For decades, Europe, North America and Japan have been the key focus of major pharmaceutical companies; this was where the profits could be made. Pareto’s principle applied: 20% of the world’s population accounted for 80% of the healthcare market. Then the focus of the industry shifted away from Europe to the United States, where many European-based companies relocated their international functions. The business logic was clear: the US was growing faster than other key markets and now accounts for 45% of the value of the worldwide market. Thus, to be successful you had to be successful in the US. There was no doubting the healthcare industry had become increasingly US centric.

 

Recently, however, several factors have caused a change to this situation. First, growth rates for pharmaceutical sales have slowed down in the US and in Europe as a result of government and insurance company pressure to curb spiralling costs. Growth rates for pharmaceuticals in North America were only 5% up to October last year, and a miserly 3% in Europe, with both Italy and the United Kingdom actually declining in value. Second, the opposite was happening in other parts of the world. Contrast the minimal growth rate in the US with 28% growth in China, 27% increase in South Korea, 35% in Brazil and 27% in Poland.

 

One might argue that size does matter, so the US, which has a market value of US$292 billion, will always prove more significant than a country such as China, which is currently worth $9.5 billion. Yet for industry leaders business success is measured not just by existing business, but by opportunities for incremental growth. Given this market context, much of the increase in the pharmaceutical industry’s incremental profit is expected to come from the emerging markets over the next few years.

 

No one could deny that the potential is not there. The US spends 13.9% of its GDP on healthcare. Compare this with Korea at 5.9%, India at 5.2% and China at only 2.7%. With high drug prices and pressure to contain costs, the incremental opportunity in the US would seem to be limited, while there is headroom in the emerging markets for significant growth.

 

Underlying socio and economic trends support this argument. The emerging markets are becoming more affluent, and growing increasingly similar to those in the Western world in terms of lifestyle. Diseases of the West, such as obesity, diabetes, cardiovascular problems and cancer are increasing significantly in these markets. Governments are also recognising the need for better healthcare coverage. For example, in Taiwan and Korea we have recently seen the introduction of new universal national health insurance schemes, which provide near universal healthcare coverage. This does not deny that there will be the same pressures to curb healthcare spending: price-cutting initiatives have already been seen in Taiwan and China, whileKorea is set to cut reimbursement costs again this year. Still, the potential is clearly there.

 

Some commentators will claim that we have been here before, and that the emerging markets are characterised by a dramatic “boom and bust” business cycle, particularly in Asia and Latin America. There are, however, fundamental differences that make this exaggerated cycle a thing of the past. More cautious fiscal control, strong but not excessive economic growth, and greater integration into the global economy all indicate sustainable growth. Indeed, for some so-called emerging markets these very labels might be out of date. The GDP per capita for Singapore and Taiwan are actually higher than for Spain, while Korea is not far behind and catching up fast. These countries have, in reality, already emerged.

 

One major constraint, which has always held back the potential for the research-based pharmaceutical industry, was the lack of patent protection for branded medicines in many of these countries. However, with the adoption of WTO (World Trade Organization) principles, most Asian markets now offer 20-year drug patent protection and the branded pharmaceutical business
is booming.

 

The latest Asian country to accept WTO regulations was India in 2005. India represents 1% of the global pharmaceutical market, but 8% by volume. With the new intellectual property protection, this gap is set to close. Despite the inability of many Indians being able to afford branded medicines, with a population over one billion and strong economic growth, significant pharmaceutical opportunities will be driven by the increasingly affluent and numerous middle class. India now represents one of the most exciting prospects for the industry.

 

From a market research perspective things have also changed dramatically in the emerging markets. Today, one notices a greater use of more sophisticated research techniques and practices: market segmentation, conjoint, pricing and market modelling have all become commonplace. Indeed, clients demand this. Business has become predominantly global and this requires research to be increasingly coordinated and consistent.

 

Gone are the days when the majority of international research was conducted in the G8 countries. Today many projects include Asia, Latin America and Eastern Europe. Professional standards and the quality of the researchers have increased noticeably. This has been a challenge over recent years: to deliver a consistently high standard of research practice.

 

Online research is a good example of up-to-date research approaches which, having been adopted in the West, are now being developed in other countries, with doctor and patient panels being set up across the emerging markets. Similarly, clients are also demanding that the multi-client services, which are available in the developed world, are also made available elsewhere. There has been much activity in developing both ad hoc expertise and multi-client services in countries that many believed lacked the capability or demand only a few years ago.

 

Client relationships are now managed on a truly global basis with interaction taking place at a number of different levels. Strategic international insights are integrated with local knowledge across an increasingly diverse range of countries and cultures, and it is the challenge for the pharmaceutical researcher to understand this progression and provide clients with a truly global offering.