Potential cooperation between pharmaceutical companies in developing countries and pharmaceutical companies in developed countries

Abstract

The value of the global pharmaceutical market was estimated at US$856.4 billion in 2010 -- according topharmaceutical research and consulting firm IMS Health -- growing with a 4.5% pace. In 2011, theindustry is expected to grow even faster by 5–7% and reach an approximate value ofUS$880 billion. By2013, it is expected to expand to close to US$1000 billion.In the near future, however, the pharmaceutical market world is assumed to experience significant shiftsin business practices, models and even regarding key players. Also, different geographical regions of theworld will influence pharmaceutical industry trends in profoundly different ways. After a long period ofstrong US market dominance, the transformation of the industry has already begun. The first signs ofthe need for substantial change in the way business is managed, developed markets today are facingsignificant challenges:(1) Macroeconomic and social challengesThese include the aging populations in the western world, the growing prevalence of chronicdiseases, greater use of expensive treatments and expanding public healthcare coverage, which arestretching existing healthcare resources.(2) R&DUS and European companies also face a number of internal resistors to profit growth including thelooming patent cliff causing a significant slowing in branded sales together with ongoing R&Dchallenges.(3) Competition from Emerging MarketsLast but not least, the increasing competition from emerging economies, such as China, Brazil andIndia, also poses new challenges to the top players.To cope with these challenges, major players of the developed markets are trying to boost theirperformance by enhancing operating profit through a combination of operating margin and salesgrowth. The typical trends we could notice in the recent years include the following: • With the era of the traditional blockbuster growth model coming to an end, companies aremoving towards innovative, often biologic therapies for niche therapeutic areas with a highunmet need, in order to gain market superiority and drive future sales growth. Nonetheless,such a strategy is often long-term focused and carry significant risk.• Companies are increasingly looking to expand beyond branded pharmaceuticals serving thedeveloped markets only. This implies moving towards generics and biosimilars entering intoemerging markets. While this can mitigate a company’s risk, margins can be diluted.• M&A has offered the opportunity to grow scale and cut costs through elimination of duplicateoperations, while externalization of R&D enables low-risk access to innovative pipeline products.Ultimately, such strategies are used to increase profitability, although M&A -- at least in the longterm -- is not a sustainable strategy.While the Western world has been trying to adjust to the new business environment, the Asia Pacific(APAC) region has beenemerging as the fastest growing “new” pharmaceutical hub. The reason for thisshift can be also attributed to the low costs and favorable regulatory environment in the APAC area.Most importantly, this region has experienced important developments regarding contractmanufacturing, especially in generics and APIs. Lately, however, increased R&D activities have alsofacilitated the local industry to reach an estimated market size of around US$187 Billion in 2009. InAPAC, the pharmaceutical industry is expected to grow at a CAGR of around 12.6% between 2010 and2012. It can, in fact, become the global API production center in a few years.The focus of the present paper is the global pharmaceutical industry. It aims to investigate the trendsaffecting the business as a whole and offer potential non-traditional solutions many of which have beenemerging in recent years. Geographically, our investigation will include France from among developedmarkets and regarding emerging markets, we will primarily focus on India and, to a less extent, onCentral East Europe. Our goal is to identify potential “joint points” in the value chain between developedand emerging markets which equally facilitate the business in both geographic area.To understand the industry and its current trends, we have relied primarily on secondary researchpapers including market intelligence reports, research data, consulting reports, and so on. We have alsoused publicly available company information about major players including websites, annual reports andother publications. Also, we have conducted interviews with the following experts and executives to geta deeper perspective of the companies’ strategy:* MuraliPatibandla, Professor, Corporate Strategy & Policy.* Sabine Dandiguian, Managing Director, Emerging Markets, Johnson & Johnson, Janssen.* VivekKulkarni, Managing Director, Brickworks Ratings.* NishantAnshul, Analyst, Brick Water Ratings.* Rishikesha T Krishnan, Professor, Corporate Strategy & Policy.* Dr. Robert Sebbag, VP Access to Medicine, Sanofi (primarily regarding a different matter).