A tailored approach to the BRIC markets

The diverse nature of each of the BRIC countries is one of the primary reasons why the pharmaceutical industry cannot take a 'one-size-fits-all' approach to targeting these growth markets. Although they each present pharma with undoubted opportunities to increase revenues, the healthcare environments in Brazil, Russia, India and China - in particular the implementation of healthcare infrastructure - are at various stages of development.

The countries are at different phases along the reform pathway and this, in turn, is creating unique but important barriers to market access. Further, the population demographics, epidemiology and economic challenges of each country vary hugely. Pharma's emerging market strategies must therefore be tailored to suit local needs. And so, as the industry looks beyond traditional and mature markets for growth - amid predictions that emerging markets will represent almost a third of the global marketplace by 2016, what should pharmaceutical companies do to capitalise on the clear market potential of the most developed of all emerging economies: the BRIC nations?

Think local
According to recent research into the methodologies being used by pharma to penetrate developing nations, localisation is emerging as a clear strategy for many companies targeting the BRIC countries - a cluster which the report-writers extend to include Mexico and Turkey, in the form of BRICMT.

Pharma Emerging Markets 2.0: How Emerging Markets Are Driving the Transformation of the Pharmaceutical Industry, highlights that a growing number of companies not only recognise BRICMT as their most likely source of growth, but they also believe that investment in local research, local development and local manufacturing will be critical to commercial success in these regions. In fact, the qualitative study by Booz & Co surveyed executives from 25 pharma and generics companies, including 12 of the top 15 global pharmaceutical firms, and identified 'insufficient tailoring of approaches to local needs' as the industry's biggest mistake in so far failing to optimise the opportunities of emerging markets. As such, 78 per cent of the survey's respondents now advocate maintaining local subsidiaries in the BRICMT regions, as part of a more localised approach.

Examples of the establishment of local subsidiaries are numerous. Sanofi, which has had a presence in Brazil since the late '50s, now maintains four manufacturing sites in the country, employing more than 5,000 staff.

It also has an established presence in China, where it employs around 7,000 people across eleven regional offices, with more than 4,000 working in the sales force. Equally, Novartis has a significant presence in China, having invested $1bn in an R&D site in Shanghai.

Elsewhere, Johnson & Johnson operates R&D hubs in Brazil, Russia, India and China, whilst AstraZeneca (AZ) has an R&D presence in Russia, India and China. Pfizer and GSK are among other pharma giants that have R&D operations in China and India, while Abbott has major operations - and currently the largest market share - in India.

In addition to pharma developing local operations in terms of R&D and manufacturing, the Booz study indicates that companies are increasingly bolstering their presence on the ground - with two thirds of respondents favouring deploying their own local field force. This, of course, requires significant investment. For example, in India, where between 600,000 and 700,000 doctors serve the entire population while pharmacists and hospitals also assume great influence, maintaining sales coverage on the ground is a considerable challenge. According to Cegedim Relationship Management's 2012 report Emerging Markets Today and Tomorrow, a top 10 pharma company in India might leverage around 3,000 to 4,000 sales representatives and managers - with sales professionals visiting 12-15 private practice physicians each day, as well as distributors, wholesalers, pharmacists or in-hospital physicians.

Clearly, as field force numbers in mature markets steadily decline, they are likely to increase in the growth nations. Evidence shows that as companies have restructured their operations in developed markets, improving efficiencies by cutting the workforce and containing costs, many of the savings have been used to build local operations in emerging markets. Booz cites AZ as a good example of the growing trend towards reallocation of resources. In 2002, 16 per cent of AZ's workforce was based in emerging markets - by 2011, this had grown dramatically to 47 per cent.

The Booz report reinforces the view that establishing good relationships with regional governments is a prerequisite of increasing local presence on the ground. Achieving this is a key aim for industry strategists, with 83 per cent of respondents citing close collaboration with governments as their top priority. Early engagement with governments is regarded as an important means of in uencing the development of healthcare policy - in particular health technology assessment (HTA) and pricing and reimbursement policies that will ultimately create market access hurdles. One industry executive told Booz that proactive engagement was essential: “We need to invest ahead of the market. Then we can build the market and develop our commercial position.”

There are increasing examples of pharma companies collaborating with governmental and quasi-governmental institutions in BRIC countries. For instance, in September 2012 the Indian government approved eight foreign investments in pharmaceuticals worth $333m in total. But the deals came at a price for pharma: a condition of the approval is that the companies - which include Pfizer and B Braun - commit to the continued production of cheap drugs and maintain spending in ongoing research and development projects run by their Indian partners for five years.

In 2009, GSK signed a €1.5bn deal with the Brazilian government to provide Syflorix, its vaccine for paediatric pneumococcal disease, at around a third of the price it charged in Europe. The deal guaranteed GSK a set price and set volumes for the vaccine, in exchange for knowledge and technology transfers. Likewise, in 2009 Bayer began an R&D partnership with Tsinghua University, Beijing, to collaborate on various aspects of biomedical research. The collaboration was extended in 2012. A similar industry/academic research partnership was agreed between MSD and St Petersburg State University in December 2011 - one of the earliest products of the Russian government's Pharma 2020 initiative.

Customer targeting
Localisation strategies, of course, must also extend to make provision for local market access challenges and barriers. As has become the case in the majority of pharma's traditional markets, commercial success in the BRIC regions will depend upon securing a full understanding of individual stakeholders and influencers, with payers - and hospitals - expected to assume major importance. As the healthcare reforms in each of the BRIC nations unfold, pharma companies must align their approaches accordingly.

Optimising the field force - a familiar challenge in Western markets - is therefore critical. If companies are to follow through with ambitions to develop their own local sales forces, designing, implementing and measuring effective customer targeting strategies will be crucial. Once again, this will depend upon robust local understanding.

Although the Booz study found widespread consensus in the growing importance of payers (78 per cent) and hospitals (58 per cent), it also reflects divided opinion in terms of the net growth in importance of pharmacists, distributors, specialists and GPs. For example, with large numbers of patients in BRIC nations paying for their own medicines, pharmacists can be very influential in whether a particular drug is sold. But full comprehension of local nuances is key. In India, although pharmacies are legally required to be run by professional pharmacists, many are staffed by sales people that are not qualified to offer therapeutic advice. Therefore, taking a general approach to targeting pharmacy is a risk. Likewise, education and skills gaps among healthcare professionals across the BRIC nations mean that many GPs are not yet equipped to treat specialist diseases. But as infrastructure and health systems progress and training improves, GP influence is expected to increase.

Current promotional activity across the traditional BRIC nations is mixed. While all four markets place significant emphasis on the field force as the most common channel for communication, investment in the activity varies. Cegedim Relationship Marketing's report shows that promotional spend in Brazil increased from $3.8bn to $4.4bn between 2009 and Q3 2011, 75 per cent of which was spent on detailing largely to doctors. But as the influence of payers in Brazil grows, decision-making powers are gradually shifting away from physicians. In Russia, promotion totalled a mere $205m in 2011 (to Q3) - the vast majority of which was spent on the sales force. According to the Cegedim report, medical representatives have historically conducted 10-12 visits a day - focusing their attentions on a balance of physicians and pharmacies. However, new legislation in Russia is now greatly restricting representatives' access to doctors.

Promotional spend in India is similarly low. Cegedim reports that by Q3 2011, the industry has spent only $63m on promotions, 88 per cent of which went on detailing.

Further, physicians are reducing the time they spend with sales professionals - in some cases this can be as low as 20 seconds.

The growth of the hospital sector presents new opportunities for pharma in India. But Cegedim believes that targeting a handful of states may prove more effective than attempting to cover the whole country. Its report suggests that companies that focus on the 12 clusters around India's 14 largest cities could reach up to 60 per cent of the country's GDP by 2030 - and, in the process, optimise supply chains and sales and marketing activities.

Promotional activity in China totalled $1.4bn in 2011 (to Q3), 81 per cent of which was via detailing. Sales representatives predominantly detail physicians, but Cegedim estimates that coverage extends to only 3-5 per cent of China's physicians, and turnover is high. The frequency of visits is regulated and some hospitals prohibit representatives from detailing on the premises. Despite this, many physicians rely on sales reps for information on the latest therapies - and in rural China, reps are also required to act as educators or medical science liaisons. Targeting remains a challenge in China, where the government rotates physicians among the regions to provide quality care.

The patient approach
Developing an optimal operational model to conquer emerging and growth nations is a complex process. In the BRIC nations, pharma is moving towards localisation, with the establishment of regional structures commonly accepted as being the best way to manage and deliver growth. But, according to Booz, industry executives are finally accepting that, in growth nations such as BRIC, success will not be won overnight.
Patience is a virtue - and companies that wish to exploit emerging markets must be in it for the long haul. As Booz concludes, overly optimistic expectations and shortterm planning horizons are among the biggest mistakes that companies can make.

The winners, it says, will be those who “thoroughly understand the challenges of the markets and define smart goals and levers that allow for flexibility. They will reap the rewards - not necessarily in the short-term but certainly on a sustainable, long-term basis.”

This article was originally published in the PME supplement Pharma and BRIC