Biotech Values

[DewDiligence]

Pharmaceuticals and The Global Demographic Tailwind

The western companies see their largest benefit from what research, trials or API they can export from China for use in their other facilities or markets.

jbog, you could not possibly be more wrong about Big Pharma is trying to accomplish in China and other emerging markets. The main reason Big Pharma is investing furiously in emerging markets is not to develop stuff more cheaply for sale in the US and Europe; rather, the main reason is the rising influence of rising affluence in emerging markets themselves.

Instead of trying to convince you of this on my own, I’ll let the executives from such companies as PFE and ABT do the talking.


From PFE’s 4Q10 CC (http://seekingalpha.com/article/250092-pfizer-ceo-discusses-q4-2010-earnings-call-transcript ):

…if you look at our field force in China, we added 1,000 reps during 2010 versus 2009. We're in 220 cities versus 177 cities.

…We look at it in the context of what we need to do to compete in emerging markets, which is not a trivial exercise as we go from 2,000 to 3,000 to 4,000 reps in China… we are significantly increasing our geographic reach and field force in China to support a very strong product portfolio that is well in line with patient needs and demographics.

…Fourth quarter revenues generated in emerging markets, which include both legacy Pfizer and legacy Wyeth biopharmaceutical and diversified operations, increased 38% year-over-year. It's important to note that over the same period, Brazil, Russia, India, China, Mexico and Turkey, contributed a combined 47% to the overall growth in emerging markets.

…the way to think about emerging markets margins is the gross margins will be lower than our kind of traditional branded-pharmaceutical margins. But those revenues also have lower expenses. And so, the key there is operating margins, which are very, very consistent with our overall business.

From ABT’s 4Q10 CC (http://seekingalpha.com/article/248886-abbott-laboratories-ceo-discusses-q4-2010-earnings-call-transcript ):

We continue to expand our presence in emerging markets. In China, sales were up more than 50% as we introduce new customers to our leading ARCHITECT systems. As Miles mentioned, we continue to improve the profitability in cash flow of this business as well.

…We focused on building our infrastructure in emerging markets as well as our pipeline… Today, Abbott is one of the best-positioned healthcare companies to capture growth in this segment. Over the past several years, we've expanded our product offerings and strengthened our emerging markets presence across our businesses. And in 2010, we took several actions to frame our future in these regions. In addition to completing the Solvay and Piramal acquisitions, we entered into a licensing agreement with Zydus Cadila of India. These actions expanded our presence in many of the most populous, fast-growing markets. They brought us a large portfolio of stable, branded generic products and together with our existing businesses made us the largest pharmaceutical company in India, an $8 billion pharmaceutical market that's expected to double in the next five years.

These actions have given us the right commercial footprint to become one of the largest pharmaceutical companies in emerging markets, which are expected to grow at 3x the rate of developed markets. This is driven by population growth, rising incomes, modernization of health systems, and an increase in the treatment of chronic diseases.

These markets represent one of the greatest opportunities in healthcare, not only in pharmaceuticals, but across our business segments. In 2011, we expect sales to exceed $9 billion for this geographic segment and by 2014, we expect more than $14 billion in emerging markets sales reflecting a compound annual growth rate of more than 15%.

…because it's a branded-generic business…the offering is different than what I'd call a commodity generic business; the profitability of the business tends to be considerably higher and the gross margin of the business tends to be consistent with the kinds of gross margins we see in other Abbott businesses. In India, the prices of a number of our products are very, very low and yet the margins on those products still very, very healthy. It doesn't fit a Western model, it's a different model.

‘Nuff said.