Sumi Dhanarajan
It has been a challenging decade for the pharmaceutical industry.
With patents expiring in high numbers, new-product pipelines drying up, and intensifying competition from generics, branded pharmaceuticals have been haemorrhaging value.
At the same time, traditional markets are becoming saturated. Stark realities in industrialized countries – such as the impact of aging populations on tax-based and employer-funded health-care models – are leading governments to adopt regulatory regimes that demand more economical, value-based, and transparent drug pricing.
Under these circumstances, emerging markets present a new frontier. Originally attractive for offering low-cost production, developing countries now present a viable market for multinational corporations. The pharmaceutical industry has been eyeing this trend for a while. A recent study predicts that sales in 17 “pharmerging” countries – including India, Indonesia, Pakistan, Thailand, and Vietnam – will “in aggregate expand by $90 billion during 2009-2013.”
But in many emerging economies, a large proportion of the population is poor, and those who are not remain vulnerable to falling into poverty in times of crisis. Healthcare is financed largely out-of pocket – up to 60% in Asia – and many countries shoulder a “triple disease burden” of “old” diseases like tuberculosis and malaria, new infectious diseases like Influenza A (H1N1), and a “silent pandemic” in the form of non-communicable diseases such as diabetes and cancer. The challenges surrounding access to medicines remain critical, and, indeed, relevant to the industry’s business model.
Philanthropic approaches to the problem have achieved little systemic change. Drug donations by companies have been criticized for being mostly unsustainable. Often, the medicines are unsuitable for patients, unfamiliar to local prescribers, do not match national clinical guidelines, or are near expiry.
Because supplies of donated medicines can be unpredictable, they can create chaos in the market by preventing accurate quantification of needs and thus affecting planning. Donated supplies also have the overarching negative effect of undermining market competition – even generics cannot compete with free medicines. Price discounts have been more effective, though their effect is limited by their focus on specific high-profile diseases and least developed countries (LDCs).
Advocates of improved access to medicines have posed three demands of the pharmaceutical industry:
• Transparent pricing schemes that systematically address the challenge of affordability;
• Investment in research and development that is relevant to the diseases affecting developing countries, and in medicines suitable for resource-poor contexts (for example, heat-stable formulations or fixed combination drugs); and
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• A flexible approach to intellectual property (IP) rights, in recognition of the role that generics play in vastly reducing medicine prices.
Leading companies are starting to understand how integrating these concerns into core business practices may hold the answer to sustainable long-term profitability in emerging markets. Reliance on the traditional “blockbuster” model, which targets the elite, is proving unfeasible and short-sighted.
For starters, it limits the size of the consumer base. More importantly, the model’s dependence on aggressive defense of patents and high profit margins, in order to generate the all-important $1 billion per annum, keeps companies from serving target markets effectively by providing products that are relevant, affordable, and accessible. Many argue that the perverse incentives created by the blockbuster model discourage innovation.
Finally, developing-country governments are beginning to prioritize health care and are seeking cost-efficient outcomes, as well as the means to effectively manage disease burdens. In these countries, building access to medicine into companies’ core business models has become vital to securing a license to operate.
