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Pharmerging shake-up: redefined markets

The 'pharmerging' club of high-growth markets has been expanded to include a greater number of countries, with government initiatives driving change in the dynamic Asia-Pacific ones.

Debbie Kobewka

Q. In 2006, IMS defined seven “pharmerging markets”, three of which, China, India and Korea, were located in the Asia-Pacific region. Why were these markets defined as pharmerging back then and does the definition still apply to them today?

The original seven pharmerging markets were identified for their exceptional growth momentum relative to mature markets. IMS forecast each of these markets to enjoy greater than 7.5% CAGR from 2006-11. The countries were expected to contribute to roughly 20% of global pharma growth over the same period.

Naturally, the major economic developments spurred by the global recession have driven disparate rates of evolution in each pharmerging market. China, aided by a robust economy and increased healthcare reform funding, has seen accelerated growth since 2006. India also continues to show strong growth momentum and remains on our list of pharmerging markets. South Korea, on the other hand, has, despite its recent double-digit growth, many more characteristics typical of developed markets, such as a payer system, good market access and a high GDP per capita.

Other countries, such as Vietnam or Ukraine, were previously excluded, even though they have developed much like emerging markets.

In fact, the dramatic shifts in economic outlook since 2006 have prompted us to redefine the pharmerging markets to now include 17 nations in three tiers.

Q. How are those three tiers defined and where do the Asia-Pacific markets fall within them?
China is in a class of its own. It is the sole Tier 1 pharmerging market, marked by its $8 trillion GDP and projected $40 billion incremental pharma market value growth from 2008-13. The Chinese pharma market not only benefits from a foundational economy that is predicted to experience 8% GDP growth over the next five years and massive healthcare reform spending driving increased patient access, but also an ageing population and a greater incidence of chronic diseases. This collection of factors has pushed China ahead of the other pharmerging markets.

The second tier, featuring Brazil, Russia and India, is defined by markets with between $2-4 trillion GDP and between $5-15 billion projected incremental pharma market value growth from 2008-13.

Tier 3, which includes Vietnam, Thailand and Indonesia among 10 other nations, represents markets with less than $2 trillion GDP and between $1-5 billion projected incremental pharma market value growth from 2008-13.

The 17 new pharmerging markets alone will be the largest contributors to global growth over the next five years, contributing a projected 46% CAGR of global growth from 2008-13.

Q. Are large pharma companies effectively leveraging this explosive growth?

Not at the rate that the markets are growing, unfortunately. Nearly all top global pharma companies are under-performing in these countries. While pharmerging markets accounted for 17% of the global pharma market in 2009, the top 15 companies derived only 9.4% of their sales from them.

This gap is even more pronounced in China. Despite China representing a 3.1% share of the world market in 2009, the vast majority of the top 20 global pharma companies earned only 1-1.5% of their 2009 revenue from the country. Not one single top 20 company saw revenue contribution from China proportional to the country's global market share.

Clearly, there is work to be done to tighten this gap in these markets.

Healthcare reform in China

Q. In 2008, the Chinese government announced an ambitious three-year, RMB850 million healthcare reform initiative. What challenges within the Chinese healthcare system do these reforms target?

The reforms in China target the twin challenges of accessibility and affordability.

First accessibility. With only 3.8 health professionals and 3.1 beds per 1,000 population, Chinese patients have to wait nearly two hours on average for every six minutes of patient-physician contact. Rural areas have even less accessibility to healthcare, with 54% of the population receiving only 22.5% of healthcare expenditures.

Further, Chinese patients are increasingly finding healthcare less affordable. Out-of-pocket expenditure on healthcare in China has risen 18-fold over the past 20 years. As a result, 35% of urban households and 43% of rural ones have difficulty affording treatment.¹

Q. What specific measures are being taken to improve these conditions?

The current reform framework consists of five major initiatives for addressing the issues of accessibility and affordability. While all of these efforts are supposed to address both challenges, three of these initiatives primarily focus on affordability concerns, while two specifically target accessibility.

To alleviate the affordability concerns, the reforms aim to roll out Basic Medical Insurance (BMI) to 90% of the population by 2011, thereby reducing out-of-pocket payments by patients. In addition, controls on drug prices will not only create more affordable healthcare, but also increase patient access to different types of medication. The third initiative to target affordability is the Essential Drug List (EDL) which will reduce basic drug prices, while ensuring basic medication needs are met.

A strengthened primary care service will improve the efficiency of the healthcare system and public hospital reform will change the profit-driven operating model of current public hospitals and optimise healthcare resources. Both of these efforts aim to increase the accessibility of healthcare to Chinese patients.

Q. What impact will inclusion on the National Drug Reimbursement List (NDRL) have on the success or failure of a drug in China?

Inclusion on the NDRL will certainly impact a drug’s journey through the healthcare system in China, although a number of other factors influence whether that journey leads to success or failure. The therapy area, the threat of generics and competitors, patient co-payment levels, listing on the Provincial Drug Reimbursement List (PDRL) before the NDRL, the price cut, investment and execution from the company, and the product’s clinical efficacy all factor into its success on the market. Companies must assess all these factors to determine the potential gain from a listing on the NDRL.

Philippines Cheaper Medicine Act

Q. Moving on to the Philippines, how has strong government price intervention impacted the country's pharma market?

Government price intervention has had a strong impact on the Philippine market, particularly in the ethical segment. For example, absolute ethical value growth in 2008 was 12.19%. However, the value growth rate dropped to only 0.66% in 2009, a year after government price intervention. As a result, the overall value growth in the Philippines dropped from 10.56% in 2008 to 2.55% in 2009, despite stronger OTC results between the two years. Neither price nor volume change were growth drivers for the Philippine market in 2009, contrary to the previous two years.

The jury is still out on the absolute and long-term impact of the price cuts (either voluntary or involuntary). Certainly we have seen an impact on volumes for medical brands, but we have not witnessed a massive, across-the-board increase in volume per therapeutic area. It seems that pricing is only one element that has an impact on market access, even in largely out of pocket markets such as the Philippines.

Innovative pricing opportunities in Taiwan

Q. IMS Health has recently worked with the IRPMA (International Research-Based Pharmaceutical Manufacturers Association) in Taiwan to assess the impact of a price cut and the ability to pay for innovation in the country. What were the primary objectives of that project?

The prime goals were the evaluation of the impacts of possible pricing policy reform and to develop evidence to support the IRPMA in establishing a position on the reform. Through this study, the IRPMA hoped to understand the expectations and concerns of other key stakeholders, and the potential impacts on those stakeholders of the various pricing scenarios. They also sought to develop a model that will enable the IRPMA and the Bureau of National Health Insurance (BNHI) to evaluate various pricing scenarios, and subsequently assess the impacts of those scenarios on BNHI drug expenditure and industry growth.

Q. What did they find?

After evaluating whether the BNHI budget would have sufficient room to support future innovators, it appears that expenditures would still be less than the target budget limit in 2016 without any further price cuts.

We have concluded that because we can expect a smaller number of new product launches in the future (albeit more high-valued oncology products), there should be sufficient room to support the reimbursement of these new innovative products unless there is an epidemic that broadly increases the consumption of healthcare products and services.

Imperatives for success

Q. With so much changing and so many unique markets throughout the region, how can businesses be successful across dynamic Asia-Pacific markets?

At IMS Health we find that the key imperative for success across Asia-Pacific is local adaptability. This involves picking the right portfolio for each market and aligning portfolios with high-growth opportunities. It involves building a commercial model that maintains an appropriate balance between depth and breadth in each market and setting the right pricing and market access strategies to match local demand with companies' unique value propositions and achieve launch excellence. But no strategy will be successful if you do not have the right people and leadership in place to execute your strategies.

As the pharmaceutical environment evolves rapidly in these markets and competition intensifies, companies must act quickly to leverage the opportunities. It is important to be aware that we can learn from western business models, but that local adaptation or even complete local models might be necessary. Companies must set themselves apart from competitors with clear value propositions by understanding patient needs. They should tailor their portfolios, clinical development and commercial models to fit the local needs. And finally, companies should develop a strong leadership team to carry out their strategies on the ground. These critical factors will drive success across the rapidly evolving Asia-Pacific markets.

References

1. MOH statistics; news; reports; IMS Analysis.

Debbie Kobewka, President, IMS Health, Asia-Pacific

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