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Adapt or die

Pharma must change its strategy and rethink its role in both established and emerging markets

Image of lizard on flags of Russia, Brazil, China and IndiaBy 2020, almost one third of all pharmaceutical sales and half of all pharmaceutical sales growth will come from emerging markets. By contrast, sales growth in the US and Europe will flatten to 1-2 per cent, according to some health estimates.

It is not surprising, then, to find that there is considerable interest from big pharma in maximising the commercial opportunities offered by emerging markets, which, it believes, will go some way to off-setting the more difficult trading conditions in established markets.

However, the idea of fixing a problem in one area by doing something different in another area is rarely an ideal solution.

It could be argued that big pharma's growing interest in emerging markets is independent of the situation affecting established markets, but it is hard to detach one from the other, given the global nature of our business. In fact, I believe the two are inextricably linked – almost to the point where, in some situations, the interest in emerging markets feels like a knee-jerk reaction to the gloomy outlook elsewhere.

That is not to say that taking a keener interest in emerging markets is a bad idea. In fact, the opposite is true; it's a very good idea. However, in order for big pharma to be successful in emerging markets, a very different business approach will be required to that traditionally applied in established markets.

The question is this: Is big pharma ready to take this step?

Maybe the first move is to clarify just what we mean by the term "emerging markets". By definition, an emerging market has a low level of income per capita or GNP, but good prospects for rapid growth and industrialisation. The BRIC acronym (Brazil, Russia, India, China) exemplifies the big four nations in this category and a key focus of attention of most big pharma companies.

However, the term emerging markets spans more than just these big four. There are a number of smaller nations that also fit the "emerging markets" definition.

Perhaps the most relevant definition is an internal one, ie which of the so-called emerging markets will be a priority for us?

Different conclusions
This is a critical question to ask. We all have pretty much the same data and statistics to look at, but the conclusions we draw from these may be different in terms of implications for our businesses.

There are many aspects that must be considered and these will be expanded further later, but we should be clear at this stage that the term "emerging market" is a convenient catch-all phrase for a heterogenous group of markets, each with its own peculiarities and challenges. Therefore, the first consideration is that a one-size-fits-all approach cannot possibly succeed.

This statement may seem so obvious as not to be worthy of mention, but it is stated because we are increasingly operating in a global business world where corporate governance, increased legislation and tight regulatory controls mean we are expected to operate the same in one part of the world as we do in another. As a result, in many organisations, there is a strong centralised core to the business, policies, process and standard operating procedures, that shape and drive local operations.

This may be fine in Western industrialised nations, but a critical success factor in emerging markets will be the ability to operate not to the letter, but in the spirit, of the core business priniciples of the organisation and adapt locally to suit the market environment.

This may represent a significant challenge to some organisations.

It is perfectly understandable that, given the Sarbanes-Oxley Act and similar compliance requirements, organisations will want to ensure all their operations conform to a similar set of standards. The question is, how can organisations flex to allow sufficient freedom and decision making at local level to leverage the business opportunity in an ethical manner, while still remaining within expected standards globally?

I believe the organisations need to perform a thorough risk assessment of the business opportunity in each emerging market. These markets are not "emerging" by accident. They are emerging because, until now, most industrial nations have been cautious about the risk of conducting business there. The benefits have not appeared to outweigh the risk sufficiently in the past.

Perceived increases in benefits do not correlate with reduced risk necessarily, so it is important to understand fully what these risks are and have a plan to mitigate them. Ideally, have more than just one plan!

Key issues
Key potential issues that need to be considered include IP protection, maintaining transparency, corruption, fraud, payment defaults, political volatility, economic instability, lack of healthcare systems and infrastructure, pricing/reimbursement, market access, an inability to afford healthcare and poverty.

Above all, there are important cultural differences that must be taken into account.

In the past, some companies have seen their branded patented product beaten to market by its generic equivalent in these markets. To us in the West, this idea seems preposterous, impudent even. But to take that view only underlines our ignorance of these developing economies. We can tell ourselves that this is how such markets operate because they are in some way 'uncivilised,' but maybe a more helpful view would be to try to understand why they would have taken such action in the first place? I believe this says more about the desire to build their own national industry than the intention to take someone else's property.

New legislation has made IP protection a condition of membership of the World Trade Organisation and many emerging markets have signed up to it, yet this doesn't mean that concerns over the development of a national industry have disappeared in these markets. Maybe big pharma could help them? Western expertise is present in spades in big pharma and costs us very little, but it could be valued a lot by such nations.

Taking a "partnering" approach to healthcare provision ought to be a key strategy in emerging markets (and arguably in other markets too).

One of the big issues facing emerging markets is provision of affordable healthcare. The very nature of many of these markets means that a significant proportion of the population cannot afford to access medicines. The issue is not just "affordability," but physical access to medicines as well. Unsurprisingly, pharma companies are concerned that offering lower prices in emerging markets will impact prices elsewhere in the world, driving down margins and profitability.

Some have experimented with tiered pricing, ie more than one price in a market to allow those on lower incomes to access medicines, with some success. This would seem to be the most equitable way of allowing needy patients access to healthcare. In emerging markets, unlike established markets, the burden of paying for healthcare provision is with the patient. The out-of-pocket market is significant in such countries and a major difference between emerging and established markets.

However, while it may seem acceptable in Western society for the costs of a medicine to be priced to cover the costs of the innovation, a different approach needs to be taken in emerging markets if social needs are to be met.

How willing will big pharma be to deviate from its traditional "narrow-pricing window" to allow greater access to medicines in such markets?

Even if the price is right, there still remains the issue of getting the medicine to the patient. In some emerging markets, the population is focused in a small number of key cities, and a significant number of patients live in rural conditions without healthcare systems. The local roads and transport infrastructure may be very basic. The World Health Organisation identifies a number of factors that need to be in place in order for patients, worldwide, to have access to medicines. Some of these include:

• Delivery of effective, safe and quality interventions
• Equitable access to essential medical products
• Adequate funds for health
• A strategic approach to healthcare delivery.

Up to now, the pharma industry has seen itself, primarily, as providing effective, safe, quality interventions.

This is fine for developed Western markets with the ability to pay for healthcare, where there are well developed healthcare systems and infrastructure.

Broader challenge
But the challenge of emerging markets is broader than this. For pharma not simply to enter emerging markets, but to succeed in the long term, a more strategic involvement in these markets is required.

It requires a change of corporate strategy; a complete rethink of the role a pharmaceutical company has in society, not just in Western markets, but in all markets. It means a new business model where partnering is at the core, where risk sharing is par for the course and where fast, local decision making is permitted.

This means moving from a "provider" of medicines to a "facilitator of healthcare solutions". That's quite a big step.

I don't doubt that pharma is capable of making such progress, but it will take time.

Business readiness, in this case, is about a willingness to do business differently in emerging markets.

The Author
Peter West is senior marketing director at Wyeth

To comment on this article, email

7th December 2009


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