China, India, Brazil, Russia are among 16 emerging markets that will make up almost one-third of global drug spending within four years, as newly wealthy people and nations spend more on health care, a report shows.
Rising spending in emerging pharmaceutical markets will lead the industry’s global sales growth by 2016, according to a report released yesterday by the IMS Institute for Healthcare Informatics, a Parsippany, New Jersey-based research arm of drug sales analysis company IMS Health Inc. As emerging markets grow, European government budget cuts and drugs losing U.S. patent protection will lessen the buying power of those regions.
“What’s driving it is the really strong economic growth across these markets,” Michael Kleinrock, director of research at the IMS institute, said of the emerging countries. “When millions of people come out of extreme poverty, they start to be able to afford basic medicines and services.”
China is leading the growth in these markets. In the world’s most populous country, 339 million people will go from making less than $5,000 a year to more than that in the 2011-2016 period. With low drug prices there of about $12 a month, according to Kleinrock, people making $5,000 a year can afford to spend about the same percentage of their income on drugs as do people in the U.S.
That will benefit multinational brands and generic drugmakers, who can displace lower-cost, lower-quality producers in those countries. At higher income levels, consumers “start to be aspirational for branded generic products and original branded products,” Kleinrock said.
In the U.S., the so-called patent cliff will peak in 2012 and 2013, with less than a 2 percent increase in U.S. drug sales those years, according to the report. America’s share of the projected $1.2 trillion in worldwide drug spending in 2016 will fall to 31 percent from 34 percent in 2011.
The EU and Japan’s spending also will decline to 23 percent of the global market in 2016 from 29 percent last year.
The emerging markets will make up 30 percent of spending by 2016, compared with 20 percent in 2011. The report lists these countries as China, India, Brazil, Poland, Mexico, Romania, Turkey, Russia, South Africa, Thailand, Argentina, Indonesia, Egypt, Pakistan, Vietnam and Venezuela.
Consumers in emerging markets have an appetite for products by brand-name and multinational generic drugmakers, Kleinrock said. “Their aspiration to get the real Levi’s instead of the fake is tangible,” he said. “You see higher levels of branded generics.”
Drugmakers led by Pfizer Inc. (PFE:US) are relying increasingly on those markets for growth. The New York-based company’s first- quarter revenue from Brazil, Russia, India, China, Mexico and Turkey grew 10 percent compared with a 15 percent decrease in U.S. sales, Pfizer reported.
Merck & Co. (MRK:US), meanwhile, saw its sales in emerging markets rise 11 percent while U.S. sales increased 7 percent, according to the company’s earnings filing.
Generic drugmakers still make up the bulk of the sales in emerging markets, and have focused expansion efforts there. In April, Watson Pharmaceuticals Inc. (WPI:US) announced it would buy closely held drugmaker Actavis Group hf for 4.25 billion euros ($5.6 billion) to expand its reach in Europe and Asia. The deal gives Watson, the third-biggest generic drugmaker by revenue, access to markets in China, India and Eastern Europe, according to Michael Faerm, a Credit Suisse analyst in New York.
Harald Stock, chief executive officer of closely held Grunenthal Group in Aachen, Germany, said his company is looking for acquisitions in Latin America, the main source of the generic drugmaker’s growth. He sees “sustainable” growth in the economies there. “It’s not an emerging market anymore,” Stock said in an interview in New York.
In one respect, though, these countries are behind the U.S., EU, and Japan. Developed markets still spend far more per person on drugs than the 16 emerging countries in the IMS report. U.S. consumers will spend $892 per person on drugs in 2016 and Japan $644 a person, while $180 per person will be spent for medicines in Brazil and $33 in India, according to the report.
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