winning in emerging markets to drive growth
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Accenture Life Sciences
Winning in EmergingMarkets to DriveGrowth in the LifeSciences Industry
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IntroductionThe importance of emerging markets in life sciences
As mature markets in manyareas of the developed worldbecome saturated, global lifesciences companies are awarethat growth and sustainedcompetitive advantage maybe increasingly dependenton the effective planning and
execution of an emerging-markets strategy.
These markets, particularly the BRIC nations(Brazil, Russia, India and China), haveexperienced significant and rapid change.In 2005, China and Brazil constituted just 5percent of the total pharmaceutical marketof the top 10 nations; by 2016, however, atleast one projection is that the four BRICnations will all be in the top 10 of global
pharmaceutical markets and will constitute30 percent of the top-10 market (SeeFigure 1.).
In spite of this opportunity, many pharma-ceutical firms have not been able to get amajor foothold in emerging markets. Lookingat the publicly available financials of thetop-nine pharmaceutical companies, manyof them have no more than 10 percent to30 percent of their revenues coming fromemerging markets.
2 | Driving Growth in the Life Sciences Industry: Winning in Emerging Markets
What are the barriers to effective executionof an emerging-markets strategy? Sellingand operating in these markets presentsnumerous challenges. A variety of marketaccess elements such as supply chainplanning, manufacturing and distributioncan become more complex when sellingto markets in emerging economies. Theregulatory environment, including taxationand import regimes, can be a significantbarrier to growth, both in terms of working
across borders and in terms of tracking
Emerging markets Placement movement
+6
Source: IMS Health report, May 2012. Spending in US$ with variable exchange rates.
Rank
1. USA
2. Japan
3. France
4. Germany
5. Italy
6. UK
7. Spain
8. Canada
9. China
10. Brazil
Total = $496.1
BRIC = $25.9
BRIC % = 5%
Total = $711.3
BRIC = $96.6
BRIC % = 14%
Total = $812-$952
BRIC = $244-$284
BRIC % = 30%
2005
Size $B
249.2
84.9
33.3
33.1
21.3
16.4
16.1
15.9
14.1
11.8
Rank
1. USA
2. Japan
3. China
4. Germany
5. France
6. Brazil
7. Italy
8. Spain
9. Canada
10. UK
2010
Size $B
322.0
111.2
66.7
45.0
41.3
29.9
28.6
22.7
22.4
21.5
Rank
1. USA
2. China
3. Japan
4. Brazil
5. Germany
6. France
7. Italy
8. India
9. Russia
10. Canada
2016
Size $B
350-380
155-165
105-135
42-52
39-49
32-42
23-33
24-34
23-33
19-29
+4
-2
-2
-1
-1
-4
+1
+2
+5
+2
-1
-1
-1
-1
the continuously evolving patchwork oflaws and rules. The need for more effectivemonitoring of pricing and reimbursementmay increase. Talent shortages can also beobstacles to growth.
Thus, although “expansion into emergingmarkets” is now a popular topic for boardsat many life sciences companies, it is timeto turn the talk into effective action inorder to stay competitive and win.
FIGURE 1. Top 10 total pharmaceutical markets in the world, 2005-2016$Billion—all figures in US Billion
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To help life sciences companies plot moreeffective growth strategies in the emergingmarkets, Accenture has performed ananalysis of some of the most importantmarket access issues and trends in the BRICcountries. Our study evaluated the currentsupply chain maturity levels of the life sciencesindustry, the regulatory environment, theoverall dynamics around pricing, and otherchallenges that life sciences companiesneed to overcome to run successful market
access strategies.
Many of the large, international life sciencesfirms have already established some level ofpresence in these BRIC markets. However,these companies are at different levels ofmaturity in terms of capabilities they haveacquired to this point. Accenture believesthat life sciences companies may be ableto gain a competitive edge in emergingmarkets with a thorough knowledge of thesix primary issues faced with emerging
market growth and adoption of a four-pointintegrated strategy.
Think customer clusters:The importance of submarkets.
Each emerging market is a combination ofdiverse segments requiring differentiatedtreatment. Companies should considerplotting their access strategies by thinkingof customers and clusters of customers(also known as “submarkets”) rather than
focusing only on countries and continents.This approach can enable companies tohave more targeted and effective customer-centric strategies.
Find cross-border similarities.
Elements of the value chain appear to beat similar maturity levels across multipleemerging and/or developed markets. Firmsmay benefit from creating solutions thatare better positioned to cross geographicborders by exploiting these similarities.
Establish global reach withlocal relevance.
It is important to standardize globally
whenever possible to gain economiesof scale, but also to customize whereappropriate to achieve local relevance.Solution themes can benefit from cross-market applicability, but the implementeddesign may need customization to addressmarket-specific nuances at the local orregional levels.
Create effective and rapidexecution capabilities.
The ability to understand the customer, andto execute solutions across markets thatare aligned with customer needs in a timelyand cost-efficient manner, can be a key tosuccess and competitive differentiation.This is a difficult goal for many companiesbecause many still operate within functionalsilos of supply chain, R&D and commercial,rather than working toward one commongoal according to one strategy.
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4 | Driving Growth in the Life Sciences Industry: Winning in Emerging Markets
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Developing MarketAccess Capabilities
It is generally understood thatBRIC markets pose a numberof similar challenges in areassuch as economic development,infrastructure growth, availabilityof skills and resources, technologydevelopments, regulatory maturityand the pricing environment.However, life sciences companiesmay also benefit from anunderstanding of the differencesand nuances that can shapehow they develop market accesscapabilities focused on supplychain and pricing, includinghow they deal with regulatoryand tax environments.
The fragmentation of the distributionenvironment has been an ongoing challengefor some companies, though this situationmay be changing because of marketconsolidation. Some manufacturingprocesses are becoming more alignedwith global standards, and many industryplayers are starting to appreciate thebenefits that increased collaboration withvendors and channel partners can bring totheir businesses.
Supply chain skills are typically not aswidely available in emerging markets whichcan be a clear obstacle toward achievingmarket growth in these regions. Infrastructureand technology adoption in emergingmarkets have yet to reach a stage where
53 5461 61
6661 64
7569
2923
3124 25
19 21
3123
-24-31 -31
-37-41 -42 -43 -44 -46
Percentage of respondents
Importance Performance Gap
N = 114
Source: “Demand Visibility Critical to Success of Healthcare and Life Science Value Chain,” Gartner analysis, May 2012
Leverage contractmanufacturers forsuccessful newproduct launch,lower costs andagile response todemand
Better use oftechnology todrive down costsand enhanceproductivity
Develop a supplychain visionsupported bygovernance andchange managementprocesses to guideexecution of supplychain priorities
Ability toforecast demandaccurately andrespond quicklyto changes indemand
A balancedS&OP (Sales andOperations Planning)processes whichprofitably matchesdemand andconstrained supply
Develop effectivesupply chaincapabilities inemerging markets
Achieve compliant,predictableproduct supplyby manufacturingright-first-time
Align manufacturing,supply chain, salesand marketing andregulatory interactionfor profitableoperationsand driving valueto customers
Develop valuechain strategiesversusfunctionallysiloed supplychain capabilities
there can be regular, seamless flow ofproducts and an effective reverse flow ofinformation within the supply chain.
Furthermore, based on a recent Gartnersurvey, many pharmaceutical manufacturerssee a critical gap in the supply chaincapabilities they need to execute theirmarket access strategies around the world.Sixty-four percent of manufacturerssurveyed affirm the importance of developingeffective supply chain capabilities in emergingmarkets. However, only 21 percent saytheir performance is currently adequate—a 43-point gap between aspiration andreality (See Figure 2.).
FIGURE 2. Importance versus performance: A gap analysis of key supply chain components
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6 | Driving Growth in the Life Sciences Industry: Winning in Emerging Markets
According to Accenture analysis, most ofthe BRIC markets are still at low levels ofmaturity in terms of distribution capabilities,infrastructure, manufacturing, supply chainskill availability and technology adoption(See Figure 3.). Establishing and runningsupply chain operations in emerging marketsis a challenging proposition. It may bedifficult to gain penetration down to
the last mile in the market, navigatingthrough the complex networks of citiesand towns and the vast geographic span.There are also significant differences inthe level of economic and infrastructuredevelopment as focus shifts from citiesto smaller towns, and then to rural areaswhich are typically not well-connectedfrom an infrastructure perspective to themore urban economic centers.
Common among categories
Maturity Parameters
Distribution
Manufacturing (Compliance)
Manufacturing (Reliance
on Imports)
Availability of niche skills
Technology Usage (LS Firms)
Technology Usage (Channel
Partners)
Brazil
Highly fragmented,
regionally focused, low
visibility
Local regulation compliant
Heavy reliance on imports
(80% APIs imported)
Limited availability of niche
supply chain skills
Localized systems
Basic technology used by
channel partners
Russia
Highly concentrated,
further consolidation
expected
Low GMP compliance
universal compliance only
by 2014
Heavy reliance on imports
(> 75% of the market)
Skills availability is not an
issue at present
High Usage, ERP systems
ERP used by large channel
partners
India
Highly fragmented, multiple
layers, unionized channel,
low visibility
Majors follow GMP,
monitoring of adherence
to norms is critical
Predominant local
manufacturing (local
players)
Skills available, but LS not a
preferred choice
High Usage, ERP Systems
Basic technology used by
channel partners
China
Highly fragmented, multiple
layers, low visibility
GMP compliance is an issue
universal compliance only
by 2015
Predominant local
manufacturing (including
MNCs)
Limited availability of niche
supply chain skills
Legacy Systems
Basic technology used by
channel partners
Source: Client Interviews, Espicom World Pharmaceutical Market Report 2012, Accenture analysis
FIGURE 3. Comparison of the maturity of life sciences value chain elements across the BRIC markets
Overcoming these challenges to the overallvalue chain may require innovative approachessuch as focusing on customer clusters,leveraging solutions across markets withlocal flavor and executing with speedin an effort to maximize the businessopportunities that these markets offerto life sciences players.
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According to Accenture
analysis, most of the BRIC
markets are still at low
levels of maturity in terms
of distribution capabilities,
infrastructure, manufacturing,supply chain skill availability
and technology adoption.
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8 | Driving Growth in the Life Sciences Industry: Winning in Emerging Markets
Market AccessFocus on six primary issues
As market access for emergingeconomies becomes increasinglyimportant, Accenture believesthat life sciences companiescan benefit from an awarenessof six primary challenge areasacross the broader value chain.(see Figure 4). This section
explores each of these areasin detail.
1. Immature logistics and distribution
Life sciences companies generally haveavailable to them a spectrum of distributionoptions as they seek access to markets inBRIC countries. One challenge that companiestypically face in this area is that thedistribution value chain in emergingmarkets is often immature—inefficient,
mostly inflexible and highly fragmented.
Take the example of the typical Chinesedistribution system which, by Westernstandards, is complex and much morerestrictive, with a large number ofdistribution companies operating atall levels. Many distributors are province-based or city-based and few cover morethan just a small area of the country. Fiveprimary distribution centers supply morethan 200 provincial-level wholesalers, which
in turn supply around 3,000 local distributors.Such a distribution system may have theadvantage of simplicity, but it can also behighly inefficient.
Emerging
Market
Life SciencesIssues
1Immature Logistics
and Distribution
6Shortage of
Skilled Talent
3Diverse Regulatory
Environments
4Uncertainty
in Pricing and
Reimbursement
5Complex
TaxationStructure
Sources: Espicom World Pharmaceutical Market Report 2012, Client Interviews, Accenture analysis
2Inadequate
ManufacturingInfrasturcture
China now has a large number of distributioncompanies operating at all levels. In theory,all products could be distributed throughthe state-controlled system, but many localcompanies establish their own preferredmethods of purchasing and distribution.Direct selling by manufacturers andwholesalers at all levels is increasinglybecoming the norm. Many suppliers desire
to gain broad geographic coverage but findthemselves restricted by strong regionalgovernments and poor transportation andcommunication systems which, in effect,make China a collection of independent andfragmented markets.
FIGURE 4. Issues for life sciences companies in emerging markets
The situation is similar in India, with manycompanies encountering complexity andfragmentation in the distribution chainat every level. A typical distribution valuechain in India goes through a distributionnetwork that may involve 30 Clearing andForwarding Agents (CFAs), 60,000 stockistsand 550,000 pharmacies in addition to sub-stockists, hospitals and non-government
organizations (NGOs). Thus, as in China,the distribution networks in India areexceedingly complex.
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In Russia, a large number of small regionaldrug wholesalers exist, but these aresometimes losing out to a smaller numberof national wholesalers. The nationalwholesalers are typically more efficientand better capitalized. Because they aregenerally based in Moscow or St. Petersburg,they may be better placed to deal withoverseas companies.
The distribution system situation in Brazil
is more in line with that of a developedmarket. Brazil has about 300 drug whole-salers and five major pharmacy chains inaddition to other players. The five pharmacychains comprise 49 percent of the marketbut have only 10 percent of the outlets inthe country. Those numbers may continueto fall due to mergers and acquisitions. Forexample, in September 2011, Drogaria SãoPaulo, the leader in the state of São Paulo,and Drogarias Pacheco, the leader in Rio deJaneiro, announced a merger, creating the
largest pharmacy chain in Brazil, DPSP, witha combined 691 outlets located in five states.1
Furthermore, lack of adequate cold-chaincapabilities across the country has contributedto serious gaps in distributing drugs thatrequire specialized handling. The marketdoes not have distributors or logistics playerswho have cold-chain capabilities across theentire country. These kinds of constraintsmay need to be addressed to improve marketaccess in emerging economies.
In the coming years, Accenture anticipatessome consolidation amongst the distributionplayers. We also expect to see somedevelopment of segmented capabilitiesto reach the farthest areas of the country(tier 2 and tier 3 cities as well as ruralareas) and the use of technology as anenabler in an effort to create a more agileand secure distribution value chain.
One potential challenge posed by these
trends is in creating targeted solutionsfocused on sets of customers segmentedby region, attitudes, behaviors and per capitaincome, but with solutions closely alignedto the needs of particular customer segments.This situation could also give rise to morecollaboration across borders to leveragesolutions and increase the value of learningduring the course of speedy execution.
2. Inadequate manufacturinginfrastructure
Different emerging economies have verydifferent levels of maturity in terms offully developed manufacturing ecosystems.Although most of the manufacturing basesin the BRIC countries are focused on providingActive Pharmaceutical Ingredients (APIs)and preparations (China and India), andmanufacturing generic products (all BRICS),a great deal of fragmentation exists amongpharmaceutical manufacturers. For example,in India, no single company has more than
7 percent of market share; in China bycontrast, 70 percent of the players haverevenues of less than $45 million. Indiais ahead of other emerging economies informulations due to their domestic genericmanufacturing capabilities.2
In Russia, manufacturing has often notbeen able to cope with the growing needsof the Russian market. Currently, localpharmaceutical companies are able tomeet only a small percent of the country’srequirements; therefore, reliance on importedpharmaceuticals is growing. Around 80percent of the public procurement (DLO)budget for additional medicines is spent onforeign pharmaceuticals.
Further analysis suggests that the localindustry’s falling market share may berooted in part in the inability of Russianmanufacturers to produce innovative drugs.Some producers blame the high costsassociated with drug development, clinicalevaluation, marketing and promotion andthe uncertainty of the return on theirinvestment. In Russia, the cost of developingand launching a new drug is estimated atbetween US$100,000 and US$5 million.Some manufacturers therefore claim
that they need to acquire licenses forthe reproduction of fully establishedgeneric products.
Another problem often lies with a lack offinancing for R&D. Many Russian scientificresearch institutes that were previouslysolely responsible for the end-to-end processof developing and launching new productsnow tend to be involved only in the initialdrug-discovery stage. After that point inthe process the project is often shelved
due to extensive laboratory and clinicalevaluation costs, as well as marketing andsales expenses. If a new drug is successfullydeveloped, insufficient laboratory and clinicaltesting as well as non-compliance withinternational Good Manufacturing Practices(GMP) standards could prevent it fromentering the international market place.
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10 | Driving Growth in the Life Sciences Industry: Winning in Emerging Markets
In Brazil, some companies have focused onencouraging more effective collaborationbetween contract manufacturers andpharmaceutical companies. Due to thestrong Brazilian currency, companies canfind it infeasible to produce drugs in Brazilfor export. This situation, in turn, canresult in underutilization of manufacturingcapacity. For example, Accenture recently
visited one plant performing manufacturingfor a major pharmaceutical company;the plant is running at only 50 percentcapacity utilization.
The availability of manufacturing facilitiesthat are GMP compliant can vary significantlyacross these markets. Russia faces challengesin becoming GMP compliant because only12 percent of local facilities are GMPcertified. India, on the other hand, hasmany GMP-certified facilities, but faceschallenges because many players of all sizeshave been exposed as being, in practice, non-adherent to norms. Many large multinationalsprefer to invest in captive facilities inthese markets to increase the availabilityof high-quality and compliant localmanufacturing partners.
In the future, more manufacturing facilitiesmay become GMP compliant across theemerging economies. Accenture sees a
significant trend among multinationals touse Contract Manufacturing Organizations(CMOs) and other local suppliers as a partof the manufacturing ecosystem. Thesesuppliers can be developed specifically forthese markets but can also be fully integratedinto the overall manufacturing strategy. In
addition, there may be an increased emphasison production of biosimilars, creations ofessential drug lists, strategic sourcing, anddevelopment of talent with the requiredskills to be successful in this extremelydynamic market environment.
Accenture believes that manufacturingsolutions could be leveraged across borders
in the areas of training to develop requiredskills, process mapping and technologyenablers. Joint ventures and M&As couldalso lead to solutions that are moreeffective, and that can be pushed tomarket faster, potentially creating a moreagile company.
New initiatives to create pilot solutions couldbe leveraged across the BRIC countries.Indeed, many of these solutions are alreadyin the pipeline. For example, in Brazil, amultinational pharmaceutical firm acquireda local producer and reacquired a numberof products previously licensed to anothercompany. Another multinational pharma-ceutical firm has confirmed its plans tobuild a plant for the production of vaccinesagainst meningococcal B within three years.
3. Diverse regulatory environments
Successful expansion in emerging marketscan depend on a comprehensive understanding
of the different regulatory environments ofthese nations. For example, gaining approvalsfor new products typically takes longerin the BRIC countries than in developedmarkets. Approval times can range fromabout 18 months in Russia to more thanthree years in China—over and above thetimelines for registration in the UnitedStates and the European Union.3
The costs and processes associated withseeking approvals in these markets typicallyalso vary significantly. China acceptspharmacokinetic bridging clinical studiesalong with global clinical data, whileRussia requires enrollment of local patientsin clinical trials.
Despite a generally low cost of patientrecruitment and a typical ability to runconcurrent trials in India along with globaltrials, many large companies prefer not toengage in Phase I clinical trials becausesome companies believe that regulationsregarding data exclusivity are not strong
enough to guarantee protection of pre-clinical data.
Intellectual property rights for pharmaceuticaproducts are also regularly evolving, withmany local governments seeking to strikea balance between World Trade Organization(WTO)-related norms and local patientneeds for access to affordable andinnovative drugs.
Although compulsory licensing may not yet
be a significant threat in most emergingmarkets, other factors such as the scope ofpatentability for new products in India andpatent review processes in Brazil have hadan effect on the creation of patent-protectedproducts in these markets.
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Source: Espicom World Pahrmaceutical Market Report 2012, Accenture analysis
Regulatory
New product registration
Intellectual property
protection
Clinical trials
Manufacturing
Future trends
Brazil
New Drug take more than 2
years, while generics are
approved within 1 year
Patent review timelines ~ 8
years. Review by patent office
and medicines agency. No
explicit Data exclusivity
regulations
Trial Protocols are approved
by multiple agencies with
timelines stretching to > 10
months
GMP norms implemented in
the ‘90s. Stricter norms for
APIs (in line with US andEU) implemented since 2010
Potential introduction of a
fast track approval process
for life saving drugs
Patent office indicates aims
to reduce review timelines
to 4 years
Post marketing surveillance
rules including ADR
reporting may get more
stringent
Russia
Actual approval usually takes
> 18 months although
official timelines are far lower
Russia became a WTO
member in 2011 and patent
law is still evolving
Minimum of 2000 local
patients need to enrolled on
trials for marketing
approval
< 12% local units are GMP
certified. Some MNCs prefer
to setup captive facilities inRussia
Mutual new product
registration between Russia,
Belarus and Kazakhstan
designed to reduce approval
timelines and grant faster
market access
May see mutual recognition
of clinical trials between
the EU and Russia reducing
clinical trial timelines andcosts
> Some manufacturing
units may not achieve GMP
compliance by 2014, leading
to some consolidation
among local manufacturers
India
New products take more than
2 years, while generics are
approved within 6-12 months
Issues concerning Data
Exclusivity regulations, and
scope of patentability
which often lead to
rejection of applications
Phase I trials allowed only if
compound originates in
India or pre-clinical data is
submitted for review
Although many facilities are
GMP and even FDA
compliant, adherence tonorms remains questionable
Establishment of a National
Medicines Agency as the
sole approval authority may
happen in the distant future
Clinical trial requirements,
including patient consent
and ADR reporting may get
more stringent
China
NCEs face 3 to 4 years
than the US or EU to be
approved
Issues concerning Data
Exclusivity regulations
which can allow generics
access to clinical data
Bridging pharmacokinetic
studies allowed with 100
patients
All manufacturers will need
to comply with GMP norms
by 2015
Regulatory cooperation is
being explored with Asian
countries for harmonization
of clinical trial regulations
and reduction of trial
timelines
Manufacturing regulations
governing API manufacture
may become more stringen
Government may resort tocompulsory licensing in the
area of ARVs
FIGURE 5. Comparing the regulatory environments in the BRIC countries
Regulators in the BRIC markets are oftenaware of the delay in making innovativemedicines available to patient populations.Some regulators are working towardrationalizing approval timelines to reducethis lag. Brazil is looking at initiating afast-track approval process for lifesavingdrugs, while China and Russia are lookingfor multinational cooperation in the area of
clinical trial regulation to reduce the timeand cost associated with repeating clinicaltrials with the local population.
Although these changes may help lifesciences firms gain faster market access,companies can still benefit from recognizingthat patent laws in these markets maynot readily evolve to a stage where patentrecognition will be at par with that ofdeveloped markets such as the UnitedStates and the European Union. Thus, forlife sciences companies to be successful in
these markets, they may need to becomemore selective about their portfolio choices.In general, firms may benefit from gaining
detailed knowledge of local regulatorypolicies and putting in place a dedicatedworkforce to liaise with the local regulatorybodies—an approach that can improvespeed to market.
For more information about the currentsituation in BRIC countries with regard tothe regulatory environment, and on future
trends, see the summary chart in Figure 5.
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12 | Driving Growth in the Life Sciences Industry: Winning in Emerging Markets
4. Uncertainty in pricingand reimbursement
Achieving success in emerging marketsrequires a deeper understanding of howpricing and reimbursement systems workin the different regions. Although eachmarket employs some combination offree-market pricing and price controls,
pricing and reimbursement in general canvary significantly across markets and isin part a reflection of local economicconditions and the government’s role inhealthcare provisioning.
For example, although both Brazil and Indiahave similar market sizes in terms of value,drug prices in India are only a fraction ofthe prices in Brazil. Although a large portionof the market by value is unregulated inRussia and India, resulting in positive price
evolution, the reverse is true for Brazil andChina, with the latter experiencing negativeprice growth. In China, government-mandatedcuts of about 20 percent every three yearsare becoming commonplace.4
In terms of government reimbursement,both Russia and India are largely self-paymarkets with limited coverage for pharma-ceutical products. By contrast, both Braziland China have established reimbursementsystems through a combination of social
insurance and government funding.Outpatient drug reimbursement is alsofairly common in Brazil and China, whilemany patients in Russia and India mustpay themselves for drugs used outside ofa hospital stay.
Reimbursement listing can improve marketaccess in many markets. In China, in additionto reimbursement listing, companies generallyfocus on getting their products listed on theformularies of hospitals. Even then, two tothree years may be required before bids forsuch products are invited.
Similarly, in India, winning a tender doesnot necessarily guarantee that the productwill succeed. Sales teams are often calledupon to work with hospital formularies togenerate regular orders. Given the trendof increased public healthcare spendingin emerging markets, some regions areexperiencing increasing demand for skilledresources in areas such as tendering and
auctioning. Shortages of experiencedprofessionals in these areas often resultin more cross-industry recruitmentand training.
The countries with better-establishedreimbursement markets—including Chinaand Brazil—may see stagnation or erosionin prices because the healthcare systems inthese countries are generally facing increasingcost pressures and budget constraints.Although the non-regulated retail marketsin Russia and India may see positive priceevolution, increased pressures from patientand activist groups are likely to result inmore monitoring of prices, especially forinnovative lifesaving drugs and medicationsfor chronic illnesses, which can impose asignificant burden on the self-paying patientpopulation. Calls for greater reimbursementcoverage in Russia may not occur for sometime, while India may remain a self-paymarket for the foreseeable future.
When setting their pricing strategies, lifesciences firms should be cognizant ofconsumers’ disposable incomes in theseemerging markets. Company also maybenefit from focusing on improving thecost effectiveness of their supply chainsto maintain suitable gross margins.
For more on the current situation inBRIC countries with regard to pricingand reimbursement, and on future trends,
see the summary chart in Figure 6.
Although each market
employs some combination
of free-market pricing and
price controls, pricing and
reimbursement in general
can vary significantly acrossmarkets and is in part a
reflection of local economic
conditions and the
government’s role in
healthcare provisioning.
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Source: Espicom World Pahrmaceutical Market Report 2012, Accenture analysis
Pricing
Extent of price control
Price control mechanism
Pricing norms for generics
Price Increases/trends for
price controlled products
Pricing trends for
non-controlled products
Pricing for government
purchases
Channel margins
Price comparison
Generics
Innovator
Brazil
All drugs
International reference
pricing (10 countries) and
reference to local existing
productsAt least 35% discount to
innovator brands
Regulated based on
inflation and generic
penetration
-
Compulsory discounts
(24%), bulk purchases and
reverse auctions
Average wholesale margin10%, retail margin 26%
(500 mg Ciprofloxacin) -
Cost of a 7 day course
(2 tabs a day)
$15.6
$106.5
Russia
EDL (567 drugs) & DLO
(covers 7 life threatening
diseases)
International reference
pricing (20 European
countries) and reference to
local existing productsAverage of last 12 months
price
Allowed only for locally
manufactured products
Free pricing, controlled by
competitive forces
Local made products enjoy
a 15% price premium over
similar imported products
Margins vary by federaldistrict and product price
(500 mg Ciprofloxacin) -
Cost of a 7 day course
(2 tabs a day)
$4.6
$47.6
India
74 drugs covered under
DPCO
100% markup over cost for
locally manufactured
products. 50% for imported
products~ 95% market is ‘branded’
generics
Reviewed periodically for
cost escalation and price
increases granted
>10% increase per year not
permitted
Purchased through sealed
tenders primarily driven by
price
DPCO: Wholesale 8% andRetail 16%, non-DPCO:
10% and 20% respectively
(500 mg Ciprofloxacin) -
Cost of a 7 day course
(2 tabs a day)
$1.7
$2.0
China
NRDL (2400 molecules) ~
60% of the market by value
Patented products prices
negotiated individually by
NDRC and manufacturers
First to market enjoys
premium over laggards
Prices cut every 3 years
(10% to 20%)
-
Average tender price drops
by 2% to 3% each year
NDRC applies maximummargins based on
manufacturer’s price
(500 mg Ciprofloxacin) -
Cost of a 7 day course
(2 tabs a day)
$3.1
$129.2
Reimbursement
Scope of government
reimbursement
Private health insurance
coverage (outpatient costs)
Brazil
Vast coverage with full
reimbursement for a range
of life saving and chronic
therapy drugs
Few plans provide coverage
for outpatient drug usage
Russia
Limited drug coverage (DLO
affects only 5% of the
population)
No coverage for outpatient
drug usage
India
Only inpatient coverage for
government employees
No coverage for outpatient
drug usage
China
Widespread coverage with a
mix of full reimbursement
and patient copayments
No coverage for outpatient
drug usage
FIGURE 6. Comparing pricing and reimbursement environments in the BRIC countries
13
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14 | Driving Growth in the Life Sciences Industry: Winning in Emerging Markets
5. Complex taxation structure
Taxation and import regulations also haveimportant roles to play in attracting large,multinational life sciences companies toemerging markets. R&D and innovationhave contributed to the implementationof specific tax incentives in many of theemerging and developed markets. Many
local government bodies are trying to attractinvestments in their regions by setting uptax-free zones and by providing access tobetter infrastructure and resource pools.
In Brazil, many of the manufacturing andallied industries are currently focused in theSão Paulo region because that area providesbetter access and varying tax plans comparedwith the rest of Brazil. This situationmay be changing, however, because thestate of Rio de Janeiro is now attracting
pharmaceutical companies as well. Brazil’stax structure on pharmaceutical products,34 percent, is considered high. Strict importregulations typically prevail, as do mandatesto manufacture locally to promote exclusivityof the drugs.
Similarly, in Russia, the Kaluga Oblast regionis preferred by many industries as a sourceof innovation and the region’s industrialparks are attracting pharmaceutical companies
for imported drugs is also seen as a welcomemove by some multinationals who wish tokeep manufacturing outside China.
Because the need to provide incentives atcountry, province and city levels may increaselife sciences companies should considerworking to learn from similarities acrossborders and also to learn from industriesthat have been successful in emergingeconomies. This can help them design amore tax-efficient operating model. Sucha model can help provide better cost
efficiency which can be important tocompeting more effectively in a highlycompetitive and fragmented market.
6. Shortage of skilled talent
Availability of skilled talent may be achallenge for life sciences firms seekingto expand into emerging markets. As theemerging markets grow, the competitionfor skilled talent will be intense. Basedon a recent Economist Intelligence Unitsurvey about talent challenges in emerging
markets (see Figure 7), most of the surveyedexecutives feel that retention of employeesand domestic recruitment will be significantissues for them over the next three years.
As the emerging markets grow, the need fornew skills increases in areas such as coldchain management, biologics manufacturingdemand planning and pricing analytics. The
that include Berlin-Chemie. In Russia, about80 percent of drugs are imported, so manypharmaceutical companies are being providedspecial status to promote manufacturingin Russia. For example, in the Skolkovoregion (near Moscow) residents are offeredexemptions on VAT and property taxes. Theregion also has a highly discounted socialtax structure.5
In India, some individual states are providingtax incentives in special economic zones forpharmaceutical companies to set up operations
in their regions. India offers incentivesincluding a deduction of 100 percent ofeligible expenditures for the same year. Inaddition, the long-awaited move from statetax to Goods and Services Tax (GST) maybring dramatic changes in the way supplychains function within India. Because GSTprovides a more transparent version oftaxation, it may be a force for change forpharmaceutical companies and for theentire life sciences industry.
In China, the government is being aggressivein providing deductions. It provides adeduction of 150 percent on qualifyingR&D expenditures.6 Although some multi-national companies have already begunplanning to use China as a global sourcingbase, many companies have also startedsetting up R&D labs in different cities inChina. Easing the norms on market access
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15
At a recent workshop conducted by Accenturein Brazil, one of the major pharmaceuticalcompanies reported that it is sourcing muchof its operations talent from CPG companiesthat have been successful in emergingmarkets. It is becoming more common tosee life sciences companies taking talentfrom CPG companies—not only because of
talent gaps but also because of the factthat CPG knowledge and experience canbe readily leveraged and applied to the lifesciences industry.
The talent challenge is real and will help todetermine whether companies and emergingmarkets can realize their full potential. TheEconomist Intelligence Unit survey on talentcompared BRIC nations and found thatmost of the key talent issues across thecountries are similar. The most important
issues that China, India and Russia arefacing are, first, higher salary expectationsbecause of shortage of talent and, second,increased demand for critical skills. Thissituation is causing higher employee attrition,something that creates skill gaps and highoverhead for companies. Skills gaps andinability to meet salary expectations are
a kind of “chicken and egg” situation;one cannot be resolved without resolvingthe other.
Accenture believes that life sciencescompanies should focus more intenselyon the talent strategies they need to besuccessful in emerging markets. Skill and
capability requirements need to be tightlyintegrated into an overall customer centricitystrategy, one that looks at customer clusters.Companies also need to think about sourcingand managing talent across borders, andabout the culture and skills training requiredto be successful in developing markets.
Companies also should consider the differenttechnology considerations possibly necessaryto be successful in these markets. Forexample, in emerging economies, basic
2G phones are being used for tasks suchas training and counterfeiting detection;by contrast, developed countries havetechnologies such as tablets and 4G phonesavailable for such tasks.
Brazil China India Russia
Which of the following factors are most likely to hinder your company’s ability to recruit talented employees over the next three years?
(% respondents, top 5 responses)
Candidates lack appropriateskills/qualifications
Inability to meet salary expectations
Inability to meet benefitspackage expectations
Undesirable work-life balance (longhours, frequent business trips, etc)
Lack of career opportunitiesand development paths
Inability to meet salaryexpectations
Candidates lack appropriate
skills/qualifications
Inability to meet benefitspackage expectations
Undesirable work-life balance (longhours, frequent business trips, etc)
Lack of career opportunitiesand development paths
Inability to meet salaryexpectations
Candidates lack appropriate
skills/qualifications
Inability to meet benefitspackage expectations
Lack of career opportunitiesand development paths
Undesirable work-life balance (longhours, frequent business trips, etc)
Inability to meet salaryexpectations
Candidates lack appropriate
skills/qualifications
Inability to meet benefitspackage expectations
Lack of career opportunitiesand development paths
Undesirable work-life balance (longhours, frequent business trips, etc)
57
47
41
32
30
51
41
38
32
30
61
46
40
32
28
61
59
27
25
24
Source: Economist Intelligence Unit survey, 2008.
FIGURE 7. Factors hindering a company’s ability to recruit skilled talent
support structure to provide a good streamof skilled talent is being developed but, atthe moment, demand is outpacing supply.Even though the emerging markets produceplentiful talent from their universities, toofew candidates are industry ready.
In India, where skills shortages are particularly
acute, many companies are looking forways to bring uneducated workers intotheir organizations, then working withnon-governmental organizations (NGOs)to improve the skills those workers need tobecome productive.
In the supply chain talent area, companiesare either casting their net widely intorelated industries such as consumer packagedgoods (CPG) or going beyond their own bordersto recruit talent. In another strategy, the
India School of Business at its Mohali Campus(near Chandigarh) has joined with an IndianConglomerate Hero group to start MunjalGlobal Manufacturing Institute, whichhas a mission of focusing on developingmanufacturing skillsets across industriesbased on industry needs.
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16 | Driving Growth in the Life Sciences Industry: Winning in Emerging Markets
Competing More Effectivelyin the Emerging MarketsA four-point plan for life sciences companies
Establishing and executing agrowth strategy for the lifesciences industry in emergingmarkets includes takinga detailed view of theparticularities of these
markets, while also findingcommonalities that enablecost-effective approachesand being sensitive to uniquemarket, governmental andconsumer attributes withinany specific region.
Accenture recommends a four-pronged
approach:
1. Think customer clusters: The importance
of submarkets. Focus on submarkets—common customers and clusters of customers.
2. Find cross-border similarities.
Operationalize based on understandingelements of the value chain that are atsimilar maturity levels across multiple markets.
3. Establish global reach with local
relevance. Drive efficiencies from a global
approach while maintaining local relevance.4. Create effective and rapid execution
capabilities. Develop the ability to executeswiftly and with more agility.
This section looks at each of these fourintegrated strategies, discussing somepotential approaches and implicationsand providing relevant examples.
1. Think customer clusters:The importance of submarkets
Each of the emerging BRIC markets (and,indeed, others like them around the world)is a combination of diverse segments. Eachmarket has nuances and distinctive featuresthat life sciences companies can benefitfrom understanding at a more detailed level.Companies should approach these marketsand consumers with the individual attentionand respect they deserve. For example,urban or metro areas typically differ fromrural areas in several ways. Populationdensity, infrastructure development and
availability of logistics all can have animpact on ready access to these markets.In addition, customer profiles can differin sometimes dramatic ways in terms ofpeople’s disposable income, willingnessor ability to pay, and inclination to seekmodern healthcare treatments.
However, Accenture’s analysis of markets inthe BRIC countries suggests that customerclusters or submarkets can be identifiedwithin a market based on an understanding
of consumers who have common healthneeds, such as those suffering from aparticular disease such as Type 2 diabetes.Submarkets can also be identified based oncommon characteristics related to factorssuch as demographics, accessibility andtechnology penetration.
For example, urbanization and per capitaincome can help identify common customerclusters, which then plays an importantrole in determining a life science company’smarket access strategy. “Consider, forexample, the clusters of urbanization andper capita income across states in India, asshown in Figure 8.
Analysis of the data and clustering suggeststhat India can be divided into states havingurbanization levels of more than 35 percent(five states), below 20 percent (three statesand between 20 percent and 35 percent(remaining states). The infrastructure, policysupport and access to healthcare could bedifferent in states with more urbanization.7 Why? Consider that our analysis finds adirect correlation between higher rates ofurbanization and higher per capita income.
As the Indian economy grows, per capitaincome is also growing, resulting in higherbuying power for the typical urban consumerThis example indicates that by focusingon customer clusters and submarkets lifesciences companies can achieve a moredetailed understanding of the specificneeds of potentially profitable groupingsof customers—leading to more effective,customer-centric R&D, and/or more effectivemarketing and sales strategies. Submarketscan be targeted with more focused productsand services (some targeted at urbanconsumers and others targeted at thosein rural areas) supported by an effectivesupply chain infrastructure.
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17
Note: PCGSDP stands for per capita gross state domestic product.
Source: Report on Indian Infrastucture and Services, March 2011, Ministry of Urban Development, Accenture analysis
Urbanization (%) 2008
60
50
40
30
20
10
log (PCGSDP) 2008
10,000 20,000 30,000 40,000 50,000 60,000 70,000
Tamil Nadu
Maharashtra
GujaratPunjab
Karnataka
Urban clusters
OutlierMadhya Pradesh
RajasthanJharkhand
Uttar Pradesh
West Bengal
Uttarakhand
Chhattisgarh
Haryana
Andhra Pradesh
Kerala
Orissa
Assam
Bihar
FIGURE 8. Distribution of states in India according to per capita incomeand urbanization
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18 | Driving Growth in the Life Sciences Industry: Winning in Emerging Markets
A similar situation with regard to submarketscan be seen in China. Disease patterns inurban and rural settings in China can bevery different. For example, respiratoryissues, poisoning and injuries result in farmore deaths in rural areas than in urbanareas but for malignant neoplasms the ratesare approximately similar across urban andrural areas (See Figure 9.). Therefore, market
access and innovation strategies for certaindiseases may need to be targeted to thedifferences between urban and ruralconsumers. Impacts on portfolios andsupply chains can also differ.
Customers and clusters:
Innovative approaches
As an example of an effective strategybased on insights into similar customersand clusters within markets, consider
Novartis, which launched Arogya Parivar(which means “Healthy Family” in Hindi),a for-profit social initiative to reach the740 million people living at the bottomof the pyramid in rural India—a hugesubmarket opportunity. Novartis createdan alternative distribution model to expandits reach across the fragmented marketsin rural India. To meet this submarket, thecompany revamped its traditional supplychain, including portfolio selection, pricing,packaging and partners.
In 2010 Arogya Parivar reached out to 50million patients in 10 Indian states, partneringwith 30,000 doctors and 20,000 pharmacies.The program covered 11 therapeutic areasand offered nearly 80 pharmaceutical,generic and over-the-counter productsand vaccines, including products targetedat conditions ranging from tuberculosis anddiabetes to pain and colds.
One key to the success of the company’sstrategy was focusing on the needs ofrural consumers at lower income levels.The program adapted the educationalmaterials, training and product packagingto local conditions and buying patterns.For example, the company employed localwomen as educators and advocates. It alsopackaged products in smaller containers
that are more affordable to target consumers.Arogya Parivar achieved a break-even pointwithin 30 months. Since 2007, sales haveincreased 25-fold.8
Things to consider
To achieve success in the BRIC markets,companies should think in more granularfashion about submarkets in urban/regionalclusters, finding commonalities in diseasepatterns and/or in demographic groupings.
This approach would enable firms to prioritizesubmarket attractiveness to help determinewhere to focus—targeting opportunitiesand build/buy capabilities around people,processes and technology with less risk andgreater chances of success. This focus onsubmarkets could help companies capture thedifferences across demographics, income,religion, geography and access.
2. Find cross-border similarities
The concept of “customer clusters” also canhelp life sciences companies employ strategiesthat have no borders—that is, products andcampaigns that appeal to customer groupingsacross countries and continents.
For example, consider a recent survey by
the Economist Intelligence Unit which foundthat the top 24 cities out of 30 in the worldwere from the United States and Europe.Such a finding might lead a companytoward a particular strategic path. However,because emerging economies tend to growat a rate faster than developed economies,the report also showed that 15 of the top20 cities based on “economic strength”(highest weighted category) were in Asia.And seven of the top 10 cities were inChina. Singapore and Bangalore were rated
higher based on economic strength comparedto Los Angeles, a trend that can also beseen in the growing economies of Indiaand China.9
Urban Rural
834,424
960,125
0.000000
160166.666667
320333.333333
480500.000000
640666.666667
800833.333333
961000.000000
29.4%
21.6%
17.3%
16.8%
8.6%
3.5%2.7%
Malignant neoplasms
Cerebrovascular disease
Heart disease
Respiratory disease
Injury and poisoning
Digestive diseaseEndocrine and metabolic diseases
Source: National Bureau of Statistics China, Espicom World Pharma Market Report 2012
FIGURE 9. Major causes of death in China
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Source: Credit Suisse Emerging Consumer Survey 2011
1,0000 2,000 3,000 4,000 5,000 6,000 8,0007,000
200
100
400
300
Spending on healthcare (PPP, USD)
500
Average monthly household income (PPP, USD)
0
China India RussiaBrazil
Source: Credit Suisse Emerging Consumer Survey 2011, Credit Suisse Global Wealth Database, 2010
Brazil
China
India
Indonesia
Russia
Egypt
Saudi Arabia
32.9
176.8
198.1
51.1
18.0
16.1
0.2
10.8
66.6
37.0
0.6
11.7
0.5
4.8
57%
50%
66%
91%
39%
87%
3%
19%
19%
12%
1%
25%
3%
80%
Less than USD
1,000 per month
Greater than USD
2,000 per month
Less than USD 1,000
per month
Number (in millions) of households earning: % of households in each market earning:
Greater than USD
2,000 per month
FIGURE 10. Spending on healthcare versus income levels: Brazil, Russia,India and China
FIGURE 11. Household income distribution by market in selected emerging economies
Looking at this data, one possible conclusionis that companies should not be constrictedby the concept of “emerging markets” in termsof national borders, but rather around“customer clusters” in similar cities orurban areas across countries, both inemerging and developed regions.
Based on Accenture analysis, we believe
that some of the similarities across marketsare not being sufficiently leveraged to createsolutions that can move across borders. Inaddition, the solutions are not segmentedenough to have a differentiated distributioninfrastructure focused on customer servicein urban areas and on cost efficiency inrural areas.
To understand this concept more deeply,consider another study, a recent CreditSuisse Global Wealth Report. Looking morebroadly at spending on healthcare andincome levels across the BRIC countries,the report revealed that an average Brazilianhousehold spends 10 percent of income onhealthcare—almost double the level spentin China (5.7 percent) and in India (5.5percent). However, the number of householdsearning more than US$2,000 per monthis three times more in India and six timesmore in China than in Brazil. Clearly, thesedifferent income levels will drive different
consumer preferences (See Figure 10.).10
On the other hand, the number of householdsearning less than $1,000 per month is roughlysimilar in India (196 million) and China(176 million) (See Figure 11.). This meansthat companies have an opportunity toapply a common market access strategyin India and China based on similar customerclusters in those countries and on common-alities such as maturity of pharmaceutical
market, type of infrastructure and consumerbuying patterns.11
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20 | Driving Growth in the Life Sciences Industry: Winning in Emerging Markets
Cross-border solutions:
Innovative approaches
Although the following story comes from arelated industry and not specifically fromlife sciences, Unilever provides a compellingexample of a cross-border solution. Unilever’s“Shakti” program was initially piloted with17 women from remote Indian villagesacting as micro-distributors, who soldUnilever’s products to rural households.The program is now a 45,000-womenmicro-distribution network serving threemillion rural households. Unilever receivedstrong support from more than 300 partners,including NGOs and banks, as well as stateand local governments,
On the foundation of Project Shakti, Unileveralso created “I-Shakti,” which is focusedon creating kiosks with Internet-enabled
computers run by the women entrepreneurs.The I-shakti kiosks provide villagers withvaluable and free information in the areasof agriculture, healthcare, education, financeand entertainment. The content was developedwith local partners such as Aziz PremjiChildren Foundation on Education andICRISAT (International Crops ResearchInstitute for the Semi-Arid Tropics). Farmerscan find up-to-date information on agriculturebest practices for their crops, and villagerscan get timely medical advice from doctors.12
Things to consider
Given the dynamic nature of the emergingmarkets in the life sciences, companies needto think more about common customerattributes, and common customer clusters,across borders. Groupings and segmentationof customers can be made based on anunderstanding of common needs andbehaviors. Companies can thus morereadily prioritize regions that align withstrategic and financial goals, and can focustheir capabilities in those areas. This canincrease the efficiency of operations andimprove return on investment in R&D, salesand marketing.
Many companies may also want to thinkbeyond income, age and profitability askey drivers for segmentation and, instead,consider a more granular approach about
issues such as purchasing behaviors, diseasepatterns, pricing elasticity, regulatoryconstraints and access. This approachcan help them create more accurate andeffective cross-country segments, potentiallyunlocking new areas of demand and growth.
3. Establish global reach withlocal relevance
Whether in an urban or rural market, itcan be beneficial for companies to “thinkglobally and act locally” in meeting theneeds of consumers in the BRIC markets.
Looking again at the Economist IntelligenceUnit research study, it is interesting to notethat cities that may be similar in economicstrength are nevertheless often quite differentin terms of human capital components suchas population growth, working age population,quality of education, and an entrepreneurshipand risk-taking mindset.
In terms of economic indicators alone, onecan find some similarities around economicstrength, physical capital and human capitalbetween cities such as Shenzhen and New York. Similarly, an analysis of the overallattractiveness of cities (see Figure 12) showsthat Shanghai could be similar to Miami(except in a couple of factors), while BuenosAires, São Paulo, Delhi and Mumbai mightbe grouped together as one type of cluster.
To take another example, cities across Brazil,Argentina and India have very differenttaxation structures, and their health careinfrastructures are at different stages ofmaturity—again, as shown in Figure 12.Brazil, for example, has the highest taxationon drugs at almost 34 percent. Therefore,the strategies employed by companies couldbe global in nature but also very differentat the local levels based on the maturity ofthe healthcare value chain network and thecompany itself.
Economicstrength
Physicalcapital
Financial
maturity
Institutionaleffectiveness
Social and culturalcharacter
Humancapital
vironment
d naturalzards
Globalappeal
urce: “Hotspots—Benchmarking Global City Competitiveness,” Economic Intelligence Unit, January 2012
Economicstrength
Physicalcapital
Financial
maturity
Institutionaleffectiveness
Social and culturalcharacter
Human
capital
Environment
and naturalhazards
Globalappeal
Economicstrength
Physicalcapital
Financial
maturity
Institutionaleffectiveness
Social and culturalcharacter
Humancapital
Environment
and naturalhazards
Globalappeal
0
25
50
75
100
Miami Shanghai
0
25
50
75
100
Buenos Aires Delhi Mumbai São Paolo
0
25
50
75
100
New York Shenzhen
FIGURE 12. Global city competitiveness comparisons
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Pharmaceuticalindustry average
Source: Accenture’s Maturity Model for the Life Sciences I ndustry
Basic
• Silo based decisionmaking
• Lack of systemiccapabilities
• Inability to build onlearnings
• Fire fighting
Advanced
• Market and supplychain alignment
• Structuredintegration within
core functions• Collaborative
functional trade-offs
• Developing demandaware supply chains
Progressive
• Focus on scale andefficiency
• Separateimple-mentationof projects
• Cost and riskcontrols
Leading
• Internal and externalnetwork trade-offs
• Profitablesupply/demandsynchronization
• Analytics seen ascore competency
FIGURE 13. Stages in the life sciences market access industry maturity model
2
Understanding these different levels ofmaturity can give a company an overallassessment of a particular function andalso help a company understand the driversthat will can help in improving the existingmaturity of that function. Accenture believesit is important to consider going througha granular assessment designed to developmore customer-centric, localized solutions.
Creating local relevance:
Innovative approaches
Consider the story of how life sciencescompany Pfizer was able to adapt aloyalty program to different local markets.The original program, developed for thePhilippines market, was “SULIT” or a “value”card program. It was targeted at patientsin Manila and other urban centers whowere using Pfizer’s leading cardiovascular
drug Norvasc. The drug’s patent expirationdate was approaching, with the consequententry into the market of low-priced genericequivalents. In anticipation of this marketevent, Pfizer instituted the SULIT cardprogram in an effort to retain patient loyaltyfollowing the expiration of the patent. Thecard enabled loyalty-based discounting, aneffort to mitigate the impact that generic
equivalents might have in the future. Theresult of the loyalty program was a doublingof Norvasc sales despite the expiration ofthe patent in 2007.13
When Pfizer later developed a loyaltyprogram in India, it was careful to adaptit for that consumer environment. In thiscase, consumers in India had existing access
to many inexpensive, generic versions ofcardiovascular medicines before Pfizerlaunched its products. Pfizer realized that,although price was an important factor indeciding what product to buy, consumersin fact had insufficient awareness of howa medicine was to be used as part of anoverall disease management program.
Pfizer’s pilot of its loyalty program in Indiatherefore sought to fill that knowledgevoid, helping consumers better managetheir cardiovascular disease from a moreholistic perspective. Pfizer sees this approachas giving it differentiation in a crowdedmarket. It is an excellent example ofunderstanding the unique local situationand the needs of consumers, helping thecompany adapt an existing loyalty programfor a different environment.
Things to consider
Although it can be important to thinkglobally and to have a holistic picture ofconsumer segments, it can also be beneficialfor companies to employ local solutionsto be successful. This approach may requiretweaking an already existing solution,or it may require building an entirelynew solution.
Keys to success include mapping customerneeds to the capabilities required; under-standing the maturity of the country,industry, other industries and competition(across function); identifying the gapsbetween needs and capabilities; andprioritizing decisions in an effort to developor buy the capabilities to successfully developsolutions for different customer segments.
It can be beneficial to perform a granularassessment of maturity by function (seeFig 13) using a maturity model diagnostictool, something that can help develop morecustomer-centric solutions. One potentiallyvaluable tool in this regard is a detaileddiagnostics tool developed by Accenturefor management and non-managementemployees to assess a particular company’s
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22 | Driving Growth in the Life Sciences Industry: Winning in Emerging Markets
maturity in market access functions—fromproduct launch to planning, sourcing,manufacturing and delivery. The maturitydiagnostic can provide an overall assessmentof a particular function and can also helpa company understand the drivers thatcan help improve the existing maturity ofthat function.
4. Create effective and rapidexecution capabilities
The fourth strategy to consider for potentialsuccess in emerging markets in the life sciencesreally ties all the other ones together: it’sabout executing the solution across themarkets in a timely and cost efficient manner.Although this sounds like an obvious point,in fact the ability to execute initiatives in atimely manner across markets still can bea difficult task for life sciences firms, given
that many of them continue to operate infunctional silos. Hence, it is important thatsupply chain, commercial and other functionswork together at different stages of theproduct lifecycle to have an effectivespeed-to-customer capability.
Accenture believes that two capabilities areespecially critical to consider with regardto rapid execution of an emerging-marketstrategy. The first involves developing theability to understand and to get very close
to the customer—by leveraging networksand chains of influence so that a marketstrategy can reach consumers quickly. Thesecond involves companies improving theirrisk management capabilities to the pointthat they can take well-considered risks asa means to rapidly seize market share.
Understanding and getting close
to the customer
In developed markets, companies generally
take an approach emphasizing high margins.In emerging markets, however, a moreappropriate approach emphasizes highefficiency, with less emphasis on margins.Furthermore, companies should focus oncustomer centricity and break the silosbetween different functions of theirorganization (such as supply chain andcommercial) that might constrain that
customer-centric approach. It is importantto have a holistic and integrated strategy,rather than trying to coordinate differentstrategies for supply chain, commercial andso forth.
Companies are looking to gain betterunderstanding of their customers’ interests,intentions and behaviors. Voice of theCustomer (VoC) studies are critical tools
that can help firms identify relevant solutionsand execute them faster and more efficiently.For example, looking at diabetes data acrossBRIC countries compared with the UnitedStates, the numbers suggest that China(42M) and India (50M) combined are morethan three times the market size of the U.S.(26M) diabetic population. While the numberslook somewhat similar across urban China(41M) and India (48M) in 2010 and 2030,the “consumer clusters” could be very
different when actually executing thestrategy (See Figure 14.).
Rigorous market research can help define“who the customer is” and then can alsohelp ascertain the right products andservices to launch. For example, a largepharmaceutical firm took an approach withone of its chronic disease products in which
Rural
Urban
2010
Source Prevalence of Diabetes mellitus in World 2010-2030, International Diabetes Federation, Accenture analysis
2030
29M
21M
48M
38M
ChinaIndia
2010 2030
20M
22M
41M
21M
FIGURE 14. Diabetes prevalence comparisons: India and China 2010-2030
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Sources: Economist Intelligence Unit Survey
0
5
10
15
20
25
30
35
40
45
50
55
6065
70
75
80
85
InfrastructurePoliticalStability
Financial Tax Policy LabourMarket
Security Legal &Regulatory
Brazil India
US
Russia
UKGermany
China
Japan
Emerging
Developed
Emerging markets are riskier across the board
(Risk rating: 0 = low risk, 100 = high risk)
FIGURE 15. Risk assessment of emerging countries vs. developed countries
23
it created a localized solution by understandingcustomer needs, behaviors, elasticity toprice, and attitudes. The result was exclusivityin its drug class for some time. The key tosuccess was speed to execution by targetingthe right set of customers with “responsiblepricing” supported by training and educationalsupport for the medical community.
The product itself was the same one marketedto the United States, but the company knewthat the ways to achieve success were verymuch dependent on the customer dynamicsin each region. The firm launched a concertedeffort to activate a network of key opinionleaders to address the concerns of the market.The company engaged more than 11,000physicians in peer group networks, in whichphysicians discussed their experiencestreating patients with the product. Theirpositive experiences encouraged others toadopt the treatment.
The firm also established a patientidentification program to track prescriptions.It conducted interviews with physicians tounderstand the typical patient profile forthe drug, and shared this informationwith their medical peers. These effortscontributed to building credibility amongthe medical community. All this waspossible because the company took the
time to understand the voice of the customer,developed autonomous decision makingprocess at country level and put in place aneffective network of influence. The companymade similar changes to its strategy acrossthe BRIC markets for the product, potentiallysetting a benchmark for launching patentedproducts in BRIC countries.
Improving risk management capabilities
Although entering emerging markets is oftena risky endeavor, that risk can also be turned
to competitive advantage by enabling acompany to be a fast mover. For example,based on an Economist Intelligence Unitsurvey (see Figure 15), tax, legal, regulatoryand labor market risks were some ofthe highest risk factors identified inemerging countries.
Although entering emerging
markets is often a risky
endeavor, that risk can also
be turned to competitive
advantage by enabling a
company to be a fast mover.
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24 | Driving Growth in the Life Sciences Industry: Winning in Emerging Markets
To address these risks, companies shouldconsider focusing on developing better riskmanagement capabilities. They can alsobenefit from strengthening their ability toidentify risks, evaluate impact across thecompany, develop mitigation strategies andfinalize implementation plans. As a partof the evaluation, companies can evaluaterisk exposure by assessing the likelihood
and impact of each risk while entering theemerging markets (See Figure 16.). Thiskind of risk-adjusted execution can providecompanies with faster speed to customer.
Technology can be an important enablerin emerging markets because it can helpcompanies reach the “last mile” to theconsumer and can also provide bettertransparency and visibility in the supplychain. Collaborating across functions suchas supply chain and commercial can alsohelp reduce a company’s risk profile as wellas break functional silos—something essentialto success in the emerging markets.
1. Identify 2. Assess 3. Monitor 4. Mitigate
Likelihood
I m p a c t
Security
Political
Economic
Source: Accenture analysis
Financial
Legal & Regulatory
Tax
Labour
Infrastructure
Risk Categories
1
Risk Assessment Matrix
Low High
High
2 3
4
5
6
7
8
9 1011
12
13 14
Risk Exposure
Risk
Business Units
A B C D
1
4
7
6
8
12
Scan horizon to identify risks
across different categories
Design risk dashboard to
monitor changing nature ofrisks
Develop contingency plans to
mitigate high-impact risks
Assess each risk based on its
likelihood and impactMap risks across
organisation to identify
pressure points
FIGURE 16. Risk response framework methodology
With strategies that have never beenexecuted before, an element of risk isgenerally present. However, risk-adjustedinnovation can be a key to success in theemerging markets. For example, consider arecent launch of a chronic disease productin BRIC countries. By assessing the segments,targeting the right regions and developinglocal solutions such as responsible pricing
for India, the firm had a head start in itsclass of drugs and had a successful launchingpad to making the drug a blockbusterin India.
This example helps us see that companiesthat can identify, assess, monitor andmitigate risk to execute with speed havean edge in achieving high performance inemerging markets.
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26 | Driving Growth in the Life Sciences Industry: Winning in Emerging Markets
ConclusionA winning strategy in the emerging markets
Growth strategies in the lifesciences industry are increasinglydependent on expansion intoemerging markets. Thesemarkets represent a significantopportunity, with the BRICnations predicted to be in thetop 10 of the world’s global
pharmaceutical markets in thecoming years.
Many companies face significant challengesin executing this emerging-market strategy,however, including market access elementssuch as manufacturing, distribution, supplychain planning, pricing, taxation regulationand talent. These challenges explain whyeven the top pharmaceutical companies inthe world are having difficulty breakingthrough to greater success. Many have nomore than 10 percent to 30 percent ofrevenues coming from these regions.
This paper has presented an analysis ofseveral critical market access challenges—logistics and distribution; manufacturinginfrastructure; regulation; pricing andreimbursement; taxation; and talent. Thisanalysis can give life sciences companiesthe basis for their own detailed understandingof the individual value chain components of
their strategy.
Accenture recommends a four-prongedstrategy to overcome these challenges andgrow revenues in the emerging markets:
1. Focusing the strategy around customersand clusters rather than just countries orregions. Thinking in terms of submarketscan help a company develop a moretargeted and customer-centric strategy.
2. Plotting a course forward based on cross-border similarities. These similarities can
help create products and services that arerelevant across regional differences.
3. Becoming effective both from a globalperspective and a local one. Cross-marketstandardization can help from an efficiencyperspective, but implementations may alsorequire customization at the local level.
4. Executing at speed. By understandingthe voice of the customer and putting inplace an influence network, companieshave the potential to leap ahead of thecompetition in actually executing theiremerging-market strategy.
An emerging middle class in developingnations represents an opportunity for lifesciences companies to improve the qualityof life there, while also improving their ownmarket standing. Companies that are moreadvanced in areas such as manufacturinginfrastructure, logistics, distribution,regulation, tax and talent management—and, of course, in understanding consumer
needs and behaviors—can gain an edge inachieving high performance.
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Contact us
References
Authors
1-5 “The Outlook for Pharmaceuticals inBrazil, Russia, India & China,” February2012, Espicom World PharmaceuticalReport, http://digitaljournal.com/pr/614045
World Pharmaceutical Markets (WPM) Outlook is compiled
using, where possible, primary data from local sources. This
comprises national Ministries/Departments of Health, statistical
bodies and professional associations. Market profiles drawon detailed statistical work by our Healthcare Markets Team.
This is undertaken specifically for this report, and also in the
course of research for other Espicom services, principally
World Pharmaceutical Markets (WPM). World Pharmaceutical
Markets (WPM). Published by Espicom Business Intelligence,
Lincoln House, City Fields Way, Tangmere, West Sussex PO20
2FS. http://www.espicom.com Economic and demographic
forecast data is sourced from the Economist Intelligence Unit
(http://www.eiu.com), where indicated. Reference may also be
made to a number of secondary sources, and these are listed
below. OECD Health Data, http://www.sourceoecd.org PC-TAS
trade data, published by International Trade Centre, UNCTAD/
WTO, United Nations. World Bank, http://www.worldbank.org
World Health Statistics, World Health Organisation, Geneva,
Switzerland. http://www.who.org
Anne O’Riordan is the global industrymanaging director for Accenture’s LifeSciences practice. She has been withAccenture for 23 years and has dedicatedher career to working with Life Sciences
companies around the world, most recentlycovering Japan, China, Singapore and India.Given the diversity of markets from matureto emerging in Asia, Anne has worked onboth market entry, business evolution andbusiness transformation projects. In addition,Anne has worked on front and back officetransformations for Life Sciences clientsinclusive of business and IT strategy, sales& marketing optimization, ERP implementation,R&D transformation, Business ProcessOutsourcing, Application Outsourcing and
Infrastructure transformation on a global,regional and local basis. Anne is basedin China.
27
6 China Law And Practice, R&D TaxIncentives, May 2000 http://www.chinalawandpractice.com/Article/1694602/Channel/7576/R-D-Tax-Incentives.html
7 Report on Indian Infrastucture andServices, March 2011, Ministry of Urban
Development, Accenture analysis8 Novartis Global website; http://www.novartis.com/corporate-responsibility/access-to-healthcare/our-key-initiatives/social-business.shtml
9 “Hotspots—Benchmarking Global CityCompetitiveness,” Economic IntelligenceUnit, January 2012
10 Credit Suisse Emerging ConsumerSurvey 2011, Credit Suisse Global WealthDatabase, 2010
Hussain Mooraj is the global lead for theAccenture Life Sciences Supply Chainpractice and brings more than 20 yearsof experience in manufacturing, supplychain, technology, sales and marketing,
strategy and consulting to his role. Heworks closely with senior executives fromglobal companies across the healthcarevalue chain (manufacturers, wholesalers,pharmacies, payers, and providers), advisingthem on business strategy and technologybest practices. In 2009 he was voted byPharmaVOICE as one of the 100 mostinfluential and inspiring individuals inLife Sciences. Hussain is based in Boston.
Vishal Singal is a senior manager inAccenture’s Life Sciences practice andis the global lead for Life Sciences MarketAccess in Emerging Markets. Vishal has 14years of management consulting experience
working with leading Health & Life Sciencescompanies, with a focus on supply chain,and commercial strategies and theirimplementation. Vishal has recentlypresented at a Global Conference focusedon commercial excellence in emergingmarkets around driving growth in lifesciences for emerging markets. Vishal isbased in Indianapolis.
The authors wish to thank Jolyon Austin, Marcelo Aleja Duerto, Ricardo Cecilio Gouveia,
B.A. Shah, Arul Prakash, Vikash Poddar, Jennifer Seeley and Sriram Shrinivasan for
their contributions to this paper.
11 Ibid
12 Unilever Global website:http://www.unilever.com/careers/insideunilever/oursuccessandchallenges/shaktiprogrammeindia/#
13 Pfizer Global website:
http://www.pfizersulitcare.com.ph/
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About Accenture
Accenture is a global management consulting,technology services and outsourcingcompany, with approximately 259,000people serving clients in more than 120countries. Combining unparalleled experience,comprehensive capabilities across allindustries and business functions, and
extensive research on the world’s mostsuccessful companies, Accenture collaborateswith clients to help them become high-performance businesses and governments.The company generated net revenuesof US$27.9 billion for the fiscal yearended Aug. 31, 2012. Its home page iswww.accenture.com.
Life Sciences Practice
Accenture’s Life Sciences practice is
dedicated to helping companies rethink,reshape or restructure their businessesto deliver better patient outcomes anddrive shareholder returns. We provideconsulting, outsourcing and technologyaround the globe in all strategic andfunctional areas—with a strong focuson R&D, Sales & Marketing and the SupplyChain. We have a long history of workinghand in hand with our clients to improvetheir performance across the entire LifeSciences value chain. Accenture’s LifeSciences practice connects more than10,000 skilled professionals people in over50 countries who are personally committedto helping our clients achieve their businessobjectives and deliver better patientoutcomes for people around the world.
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