Trickle Down

Another thing the editors of the Fierce newsletters do well, in addition to aggregating important news stories for the pharma/biotech/medtech industries, is the synthesis and analysis of those stories to yield a bigger picture.  Last week Tracy Staton of FiercePharma reported on the “Top 10 Drugmakers in Emerging Markets” (FP report) that provided some interesting numbers and insight into the emerging market strategies of the multinational pharma companies (MNCs).  I should note that in the context of the report, emerging markets (EM) are those in countries other than the US, the EU (mostly), and Japan (usually) and represent broadly the low and middle income countries as defined by the World Bank (nice graphic at ChartsBin).  With apologies to Ms. Staton, here’s my overview of her report followed by my take on the role of MNCs in improving global health.

First, here’s a tabular presentation of some key data ranked by the company’s share of total revenues derived from sales in the EM:

MNC EM Share of Total Revenue (%) Recent Annual EM Revenue ($B) Annual EM Revenue Growth (%) EM Country Focus
Bayer 33 8 8-15 China, India, SE Asia, Latin America, Africa, Mideast
Sanofi 32 15 10 China, Mideast
Merck KGaA 29 2 13 China, Latin America, Mideast
GlaxoSmithKline 26 11 20-76 China, India, Africa, Mexico, Russia
Novartis 24 14 Russia, SE Asia, Mideast
Johnson and Johnson 23 17 China, India, Brazil
Novo Nordisk 22 3 ~20 China, Mideast, SE Asia, Africa
AstraZeneca 21 6 4 China, Russia, SE Asia
Pfizer 20 12 Russia, China
Roche 20 10 ~15 China, India, Mexico, Russia, Brazil

Second, here’s a summary of the strategies these MNCs have been using to build their share in the EM.

Bayer:  marketing of country-specific drugs, training of physicians and hospital managers (more than 4,500 in rural China in 2012).

Sanofi:  putting manufacturing sites in emerging countries (more than 40), training of physicians, acquiring EM vaccine and generics companies, selling EM-specific brands at lower prices, funding public health initiatives including with capital investment, training doctors, e.g., in India (100,000), China (10,000), and Morocco.

Merck KGaA:  pricing products to fit the budgets of a growing middle class, partnering with local/regional pharmas to make and sell its own and generic drugs; building local sales forces (30% of all employees are in EM).

GSK:  discounting of all products in the EM with focus on low margin and high volume, increasing local employees (37% of its employees work in EM).

Novartis:  partnering with governments; undertaking local manufacturing, public health projects, and clinical trials; discounting of patented products; running a management development program.

JnJ:  setting up local R&D and manufacturing centers, partnering with  local companies for new products and regional local products, selling inexpensive devices (e.g., cheap glucose monitors), conducting physician training, investing in improving management and operations.

Novo:  undertaking public health work in education, screening, access to care (e.g., mobile clinics); discounted pricing; physician training (50,000 in China);  mobile clinics; continuing production of inexpensive generic substitutes to its patented products; increasing local manufacturing, R&D, and sales and marketing.

AstraZeneca:  conducting local hiring (47% of all employees are in the EM) and local acquisitions and partners.

Pfizer:  selling a mix of branded generics and patented drugs, making deals for local acquisitions and partners.

Roche:  with insurer Swiss Re offering health care coverage through five insurers in China, engaging local partners to make and sell its patented drugs at discounted prices, providing oncologist and pathologist training.

Third, here are my spins.  The MNCs are serious about building their EM revenues which account for 20-30% of total revenues for some companies, an important contribution to their bottom lines considering that EM products have lower profit margins than non-EM products.  The MNCs are using a variety of strategies to increase their EM sales, including the traditional one of ramping up the number of sales people to those that increase the capacity of the health care system like doctor training, public health projects, and sponsoring insurance.  The MNCs are spending a substantial amount of money on their emerging market effort, most directly in the EM countries.  My guesstimate on the total aggregate spend of these ten companies is $78 billion per year based on this hand-waving:  according to the FB report, the total aggregate revenue is $98 billion and assuming that 20% of this disappears as corporate profit margin (20% is the industry average reported by Yahoo Biz) and assuming the remaining revenues are applied to the companies’ EM efforts, one ends up with $78.4 billion spent per year.  Granted some of this doesn’t build capacity or the local economy (like company administrative spending) and some may be pernicious (like bribes, although I think the Chinese government is over-estimating the amounts of MNC bribery) and it is aimed at the mid and upper economic strata, the MNC spending compares favorably to the $28 billion spent in 2012 for “development assistance for health” by government aid agencies, multilateral donors, private foundations, and charities according to Institute for Health Metrics and Evaluation at the University of Washington  (IHME press release).  Clearly, the latter is vitally important in addressing desperate needs that companies (and unfortunately, local governments) are not now addressing on their own, but, in terms of improving health care in the rest of the world over the long term and in an economically sustainable way, the MNC effort is important.

What effect will the MNC EM effort have on health care for those at the  bottom of the economic pyramid?  I am guessing that by building their EM market share by improving access to and use of their products the MNCs will improve the overall health care system and general economic conditions to the point where, like in the EU, Japan, and the US (where 30% of the population gets its health care through the government), governments will be able to subsidize care for those at the bottom.  Not a trickle or a downpour, more like a steady rain.


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