[Ip-health] WSJ: Big Drug Makers Struggle to Grow in Emerging Markets

Peter Maybarduk pmaybarduk at citizen.org
Tue Aug 21 05:29:26 PDT 2012

Big Drug Makers Struggle to Grow in Emerging Markets
By JONATHAN D. ROCKOFF<http://professional.wsj.com/article/SB20000872396390444900304577577511537791418.html>


August 19, 2012

Big drug makers have been reassuring investors: Don't worry about top-selling medicines going off patent. Growth in developing markets, like China and India, will help replace the revenue lost.

Turns out there is a different message emerging within these companies: Not so fast.

Slowing economic growth, intense local competition and governments' efforts to control health-care costs and bolster homegrown firms have damped the prospects for the top drug makers in so-called emerging markets. And that threatens the lofty sales goals baked into many pharmaceutical stocks.

At Eli Lilly<http://professional.wsj.com/public/quotes/main.html?type=djn&symbol=LLY> LLY -0.19%<http://professional.wsj.com/public/quotes/main.html?type=djn&symbol=LLY?mod=inlineTicker> & Co., slower growth in China and pricing pressures in certain countries are affecting sales and could have an impact on its goal of doubling 2010 emerging-market sales to $4.6 billion in 2015, a company spokesman said. Lilly's emerging-market revenue fell 4% to $612 million during the second quarter.

Pfizer<http://professional.wsj.com/public/quotes/main.html?type=djn&symbol=pfe> Inc., PFE +0.50%<http://professional.wsj.com/public/quotes/main.html?type=djn&symbol=PFE?mod=inlineTicker> whose second-quarter revenue in emerging markets rose 8% to $2.6 billion, scaled back its projections for growth in the emerging markets, to the high single digits from the low double digits it had projected early last year, Chief Executive Ian Read said during a recent interview.

"The majority of the growth is going to local companies that" sell low-price generics, Mr. Read said. "It is difficult for multinationals to keep up with that growth because we don't have the products there."

Branching out from big cities like Beijing and Shanghai, in order to keep sales growing, means taking on entrenched local firms, said Wu Xioabing, Pfizer's China country manager. Big drug makers are still sorting out how sell to doctors and hospitals in these smaller cities without breaking the bank, and how to provide the mix of affordable medicines that those potential customers seek. Hiring away staff who know these markets-and then retaining them-is tough, he said.

Overall, Ernst & Young estimates a $47 billion gap between the sales that leading drug makers expect in emerging countries over the next four years and the revenue that they can ultimately reach.

Emerging markets are still an important and expanding target, industry officials emphasize. Rising incomes in rapidly developing countries like Brazil and Turkey are raising demand for medicines, and governments including China's are establishing systems to help pay for drugs.

Drug sales in emerging markets will grow by $157 billion over the next five years, reaching at least $345 billion or about a third of the global drug spending, IMS Health predicts. By contrast, the U.S. and European shares of world-wide drug spending are expected to fall as a result of patent expirations, cost cutting and anemic growth.

Despite the challenges in emerging markets, some drug makers are sticking with their forecasts. Merck<http://professional.wsj.com/public/quotes/main.html?type=djn&symbol=MRK> MRK +0.95%<http://professional.wsj.com/public/quotes/main.html?type=djn&symbol=MRK?mod=inlineTicker> & Co. expects to reach its target of a quarter of pharmaceutical and vaccine sales coming from the countries in 2013, up from 18% today, a spokeswoman said. Merck's sales in the countries rose 1% to $1.9 billion in the second quarter.

Novo Nordisk A/S<http://professional.wsj.com/public/quotes/main.html?type=djn&symbol=NVO>, NVO +0.31%<http://professional.wsj.com/public/quotes/main.html?type=djn&symbol=NVO?mod=inlineTicker> a leading maker of diabetes treatments, expects about a quarter of its revenue to come from China and other fast-growing countries in five years, up from a fifth of sales today, as the share of its revenue from Europe and some other countries falls, Chief Financial Officer Jesper Brandgaard said in an interview.

Mr. Brandgaard said sales have grown steadily in Southeast Asia and Latin America, but slowed down in China, from about 20% a year to the midteens.

But inside many big international drug makers, there are often raging debates about how much of the emerging-market growth they can seize for themselves, according to company officials and industry experts.

Brazil's $25 billion pharmaceuticals market is growing 13% a year, but multinational drug makers should expect more like 10% annual growth there because of patients' and pharmacists' loyalty to well-known domestic brands and the government's encouragement of generics use, according to Jeffrey Greene and Andrew Forman, of Ernst & Young's Global Life Sciences Center, which advises pharmaceutical companies.

One sticky point companies face, industry officials said, is whether it is worth building local factories. Some countries like Russia seek these commitments in order to get the approvals for sale and reimbursement that companies need to take full advantage of the markets.

"Does the size of the market justify some level of local production even if I have that new plant in Ireland that was going to supply this hemisphere?" said one emerging-market official, who wasn't authorized to speak about his firm's calculations.

In China, Pfizer sales grew more than 30% during the second quarter, contributing heavily to the drug maker's $2.6 billion sales in emerging markets in the quarter. The challenge is keeping such sales growing, said Dr. Wu, the country manager.

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