Biotech Values

[DewDiligence]

Big Pharma Targets BRIC Countries

http://online.wsj.com/article/SB122584113657298887.html

›NOVEMBER 5, 2008
By SHIRLEY S. WANG and JEANNE WHALEN

As prescription-drug sales slow in the U.S. and other developed markets, pharmaceutical makers are increasingly targeting countries like Brazil, Russia, India and China, where rising prosperity has produced new customers willing to pay near U.S. prices for brand-name prescription drugs.

Sales of Western prescription drugs in emerging markets are expected to grow by up to 15% a year, to as much as $161 billion. Meanwhile, drug-sales growth in the U.S. is expected to slow to 1% to 2%, according to IMS Health, which tracks drug data globally.

Reaching the top 1% to 3% of affluent consumers in developing countries can mean billions of dollars in sales for Western drug companies.

Leading U.S. health-care companies like Johnson & Johnson, Pfizer Inc., Merck & Co. and Wyeth are trying to increase their presence in emerging markets by expanding their sales forces, acquiring or partnering with local companies and developing medicines specific to those markets.

In the 2008 first half, Pfizer's sales in seven emerging markets totaled some $5 billion, even though the company's market share in those countries combined amounts to only 3% so far.

"The dynamic five years ago was, we live or die by the U.S.," says Ray Hill, general manager of IMS's consulting group. "The story now is quite different because these [emerging] markets are so critical to the economy globally."

But the strategy isn't without risks, particularly the possibility of incurring social and political pressures as demand for the branded drugs spreads beyond the affluent patients in these countries.

"Our concern as a medical humanitarian organization is the 'bottom billion' who can't afford the medicines," says Buddhima Lokuge, the U.S. manager of Doctors Without Borders' campaign for access to essential medicines. "Essential medicines should not be a luxury," he adds.

Vibha Kapoor, the 44-year-old owner of a travel agency in Delhi, India, paid about $400 for 10 Valtrex pills, GlaxoSmithKline PLC's herpes and shingles medicine, almost half of her family's income of $1,000 a month, to treat a critically ill patient close to the family.

"If there is some critical disease in the family, then the doctor will prescribe some foreign brand," she says. "I know I have to pay extra and I will pay extra."

Elena Kuchmiyeva, a blind 35-year-old Russian with Type 1 diabetes, gets some of the pills she needs from the state, but she still spends most of her monthly disability pension of about 6,000 rubles, or $222, on medicine.

"In August I was supposed to get five flasks of imported insulin but I got only two. They tried to give me the rest in Russian insulin but I wouldn't take it," she says. She blames poor-quality insulin for causing her to go blind in her early 20s and doesn't trust generics.

In some developing countries, high drug prices have sparked organized protests, particularly over medicines important to public health, such as HIV drugs, leading to price cuts in Brazil and elsewhere. Government or third-party payer systems could step in to negotiate lower prices or refuse to pay for some medicines, applying additional pricing pressure.

"The moment governments get stricter and better organized, there will be huge pressure on the prices," says Hans Hogerzeil, director of essential medicines and pharmaceutical policies at the World Health Organization.

Companies recognize that they may need to make exceptions to the strategy of pricing drugs based on what the most affluent patients can pay. For instance, in order to broadly immunize China's population, Wyeth says it will be "flexible" in pricing its pediatric pneumococcal vaccine Prevnar, which was recently approved for use in that country.

Even the risk of such pressure isn't deterring drug makers' pursuit of emerging markets because the markets are crucial to the companies' long-term health.

Sales in the important U.S. market are slowing because drug-safety scrutiny is increasing and pharmaceutical prices are under pressure from generic competition and health insurers. The big pharmaceutical companies are also struggling to refill their product pipelines with new offerings as their blockbuster drugs' patents expire.

But in China, Pfizer's sales soared 60% in the first half, excluding the favorable impact of the dollar's low value in that period, the company says.

Pfizer plans to expand its sales force to more cities in China, with a goal of reaching 27 more of them by year-end, up from 110 in March, Pfizer Chief Executive Jeffrey Kindler said in July.

In addition to enlarging their sales forces, Western drug companies are building other links in emerging markets. Last month, Johnson & Johnson expanded its partnership with WuXi PharmaTech Cayman Inc., a Chinese pharmaceutical research and development organization.

J&J and Abbott Laboratories, which have large medical-device businesses, run training programs for physicians on how to conduct specialized procedures, such as implanting cardiac stents.

"I think it definitely illustrates the toughness of the U.S. market," says Mike Krensavage of Krensavage Asset Management LLC. "I don't think the drug companies have much of a choice."‹