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Changing environment

Africa presents Europe with marketing opportunities if alternative business models are harnessed and an agile approach adopted

A desertThe changing landscape of the industry presents unique challenges in an increasingly turbulent market, promising sustainability at worst and growth at best. Additionally, the chronic conditions in the developing world will increasingly resemble those of the developed world. However, the pharma business model is both economically unsustainable and operationally incapable of acting quickly enough to produce the innovative treatments demanded by developing world markets. To make the most of these growth opportunities, the industry must fundamentally change the way it operates.

A recent study by PriceWaterhouseCoopers (PwC) Pharma 2020: the vision - which path will you take? states:

By 2020, the global pharmaceuticals market could be worth as much as $1.3 trillion. However, the market share of the US will fall as the E7 (emerging seven) countries - Brazil, China, India, Indonesia, Mexico, Russia and Turkey  will grow to account for 20 per cent of sales. Yet pharma will find it hard to capitalise on the opportunities presented by growing demands for medicines in the developed and developing worlds, unless it can alter the way in which it operates...

Despite unprecedented global demand for its products, the industry is at a pivotal point in harnessing its ability to capitalise on these opportunities. Pharma companies are facing a dearth of new compounds in the pipeline, poor financial performance, rising sales and marketing expenditures, increased legal and regulatory constraints and tarnished reputations.

AFRICAN PHARMA MARKETS
Developing world markets may present an opportunity, if alternative business models and an agile approach to new opportunities are adopted. This is particular true in Africa. The healthcare industries on the African continent have been poorly understood and investigated and, as a result, the African pharma markets are essentially untapped. The Organisation for Economic Co-operation and Development (OECD) in its economic outlook for Africa suggested a 2007 growth rate of 5.8 per cent with significant growth occurring in South Africa, Nigeria, Kenya and Tanzania. A report published by Frost and Sullivan in October 2007 - Strategic assessment of the healthcare industry in key sub-saharan African countries - points out that economic development combined with the huge inflows of donor funding, is driving growth in the pharma sectors in Africa. Development partners have increased their aid for health in Africa beyond $10bn per annum and governments have realised the importance of developing the healthcare industry. Some countries have increased their budget allocation to health in real terms to exceed 10 per cent of public budget with a target of 15 per cent of total government expenditure to be allocated to health.

The African Union's Health Strategy 2007-2015 argues that the evidence of the impact of good investments and effective interventions on the burden of disease and on economic indicators is becoming stronger. Nonetheless, the reality remains that Africa's people face a huge burden of preventable and treatable health problems whose solutions are known already, the scale of this is proportionately far beyond Africa's share of the world's population. Africa is still not on track to meet the health targets in the United Nations Millennium Declaration and the prevailing population trends could undermine progress made.

The reality remains that Africa's people face a huge burden of preventable and treatable health problems whose solutions are known

The African Union states that AIDS, tuberculosis and malaria pose the greatest challenges. However, they should not overshadow the severe burden of other communicable diseases such as pneumonia, diarrhoea and measles in children. Other diseases - such as onchocerciasis (river blindness), trypanosomiasis (sleeping sickness), schistosomiasis (bilharziasis), dracunculiasis (Guinea worm disease) and lymphatic filariasis - severely debilitate communities affected by them. Cholera, meningitis, ebola and marburg haemorrhagic fever outbreaks continue and intermittent cases of human cases of avian influenza remind the continent of the pandemic threat that mutation poses.

A key prediction of the PwC report is a shift in focus from treatment to prevention. Preventative healthcare represents a huge opportunity for both healthcare providers and the pharma industry. This is confirmed by the alarming growth rate of both death and disability from non-communicable diseases in Africa with chronic diseases becoming ever more prevalent. This is linked to demographic, behavioural and social changes and increased urbanisation. Hypertension, stroke, diabetes, chronic respiratory disease and the consequences of tobacco use, alcohol abuse and illicit drugs, are growing as serious public health challenges. Injuries from violence, wars, traffic accidents and other mostly preventable causes result in widespread death and physical disability, in addition the impact of mental ill health has been under­estimated. Sickle cell disease is the most prominent genetic disorder and the prevalence of specific cancers is extremely high in some parts of the continent.

Worsening protein energy and micronutrient malnutrition in many countries continues to contribute to elevated mortality, chronic diseases and obesity. Deficiency in micronutrients including iron, zinc, iodine and vitamin A is widespread.

To accelerate development of needed new commodities a key recommendation of the African Union Health Strategy is that countries should engage with international partners to integrate global commodity strategies and systems, with pharma and other stakeholders, to meet countries' health needs.

A key recommendation of the African Union health strategy is that countries should engage with international partners

Recent Frost & Sullivan analyses of the healthcare industries in key sub-Saharan African countries found that pharma earned revenues of $4 billion in 2006, with estimates of reaching $6.9 billion in 2012. This represents only a fraction of the total world market but it is an important growth area that may provide a solution to unnecessary suffering across Africa, while providing an opportunity to develop alternative business models.

Key challenges, such as price sensitivity and the low purchasing power of end-users and consumers in Africa, are important considerations. These are further compounded by exchange rate fluctuations, which frequently weaken the local currencies against the dollar and the Euro. Cheaper products with high-volume sales will therefore prove highly successful in sub-Saharan Africa. Products targeted at primary healthcare, such as antibiotics, analgesics and medical consumables, will continue to perform well and grow over the next seven years.

COUNTERFEITS
Expensive pharmaceuticals are facing competition from low-price, poor quality products as well as counterfeit drugs. The FDA estimates that 10 per cent of all medicines sold worldwide are counterfeit, and the problem is much worse in developing countries. Over half the anti-malarial treatments sold in Africa are thought to be fake.

Sub-Saharan African governments are undertaking a concerted drive to control the presence of counterfeit products in the market and to speed up access to 'breakthrough' drugs particularly in relation to HIV/AIDS. Drug regulatory authorities are attempting to frame and implement regulations, along with tightening the existing regulatory structures governing pharmaceuticals.

It is estimated that the Nigerian counterfeit drugs market accounts for about 45 per cent of the sub-Saharan pharma market. In an effort to isolate distributors of illegal drugs, the National Agency for Food and Drug Administration and Control (NAFDAC) in Nigeria has brought in strict restrictions on the distribution channels. The aim of the regulatory authorities is to reduce the presence of counterfeits while promoting the growth of local manufacturing and the distribution of pharmaceutical products.

Africa is attracting interest from the E7 countries. China's emergence as a world player is driven by its own need for oil and other natural resources and Africa is an obvious destination. China is looking to Africa for economic resources and has the cash to play the game competitively. Favourably priced medicine represents a powerful bargaining chip for preferred trade deals. Another significant E7 player, India, exports about $450 million of drugs to Africa as its fourth largest export market after Europe, Asia and North America. A 2007 estimate showed a 22.83 per cent increase in exports to Africa, with Nigeria, South Africa and Kenya as the main markets.

Most large pharma and biotech companies are sitting on the sidelines when it comes to R&D that could improve health in the developing world, but this is changing slowly. Social entrepreneurship supported by foundations - those headed by Bill Clinton, and Bill and Melinda Gates being the best known - is driving growth.

GROWING FOUNDATIONS
With an unprecedented infusion of cash and a business-like approach, the Bill and Melinda Gates Foundation has kicked the quest for a malaria vaccine into high gear. Since 1999, no single government agency or organisation has spent more on the effort. Of all the diseases the foundation has tackled, only AIDS gets more money than the $1.14 billion committed to malaria so far. Bill Gates vows to keep the funds flowing. Immtech Pharmaceuticals and a scientific consortium led by the University of North Carolina at Chapel Hill received $21.3 million from the Bill and Melinda Gates Foundation to develop drugs for fighting trypanosomiasis and leishmaniasis. The Clinton Foundation works with UNITAID, set up by several governments including Brazil, France and the UK, to negotiate low drug prices for use in poor countries. These new players can negotiate low-profit deals, which is more sustainable and scalable but requires a change in business focus from traditional pharma approaches.

Other new initiatives include the Abbott Fund's $50 million investment in a public-private partnership with Tanzania's government to strengthen the country's healthcare system. Abbott Fund has improved the national HIV treatment programme, expanding HIV testing and treatment capabilities at more than 90 health centres and rural clinics - bringing HIV care to people in some remote villages for the first time. Through these programmes, nearly one in three people on HIV treatment in Tanzania are receiving care at facilities that have benefited from Abbott Fund support.

The PwC report suggests that the pharma industry must shift its investment focus away from sales and marketing towards research and consider a range of alternative business models. Pharma's traditional strategy of placing big bets on a few molecules and marketing them heavily into primary care - with the aspiration of achieving blockbuster sales - will no longer suffice. Products must demonstrate tangible benefits and tackle unmet medical needs. Governments and payers must play their part, and ensure the industry is rewarded for these efforts paricularly in Africa.

The report authors argue that pharma companies are no longer shaping their own destiny. The future will require the industry to take note of growing healthcare market dynamics involving the demands of payers, patients, physicians, regulators and politicians. For the industry to rise to these global challenges, the current business model must adapt but it cannot do so alone. It requires collaboration between all stakeholders driving the delivery of future healthcare through an emergent strategy paradigm.

European pharma companies have the advantage of long- established trading relationships with African countries and it is from Europe that African countries have historically sought solutions for their people. Imaginative aid packages linked to donor, debt relief and development aid in partnership with the pharma industry and social entrepreneurial ventures may be part of the solution. The European Commission, non-governmental organisations (NGOs) and pharma could drive a healthcare renaissance - through a strategic alliance with the African Union - to develop the market profitably and, not least, with the purpose of changing the face of healthcare of Africa.

The Author
Bruce Sheppy is a health policy analyst and consultant

15th February 2008

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