pharma co's in emerging markets - innovation & technology are key to growth

2015 REPORT

Emerging markets: an opportunity for pharma to drive sustainable growth

A workshop hosted by Cambridge ConsultantsThe rise of emerging markets has been a defining feature of the global economy this century. The massive uptick in performance within these economies means they now contribute more than half of global GDP. When it comes to healthcare, most of these emerging markets are expected to experience double-digit growth. They’re predicted to account for 30% of global pharmaceutical spend by the end of next year.

The traditionally lucrative Western pharma markets are becoming challenging from a growth perspective, with governments exerting downward pressures on healthcare costs. On top of that, companies are experiencing dwindling drug pipelines – and the risks associated with developing innovative products for regulated markets are constantly increasing. In response to these challenges, corporate boardrooms are now committing dedicated resources to conquer emerging markets as a way of sustaining growth. The move is driven by the increasing prosperity in emerging markets, coupled with a growing awareness of the advantages of good healthcare and healthier lifestyles.

Against this background, Cambridge Consultants engaged in a workshop-style dialogue with a cross section of senior personnel from both Indian and multinational pharma companies to debate whether emerging markets are an opportunity to drive sustainable growth. The participants had a wide range of backgrounds and expertise – from strategy, commercial and medical to research and development, marketing and consulting – and represented organisations of all sizes to ensure insights were gathered from all corners of the pharma industry.

We are grateful to the participants for their willingness to invest a significant amount of time and effort to attend and share their insights and opinions freely.

This report attempts to summarise the combined vision that was formulated during the event. It offers a unique insight into the future of this industry, as seen through the eyes of some of the leading authorities.

We are also thankful to Shivkumar Dega, Chairman & CEO of Pepsico India, who gave a visionary, insightful and thought-provoking presentation to launch the event.

Principal conclusions:

§ Growth trajectory and consumption parameters – such as epidemiological factors, and the accessibility and affordability of medicines – are key criteria for shortlisting a market as an emerging market.

§ Growth in emerging markets will be driven by acute as well as chronic therapies.

§ Governments and payers are very important stakeholders and interactions with them will help with long-term success.

§ Successful growth strategies will rely on focusing innovation and technology on patient and stakeholder needs in ecosystems that align with a company’s vision and values.

Sanjay Surendra Bhanushali Cipla Ltd

Kapil Choudhury Dr. Reddy’s Laboratories

Ankeet Doshi Wockhardt Ltd

Amit Garg Dr. Reddy’s Laboratories

Sanjay Ghoshal Dr. Reddy’s Laboratories

Rajaram Iyer Aurobindo Pharma Ltd

Prashant Kane Sun Pharmaceutical Industries Ltd

Mandar M Kodgule Wockhardt Ltd

Shafi Kolhapure Novartis Vaccines India

Jay Shantilal Kothari Cadila Healthcare Ltd

Sushrut Kulkarni Zydus Cadila Healthcare Ltd

Abhay Mehrotra Abbott Truecare Pvt Ltd

Amit Misra KPMG India

Vikram A Munshi WhiteSpace Consulting & Capability Building

Zoya Pandey Abbott Truecare Pvt Ltd

Pratibha S Pilgaonkar Rubicon Research Private Pvt Ltd

Amol Shah M. J. Biopharm Pvt Ltd

Poonam Shenoy Glenmark Pharmaceuticals Ltd

Amardeep Udeshi Cipla Ltd

Participants Hosts

Ambuj Jain

Matthew D Allen

Duncan Bishop

Rahul Sathe

Vaishali Kamat

Kate Hudson-Farmer

Vangelis Papagrigoriou

Patrick Pordage

Darina Cotterill


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Emerging markets: an untapped opportunity for growth?

Identifying an emerging market

Before looking at specific strategies for emerging markets, it is important to identify which countries are included under the category of ‘emerging’. Are the most common names of Brazil, Russia, India and China the only contenders – perhaps along with South Africa, Turkey, Mexico and the countries of Eastern Europe? Or should nations in the Middle East, North Africa, Central Africa and South East Asia also be included? These markets display considerable diversity in their stages of development.

All the workshop participants agreed that emerging markets are currently under-penetrated so most pharma companies will wish to capitalise on the opportunity. There was a unanimous opinion that emerging markets cannot be grouped into a single cluster to chalk out common strategies – the markets’ diversities are too broad to permit this. Clustering markets – on the basis of identified common parameters – and then treating each cluster separately was felt the best way to approach the problem. Some of the parameters could be based around regulatory pathways and others around therapeutic applications. Once clustering has been completed and corporate portfolio needs shortlisted, companies should focus on therapy areas where they can already demonstrate strength and can therefore build quickly into the new markets.

The group had strong opinions about demand and supply issues being key parameters for shortlisting a market as part of a cluster. On the demand side, adapting to changes in local consumption patterns and capitalising on associated growth were judged to be critical. Such guidance might seem obvious but the final decision on which market to prioritise will also be dependent on a company’s financial objectives. For example, South Africa may be bigger in size and growing, but a company may prefer launching in Vietnam first which, although smaller, may provide a faster return on investment. Supply factors include considerations of systems development – for example, regulatory pathways, and healthcare and supply chain infrastructure – and how focused governments are on providing healthcare to their citizens. When deciding whether to enter a market, an organisation has to balance the demand and supply parameters with its own company culture, resources and vision.

As noted above, the selection of emerging markets may be driven by the priorities of the respective national governments when it comes to providing healthcare services to their citizens. Each government has a role to play in how its population accesses healthcare. In some countries (eg Singapore, Colombia, Oman) governments play a very active role in providing healthcare, whilst in others (eg Nigeria, Myanmar) their role is more passive. A number of governments in emerging markets have learnt from their mature market counterparts and are therefore looking to retain greater control of their pharma markets – Uganda is an example of this. Those markets where governments have a more active role in providing healthcare are higher priorities for pharma companies because, instead of establishing big multifunctional operations, a company can deal with the government directly and secure access and affordability.

Focus areas in emerging markets

In considering market selection on the basis of therapy areas, delegates were clear that communicable diseases will remain a major focus area in emerging markets as they still provide a core revenue stream. But strategic investments will be more inclined towards chronic diseases.

Communicable diseases like tuberculosis, HIV, malaria, water-borne diseases and hepatitis are highly prevalent in most emerging markets so the focus is on making sure the maximum number of patients have access to medicines. But the same set of markets is now facing rapid growth of chronic ‘Western’ diseases like diabetes, hypertension, chronic respiratory problems, cancer, cardiac diseases, neurological disorders and allergies. In leading emerging markets like India and China, many of these conditions – for example, diabetes – are turning into near-epidemic

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situations. In India, the prevalence of diabetes and cancer is projected to rise by 25-40% in the next 10 years. This shift gives pharma companies the opportunity to market their global products in emerging markets, backed by tested ‘go-to-market’ strategies and operating models.

Key barriers which need to be addressed are access and affordability

Non-innovative companies must manage how they are perceived in emerging markets. Whilst they may be labelled as ‘generic’ suppliers in the US and Europe, in other places they will want to be seen as more than providers of commodity medicines. Hence, in most of these markets, the companies are predominantly marketing ‘branded generics’ – drugs that are bioequivalent to the original product but marketed under the company’s brand name. This leads to a specific need for differentiation which is essential to establish the product as a ‘brand’. In the future, the need for additional differentiation by branded generic companies – in

a market overflowing with multiple options – is expected to rise to enable the requisite sustainable growth.

Key barriers which need to addressed in many emerging markets are access (the extent to which consumers are able to readily acquire and use a product) and, to some extent, affordability (the extent to which consumers in the target market are able and willing to pay a product’s price). The affordability, accessibility and acceptability of medicines are expected to increase significantly in major emerging markets.

Affordability improvements will be driven by rising disposable incomes and increasing insurance coverage. Rises in government spending, growth in medical infrastructure and newer business models for rural areas will drive growth in accessibility. Meanwhile, investments by pharma companies in more modern treatment modalities will shape therapy categories. The growth in chronic conditions – and the resulting rise in the self-administration of drugs – will contribute to increasing acceptability, resulting in growing acceptance of new drug classes like biologics among both patients and physicians.

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Stakeholders – old and new

Just like mature markets, emerging markets have multiple stakeholders in the value chain. At the moment, typical emerging markets have the physician at the centre of the selling process – so that is who pharma sales forces tend to focus on. This presents a challenge as physicians don’t have enough time to grant access to all pharma companies – so there are restricted opportunities for brand education.

But the landscape is evolving quickly and more stakeholders are expected to become engaged in the selling process:

§ Patients – with access to information getting easier due to the internet, and physicians lacking the time to educate patients, many patients are taking it upon themselves to know more about their disease, medication, brands etc. This is leading to patients evolving into active ‘consumers’ and, in the process, becoming more self-reliant. This evolving ‘consumer’ will have implications for pharma companies in terms of how and what to communicate. For example, in the management of acute infection, companies need to communicate simple key messages about the importance of completing therapy. Patients who cease therapy early when their symptoms subside may subsequently relapse and blame this on poor-quality medication. This is important for pharma companies as such perceptions have a severe impact on brand loyalty. Patient awareness, education and training have a key role to play in reducing such cases and helping brand growth.

§ Insurance companies – healthcare insurance penetration in emerging markets is modest but expected to grow significantly over the next few years. This means insurance companies are likely to become more important in the overall value chain, and become stakeholders in the consumption process. And if these companies are paying attention to what’s happening in the US market, they will structure their plans based on value and performance from the outset. This could put the same pressures – to provide evidence of outcome improvement – on pharma companies in emerging markets as are seen in the developed world.

Hospitals are instrumental in building product brands

§ Pharmacists – the role of pharmacists as advisers is becoming more important as physicians increasingly have less time to offer individual patients. In emerging markets this is even more important as patients often not only pay for their own medications but also physician consultations, and may therefore go straight to a pharmacist in place of a physician.

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§ Hospitals – this segment can be classified into private/ corporate hospitals and government hospitals. In markets like India, private hospitals operate more in urban areas and, for a pharma company, serving them means building customised models and undertaking targeted programmes to drive compliance. Because they are the first point of care – especially in metro and tier 1 markets – they are instrumental in building product brands.

Engaging with governments could be strategically important

§ Governments – national or state governments could be important stakeholders, especially in countries where policies are being put in place to improve healthcare. The workshop participants strongly suggested that engaging with governments could be strategically important and beneficial when a pharma company is attempting to access a much bigger patient pool. Such a strategy can help gain a significant share of the market – potentially at a lower price point.

The way in which pharma companies collaborate with – and engage – various stakeholders will affect the position and success they achieve in a market. Cipla, for example, has benefited by supporting the South African government in establishing regulations for biosimilars. Others have collaborated with public organisations such as post offices or the supply networks of FMCG companies to leverage their deep penetration and access to rural areas.

TOMORROWPHYSICIAN

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Is there a place for innovation in emerging markets?Innovation and technology will be important differentiators for companies trying to drive sustained growth in emerging markets. The innovation focus and process will be determined by the overall objectives of the organisation, aligned with market needs and backed by ‘voice of the customer’ inputs from patients or other stakeholders such as governments, physicians or insurance companies.

The relevance and affordability of innovation in emerging markets was discussed by the workshop participants. Investment in innovation was deemed necessary for growth in markets like India, with 80% branded generic penetration, multiple iterations of the same drug and a dwindling pipeline of new drugs. Upgrades to therapies using innovation/ technology may be used to improve access to healthcare as well as patient adherence.

Participants categorically disagreed with the prevalent perception that the sole focus of innovation in emerging markets has to be cost reduction. Any concerns expressed about emerging markets in terms of ‘affordability’ of technology were felt to be erroneous. Consider the example of smartphones and how their adoption has penetrated all levels of society. This suggests that ‘value’, at the right price point, is more relevant in driving adoption of new technologies.

Innovation focus

Sources of innovation can be varied and include:

§ Formulations New options with faster onset of action or longer delivery rate (for greater tolerability) are some of the focus areas which could offer the required differentiation. Changing the particle size of molecules can have a big impact on a drug’s effectiveness. Developing liquid-stable formats of drugs currently in the lyophilised form could be another very positive step forward. Alternate routes of administration for existing molecules are also being evaluated by a number of organisations – some organisations are trying to make injections less painful through reduction of the injection volume/ composition. Mechanisms to allow biologic/ proteinaceous materials to be given as orals could also be of great significance for emerging markets, as these may avoid the need for complex delivery technology. Formulation changes have to match market needs to be sustainable. For example, there are drives to reduce abuse of pain medication by preventing patients crushing tablets for abusive purposes. In such cases, a formulation-based innovation is required – but one which avoids others’ intellectual property. An example of a focus on increasing acceptability and compliance is the development of an iodine patch. These patches are designed like a regular bindi – the decorative mark worn in the middle of the forehead by Indian women

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– and now help more than 100,000 tribal women in Maharashtra, India, who battle iodine deficiency because they don’t consume iodised salt. This product delivers the RDA of 100-150 mcg of iodine by absorption through the skin.

The use of drug delivery devices is predicted to rise sharply

§ Packaging Packaging innovations can be a good way of making therapies more patient-friendly and, in the process, driving growth for pharma companies. They can improve the usability of drugs – and boost outcomes. An example of this is DuRecon – a double-chambered container for the reconstitution of oral dry syrup products. It is a solution to compliance problems as well as under/overdosing issues which may arise due to inappropriate reconstitution.

§ Drug delivery devices With the incidence of chronic therapies on the increase, treatments taken at home and managed by patients themselves are expected to be the future norm. Accordingly, the use of drug delivery devices is predicted to rise sharply. Higher adoption of well-designed delivery devices is expected to make therapies far simpler and easier for patients to administer. They will offer significant value to patients in terms of convenience and compliance. But devices need to be designed to be manageable without complicated instructions. The ideal is to have a limited range of highly configurable devices capable of delivering multiple medications. Therapy areas like

injection and inhalation already have high usage of drug delivery devices. Further therapy areas like ophthalmology and nasal delivery have the potential to adopt higher usage of delivery devices. The workshop participants were of the opinion that formulations will be the source of innovation in the short term, while devices will be medium and long-term strategies.

Structures for driving innovation

For pharma organisations, driving innovation activities will involve further evolution of the ‘generic’ mindset to be successful in the shift to branded products. This will involve evolution in terms of organisational structures, budget allocations, scale and the time period of return on investment etc. An innovation culture needs to be nurtured and company leaders need to support innovation teams for greater long-term returns.

The workshop participants proposed that companies need to have separate teams for driving innovation projects – distinct from regular business project teams. This would mean classifying the teams as:

§ Performance engine – relying on the core offering which drives growth through scale and operational excellence

§ Innovation engine – relying on driving innovation projects and, accordingly, contributing to organisational growth

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Technology as an enabler

Technology is affecting all areas of life and the pharma business is no exception. Companies are turning to technology to help address challenges in various therapies – whether for reducing the pain of an injection or improving the patient’s experience via devices that are simpler to use. Another focus area is the drive to be closer to the patient through connected devices. As chronic disease incidence grows, the need to engage with patients, to improve medication adherence and have an impact on the overall outcome, increases as well. The use of sophisticated devices with electronics in them is likely to grow. These devices will act as a platform to transmit valuable data regarding drug usage.

Connected drug delivery devices, along with accompanying smartphone applications, may initially be developed as premium offerings – either for expensive therapies that can absorb the added cost or for high-income self-pay patients who look for best-in-class healthcare. Mobile networks will provide a way of having contact with these patients on a regular basis, which can also help to spread awareness and develop brand loyalty. Connected devices also have the potential to monitor compliance with clinical study protocols when subjects are not under direct clinical supervision.

In the longer term, as connected devices become more prevalent, companies will need to work through certain challenges, including:

§ Data storage and management – companies will need to develop a strategy to tackle the infrastructure requirements associated with data gathering, including access control and data security.

A longer-term focus for promoting growth will be diagnostics

§ Data analysis – there will be a need to analyse data to make it useful. Valuable insights can be generated and shared with patients, as well as other stakeholders. This could even open up opportunities for new service offerings.

§ Recovering investment – developing a connected ecosystem to accompany a drug does have costs associated with it, such as the additional cost of electronics in the device. Recovering these costs is straightforward if patients are willing to pay a higher cost for connected

devices. But even if that’s not the case, the indirect revenue from increased market share, as well as other options that capitalise on the value of the gathered data, could be sufficient to make the investment worthwhile.

Diagnostics – helping drive growth?

A longer-term focus for promoting growth will be diagnostics. The prevalence of most diseases is very high in emerging markets – but a significant proportion of these diseases are not diagnosed, leading to undertreatment. One of the problems is that there are not enough diagnostics laboratories. Often physicians take the route of prescribing an empirical therapy because the cost of diagnosis is much higher than the cost of the therapy. For example, antibiotics are commonly prescribed for respiratory infections where the causative pathogen may be a virus. Hence innovation in minimally invasive diagnostics instruments to improve access to – and the affordability of – diagnosis is expected to drive growth by screening more patients and putting them on appropriate therapy. Although this area is not a direct play for pharma organisations, partnership with diagnostics companies will be the most likely way for companies to be successful in this area.

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Healthcare ecosystems and environmentsEcosystems have a central role to play in the success of a healthcare system as interactions between different constituents of the system have an impact on the quality of healthcare delivery in a country.

The constituents of an ecosystem are not restricted to pharma players and products. Upstream areas like diagnostics, hospitals and pharmacies, and downstream areas such as services and insurance, all play a crucial role in the operation of an ecosystem. For a pharma company, long-term future success in a particular emerging market depends on a strategy which takes into account all these considerations.

With the prevalence of chronic diseases increasing, disease-related services have the potential to become another pillar of ecosystems. These may vary from the provision of needles for insulin pens through to alerts/reminders for vaccinations or the provision of lifestyle advice. They may still not have the potential to become revenue generators but they have strong value in attracting and retaining patients, and may be targeted for specific patient demographics within disease groups. Pharma companies could further evaluate the model of partnerships with wellness centres to raise awareness about diseases. A recent example of this is Sanofi’s partnership with Apollo. Their joint venture – named Apollo Sugar – runs clinics with the aim of providing high-quality, outcome-oriented services for patients and doctors.

Governments continue to be dominant components of ecosystems. Some may be significantly more active in delivering healthcare services for citizens, whilst others may play a more passive role. Engagement with governments is critical for success in those markets where they play an important role in the ecosystem. Wherever governments are focusing on increasing their investments in healthcare, working with them to increase access to medicines is a highly recommended option for sustained growth.

A collaborative /synergistic effort by leading pharma companies was suggested by the workshop participants as a way of gaining greater influence over ecosystems in specific geographies. This may involve companies making joint efforts to overcome common weak links in the ecosystems which may be bottlenecks when it comes to driving growth.

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Impact of regulatory environment

Regulatory guidelines play a significant part in the management of successful business operations in emerging markets. A robust regulatory pathway in a market laid out by competent authorities is seen as a positive indication for a company trying to finalise its emerging markets strategy. Strong commercial partnerships in the target market can also provide significant benefits whilst a company finalises its entry strategy. A local partner brings contacts, familiarity with the environment, and the ability to navigate and manage local relationships in specified time periods for quick returns.

Emerging markets don’t necessarily imply weak regulations

The workshop participants were keen to stress that emerging markets don’t necessarily imply weak regulations. As they don’t have the capability to develop their own regulatory guidelines, these markets often adopt regulations from the US and Europe – which, in the long run, may result in strict good manufacturing practice (GMP) regulations for pharma manufacturing.

The variation in regulatory pathways among countries could help inform the launch roadmap for a new product. As there will be markets with varying levels of regulatory thresholds, a market with a lower threshold may become the entry point for an innovation. Such a market can be used for gaining product experience – as well as gaining momentum – prior to taking a product into more restricted markets.

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Conclusions

Emerging markets are vital for sustaining growth for leading pharma organisations. They represent a significant proportion of the world’s population under the control of governments which are largely increasing their focus on healthcare and seeking better outcomes for their people. As emerging countries vary so much, a pharma company needs to closely examine its strengths and objectives in relation to the target markets it wishes to enter.

Successful growth strategies for success in emerging markets will include:

§ Continuing the performance engine for base growth – since emerging markets are significantly under-penetrated, there is sufficient room for solid base growth in the short term.

§ Focusing on innovation and technology, with patient and stakeholder needs at the centre of that focus but aligned with a company’s vision and values. The use of technology or innovation has to be for impactful purposes. This has to be done in line with identifying a market need and then adding perceivable value to address that need.

§ Recognising that the sequence of innovation focus in the next 10 years will be drug formulation, followed by drug delivery devices, followed by patient services.

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For further information on medical device innovation in emerging markets, please contact:

Ambuj Jain, General Manager – India [email protected]

Andrew Barrett, Associate Director [email protected]

About Cambridge ConsultantsCambridge Consultants is a world-class supplier of innovative product development engineering and technology consulting. We work with companies globally to help them manage the business impact of the changing technology landscape.

We specialise in helping our clients achieve the seemingly impossible. We work with some of the world’s largest blue-chip companies as well as with some of the smallest, innovative start-ups who want to change the status quo fast.

With a team of around 500 staff in Cambridge (UK), Boston (USA) and Singapore, Cambridge Consultants has a world-class reputation as the product developer of choice for leading pharmaceutical and medical technology companies around the world. Our drug delivery practice specialises in creating leading inhalation and injection devices, including metered-dose inhalers, dry-powder inhalers (DPIs), and needle-free, auto-injection and reconstitution devices.

Our team comprises drug delivery engineers, aerosol scientists, industrial designers and regulatory experts. Capable of taking a project from concept all the way through to transfer to manufacture, our quality and project management systems meet the FDA’s quality system regulation (QSR) and are certified to ISO 13485, ensuring that we can deliver fast-track and regulatory-compliant development programmes to our clients.

As part of our ongoing commitment to global medical innovation, we would be pleased to hear your feedback on the content of this report, and to discuss your views on the future direction of the industry.


Cambridge Consultants is part of the Altran group, a global leader in innovation. www.Altran.com

www.CambridgeConsultants.com

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