Healthy Skepticism Library item: 17503

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Publication type: news

Singer N
Drug Giants Lag Where Sales Boom, Study Says
The New York Times 2010 Mar 16
http://www.nytimes.com/2010/03/17/business/global/17drug.html

Full text:

The leading drug makers need to move quickly to adapt to a new world order in which some emerging markets are set to overtake some established national markets in pharmaceutical sales, according to a report issued Tuesday.

Next year, the report predicted, drug sales in China will outpace those of France and of Germany, while Brazil will be buying more medications than Britain. The report was issued by IMS Health, a research company based in Norwalk, Conn., that tracks prescriptions and other data on drug sales.

Unless the world’s current leaders in brand-name drugs move more nimbly to expand into those emerging markets, they will miss the big growth opportunities and cede those markets to local players, the report said.

Annual growth of pharmaceutical sales in mature markets like the United States and Western Europe has slowed to the low single digits in the last eight years. The slowdown is a result of the worldwide economic crisis, but also of patent expirations on a variety of name-brand drugs, growing use of generic drugs, reduced investments in biotechnology and tighter government restrictions on the pharmaceutical market, the report said.

The United States drug market had sales last year of about $300 billion, with an annual growth rate of 5 percent, IMS said. And even if Congress passes health care legislation, which, according to a recent Credit Suisse report, could increase drug sales by $10.7 billion, the impact on the growth rate would be minimal.

By contrast, IMS said, 17 emerging markets are poised for significant growth. The report grouped the countries, which IMS has called the “pharmerging markets,” into three tiers in descending order of market value growth. China alone occupies the top tier. The second tier comprises Brazil, Russia and India, while the third tier includes Venezuela, Poland, Argentina, Turkey and Mexico.

Last year, those countries accounted for $123 billion – about 16 percent – of more than $770 billion in global drug sales, IMS said. The emerging market sales represented 37 percent of industry growth.

By 2013, those same countries are estimated to bring in an additional $90 billion in sales accounting for 48 percent of industry growth, the report said. Over all, emerging markets will represent about 21 percent of total drug sales in 2013, IMS executives said in an interview.

It estimated that China, the leader of the pack in emerging markets, would account for $40 billion in additional sales by 2013. “These traditionally peripheral economies are gearing up to turn the tables on the established pharmaceutical world order,” the report said.

Certainly, developed markets like the United States and Japan still represent a vast majority of pharmaceutical sales. Even so, the report urged leading drug makers to move faster to capitalize on high-growth emerging markets, where they already face competition from entrenched domestic producers with well-established brands.

A few European drug makers, including Novartis, Sanofi-Aventis and GlaxoSmithKline, have been forging ahead by acquiring local companies or increasing their local partnerships in those countries – or by making major investments in research and development in developing markets.

But, over all, the leading drug makers are underperforming in emerging markets. The top 15 pharmaceutical companies, including Pfizer, Merck and Eli Lilly, together derive less than 10 percent of their sales from emerging markets, IMS said.

To build profitable businesses in these countries, drug makers must tailor their approaches to the specific dynamics and challenges of each market, Murray Aitken, a senior vice president at IMS, said in an interview Tuesday. Some emerging markets for pharmaceuticals have been particularly hard hit by the worldwide economic crisis, he said.

“In Romania, the situation is rather dire,” Mr. Aitken said. “Turkey is in bad shape.”

He added, “Welcome to the realities of doing business in these sorts of environments.”