One of the buckets that I beat regularly in this blog is that it will be worth the effort for biopharmaceutical and medical device companies to figure out how to make and sell affordable products to rest of the world, to those billions without access to the well-funded medical system that we in the “developed” world enjoy. While I have noted and written about a handful of the biggest of these companies putting their toes in the ROW markets (see last week’s “To Boldly Go” and “Putting the Biz into BoP”), I’ve seen very little reporting data by companies on the money they’ve made doing so. Until now. This week it was reported in an article in Reuters that the strategy taken by GlaxoSmithKline’s Developing Countries and Market Access operating unit (DCMA) is working (Reuters article).
The two-year-old DCMA’s strategy includes:
- focusing half its efforts on drug and vaccine sales and half on reputation-building in 40 African and 10 Asian countries;
- having its performance measured on sales volume rather than profits;
- pricing it products competitively (no more than a quarter of the UK price for patented drugs and generics at a small premium to the cheapest competing product);
- shooting for modest profit margins (20% vs. 32% for the rest of GSK);
- winning repeat business with public-sector payers; and
- building out the marketplace by reinvesting 20% of the unit’s profits back into healthcare infrastructure through NGOs like Save the Children, African Medical and Research Foundation, and CARE International.
As reported in the article, the unit’s revenues are expected to be about $230 million this year (a tiny part of GSK’s overall sales of $40 billion or so), but are growing fast, more than triple the 2010 sales. So far, so good.
But what may this success mean to the people who really matter to GSK and the other big companies, the investment analysts whose opinions guide the investment fund managers who have trillions of dollars to move about the world economy? So far as I can tell (which is not too far), almost all health technology industry analysts do not include companies’ performance in the ROW markets in their buy/sell/hold recommendations, with one exception. In 2010, team at UBS Ltd. issued a report, “Global Pharma: Doing well by going good?” (UBS report, UBS report). In it, Amusa et al. analyzed a number of global pharma and stated: “GlaxoSmithKline … is the clear leader in pharma at access to medicines and performs best along our Sustainability/ESG Framework. We expect 70% of GlaxoSmithKline’s incremental £12.5bn sales generation from 2010 to 2015 to come from emerging and less developed markets. Novartis, J&J and Merck also score well.” It remains to be seen if UBS continues to rate the pharma companies on emerging/ROW market performance and uses the GSK/DCMA’s recent data and moreover, if other analysts and investors wake up to this type of valuation and the potential for long-term profit growth.
GSK’s strategy for emerging/ROW markets is not the only one being tried as was pointed out in a report recently published by FSG, a not-for-profit consulting group with roots in the Harvard Business School, called “Competing by Saving Lives: How Pharmaceutical and Medical Device Companies Create Shared Value in Global Health” (FSG report). Although I am puzzled by FSG’s rubic of “shared value” (I think they mean both the seller and the buyer benefit and receive value in a transaction, but isn’t that the basis of commerce?), I appreciated the report’s recognition of the limits of philanthropy and the potential profit for both companies and societies in global health and for its profiles of ten health tech companies’ emerging/ROW market strategies. Unfortunately, as I noted in a post earlier this year on a similar report by German Federal Ministry of Economic Cooperation and Development and Endeva (“Putting the Biz into BoP”), the authors do not synthesize their findings into practical business advice, which I recognize would be a challenge since, as they note, the profiled companies’ efforts are still in an “experimental stage.”
That being said, the report’s authors offer the following (fairly generic) recommendations to health tech companies:
- “Shift from defensive to affirmative engagement with patients [customers?] in low- and middle-income countries,” which I take to mean explain your goals and methods better to NGOs, governments, and customers who may not understand that sustainability (and progress in global health) requires profitability (although this recommendation appears to me to be self-serving for a consulting company);
- “Innovate and capture knowledge on health product delivery,” an important and unsolved problem that all the global health players need to concentrate on (e.g., see my post “NTD TD”);
- “Invest early to gain first-mover advantage,” a standard business rubric that should be replaced by “learn from your competitors’ mistakes;” and
- To both companies and the “implementation partners” (NGOs), form partnerships and learn from each other, good advice since NGOs are already operating in the markets (e.g., see my post “More Bang for the Buck” on working with drug procurement groups like Medicines Transparency Alliance [MeTA]).
While all of the report’s profiles are worth reading for the range of tactics being tried, I found Novartis’s most interesting because, unbeknownst to me, since 2007 Novartis has had a program called Arogya Parivar with the goal of developing a sustainable, scalable business to reach the large number of underserved rural Indians. The plan involves extensive infrastructure development, now reaches 42 million people, is “generating profits,” and seems to be improving health. Apparently, Novartis has created a Social Business unit to extend the program in India and replicate it in other Asian and African companies. It would be interesting to look at the program’s profitability and replicability since a key to success in business is finding out what works and using as much as possible, and, as I have noted before, the success in the long game requires figuring out how to turn global health challenges into business opportunities.