By Deena Beasley
San Francisco, Jan 17 (Reuters) - Major pharmaceutical
companies aiming to jumpstart growth by investing in emerging
markets are reassessing strategies after less-than-stellar
results in 2012.
New tactics are expected to include more joint ventures
where risks are shared with local partners.
Multinational drugmakers such as Pfizer Inc, AstraZeneca PLC
and Roche Holding AG are depending on rising demand in
emerging markets as sales in Europe and the United States
flatten due to an unprecedented wave of patent expirations on
Projections called for growing middle classes in countries
like China, Brazil, and India to increase demand for
pharmaceutical products, but growth has fallen short of early
expectations. Some experts are skeptical the trend will change
"Clearly it has been a bit of a disappointment," said Jon
LeCroy, an analyst at MKM Partners. "I don't think it is paying
off to the magnitude that these companies need."
Pricing pressure, economic weakness and strong local
competition are driving multinational drugmakers to rethink how
to best capitalize on emerging markets strength.
Sales in those markets rose 6 percent for multinational
drugmakers last year, half the rate seen in 2011, according to
consulting firm Ernst & Young.
Early in 2012, drugmakers forecast double-digit sales from
emerging markets. Current growth falls short of what is needed
to achieve median company forecasts for such markets to generate
25 percent of drug sales by 2015, according to Andrew Foreman of
E&Y's global life sciences team.
In China, AstraZeneca has seen "extraordinary volume growth"
for certain products, but pricing has not been as strong, said
the company's Chief Financial Officer Simon Lowth.
He said the European pharmaceuticals market is likely to
remain constrained this year as governments there continue to
institute austerity measures.
Typically, Lowth said, European government health plans trim
drug prices by 5 percent or less. That impact rose to the mid-
to high-single digits in 2012 and will likely stay there for the
next year or so, the AstraZeneca CFO said.
MORE PARTNERSHIPS, JOINT VENTURES?
"Pharma's big challenge to growth is in the U.S. and
Europe," E&Y's Foreman said. "If they don't back off from
(emerging markets) forecasts, the only way to get to that 25
percent target is more M&A (mergers and acquisitions) and other
Rather than out-and-out acquisitions, drugmakers are looking
to joint ventures and minority partnerships with local companies
to kick start growth in emerging markets, he said. Such
transactions may take longer to impact top-line revenue growth
Some countries, like China, have policies aimed at
supporting the domestic pharmaceutical industry over
The Chinese government said last week it would cut prices of
about 400 drugs for respiratory diseases, fever and pain by up
to 20 percent starting in February. It will be the fourth such
price cut since 2011 - part of reforms to make healthcare
cheaper and more accessible.
The trend is very different in the United States, where
medical costs are unregulated and prices on brand-name drugs
rose by 13 percent, or more than six times the overall rate of
inflation, in the 12 months ending September 2012, according to
pharmacy benefit manager Express Scripts.
"I don't think the economics are changing that much - the
U.S., Europe and Japan are still the primary markets," LeCroy
said. "The middle class is growing in emerging countries, but
these things (pharmaceuticals) are still massively expensive."
He said drugmakers - which face the loss of more than $70
billion in sales between late 2011 and 2015 as cheap generic
copies replace drugs such as Pfizer's cholesterol-lowering
Lipitor - are more likely to reignite sales with innovative new
Takeda Pharmaceutical Co, Japan's top drugmaker, plans to
double its revenue from emerging markets in the next few years.
The company placed a big bet on developing countries when it
bought Nycomed for $13.7 billion in 2011, and has since
purchased several smaller assets including Brazil's Multilab.
"Nycomed expanded our footprint from a dozen or so
countries to over 70," Takeda Chief Medical Officer Tachi
Yamada, said in an interview at the J.P. Morgan Healthcare
Conference last week in San Francisco. "In order to succeed we
must be an international company."
Takeda gets most of its revenue from Japan, followed by the
United States, Russia and Brazil.
Switzerland's Roche expects "strong growth" in emerging
markets over the coming years, said CFO Alan Hippe, largely
because of the company's successful use of "tiered pricing" and
innovative drug access models.
By offering selective discounts on its pricey cancer drugs,
Roche is able to increase sales in countries like China and
"We want to expand internationally in a way that's
accretive," said Robert Bradway, CEO at biotechnology giant
Amgen Inc, which last year acquired Turkish
pharmaceutical company Mustafa Nevzat and said this week it
would build its first Asian manufacturing plant in Singapore.
While China is the largest emerging market in which the
company has no presence, Amgen has no "big bang solution" for
entering it, he said.
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