What’s next for pharma in emerging markets?
Succeeding
in emerging markets has been a challenging undertaking for multinational pharma
companies, but those that adapt their end-to-end model for emerging markets
could well thrive.
A few years ago, multinational
pharma companies seeking growth and respite from market uncertainty in Europe
and the United States found a haven in emerging markets. Their rapid economic
growth triggered an expansion in healthcare coverage and the emergence of a new
cohort of consumers able to afford larger out-of-pocket spending on drugs. But
early euphoria was soon replaced by a more somber outlook. Some emerging
markets either suffered downturns or showed weaker growth forecasts as
commodity prices fell; some healthcare systems struggled to scale up adequately
their provision of care; and local companies became increasingly effective
competitors in the pharma market. Furthermore, multinationals themselves often
found it difficult to scale up in emerging markets, with particular challenges
in talent recruitment, compliance, and organizational setup.
By contrast, developed
markets like the United States were doing rather well. Pipelines have been
refreshed—for instance, the top ten pharma companies have some 650 products in
development for oncology1—and new drugs are showing great
promise. So should multinationals turn their attention away from emerging
markets?
Although that might be
tempting in the short run, we believe emerging markets are following a
predictable cycle that will likely return them to a positive outlook before
long—perhaps as soon as the current wave of launches is complete. In fact, we
believe emerging markets could still see a doubling of pharma revenues for the
top 20 markets in the next ten years (exhibit). The opportunity remains
attractive even if we do not account for China, a large and strategic market
for most pharma companies, independent of their strategy in emerging markets.
To capture
opportunities for growth in these markets, multinationals must be prepared to
take a long-term view, continue investing in emerging markets, and take
calculated risks (see sidebar “Three insights”). To succeed in this and move on
from the old “go and grow” mind-set, they need to (1) define clear long-term
strategic objectives for emerging markets, (2) adapt the business model to the
nature of emerging markets, and (3) build an agile organization tailored to
emerging-market needs.
Clearly
define the long-term strategic objectives
Some pharma
multinationals capture opportunities from time to time in emerging markets,
without clearly outlining the role of emerging markets in their overall
strategy. Others are more purposeful, adjusting expectations and resetting
aspirations with a longer-term perspective, as well as identifying how to
achieve wider business goals from their emerging-market presence (see sidebar
“Which markets?”). In addition to looking for scale and growth, these
successful multinationals have broadly used their emerging-market activities to
pursue three strategic objectives:
·
Grow and expand patient
access. With many underdiagnosed and
undertreated diseases, emerging markets still offer an attractive growth
prospect for pharma companies, as several of these countries see rapidly rising
incomes, better-informed patients, and expanding access to healthcare.
Furthermore, operating in emerging markets requires multinationals to make
their medicines available to lower-income countries and patients. Forming
partnerships or voluntary licensing deals can help them broaden patient access,
build their reputation, and attract incremental revenues while keeping a lid on
investment.
·
Create an innovation hotbed. Multinationals with global operations across
emerging markets can leverage the cross-fertilization of ideas across mature
and emerging markets. In particular, emerging markets can be at the forefront
of innovation and a test bed for innovative business models and technologies.
For example, to address challenges in local healthcare systems, Asia and Africa
lead innovation on the business-model front for pharma, through innovative
digital health and home delivery channels. Furthermore, some markets, such as
China, can also drive pipeline innovation, as per recent trials in oncology,
hepatitis C virus, and diabetes.
·
Diversify risk. Emerging markets can enable companies to hedge
against top-line risk by providing an income stream to help
offset disappointing launch performance or loss of exclusivity in developed
markets; against pipeline risk by generating sales from mature
products to support the development of innovative new products; and
against currency and economic risk by extending the footprint
of the business to a wider range of markets.
Adapt
the business model
Successful companies
don’t simply replicate the business model they use in developed economies but
adapt it to the challenges of emerging markets. The following five lessons
stand out:
Prioritize your
portfolio country by country.
Products that are
commercially successful in developed markets won’t necessarily do as well in
emerging markets, due to their price levels, local clinical pathways, or
disease prevalence for an emerging market. This calls for a careful mapping of
products for each country in emerging markets. For mature products, companies
could pursue a traditional approach to differentiation based on share of voice,
key-account management, and other familiar elements, while specialty products
call for a more innovative approach involving both public and private
partnerships, strong market-access capabilities, and novel pricing models.
Explore new commercial
models and channels.
Building partnerships
across the value chain can help companies shape the market and address unmet
needs in emerging markets in areas such as screening, diagnostics, and supply
chain. In particular, companies should adapt their channel mix to local
requirements. For example, they could develop tendering capabilities, develop
home delivery channels such as in Asia and Latin America, or launch digital
patient platforms specifically tailored to patients’ needs in emerging markets,
such as telemedicine for remote areas. Additionally, companies could leverage
more advanced analytics and digital solutions to target physicians and
pharmacies at a granular level.
Pivot from traditional
commercial approaches to access-driven ones.
Multinationals need to
rethink their market-access approach by building strong local relationships
with governments, upgrading market-access talent, deploying an innovative
approach to pricing (for instance, using GDP-based models), and entering
creative access partnerships (such as volume agreements with government
institutions and outcome-based contracting).
Adjust to the needs of
out-of-pocket and consumer markets.
Out-of-pocket spend and
private insurance make up a sizable share of healthcare expenditure in emerging
markets, with some markets almost fully out-of-pocket. To capture this
opportunity, companies should be more systematic in identifying patient pools
that meet certain affordability criteria; focusing on the cities with the
largest pools, including new emerging urban centers with growing middle
classes; and at the same time testing scenarios for reaching a wider population
at a lower price with a second brand. Companies also need to consider how to
adapt to local consumer preferences (for instance, offering smaller blister
packs to suit more frequent dispensing, often preferred in some markets) and
financing needs (for example, forming partnerships with credit providers to
offer loans, or collaborating with private insurers to create insurance
policies targeting specific diseases). In addition, companies can explore
approaches inspired by consumer industries—for example, loyalty programs,
similar to those for retail and airlines, that help companies build their
brands, and improve patients’ adherence to chronic treatment.
Think beyond the
commercial model.
In pursuing
opportunities to differentiate themselves, companies should look beyond sales
and marketing. Even when R&D is organized globally, it can still adapt to
local conditions by undertaking licensing and M&A to enrich the country
portfolio, for instance, or by developing medicines specifically to meet local
constraints, such as medicines’ stability at higher temperatures. Local
manufacturing too can act as a key differentiator, when it is not a requirement
for entry. And supply-chain excellence can confer a competitive edge in markets
such as sub-Saharan Africa, where getting drugs to patients via pharmacies and
other channels remains a challenge.
Build
an agile organization
To capture
opportunities in emerging economies, multinationals should carefully design
their organizations to support their emerging-market strategy and withstand
volatility. Successful pharma companies tend to do the following:
Organize emerging and
developed markets separately.
This allows strategies
to be adapted to each type of market, gives emerging markets a voice in R&D
and at the corporate level, makes it easier to rotate local talent and share
best practices between markets, and allows for more flexibility in rebalancing
activities when volatility occurs. Some companies create regional structures
specific to emerging markets, or group countries by archetype, depending on
their access environment; others take a bolder approach and group all emerging
markets under a single arm, independent of geographic proximity, extending from
Latin America to Asia and Africa.
Strike the right
balance between global and local capabilities.
Consolidating
mission-critical capabilities above the country level creates a pool of
expertise in functions such as pricing (with innovative pricing and contracting
tools); digital and channel capabilities (with scalable tools and approaches,
such as disease-screening applications and disease-management platforms);
marketing support; and distributor management (such as a center of excellence
to manage distributors across multiple countries). Conversely, the capabilities
that make the most difference in engaging stakeholders in a market—especially
sales, market access, and government affairs—should be organized locally, as
they are key to building relationships and partnerships.
Improve foundational
agility.
To be able to maintain
a long-term view of market prospects while adjusting quickly to short-term
shocks and volatility, companies need flexible organizational structures
supported by the right governance—such as above-country hubs with cross-country
performance-management processes and budgets—that enable them to redeploy
resources quickly to the most attractive geographies.
Despite recent
turbulence, emerging markets continue to represent an important source of value
for multinational pharma companies. But simply being present in emerging
markets is no longer enough to earn a good return. Instead, companies need to
recognize the differences between emerging and developed markets, adapt their
approach to these markets’ characteristics and needs, commit to a long-term
vision, adapt their business model, and build an agile organization fit for the
purpose of capturing growth from new opportunities as they emerge.
By Amit Agarwal, Julio Dreszer, and Jean Mina
http://www.mckinsey.com/industries/pharmaceuticals-and-medical-products/our-insights/whats-next-for-pharma-in-emerging-markets?cid=other-eml-alt-mip-mck-oth-1706&hlkid=da8da8924b9541d287459c206e5d5910&hctky=1627601&hdpid=9e83f79d-0a47-4c91-ba91-dcc2ad4a94d2
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