi Sankyo and IndiasRanbaxy Laboratories, in which it owns a 64% stake. The country has ambitions to become a healthcare industryhub for the region, with middling levels of success along this strategy line to date. Some firms, such as Merck, haveopted to utilise Thailand as a base to export across ASEAN (Association of Southeast Asian Nations) countries. Sanofihas also been investing heavily in the region, currently carrying out clinical trials for a major dengue vaccine.

Key challengesThailands pharmaceutical sector faces major challenges related to patents and counterfeit drugs. Although

the country is a member of the WTO and has signed the Patent Cooperation Treaty, the government has issuedcompulsory licenses for drugs used to treat heart diseases and HIV, deterring foreign investors in the process.

Firms operating in Thailand must work alongside the Government Pharmaceutical Organisation (GPO), a state

enterprise operating under the Ministry of Public Health that seeks to supply government hospitals with essentialdrugs. The organisation creates a strong demand for generics in Thailand, as public hospitals are obliged to spend60% of their budget on drugs from the GPO.

Dr Suthat Fucharoen notes that there are a number of unique challenges related to Thailands market. Firstly, he says

its important to understand that Thailand is in the throes of a period of significant economic transformation. Thecountry is not in the developing stage, its in the transition period. As a result of this, infrastructure is under devel-opment. He also notes that, Thailand is a peculiar market and you cannot apply regional experience to the country.If you have experience in Hong Kong or Singapore and you think you can export this success to Thailand, - that is

US$

6,000

5,500

5,000

4,500

4,000

3,500

3,000

Source: World Bank

ThailandThailand GDP per capita (US$)

GDP per capita:$5,473.75 Growth:6.6% Population:66.79m Lifeexpectancy:74 IMR:15.9 deaths/1,000 live births Healthcarespending:$12.1bn

2008 2009 20112010 2012


16/24


not true, warns Dr Fucharoen. This is because a range of different factors, in particular the healthcare infrastructureand the decision makers, influence the system in a different way to elsewhere. Like some other emerging markets,

Thailand operates under a largely opinion leader-driven healthcare system. Even if you can convince the opinion

leaders though, says Dr Fucharoen, you still need to convince the government and regulatory gatekeepers, which isa challenge.


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Overview

Pakistans economy will expand 3.5% in fiscal 2012/13, according to the IMF, which marks a slowdown from its peakof 9% in 2004. The last five years have seen the rupee lose 40% of its value, with the country struggling to stem

the tide of capital flight. The Asian Development Bank estimates that at present approximately $500m flows out ofPakistan each month, driven by stabilizing economic policy in the developed world as well as weakened growthprospects in Pakistan. In general, appetite among foreign players to invest in Pakistan has weakened from a relatively

low base in recent months, in favour of more attractive target regions. Particularly for firms in the pharmaceuticalindustry, who would need to invest heavily to enter Pakistan while managing complex regulatory challenges, themarket has lost much of its draw, with many believing that the risks now significantly outweigh the benefits.

Pakistan is one of the most challenging markets in the world for foreign pharmaceutical firms. Weak regulation ofthe local pharmaceutical industry and poor enforcement of intellectual property rights have hindered development.At present the market for pharmaceuticals is worth just $2bn, which is low given the countrys population is 179m.

The market is dominated by local players, due to an unfavourable environment for foreign firms to operate in. In

addition, low quality drugs have flooded the market, with illegal trade occurring as a result of the weak regulatoryenvironment.

At face value, Pakistans geographical positioning, rising GDP per capita and large population make it highlyattractive to pharmaceutical firms. However, recent years have seen an exodus of leading players, with only 22

multinationals currently operating in in Pakistan compared with 380 local firms. The reason? One pharmaceu-

tical executive noted that they were quitting the country because of stifling pricing controls and an adverseregulatory environment. Searle Pharmaceuticals, Organon, MSD Pharma, Stiefel Pharma and Bristol-Myers SquibbPharmaceuticals are among those who have exited Pakistan. Roche Pakistan, Abbot Pakistan and Johnson &Johnson Pakistan have minimised their activities in the country.

One of the major issues with the Pakistani pharmaceutical sector, according to the co-chairman of Pharma Bureauof Pakistan Shehryar Ansari, is that generic drugs can be registered without bioequivalence tests. Another keychallenge is that the government force low prices on both patented and generic drugs, which deters investmentfrom multinational companies.

Ban on Indian generics

Padmanabham Navuluri, at Genpact notes that Pakistans ban on Indian drug import, a relic of poor interstate

relations, causes a number of negative outcomes in the pharmaceutical sector. India has a very well establishedand evolved generics industry, so they supply to a lot of emerging markets says Navuluri. The ban has a big impacton Pakistan [] and they miss out on a major supply of generic drugs. There are two knock on consequences,according to Navluuri. The first is that the cost of healthcare is going up in Pakistan, and secondly there is an

US$

3,100

3,000

2,900

2,800

2,700

2,600

2,500

2,400

2,300

Source: World Bank

PakistanPakistan GDP per capita (US$)

GDP per capita:$1200 Growth:3.5% Population:185m Lifeexpectancy:65

IMR:61.27 deaths/1,000 live births Healthcarespending:$5.1bn

2008 2009 20112010 2012


18/24


illegal drugs market, with illegal drugs coming from gulf countries and Sri Lanka. He notes that there are calls forprogress and that the Pakistani government, are trying to fix things and improve regulation, however overall, it

remains unclear how to go about [entering] the Pakistan market, due to the uncertainty and the somewhat unclear

regulatory regime.

Olivier Jarry reflects that historically Pakistan was an attractive market. Pharmaceutical business leaders looked at

Nestle and said, if Nestle is a success, why not a Swiss pharmaceutical firm? As a result of this basic observation,they would invest in the country and achieve some success, says Jarry. Pakistan used to be more structured thanIndia and progress orientated, he notes. However, in recent years the situation has deteriorated. Jarry goes as far asto say that today, nobody wants to do anything there.


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Overview

Ukraine is one of Central and Eastern Europe (CEE)s most promising pharmaceutical markets, worth US$3.75bn in2012. Total sales of drugs in the Ukrainian pharmaceutical market for the first half of 2013 amounted to approxi-

mately $1.75 billion, according to the head of the Ukrainian State Service of Drugs. The same source notes that 70%of this is accounted for by domestic production. A joint report by Invest Ukraine and Deloitte forecasts that totalhealthcare spending will grow at an average of 13.9% per annum up to 2015.

In theory, foreign drug manufacturers could be highly successful in Ukraine. While per capita expenditure on

healthcare remains low compared to other countries in the region, its expected to rise in line with increasingincomes. In addition, the market already has a strong reliance on imported medicines, which account for more thanthree quarters of all medicines sold in Ukraine. However, political and economic instability deter major investmentwhile legislative uncertainty brings operational challenges. On the other hand, a failure among some foreignpharmaceutical firms to recognise the individuality of Ukraine from surrounding countries and how this shouldimpact their approach, means that the fullest potential of the market has not yet been tapped by global players.

Who you know

Oxana Kolosova, Managing Partner at iVrach.com (a physician community) admits that the market in Ukraine is notparticularly welcoming to foreign pharmaceutical firms while noting all the major pharma companies have repre-sentative offices here, Ukraine is quite a tight market. The nature of the market makes it difficult for new entrants to

simply turn up and sell their products, according to Kolosova. You need to know people, she reveals, going on toexplain that its a relationship-centred industry. The key to cracking the market is to first, become part of the picture

and build trust only after doing which you can sell. However, far from a straightforward task, this process, requires alot of effort and patience, she warns.

Because of the challenges of entering the Ukrainian market, Kolosova advises that, its better to become part ofthe picture in the local market earlier. She points out that, The earlier you start the better chance you have to be

perceived as trustworthy. While Ukraines economy is not developing as quickly as we would have all hoped, it isthe second biggest country in the region, so its wise not to forget about this market and to build presence as soonas possible.

Brands vs Generics

Kolosova indicates that the on going debate over branded therapies versus their generic replacements is as big anissue in Ukraine as it is elsewhere. The state healthcare system doesnt cover expenses, so the majority of pharma-

ceutical sales are funded out of pocket. In general, cash strapped healthcare consumers prefer to buy the cheaperversion, says Kolosova.

US$

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

Source: World Bank

UkraineUkraine GDP per capita (US$)

GDP per capita:$7,600 Growth:3% Population:45.5m Lifeexpectancy:71

IMR:8.38 deaths/1,000 live births Healthcarespending:$24bn

2007 2008 2009 20112010 2012


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In terms of where the most attractive opportunities are in Ukraine; with branded therapies or generic products,Kolosova thinks that its hard to say because of disagreement in the medical community. Among physicians there

is a big divide between those who believe that brands guarantee a certain therapeutic outcome, versus those who

dont care what sort of brand they prescribe. The latter group, says Kolosova, justify their position by arguing thatif the molecules in the treatments are the same, there is no point forcing patients to pay extra. The divide splits themedical community approximately in half, according to Kolosova.

A market of its own

Oxana Kolosova, Managing Partner at iVrach.com, suggests that many in the international business communitymay not yet have caught up with the full implications of Ukraines independence, which happened more than twodecades ago. Often the Ukrainian market is compared to the Russian market [] but now they are two separatemarkets and are quite different. One of the major differences Kolosova points out is the relatively strong and wellestablished private healthcare market in Ukraine, whereas in Russia it is virtually non existent. As well as helping

to improve the provision of medicine, this has helped to nurture medical talent in Ukraine. Ukraine has a pool ofphysicians who are very motivated to learn and access the latest information about new developments in science

and medicine.

Bespoke communications

In order to build a solid understanding of the Ukrainian market, there is no substitute for local advice. This isparticularly important when it comes to advertising material. sometimes, when large pharmaceutical firms go to

these markets they just bring forward materials that they use elsewhere. Kolosova warns that this is a poor strategy,because, Western material is not always applicable locally, and in some cases they may lose the audience. Itsimportant that when it comes to communications in Ukraine, firms, think global but act local, says Kolosova,admitting that, its a bit of a clich but its quite applicable in this particular case.

The fact that the vast majority of physicians in Ukraine do not speak English is only a small part of the challenge,Kolosova stresses. When developing materials, companies need to make sure that whats projected in the adver-tising or promotional material is relevant to whats happening in Ukraine. Part of the problem, says Kolosova is that,because in the west the population is wealthier, the problems consumers face are very different to in Ukraine,where, some people struggle to just have enough money to buy food. This is one reason that, promotional

materials have to be adapted to reflect the differences between the two markets.

Finding the right niche

One of the most important considerations for a market entrant, says Kolosova, is working alongside the existingindustry. Ukraines got quite a few local pharma manufacturers, she points out, and their positions are quite strong.Because of this foreign firms need to consider how they position themselves and build a presence, alongside thelocal manufacturers. Unfortunately, there is no catch-all solution to achieve this in Ukraine. You need to make an

approach, market by market says Kolosova, understanding whats happening and influencing the key opinionleaders.

Building credibility in an opinion based system

Healthcare in Ukraine is generally opinion based, Kolosova points out, although she also thinks that the market isgetting closer to accepting a more evidence based model. While the market is heavily influenced by key opinion

leaders, doctors in Ukraine are also vigilant and hungry for the latest knowledge. In my opinion, Ukrainian doctorsare hungry for new information and to be up to date with the latest developments.

In the last two years Ukraine adopted a credit based system for professional development among physicians,says Kolosova. Working on medical articles is one way that they can earn credits. This, opens up opportunities for

pharmaceutical companies to work with their target audience, says Kolosova and develop knowledge in certaindisease areas. Its important that this opportunity is used correctly though for it to be effective, because, you dontwant to overstep the line between education and advertising.

One unique approach that some drug companies have taken is to offer therapies for free to those who cannot

afford to pay. Kolosova suggests that this is a smart move, because it allows everyone to see that these products areeffective, and helps to create a positive atmosphere.


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Regulatory challenges

One of the biggest challenges in Ukraine is the often variable nature of enforcement for local regulations. Kolsova

points out that this is particularly an issue when it comes to advertising. Regulation against advertising medicine inpublic is being challenged all the time, she says. This basically means that some firms are sidestepping regulations

against selling directly to the public. However, Kolosova notes that, legislation is not always clear, consistent andtransparent, which needs to be taken in to account.

Foreign companies entering Ukraine must therefore deal with a market in which many actors simply ignore the

rules, or interpret them in bad faith. Particularly with OTC products, says Kolosova, where the businesses sellingthem dont necessarily have strict internal regulations; there is a big problem with a very aggressive advertisingapproach. Kolosova says that this frustrates professionals who feel that companies are going, over their heads topromote directly to consumers. This is a problem when consumers use products irresponsibly or try to administertreatment to themselves, rather than going to a physician. When this happens, sometimes people will only visit thedoctor when their disease is, in very advanced stages.

The most extreme issue with the advertising of OTC products in Ukraine is the proliferation of miracle products

that, promise a cure from everything, including cancer, says Kolosova. While in the majority of cases these arentmedical products, manufacturers position them as such and use scientific language. As a result, consumers canbe mislead in to believing that they are being treated when in fact they are taking little more than a food additive.

Some misleading local companies even manage to get physicians on side who do not investigate the validity oftheir claims or the scientific robustness of the clinical trials they say they have undertaken. If physicians do speakout in support of a fake product, then it can be successful because of the opinion led nature of healthcare. It s alsoparticularly problematic because there is a lack of widely available up-to-date medical information for physicians inUkraine.

Often in Ukraine people are able to buy Rx products without prescription, which negatively impacts the legitimacyof the whole healthcare system. There is also a major issue with counterfeit medicines. Kolosova recounts a timewhen speaking to a marketing manager from Pfizer, who was responsible for the launch of Viagra in Ukraine. At themeeting he produced about five or six packages of counterfeit Viagra. While aware of the scale of the problem,

Kolsova admits that she, was still impressed when he produced so many counterfeit packages. This is sold next tothe genuine merchandise in pharmacies; and it takes close scrutiny to identify the difference. This indicates profit-eering from the vulnerability of consumers.

A golden opportunity

One of the best things that a foreign pharmaceutical company could do in Ukraine to build support, is to deliverunbiased, valuable information for physicians. Kolosova suggests that this is the only way to win support. Oncephysicians know that a manufacturer is trustworthy, it cements the relationship. She advises behaving ethically,not focussing only on promotion but giving value to physicians and treating them as partners. This is a particularlygood strategy in the Ukraine, Kolosova says, because it isnt widely used, and at present, messages are dominatedby promotional materials. Those who are involved instead in the process of providing training and information to

physicians, see benefits quite quickly.


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ConclusionLong-term thinking, developing local partnerships and a start-up mentality: these are the cornerstones for success

in second tier emerging markets; common themes arising from the commentary we sought from industry experts.Long-term thinking is essential because often firms are used to working to quarterly results, whereas the investmentneeded in emerging markets will take more than two or three years to bear fruit, let alone the two or three quartersmost are used to measuring in.

As a result, traditional approaches to incentivising executives may not be effective in emerging markets. Local

partnerships are key because they are the only means by which companies can obtain the nuanced local under-standing they need. For example, when providing promotional materials to a physician in Ukraine, it isnt enoughthat its translated to her local language. The materials must also reflect the culture that they wish to penetrate. Thisdepth of local expertise is something that not all firms have yet mastered, though its critical to success in marketswhere relationships hold an enormous amount of influence over corporate performance. Finally the start-upmentality implies a redesign of the business model and hiring of fresh talent. Firms cannot repurpose the model

that brought success in the developed world for emerging territories. Particularly for market access, pricing and

regulatory approvals, the process will be entirely new for each country and should be approached as such.

In March, Booz & Company published the results of a survey where executives were asked about their outlook foremerging markets. Many of the findings correlate with the findings of this white paper, suggesting that pharma-

ceutical firms could make the same mistakes that they made entering the first tier, in the second tier emergingmarkets. One of the biggest issues is slated as insufficient tailoring of approaches to local needs. This is also themost prominent challenge contributors to this paper raised, all advocating a respectful approach that shows anunderstanding for individual countries cultures and healthcare systems. There are a number of ways in whichaccepting this can lead to alterations in strategy. One is to source local talent, perhaps training individuals in headoffice and then offering them the chance to lead expansion in home territories. This is a long-term strategy and it

requires that companies already have enough of a local footprint to secure such talent. Another key consideration isto completely revise marketing and communications activity for specific markets. This will cost money in the shortterm, but pay off in the long term -as materials stand out against competitors and win trust locally.

Perhaps one of the most interesting pieces of advice emanating from this research is to use the opportunity todeliver value in markets where there is a lack of reliable, impartial information. Fast-growing Asian economies as wellas emerging Eastern European nations are the ideal places to implement a content-rich strategy where you provideeducation and support to physicians, building trust in exchange. Local players and those seeking to exploit themarket for short-term gains may not invest to a comparable extent in such programmes. This should help firms thatdo take the time to educate the market stand out. There is also a mass of highly educated physicians eager to pickup new information, which will mean that such a strategy is well received and highly appreciated. It takes vision to

recognise how this will lead to increased sales, but at least two of the contributors to this paper are adamant that itwill, and crucially will do so over the long term.

Pricing will always cause disagreement between those paying for medicines and those providing them. In emerging

markets, the issue is exacerbated by the widespread inability to pay and on going government initiatives toforce prices lower. Our experts strongly advocate taking an approach that demonstrates a real recognition of the

challenges that governments have in emerging territories. In part this means communicating in a respectful wayand having realistic expectations. However, the most successful firms are those who invest in longer-term initiativesto build trust in the country, which can lead to a better relationship with key stakeholders in the region. AcrossIndonesia, Thailand, Pakistan, Vietnam and Ukraine, incomes are expected to rise over the decades ahead. Firmsneed to position themselves as long term partners now if they expect to see benefits from an enlarged pharmaceu-

ticals market in the mid to long-term future.

The long-term approach presupposes totally transparent ethical operations. The quick gains that come frombending or working around rules in order to succeed in a local market have been shown to be prone to disaster.

Over time, the commercial environment in emerging markets will adapt and become more transparent.International firms with a desire to be around when this happens have no choice but to apply the same level ofscrutiny to the actions of teams in developing markets as those in established territories. Corruption will continue toimpact pharmaceutical markets. To get caught up in this though will negate positive initiatives and jeopardize their

entire strategy to enter the market.

The opportunity second tier emerging markets present is large enough to have a profound impact on the overallperformance of the global pharmaceutical industry. Just the countries covered in this paper have a combined


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population of more than 633 million, and an aggregate healthcare budget of almost $100bn. As governments seethe benefits from more welcoming regulatory structures and rising foreign investment, the obstacles to invest will

dwindle. Looking ten or twenty years down the line, the economic profiles of some of the countries mentioned

in this report may be barely recognisable. At this point, global players will be fighting to capture a chunk of theimportant and probably still growing pharmaceutical market. However, those without heritage, local links and ahard-won understanding of regional nuances, will arguably fall behind. Entering a new territory will always be amajor challenge, though the firms that succeed in building a footprint today are most likely to be the major winnersin the decades ahead.


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