The Next Big Opportunity for Big Pharma Is BRIC
AstraZeneca, GlaxoSmithKline, and Pfizer are all looking to emerging markets.
The latest company to dip its toe in the emerging tide is AstraZeneca (AZN). The Anglo-Swedish pharmaceutical company announced on Thursday that it has struck a deal with India's Torrent Pharmaceuticals, which will supply AstraZeneca with the licenses and market authorizations for 18 drugs in nine countries. Torrent will manufacture the products under AstraZeneca's safety and standard protocols.
"The emerging markets are forecast to contribute around 70% of pharmaceutical industry growth in the next five years, and branded generics represent approximately 50% by value in these emerging markets," wrote the company in a statement to the press. "AstraZeneca believes it can capitalize on this opportunity and over time plans to broaden its portfolio beyond these initial 18 products."
AstraZeneca is far from the only Big Pharma making waves in these new waters. GlaxoSmithKline (GSK) reported in February that sales in the US have declined 13% to $12.6 billion, while its emerging market sales have increased 20% in 2009 to $4.1 billion.
Pfizer (PFE) has been growing its sales forces and manufacturing capabilities in India and China over the last two years. The company announced in 2009 that it had entered into licensing agreements with two Indian pharmaceutical companies for off-patent medicines and branded generics.
The pharmaceutical companies are branching out now that many of their blockbuster products are facing generic competition in the US, the world's largest pharmaceutical market. Many of these companies are trying to find strategies to pad their pipeline or find new streams of revenue now that their major growth drivers are drying up.
IMS Health said that sales only grew 4% to 6% in the US in 2009, while sales growth would shift dramatically to emerging markets -- Brazil, India, Turkey, Mexico, Russia, South Korea, and China, which are expected to grow 13% to 16% over the next five years. According to IMS Health, the global pharmaceutical market is expected to exceed $975 billion by 2013; these seven emerging countries are expected to be worth $155 billion to $185 billion by that time.
Brazil, Russia, India, and China, known as the BRIC markets, offer pharmaceutical companies a growing patient population with large unmet medical needs, as well as growing health-care investment. Fitch Ratings says that branded generics are more important to Big Pharma companies than ever as they are more affordable and in higher demand in emerging markets. "This is particularly the case in India, where 69% of health-care costs are paid for by patients, compared with 52% in Mexico and 49% in China," the ratings agency wrote in a recent report.
"Faced with declining growth rates in mature markets, pharmaceutical companies are looking to emerging markets, especially the BRIC markets, to boost their sales significantly," said Neil Grubert, M.A., director of pricing and reimbursement research at Decision Resources. "These markets certainly offer exciting opportunities, but they also present some formidable challenges for multinationals that are unfamiliar with the very different market dynamics in these countries."
But the pharmaceutical companies face challenges in these markets that they do not face at home. Many of the emerging markets like Russia, India, China, and Brazil, while having some of the fastest growing populations, have the weakest infrastructure, which can make drug delivery and regulation difficult. Big Pharma also faces challenges from emerging-market governments that may not be keen on large foreign corporations creating a strong market presence.
Buzz & Banter: Where 30 professional traders share trading ideas and insights in real-time. Take a FREE 14 day trial to begin getting inside insights not available anywhere else. Learn more.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter