Opportunities for the pharma supply & support network in Emerging Markets

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1 Opportunities for the pharma supply & support network in Emerging Markets Parioforma Ltd 55 Princes Gate Exhibition Road South Kensington London SW7 2PN United Kingdom

2 Emerging markets the new pharmaceutical heavyweights The fast-growing emerging markets - Brazil, Russia, India, China, and South Africa among others - are becoming the new pharmaceutical market heavyweights, termed as pharmerging markets. Today, multinational pharmaceutical companies are targeting these markets as a primary source of sales and consequently establishing a presence in these regions. 2

3 Big Pharma - expansion into emerging markets The pharmaceutical sector faces two big challenges: Declining prescription drug sales, especially in the U.S. Loss of patent protection for many profitable drugs. Drugmakers benefit from favourable tax breaks in new markets and inducements to encourage investment in production facilities such as: Russia s proposal to give preference to locally-made medicines in the national reimbursement system thus reducing reliance on imports. Low interest rates also encourage spending on new capital investments. Time To make up for these down drifts, the industry increasingly relies on new markets: Asia Latin America Africa Globally many large companies are investing significant amounts to build manufacturing and laboratory facilities in emerging markets (EMs). However, the purpose of these plants is evolving: At one time the intention was to export most of the production to Europe and North America Now there is a shift towards establishing facilities primarily to serve local markets. 3

4 Emerging Markets - the drive towards local presence EMs were previously viewed as newer markets in which to sell existing products. This viewpoint has changed today these markets increasingly being used for research, development and manufacturing. The need for increased localization in EMs is fuelled by government policies and frameworks to strengthen the domestic players and encourage the multi-national corporations to make substantial, long-term investments in these markets for example: The Chinese SFDA is encouraging the localization of R&D and manufacturing by implementing stronger GMP policies, enhancing IP protection, and providing tax benefits and incentives. In Russia, the foreign pharmaceutical manufacturers are encouraged to set up local production facilities following the adoption of the Strategy of Pharmaceutical Industry Development Similar government reforms in Brazil aim to strengthen the country s pharmaceutical industry and are also pushing for localization of manufacturing technologies and preferential purchase schemes through the Productive Development Policy (PDP) program. 4

5 China Drugmakers have poured resources into China over the past decade as rising incomes have made health care more affordable for many. The number of Chinese earning $5,000 or more a year will reach 339 million by 2016, according to projections from IMS. At the same time, the government has spent $180 billion since 2009 to advance its goal of providing basic care for more than 90 percent of its citizens. A growing middle class in China can pay for branded meds. China is the world's second largest pharmaceutical market after the US. The Economist Intelligence Unit (EIU) projects $166 billion in drug sales in China by 2017, making it a natural market for companies looking for further growth. But China is not an easy market - companies need to develop new strategies and skills to be successful here. Despite the recent political pressures - even despite new pricing pressures - China remains one of the world's most promising drug markets. 5

6 India The Indian pharmaceutical market was estimated at $18.4 billion in 2012 and is expected to almost double by India is the second most populous country in the world with about 1.27 billion people, and is projected to surpass China by Although India s market is currently dominated by generic drugs, rising incomes, enhanced medical infrastructure, and insurance coverage could provide a valuable opportunity for manufacturers higher-priced branded healthcare products moving forward. Despite the challenges of this market, major pharmaceutical companies recognize the long-term prospects and continue launching new patented drugs and pursuing unique business opportunities in India. Over the past decade, India s economy grew above OECD average - attributed to rising average income levels, an expanding middle class, and a drive toward urbanization. To encourage future investment, the government has made tax breaks available to the pharmaceutical sector, including a weighted tax deduction of 150% for any R&D expenditure incurred. 6

7 Russia Russia s pharmaceutical market - valued at $24.29 billion in continues to be one of the most attractive in the Emerging Europe region, primarily due to its sheer size, plus a growing economy and increasing government investment in healthcare. Big pharma is making a play to become entrenched in-country - building and buying facilities are the chief means - the Association of International Pharmaceutical Manufacturers in Russia expects global drugmakers to drop a combined $1 billion on setting up local production. Key drivers of market growth include programmes to fund medicines for specific segments and disease groups, and the pledged introduction of a universal medicines insurance system. The Russian pharmaceutical market is import oriented but the country s 2020 vision hopes to address this imbalance by giving preference to locally-made medicines in the national reimbursement system. 7

8 Africa The size of the market is still small. However, the rapid growth of many big cities offers interesting opportunities for development. Morocco has enacted legislation to attract foreign investment in the country. There are several rising economies including: Nigeria, Kenya and Botswana. At a country level, there are 4 established markets which together represent more than half of the pharmaceutical sales in the continent: Morocco, Egypt, South Africa and Algeria. According to WHO, Africa has 11% of the world s population, yet it accounts for 24% of the global disease burden. Pharmaceutical spending in Africa may reach $30 billion by 2016, from approximately $18 billion today (EIU). Spurred on by a convergence of demographic changes, increased wealth and healthcare investment, this market potentially represents a US $45 billion opportunity by Morocco launched RAMED in 2012, offering economic assistance to pay for medical care to 8.5 million people (28% of the population) Algeria is reaping the economic benefits of escalating oil prices. 8

9 Middle East While the Middle Eastern environment remains unsettled, the market for pharmaceutical products is still expected to grow in many countries across the region. The government of Turkey is drawing up a program in coordination with the pharmaceutical industry to create ways to make the country a regional production center for pharmaceuticals serving Europe, Central Asia, and the Middle East. Turkey s recent investment successes include: Amgen's $700-million takeover of Mustafa Nevzat Pharmaceuticals; the formation of a partnership between Otsuka of Japan and Abdi Ibrahim of Turkey; and a decision by Zentiva, a Czech subsidiary of Sanofi, to make Turkey a production base for generic drugs. Medical products companies such as GE Healthcare, have described the region as a hidden jewel, citing rapid spending growth by the various government ministries, resulting in new and growing hospitals. GE recently opened their new headquarters in Dubai Internet City, as well as a production facility in Saudi Arabia to manufacture diagnostic imaging systems. Qatar went from spending US$1561 per capita on healthcare in 2010 to US$1920 in Qatar has also announced plans to introduce a form of social health insurance by Jordan serves as a major manufacturer of pharmaceuticals, exporting the majority to other Arab countries. Leading international biotech companies, including Amgen and Genzyme, have set up operations in DuBiotech (Dubai Biotechnology & Research Park), with smaller companies certain to join them. 9

10 Latin America Argentina's pharmaceuticals market is forecast to grow from around US$5.6 billion in 2012 to $15 billion by The Latin American market is estimated at $70 billion in sales and it will continue to grow. Getting older and wealthier by the day, Latin Americans increasingly visit their pharmacy. Since 2008, the region is by far the fastest growing pharmaceutical market - with Brazil and Mexico amongst the most emerging pharmaceutical markets in the world. Brazil, the largest pharmaceutical market in the region, grew by 10% in 2010 and now generates sales of $26 billion, according to IMS Health. It is anticipated that Brazil will become the 4 th largest global market for pharmaceuticals by The pharmaceutical market of Argentina continues to grow as well as those of Chile, Colombia, Venezuela and Peru. The Colombian pharmaceutical market was worth U.S. $4.35 billion in 2013 and is expected to grow at a CAGR of 7.3% to reach U.S. $5.37 billion by

11 Pharma activity Company Sales in Emerging Markets % Sales in Emerging Markets 2012 Bayer HealthCare 33.2% 6.17 billion ($8.1 billion) Sanofi 31.9% billion ($15 billion) Comments Invested > 100 million in China since 2009 to build up regional headquarters and a global R&D center in Beijing. Struck a strategic partnership with Medsintez in Russia to make and commercialize drugs, including antiinfectives and diagnostic imaging products. The two companies plan to build new plants and manufacture from existing facilities. Strong performing markets for Bayer include: Singapore, Vietnam, Pakistan an Turkey. Between , the company spent 39 billion on deals in emerging markets. It now has ~40 manufacturing sites in emerging countries. It s latest additions to international manufacturing include 4 plants in China - and one each in Vietnam and Algeria. The new $95 million plant in Algeria will be its 3 rd in that country and its biggest in Africa. Sanofi also recently opened a 20 million, 12,000-square-meter distribution center in Morocco. 11

12 Pharma activity Company Merck KGaA Sales in Emerging Markets % 29% (34% with materials division) Sales in Emerging Markets billion ($2.3 billion) GlaxoSmithKline 26% 6.78 billion ($11 billion) Comments Merck Serono is focusing on growth in the Middle East. As part of its localizedproduction strategy, the company partnered with an Abu Dhabi-based manufacturer, Neopharma, to turn out branded drugs for the region. The idea is to tailors prices to a market's pocketbook so as to build up GSK's reputation now so that the company can cash in later when emerging economies begin to grow. Novartis 24% $13.84 billion In 2010, Novartis announced a new $150 million manufacturing plant outside St. Petersburg, Russia - part of a $500 million push in the country. In Singapore, the company's Alcon division recently opened a new production site. Plans were also announced for a $500 million state-of-the-art biotech manufacturing facility in Singapore as its pipeline of drugs fills up with treatments based on biologics. 12

13 Pharma activity Company Johnson & Johnson Sales in Emerging Markets % Sales in Emerging Markets 2012 Comments 23% ~$16.8 billion The company has set up R&D and manufacturing centres in the fastestgrowing pharma markets: China, India and Brazil. Novo Nordisk 22.4% billion kroner ($3.1 billion) The company has operated a Chinese affiliate since It opened an R&D center there in The company has been investing big money in local manufacturing, R&D and sales and marketing. In 2012, it opened a $100 million expansion of its R&D complex in China. In Russia, the company started building a $100 million insulin-cartridge plant in the Kaluga region the year before last. It sees Vietnam as the new mini-china. AstraZeneca 21% $5.75 billion AstraZeneca has expanded its R&D facilities in China and India, among other places, to ramp up local research. A new, $200 million plant in China is expected online soon, along with new production capacity in Russia. 13

14 Pharma activity Company Sales in Emerging Markets % Sales in Emerging Markets 2012 Comments Pfizer 20.2% $11.97 billion Pfizer has expanded in some markets via acquisition; it bought Brazil's Teuto in In 2012 it forged an alliance with China's Zhejiang Hisun Pharmaceutical to produce branded generics for the country. Roche 20% billion francs ($10.2 billion) Roche has spent serious time, money and people-power on the Chinese market. Overall, Roche is most focused on 7 fastgrowing countries, which it calls the "E7." Besides India and China, that group comprises Brazil, Mexico, Russia, South Korea and Turkey. 14

15 Conclusion Numerous forces are reshaping the environment in which the industry operates and dictating the need for a different sort of supply chain, PwC Pharma Moving forward traditional markets are not where the focus of the pharma business is going to be: Today multinational pharmaceutical companies are targeting EMs as a primary source of sales and consequently establishing a presence in these regions Companies are establishing local commercial operations as well as R&D and manufacturing Where big Pharma goes then small and mid-sized companies are sure to follow along with the service supply network such as CROs, analytical labs, Bioanalytical labs, CMOs, etc. The drive is towards localisation and the support & supply companies need to be in on it! 15

16 How can Parioforma help? We could assist your company in understanding: The size and scale of this opportunity Where the potential geographical hotspots are likely to be and the potential timeframes The type of expansion R&D centres, laboratories, commercial and/or manufacturing How to realise this opportunity steps to be taken by a Western player: How to do business in EMs Local partner identification, selection and negotiation support Strategy development - 5 year plan 16

17 About Parioforma Founded in 2000, Parioforma is an international business consultancy. We specialise in custom research: We assist business units to maximise the return on research spending by tailoring projects to actual needs. In addition we interpret results into business implications what does this mean for our client? We work with clients at the RFP stage to prioritise research requirements therefore helping them to focus on areas which will give them the greatest return. Studies are frequently divided into phases providing a builtin flexibility to direct followon work according to the results of early findings ensuring that resources remain focused. We offer a consultancy-based approach and are proud of the strong, interactive and results-focussed business partnerships we form with our clients. 17

18 We cover traditional as well as emerging & complicated markets From our London base we are able to provide a global footprint by utilising our extensive network of associates across: North America Western Europe Australia & Japan In addition we have strong capabilities in emerging and complicated markets: Central Europe, Baltic States, Russia & CIS South East Europe including Turkey Middle East & Africa Latin America India, Pakistan, Malaysia, Thailand, etc. 18

19 Contact London Office Associate Offices Founding partners: Charles Rowlands Amy Morgan 55 Prince s Gate Exhibition Road London SW7 2PN United Kingdom Tel: +44 (0) USA Eastern Europe Brazil Japan Intrix Corp, Darien Connecticut IMRP, Moscow Intrix Corp, São Paulo TRN, Tokyo Charles{.}rowlands{at}parioforma{.}com Amy{.}morgan{at}parioforma{.}com 19