Emerging Markets in pharmaceutical strategy

The increasing role of Emerging Markets in global pharmaceutical strategy development.

Emerging markets have continued development

Emerging Markets are not only influential in their own regions but represent a significant proportion of the world’s population and trade. They also represent a growing share of global healthcare spending. As such they offer an attractive growth prospect for the pharmaceutical industry.

Emerging Markets can be defined as developing prosperous countries in which investment is expected to result in higher income despite high risks. The leading emerging economies are the BRICS (Brazil, Russia, India, China and South Africa) countries. Lower-tier economies are grouped in a couple of different ways. One includes just a few as the MIST (Mexico, Indonesia, South Korea and Turkey). Another interpretation identifies two groups that include more countries: CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) and Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, the Philippines, Turkey and Vietnam.

While pharmaceutical sales in many mature markets are showing stagnant growth, sales trends in Emerging Markets point to continued development. The shift towards these markets is being driven by several economic and demographic factors:

Challenging environments in mature markets:

Patent expiration; cost containment policies promoting generic substitution; and tight enforcement of regulations have led to flattened growth.
As confirmed by the Association of the British pharmaceutical Industry, the EU ‘Big 5’ markets continue to decline as a relative share of the global market for pharmaceuticals.

Increasing life expectancy:

The rising healthcare demands of hundreds of millions of senior citizens, coupled with the more expensive costs of treating non-communicable disease in these territories, suggest that healthcare investment will need to rise.
According to the United Nations, the number of people aged 65 or more will rise to 15% from 10% of the Emerging Market population by 2030.

Growing prosperity:

Increasing incomes are leading to a quickly expanding middle-class in emerging economies. Middle-class patients are looking for additional value in their medicines, in the form of convenience, user-friendliness, or ongoing support, while still being affordable.
In 2000, only 4% of urban households in China was middle class; by 2012, that share had soared to 68%. And by 2022, China’s middle class is expected to number 630 million – that is, 76% of urban Chinese households and 45% of the entire population.[1]

Rapid urbanization:

Urbanization leads to more sedentary and unhealthy lifestyles. The rapid pace of urbanization in emerging territories over the last two decades has shifted the focus of healthcare resources and causes of mortality away from infectious disease towards the growing problem of non-communicable diseases.
According to the United Nations World Urbanization Prospects Revision 2018; taken together, China, India and Nigeria are projected to account for 37% of the increase of nearly 2.5 billion people in the urban population by 2050.

Technology penetration:

The already high penetration of mobile devices and internet in developing nations, is contributing to increased public awareness of health. This is already changing the expectations of ‘patient consumers’ by creating a more knowledgeable and well-informed patient pool. It also enables healthcare providers better access to information. Improved healthcare analytics enables projects to be tailored for the Emerging Market reality such as the evaluation of public healthcare policies and big data for public health research.
According to a GSMA report, by 2025, smartphone penetration will reach 80% globally. The countries contributing to the significant increase include India, Indonesia, and Pakistan.[2]

Changing disease landscape:

While developing nations continue to struggle with infectious diseases, life expectancy has experienced a significant increase in recent years; but unhealthy lifestyles, poor environmental health, and low adherence to treatments has shifted the focus toward chronic diseases. The prevalence of chronic non-communicable diseases such as diabetes, cancer and cardiovascular disease is fast on the rise in emerging economies. Ageing populations and changes in societal behavior are contributing to a steady increase in these costly long-term health problems.
The International Diabetes Federation estimates that 66.8 million Indian adults were living with the disease in 2014 and it forecasts that that number will rise by 63%, to 109 million, by 2035.
The WHO estimate that non-communicable diseases now kill ~15 million people a year; 85% of these premature deaths occur in low- and middle-income countries.
These diseases affect people younger in poorer countries than in high-income nations, as such they deplete these economies of crucial human capital.

Medicine quality:

The quality of medicines can be a key consideration in Emerging Markets. Developed nations have strict quality regulations, but this isn’t true everywhere. Medicines containing the same molecule may be manufactured by numerous companies, all with varying levels of quality. And, while regulations on quality are increasing, they are developing at different rates. As a result, patients in these emerging economies still look for trusted companies and brands that deliver quality medicines consistently.
Recent surveys conducted in Saudi Arabia revealed that fewer than one physician in three believed that domestic generics meet the same quality standards as originator brands, and fewer than one in five thought they were therapeutically equivalent.[3]

Increased government spending on healthcare:

Public healthcare reform combined with rising public spending is anticipated to improve healthcare infrastructure in emerging nations and lead to greater patient access to care. Currently there are many underdiagnosed and undertreated diseases in developing countries and more well-informed patients and providers alongside expanding access to healthcare, is expected to see an increase in the number of patients gaining more timely access to the treatments needed.
The relatively low share of public spending has meant that out-of-pocket expenses (private medical expenses not covered by state healthcare schemes) have been historically high in Emerging Markets – on average 35% of the total (in 2014) compared to 12% in Developed Markets. Recent trends suggest that the state is increasingly picking up the tab in emerging economies. Since 2000, out-of-pocket expenses there have fallen from 47% to 35%.[4]
In 2018, Brazil's out-of-pocket health payments accounted for 27.5% of the total health expenditure of the country, down from 29.5% percent in 2010. Furthermore in 2018, government spending on health represented more than 9.5% of Brazil's GDP, up from 9.47% a year earlier.[4]

Outsourcing opportunities:

Emerging countries are subject to the same global standards when it comes to clinical trials, especially industry-sponsored trials aimed at gaining regulatory approval for a new therapeutic. Also, local governments have made concerted efforts to improve their business environment and regulatory adherence. This has led to some Emerging Markets implementing stricter practices than developed regions.
Currently, China, India, Eastern Europe (Russia), and Latin America are the most cost-effective in terms of clinical trial services.[5]
Outsourcing of development and manufacturing to companies located in emerging economies has also been a strategy of international pharmaceutical companies looking to reduce costs and potentially gain access to these growing markets.
The WHO acknowledges that technology transfer to developing countries has contributed significantly to increasing vaccine supply, and increased access to many vaccines has been documented.

Despite their economic and cultural diversities, collectively emerging nations are struggling with similar shifts in lifestyles and healthcare needs; including the need to improve access to health services and medicines, rapidly increasing healthcare costs, infectious diseases, and the growing prevalence of non-communicable diseases. The focus for pharmaceutical companies in these territories has typically been on market entry and on building the business around mature products. Emerging Markets have generally been somewhat less important as drivers of growth; but moving forward Emerging Markets cannot be overlooked in global pharmaceutical strategy and the shift in focus to investing in patent-protected products is expected to gather pace.

Sources

[1] https://www.chinausfocus.com/2022/wp-content/uploads/Part+02-Chapter+07.pdf

[2] GSMA Intelligence. https://www.gsmaintelligence.com/

[3] Khan et al. 2016; A. S. Alsultan and Hakeam 2018

[4] OECD

[5] Beroe Analysis

Infographic additional sources

[1] Based on PPP-adjusted USD, source IMF.

[2] Speech by Christine Lagarde, Managing Director, IMF at University of Maryland, February 4, 2016.

Emerging markets series - Topic 3