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Large Pharma Increasing Investment in Emerging Countries

February 10, 2011 at 9:54 AM

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Yesterday morning, Sanofi-Aventis SA (SNY-NYSE) released its 2010 financial results. Among other news, the company reported that emerging markets represented €9 billion in sales for the group, accounting for 29.9% of total sales and now representing the largest contributor to sales, by region. Sanofi-Aventis has previously reported an annual growth rate of 22.8% from 2005 to 2009 in emerging markets. In 2010, the company established Hangzhou Sanofi Minsheng Consumer Healthcare Co. in order to better access the consumer healthcare market in China. Currently, Sanofi-Aventis has three manufacturing facilities in Beijing, Hangzhou, and Shenzhen (Source: MedAdNews’ “Cardio Marketers Look East,” January 2011).

Similarly as for Sanofi-Aventis, many other companies within the pharmaceutical industry are increasing their focus on China and similar developing markets. While the U.S. remains an established key contributor to the cardiovascular market, many pharma companies now seek to ramp-up activities within emerging markets, such as China and India, where the cardiovascular market in particular may increase at three times the rate of the cardiovascular markets in developed countries such as the U.S. Moreover, the cardio sector is expected to account for 70% of pharmaceutical growth during the next several years (Source: “Cardio Marketers Look East,” January 2011). Other emerging markets include Brazil, Russia, Romania, Venezuela, Poland, South Africa, Argentina, Pakistan, Mexico, Turkey, Thailand, and Vietnam.

China is now the third-largest pharmaceutical market worldwide. With a population of more than 1.3 billion, China is reported to be one of the world’s fastest-growing emerging markets. According to Dr. Robert Mulrooney, vice president of the Cardiovascular, Metabolic and Musculoskeletal Center of Excellence at GlaxoSmithKline plc (GSK-NYSE), as nations such as China become more globalized and prosperous, accompanying lifestyle changes may begin affecting health. For example, the population may experience changes in diet, increases in smoking rates and even a decrease in physical activity. These lifestyle changes may increase the prevalence of diabetes, obesity, hypertension, and coronary artery disease.

Because of these trends, many companies are beginning to focus research and development in emerging markets. In a recent report, Business Insights expected both China and India to be important markets through 2015. Fueled by high demand for Lipitor^® and Norvasc^®–two of Pfizer Inc.’s (PFE-NYSE) best-selling brands in China–Pfizer has been expanding in emerging markets and expected to see up to 25% growth in China during 2010 (Source: ChinaDaily February 4, 2010). In November 2009, Pfizer (China) Research and Development Co., Ltd. and the Wuhan National Bioindustry Base Construction and Management Office entered into a Memorandum of Understanding to establish a Pfizer R&D center in Wuhan, China. This center is intended to support various global clinical compound development programs, including clinical trials.

Likewise, Abbott Laboratories (ABT?-NYSE)? has also shown growth in emerging nations’ healthcare industries. For instance, as India’s ability to provide patent protection is suspect, many multinational companies have opted not to enter this market. In September 2010, Abbott completed an agreement with Piramal Health Ltd. to obtain ownership of Piramal’s Healthcare Solutions business, in exchange for over $2.1 billion upfront plus $400 million annually for the ensuing four years. Piramal Healthcare Solutions was operating in the Indian branded generics market.

Abbott is also collaborating with India’s Zydus Caldila. Through this agreement, Abbott intends to gain the rights to 24 Zydus products in 15 major emerging markets where Abbott has an established and growing presence. The collaboration includes medicines for pain relief, cardiovascular disease, and cancer. The partnership capitalizes on Abbott’s presence in developing markets to commercialize the Zydus products, with product launches expected to begin in the first quarter 2012. Today, 20% of Abbott’s total sales are generated in growing economies.

Several other companies have also opted to seek growth in emerging markets. For example, in November 2009, Novartis AG (NVS-NYSE) declared an investment of $1 billion over the next five years, increasing its R&D activities in China. As well, Merck Serono S.A. has announced plans to fortify its R&D by establishing a global center in Beijing, China. Furthermore, AstraZeneca plc (AZN-NYSE) reported 2009 year-over-year growth in emerging markets of 18.1%, by capitalizing not only on China but also on Brazil, Russia, and India.