Emerging markets are a popular topic at the moment, with pharma firms seeking sales growth outside the mature and slowing markets of the west.
There are some companies with a long history of participating in these markets, such as AstraZeneca, which claims to hold the number one spot among multinationals for prescription medicines in China, and Bayer, while others – like Roche, Novartis and GlaxoSmithKline (GSK) – have repositioned themselves in the past few years. GSK, for instance, hopes that these markets will make up some 20% of the company's pharma sales by 2020, Abbas Hussain, President of Emerging Markets said. While companies discussed the key fundamentals of these markets – which to a large extent are driven by brands and the burgeoning middle class buying drugs out of pocket – at the FT Global Pharmaceutical and Biotechnology conference last week, one area not discussed was how companies actually categorise these markets.
Annual reports of multinationals make for good reading on the subject: each company seems to have its own particular take on what constitutes an important emerging market. Why? The reason behind that could depend on the company's point of reference. A US company might want to focus on countries that are geographically close, say in Latin America. Other companies may want to be closer to hubs of strength where they already have an established pharmaceutical footprint.
Traditionally, the industry has spoken about seven main emerging markets – Brazil, China, India, Mexico, Russia, South Korea and Turkey– but is it time now to take a more nuanced approach? It might help investors if the broad consensus extended beyond simply listing the seven major markets to include additional territories and distinguish between markets with different trends and attributes rather than focusing purely on size.
One of the key providers of sales data to the pharma industry, IMS Health, is tackling this question now. It is re-examining and expanding its definition of the emerging markets: splitting them into two groups – tier one and tier two – and going beyond the original top seven. It has taken into account GDP per capita at purchasing power parity (PPP; which unlike international exchange adjusts for the varying costs of living between countries and gives a clearer relative picture of how much can be purchased in given countries using local currency rather than indicating how much could be purchased there using dollars) and overall GDP to distinguish between large and small markets, and importantly has considered how much real-dollar value these markets are going to add between now and 2013.
The distinction between tier one and tier two "is not growth, it's real dollar value", emphasises David Campbell, Senior Principal, IMS Health. So tier one countries will be the countries that are forecast to expand by the largest amount in absolute dollar terms rather than percentage terms: Brazil, China, India, and Russia. Tier two will be Argentina, Egypt, Indonesia, Mexico, Pakistan, Poland, Romania, South Africa, Thailand, Turkey, Ukraine, Venezuela and Vietnam. (South Korea has been removed from the list, as IMS Health now defines it as a mature market.)
Reference:
Elizabeth Sukkar. Emerging markets: a clearer categorisation needed. Scrip News. 2009 November 30.
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