Driver 3: Emerging Markets

PharmaFutures concluded that it is important for the pharmaceutical industry to adopt a strategic approach to the emerging markets although in the short to medium term the significance of the USA, Europe and Japan remains undiminished. Early signals already demonstrate how important emerging markets are likely to be as opportunities for future growth; the source of continued and increased demands around access to medicines and accompanying political risk; and the scene of intense competition.

Emerging markets pose a dual challenge to the industry to reconcile – within a single market – the commercial opportunities offered by a growing consumer base while simultaneously working with government and civil society to respond appropriately to the ongoing access needs of the poor majority. These markets are an important bridge between least developed countries, which offer few commercial opportunities, and the industry’s main markets.

Investors in the PharmaFutures project expressed interest in seeing the industry adopt a strategic approach to emerging markets and developing countries. In particular they were interested to understand the overall strategy to deal with the complexities of markets in which there is a segment of the population which cannot afford to pay for medicines at all, a segment who can afford them, but who cannot pay developed world margins, and a third segment who can pay full market prices.

Investors in PharmaFutures identified the issue of access to medicines in the developing world as a reputation risk and, in parallel, as a potential risk to licence to trade and to the opportunities emerging markets present in future. Making the problem go away is important to investors, but how this is achieved is also vital. Serving these markets in a differentiated way, being well established and having strong governmental relations are likely to be critical to future success.

The pharmaceutical industry is in the business of partnerships. Typically, relationships are built over decades – particularly where the payers are public. Relationships formed today are likely to bear fruit over 10–20 years. Long-term investors want to see companies investing in these new markets and are prepared to accept that such investments may negatively affect the profit and loss in the short term.

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Comments

I have watched the industry suffer the loss of public trust, struggle with bringing new products to market and lose the ability to grow its top line. This perfect storm is reflected in the current share price and as a long term investor I hope to hear and perhaps help find the early signs of a path to recovery.

John Schaetzl, Independent