Strategy & Competition

Looking East, Big Pharma Cuts Prices


When the pharmaceutical industry maps the world, here's what it sees: 87% of its $773 billion in revenue comes from the U.S., Europe, and Japan, but sales in those places are stagnant, according to research firm IMS Health (RX). So where is growth to be found? The obvious answer is the rest of Asia, which is home to about 60% of the world's people—with rising rates of cancer, heart disease, diabetes, and stroke—but spends only as much on medicine as Japan alone.

The barrier, for millions of Asians, has always been the prohibitive cost of pharmaceuticals. Now, for the first time, Eisai, GlaxoSmithKline (GSK), and Sanofi-Aventis (SNY) are slashing prices throughout Asia to spur demand. Yasushi Okada, Eisai's head of operations in Asia, Oceania, and the Middle East, said his company will begin with price cuts in at least six Asian countries on Aricept, the world's best-selling Alzheimer's medicine. Okada didn't specify the size of the cuts Eisai will make, but said he expects sales volume to more than make up for price reductions. "With the current prices, only a part of the wealthy people can afford to buy our products," Okada told Bloomberg News. "I want to increase the patient accessibility of the medicines in Asia."

The first such move came last year, when Glaxo said it would reduce most of its drug prices in emerging markets to less than two-thirds of the levels in Western countries, and charge 25% of Western prices in the 50 poorest nations. The company now forecasts sales growth of as much as 10% in the Asia-Pacific region this year, after last year's 9% increase. In January, Sanofi announced price cuts in Southeast Asia that could help patients save as much as half of the price of some drugs, such as the cancer treatment Taxotere.

The price cuts aren't likely to have an impact on overall public health, according to Shanthi Mendis, the World Health Organization's coordinator of prevention for noncommunicable diseases. "The price reduction of branded drugs will benefit a fraction of the people," Mendis said.

With a combined $90.8 billion in drug sales, Asia, Africa, and Australia have obvious growth potential. Seventeen economies, led by China, India, Russia, and Brazil, will together expand pharma spending by $90 billion in the five-year period that began in 2009, according to IMS. China's drug demand alone will grow $40 billion in the period, according to an IMS report on "pharmerging" economies. It predicted they will account for more than 20% of global sales by 2013, up from 16% in 2008.

For Big Pharma, the idea is to replace sales that will be lost in the U.S. as blockbusters go generic. From 2011 through 2016, patents will expire on 18 of the world's 20 biggest medicines, according to Tim Anderson, an analyst at Sanford C. Bernstein. Those products have $80 billion in annual sales—a number almost as eye-popping as the projected sales increases in the pharmerging economies.

Matsuyama is a reporter for Bloomberg News in Tokyo.

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