Emerging Markets Second Tier

Emerging Markets:
The Second Tier
n Analysis of the major challenges
when launching products in second

tier emerging markets
n First-hand commentary from experts
on how to navigate key territories
n Pharmaceutical market country
profiles of Vietnam, Thailand,

Indonesia, Pakistan and Ukraine
Author
Robert Imonikhe
Editor
Craig Sharp
Disclaimer
The information and opinions in this report were prepared by eyeforpharma (FC
Business Intelligence) and its partners. FC Business Intelligence has no obligation
to tell you when opinions or information in this report change. eyeforpharma
makes every effort to use reliable, comprehensive information, but we make no
representation that it is accurate or complete. In no event shall eyeforpharma (FC
Business Intelligence) and its partners be liable for any damages, losses, expenses,
loss of data, loss of opportunity or profit caused by the use of the material or
contents of this report.
No part of this document may be distributed, resold, copied, or adapted without
eyeforpharmas prior written permission.
FC Business Intelligence Ltd 2013
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eyeforpharma: Emerging Markets: The Second Tier
For more pharma business intelligence visit www.eyeforpharma.com
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Key considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The right price? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Cultural challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Cultivating local talent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Build pockets of entrepreneurship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Local Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Thinking beyond the pill in emerging markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Planning ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Tailoring to local needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Out of pocket expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Shifting Epidemiological patterns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Vietnam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Corporate landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Drug Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Entering the market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Patient Assistance Programmes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Finding accurate data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Reimbursement challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Local competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Regulatory challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Accessing a rural population . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Key challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Pakistan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Ban on Indian generics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Ukraine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Who you know . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Brands vs Generics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
A market of its own . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Bespoke communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Finding the right niche . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Building credibility in an opinion based system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Regulatory challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
A golden opportunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
eyeforpharma: Emerging Markets: The Second Tier |
Introduction
Over the last decade, emerging markets have captured the attention and imagination of world business leaders,
becoming the stars of the global economy. In the pharma industry, the growing focus on emerging markets has
carried added potency borne from challenges in established territories. Developed markets face stifled growth
prospects, symptomatic of economic malaise and slowing innovation. Industry analysts are split as to how acute
the slowdown will be. For North America, IMS Health anticipate a change of somewhere between 0.3% growth
and -2.7% contraction in 2013. In Europe the organisation projects the pharmaceutical market will change in size
between shrinkage of -1.8% and growth of 1.2%. In response to this pharmaceutical executives are turning to new
territories to help deliver growth. A March 2013 survey of executives at pharma and generics companies, carried
out by Booz & Co, found that just over half of respondents expect more than thirty per cent of their global sales
to originate in emerging markets by 2018.1 The strategy is again rooted in the story told by growth forecasts: IMS
forecasts growth in Asia in 2013 between 11.4% and 14.4%, outpacing Latin America where expansion between 9%
and 12% is expected.
Initially, the limelight fell on the largest developing markets, such as Brazil, Russia, India and China. Since 2001 when
Jim ONeill of Goldman Sachs coined the term BRICs for these high-growth nations, business appetite to establish
a foothold there has been voracious. Armed with experience gained from breaking into these territories, and other
key markets for the industry such as Turkey and Mexico, leaders in pharma are paying increasing attention to the
so-called second tier of emerging markets - the countries outside of the larger BRICMT economies but excluding
the most risky third-tier regions including Africa. Multinationals have already established some presence in
second-tier markets, though now they are seeking to expand this foothold and capture more of the market. There
is good reason behind the strategy, what the second tier countries lack in size, they make up for in opportunity;
with comparably less competitive environments than first tier emerging markets, high growth rates (between six
and ten per cent) as well as imports and consumer spending growing at twice the rate of developed economies.2
Incomes are projected to rise significantly in the years ahead across all of the countries specifically covered in this
paper: Indonesia, Thailand, Pakistan, Vietnam and Ukraine. In light of this fact, companies that wish to capitalize on
the larger pharmaceutical market opportunity on the horizon must invest now to cultivate positive reputations as
reliable, long-term investors. Additionally, by moving early and acquiring market share in these regions, firms can
establish themselves before the rush and be first to capitalize on positive economic and demographic trends.
However, while many leading companies in the pharmaceutical industry are now generating significant chunks
of overall revenue from emerging markets, the path to this achievement has been far from smooth. The market
access hurdles are multifarious; including nuances of culture, reimbursement restrictions, pricing issues and
regulatory challenges. In addition to this, as Jamie Davies, Head of Pharmaceuticals & Healthcare at Business
Monitor International (BMI), points out, they are a high-risk environment in which to do business. In a matter of
days, a second tier emerging market could conceivably go from being a highly attractive market to being politically
unstable, halting progress in its tracks.
Recently, global macroeconomic trends have also impacted the attractiveness of emerging markets for multinational enterprises. While the developed world is at last showing signs of crawling out of recession (the US,
Germany, France and the UK have all returned to growth), the second half of 2013 has seen emerging markets hit
by large trade deficits, capital flight and depreciating currencies, according to the FT. Speaking to the paper, Jorgen
Elmeskov, OECD deputy chief economist pointed to a widespread loss of momentum [in emerging economies] as
responsible for a sluggish global economic performance.
Recent hiccups in the growth trajectory of emerging markets should be considered in context, however. Emerging
markets have always been volatile, in particular Brazil, which has attracted negative economic commentary.
Looking at a longer-term period, the fundamentals remain consistent. Incomes are projected to rise and the
epidemiological profiles of emerging economies are anticipated to fall closer in line with trends seen in developed
markets, due largely to lifestyle and diet changes. Emerging markets suffer from a disproportionate level of political
instability. Because of the fluctuating economic growth and political challenges, undeveloped territories are risky for
businesses in all sectors. However, the overarching trends will continue to attract global players to the second and
third tier emerging markets. Also, as we will see, those who invest early on are likely to benefit from less competitive
environments and build trust with local stakeholders. According to analysis from Booz & Co and IMS, so called,
second tier territories, in particular Vietnam, Indonesia, Thailand, Pakistan and Ukraine, are witnessing the strongest
growth and are some of the most attractive threshold markets to enter.
Pharma Emerging Markets 2.0 How Emerging Markets Are Driving the Transformation of the Pharmaceutical Industry, Booz & Co, 2012
Securing the next level for growth, Second Tier Emerging Markets, Deloitte, 2012
1
2
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Recognizing the growing trend to gain access to second tier emerging markets and the intensity of challenges
there, this paper will seek to provide actionable insights. It combines data and information from recent studies as
well as first-hand experience of senior industry executives, to offer a guide to overcoming the key challenges and
tips to capitalize on rising opportunity. We will include a focus on some of the most promising, though least widely
discussed second tier fast followers: Vietnam, Thailand, Indonesia, Pakistan and Argentina, putting forward solutions
to overcome the key issues pertaining to the healthcare systems within each of these individual markets. When
deciding on which second tier countries to look at, we examined numerous reports and spoke to several sources;
the final five were selected from a shortlist compiled of countries based on most frequent mentions plus predicted
economic growth.
Pharmaceutical markets growth vs market size (2012)
Note: Bubble size is 2012 population, World Bank

Source: Booz & Co, World Bank, IMS Health Market Prognosis
Key considerations
The right price?
The trend for international governments to crack down on high pricing by multinational drug manufacturers
continues. Pricing is one of the biggest risks faced by multinational pharmaceutical firms when entering emerging
markets, says Jamie Davies at BMI. When it comes to expensive pharmaceutical products, more and more, he
explains, Governments are saying the country (both public and private sector) just cant afford this.
This marks a departure from the approach traditionally taken by firms in the developed world, he points out,
whereby drug makers generally set the price of their products, having earned the right to have a monopoly. After
investing heavily in research and development, theyve got the patent and can charge what the market will bear
says Davies. Companies are only willing to drop prices, he adds, in exchange for higher volumes; furthermore its
something that they are forced into rather than actively choose.
The growing trend to introduce price controls - either by reducing reimbursement allocation or other more complex
methods - accentuates the need to develop a clear and transparent relationship with government in order to find
solutions. When pricing controls come into play, some reduction in price is inevitable, though creative solutions
can help to find alternative sources of revenue or mitigate the impact. For example, later in this paper, the Head of
Market Access for Roche in Vietnam shares his ideas about growing revenue from private health insurance.
Padmanabham Navuluri, Vice President of Strategy for the Life Sciences Practice at Genpact, notes that there is
a considerable gap in world view between western pharmaceutical companies and emerging markets payers.
One of the ways this divergence in thinking manifests itself is in the attitude towards patents that businesses have
relative to governments in emerging markets. From pharmas perspective, he says, patents are important to drive
innovation. Contrastingly, emerging market governments are dealing with extremely low per capita incomes and
health budgets, stacked up against comparatively enormous costs for lifesaving therapies. They will inevitably
ask, how are people going to afford a 50,000 cancer treatment? Governments in emerging markets operate in
a different paradigm says Navuluri, and trying to understand this takes a little bit of rethinking. However, he is
positive about the role of even specialist pharmaceutical firms in the emerging and developing world. At the end
of the day, all pharma companies stand not only for big profits, they also want to supply products and drugs to the
patients. So the way forward involves, thinking about this bigger goal and in terms of local challenges.
Navuluri is not being Utopian; he is championing the importance of recognising the different perspectives of
the person on the other side of the negotiating table. He notes that when negotiating pricing, while the profitability goal still remains, you also have to think about the perspectives and work a way around how you make
products available. He gives the example of a programme in India, where a major pharmaceutical firm gave away
a proportion of a treatment. In fact in that case he says, they had not been asked to give away drugs free, just
to make them accessible. This strategy was flawed, because the company was, willing to give away some drugs
free as an outreach programme but not willing to price them later at a level where people can actually buy them.
Communicating with regulators in emerging markets about these issues also requires understanding cultural
differences and regional nuances says Navuluri.
Cultural challenges
Cultural challenges are a major barrier when entering emerging markets for all industries. The complexity of
pharmaceuticals makes this factor all the more pronounced. Conor Griffin, Managing Director of Straight Lines
Integrated Communications who has worked as Head of Corporate Communications for both Novo Nordisk and
Roche, gives us the example of a new country manager at Novo Nordisk attempting to instate the companys
work-life balance ethos in Japan. He called a meeting in the new office and told each employee to go home to his
or her family by half past six. Later on at half past eight, he came back to a full office, with workers still busy at their
desks. His Japanese colleague explained to him that if workers go home before ten oclock their families will think
they are failures and they will lose a level of respect. According to Griffin, normally Novo Nordisk is highly effective
at cultivating local talent and is sympathetic to different cultures. When you try to enforce your own culture in an
emerging market, it doesnt work. The key to opening a new office, he advises, is to tread lightly, source local talent,
listen and make sure youre listened to by powers that be [internally]. He advocates moving slowly and considerately; taking a long term approach.
6 |
Corruption
One of the major risks currently threatening investment across second tier emerging markets is bribery
and corruption. Recent concerns stem from the uncovering of illegal practices in China by employees of
GlaxoSmithKline and other multinationals, including Eli Lilly, Novartis, Sanofi, Lundbeck and AstraZeneca.
While acknowledging the ethical implications of such corruption, Griffin also sees the recent accusations of
bribery faced by GSK in China as another example of cultural clashes. While he says he has never come across such
behaviour in his career, in China as in Vietnam the fact is that currying favour by giving gifts and money is accepted
business practice. It may well be illegal, but people who have experience operating in emerging markets note that it
occurs frequently in business life. This practice is changing in China, and as pharmaceutical firms lobby government
for stricter rules it is likely to change across all growing markets, though it remains a challenge.
GSK has come out with strong statements against bribery, admitting that while some employees have broken the
law, that they share the desire of the Chinese authorities to root out corruption wherever it exists. Most multinationals, including GSK, already have clear and strict anti-corruption policies. Even still, recent revelations will have,
huge ramifications for the industry [] not just in China but other emerging markets, says Jamie Davies of BMI. It
sounds like the Chinese are cracking down on it and undoubtedly other countries will follow. In addition, companies
themselves will be looking at their practices. According to Wang Yaoguang, director of the pharmaceutical law
institute at Tsinghua University, quoted in China Daily, the issues in China stem from a lack of regulation. There are
no regulations guiding how a drug maker should promote a new product to hospitals and doctors.
Pierre Morgan, Chief Marketing Officer at Cegedim, advises pharmaceutical firms not to be afraid of cracking down
hard on corruption. When management implement tougher practices to curb bribery, he says, the typical reaction
from operations is that its the end of the world. However, in his career he says that in actuality it represents positive
progress from a business as well as ethical standpoint. The doomsday scenario never materialises, he says, particularly because most companies are cleaning up their practices. There may be a period of time when local players
could have edge because they maintain dodgy practices, but it wont result in long-term success, says Morgon.
Cultivating local talent

Conor Griffin expounds the value of tapping local talent when moving in to the second tier emerging markets. He
notes that many multinational companies only trust their own home-grown people, when building a new office.
Furthermore, he expresses the importance of country manager roles in emerging territories being seen more as
something you need to really earn such that they will attract the best people. Instead, Griffin reflects on one
example where a country manager was recently shipped out to manage the new office in a second tier market.
Rather than being seen as a prestigious, key role, it was seen as a last resort option in terms of human resources
management. The ideal country manager, Griffin suggests, might be someone local who has risen through the
ranks, perhaps done a stint in head office with the intention of going back to run the country office.
Its also important that central management listen to regional expertise. Often, he notes, in terms of pricing and
other key strategic issues, advice from local managers is not always listened to. Part of this comes back to ensuring
that you have good talent posted in challenging second tier markets or as Griffin says, you need people at every
level who are trusted.
Build pockets of entrepreneurship

The long term approach to accessing emerging markets is mentioned by almost all of the contributors to this
paper. For Griffin, it means, overinvesting at the outset and building a more locally developed senior team. He also
advocates investing heavily in communications, marketing and branding. In developed markets, multinationals
determine this budget as a proportion of profits, but when trying to build a new presence he says, that doesnt
always work. He advocates building pockets of entrepreneurship in key second tier territories, departing from the
slow moving super tanker characteristics of many major firms in order to capitalise on opportunities fast.
Local Investment
Cyrus Chowdhury, CEO of pharmaceutical consultancy CBPartners, highlights the value of establishing some form
of manufacturing presence in your target region. When it comes to second tier emerging markets, he notes that,
government [] needs to know that youre investing and having a positive impact. Part of this revolves around
creating opportunities in the labour market. Job creation, he says, is a big deal, in so far as it can help improve the
perception of your company in the eyes of government and other key stakeholders.
Padmanabham Navuluri, advocates the value of securing a local partner, irrespective of whether or not the region
you are targeting absolutely demands it. This can be helpful in a number of ways, not least to get an understanding
of local pricing levels. One of things thats most important for you when operating in emerging markets is to
recognise the different pricing environment. Navuluri indicates that in second tier emerging markets the same
molecule can be priced as much as ten times lower than it is in developed nations. As a result of this discrepancy,
he says, you have to operate under a different business model and strategy. Developing a new business model
in response to a pressured pricing environment is a major feat, he accedes, one that often you cant do quickly,
because companies are used to a certain cost structure. The key factors to consider when trying to deal with tight
margins though, are distribution and keeping manufacturing costs low. When it comes to these factors, a local
partner is useful not just because of their knowledge of regional operating requirements but also because, they
can help adapt the business model.
Wider industry research also points towards the benefits of investing in a local presence. One strategy highlighted
by Booz & Company is to invest ahead of the market. This means building up local infrastructure and an influence
on health policy. This long-term approach requires significant initial investment, but can help lead to a larger market
share and a lasting presence. There is wide variance in approaches among major pharmaceutical firms. At Pfizer
for example, emerging markets teams take direction from head office in the US, and there are a limited number
of regional offices. This approach means that the global influence on affiliates is considered to be quite strong
compared to that of other pharmaceutical companies.3 MSD on the other hand, break down emerging markets in
to several country clusters. Booz & Co also report that the companys management are continuously on tour across
emerging markets.
Roche and Bayer take a more localised approach. Roche has regional emerging market headquarters while Bayer has
headquarters in the regions with strong influence. According to Booz & Co. Bayer relocated its primary-care business
unit to Beijing in 2011, recognising the disproportional relevance of emerging markets for that units products.
Looking ahead, the consultants say they expect to see more companies act like Bayer shifting power from global
headquarters to stronger regional organisations.
Thinking beyond the pill in emerging markets

Olivier Jarry, Managing Partner at Triple Bottom Line Consulting (3xBL) believes in taking a creative approach to
tap the opportunity presented by emerging markets. Thinking beyond the pill means drug companies being
more than just manufacturers of products, and evolving into healthcare firms with an interest in other aspects of
the wellbeing of the countrys population. This is the approach Jarry believes can help firms to develop a stronger
profile in emerging, as well as developed countries, and improve their perception among government. For example,
he suggests, one company approached the government in a second tier market saying, education is poor on
key therapies among physicians, so let us work on educating them. This kind of programme builds trust with
government, though he notes, most companies are terrified of talking to government, because they fear that they
just want to push back on price,
Planning ahead
Cyrus Chowdhury, Chief Executive Officer and Managing Director at CBPartners points out that the pharmaceutical
industry has been relatively slow to recognize the need to implement a global clinical trials strategy. He notes that,
market access isnt really something that you even need to worry about until after phase two or phase three trials.
However, you need to determine what the trial design is going to be six or seven years in advance of this time.
This is in order to create a body of evidence that will support your access in to a particular market. As this varies
across different territories, firms need to spend time considering a vast number of different regions and regulatory
bodies even prior to trial phase for new medicines. Its a big issue notes Chowdhury, pointing out that, trying to
understand what payers will want in six or seven years time is a major hurdle. Pharmaceutical firms continue to try
to tackle this question, though with the growing global spread of growth opportunities, it looks set only to grow in
importance.
Tailoring to local needs

Blindingly apparent from all of the contributions to this paper is that no market is the same. Success in Russia does
not set you up to enter the market in Ukraine, while similarly doing well in China will have no bearing on your
performance across Southeast Asia. There can be wide variances in terms of culture, healthcare infrastructure and
Pharma Emerging Markets 2.0 How Emerging Markets Are Driving the Transformation of the Pharmaceutical Industry, Booz & Co, 2012
8 |
the decision making process. Leaders in developed markets may not always be aware of the particular international
nuances and often this can slow down progress. The key lesson from this paper is not to simply repurpose previously used marketing materials or strategy for a new territory. Instead, businesses must work in tandem with local
talent to devise a fresh approach that is unique to the particular country they want to enter.
Out of pocket expenditure

One of the key challenges across second tier emerging territories is navigating a marketplace where a significant
proportion of spending on pharmaceuticals comes from out of pocket expenditure. In Vietnam for example up to
two thirds of spending on drugs comes from household incomes, while in Pakistan there is also a major burden on
households. This is changing at varying degrees of speed across all of the markets in this paper, though it presents
companies with an immediate challenge with a number of critical touch points. Firstly, its crucial that global firms
provide ethical, valuable information to healthcare consumers. This builds trust and sets out their position as a
long-term player in the eyes of all stakeholders. Educating consumers is something that some drug companies are
already actively engaged in, particularly supporting them to follow medical advice for prescribed medicines earlier
in their illness to avoid much larger expenses if conditions worsen or complicate. Secondly, companies need to
be realistic about how much they can charge for therapies if they know that consumers will be managing costs
individually. There are examples of patient assistance programmes and other cost-saving initiatives, which show
that there are economic alternatives to either selling very few units at a high price or not launching a product. By
engaging in the provision of more affordable drugs, firms also generate positive sentiment towards the company
while proving that the therapies work. As these markets grow and develop, firms with a well-nurtured profile will be
best placed to reap rewards.
Shifting Epidemiological patterns

As lifestyles in emerging markets catch up with those in the developed world, a corollary shift in disease patterns
is to be anticipated. Pierre Morgon points out that sedentary lifestyles becoming more common will lead to an
increase, particularly in instances of non communicable illnesses such as diabetes and cardiovascular diseases. The
World Health Organisation anticipates that in Southeast Asia, mortality rates from cardiovascular diseases will rise
from 28% in 2008 to 35% by 2030. At the same time, mortality caused by infectious diseases, complications in childbirth and malnutrition in the region are expected to fall from 32% in 2008 to 14% by 2030. There will be significant
variances between emerging markets, though general disease patterns are projected to more closely reflect those
in developed countries in the years ahead. This will cause pharmaceutical firms to assess their strategy in line with
trends in given territories. Countries catching up fastest with western countries may be ideal grounds to extend the
reach of products marketed in developed territories. On the other hand, all territories will require close monitoring
of disease patterns, supported by the most accurate data available. In this way pharmaceuticals firms can tailor their
offering to market needs on an ongoing basis. The scenario to avoid is being left behind as disease patterns change,
failing to meet healthcare needs and underperforming commercially as a result.
Vietnam
Vietnam GDP per capita
1,700
1,600
1,500
US$
1,400
GDP per capita: $1,596

Growth: 5% (2012)
1,300
Population: 88.8m
Life expectancy: 75 (2011)
1,200
IMR: 17 deaths/1,000 live births

Healthcare spending:
1,100
$2.6bn(2011)
1070
1,000
2008
FDI: 16.3bn (2012) (increase of

2009
2010
2011
2012
4.7% on 2011)
Source: World Bank
Overview
There has been an almost four-fold increase in GNI (Gross National Income) per person in Vietnam over the last ten
years, as World Bank Data illustrates. In terms of pharmaceuticals, Vietnam one of the fastest growing markets in
the world, worth approximately $3bn in 2012. According to Business Monitor International (BMI), Vietnam is ranked
13 of 175 countries for healthcare market spending growth. BMI anticipates that in 2013 pharmaceutical spending
will increase by 16.6% compared to the previous year. In 2010, average spending per person on pharmaceutical
products was $104 per year. This figure is expected to double over the next few years, as the countrys affluence
grows and national health coverage is expanded from 65% of the population to 90%.
Jamie Davies, Head of Pharmaceuticals and Healthcare, Business Monitor International points out that increasing
health coverage in south east Asian economies could be a major source of growth for the pharmaceuticals industry,
but it may not bear fruit for over a decade. Vietnam is one of the countries pressing forwards to improve coverage,
however, as Davies points out, the problem is that doing it is much harder than saying you are going to do it. He
notes that while official statements may say, were going to have everyone covered in five years [] it will probably
take ten of fifteen -it never goes smoothly. The challenge, says Davies is that, it costs money and what works for
one country doesnt necessarily work for another. As a result, each individual government must find its own way
out of the dark. Davies insists that its a positive step, compared to countries where universal healthcare isnt even
on the agenda, though the governments face obstacles principally because, they are more or less finding out for
themselves all of the things that can go wrong.
Despite its drawbacks, the Vietnamese pharmaceutical market is attracting growing attention from big pharma.
Some firms are investing in manufacturing facilities in Vietnam, for example Japanese firm Nipro Pharma
Corporation, which built a new pharmaceuticals and medical devices plant for a total investment of $250m in
2012. Others are buying their way into the market; such Netherlands based Stada Service Holding which last
year purchased 25% Vietnamese drug maker, Pymepharco. Elsewhere, partnerships are the preferred route, with
GlaxoSmithKline recently linking up with Vietnamese firm Savipharm who will distribute their products in the
country.
Padmanabham Navuluri notes that Vietnam is a highly attractive market to many companies for a number of
reasons. Its a relatively open market he attests, suggesting that foreign companies with the will to enter the
market can do so. In addition to this, one of the major draws of the Vietnamese market is the relatively thin
competition. Competition is not as intense as say for example in India or Thailand, Navuluri comments. Part of
this is because the local pharmaceutical industry is not massively developed. The local suppliers are not meeting
the entirety of demand [] approximately only 40% of demand is met by local suppliers. As a result, imports
form a large proportion of pharmaceutical consumption in Vietnam, and furthermore, regulations prevent people
from importing drugs from other hubs to sell in Vietnam. As a result of the regulatory structure of the Vietnamese
10 |
pharmaceutical sector, Navuluri indicates that companies prefer to maintain only a skeleton presence in the
country rather than setting up big manufacturing plants.
Corporate landscape
Developments over recent years have streamlined the process for foreign pharmaceutical companies to set up
branches or subsidiaries in Vietnam. This loosening of regulation has helped support firms who wish to expand their
footprint in the region. For example, Roche has been building out its team in Vietnam over the last three years, says
Nguyen Van Tung, Market Access & KAM Director at the Roche Representative Office in Vietnam. Year by year Roche
is fast developing in Vietnam and now were on track to become the third biggest pharmaceutical company in
Vietnam [] this year we have a full team including market access, medical and governmental affairs etc.
Drug Regulation
The Drug Administration of Vietnam (DAV), under the MoH, is the countrys primary drug regulatory authority. In
order to have a chance of listing a product on the national reimbursement list, foreign companies must either:
partner with a local distributor, acquire a license to manufacture drugs within Vietnam or obtain a trading license.
As with many foreign pharmaceutical firms operating in Vietnam, Roche opts to sell products through a Vietnamese
distributor.
Tung warns that the process of obtaining the necessary approvals to bring a drug to market in Vietnam is highly
time consuming, taking a minimum of five years. There are two main routes: firstly, when selling an existing product
in Vietnam companies require five years of effectiveness data from outside of the country. Alternatively, pharmaceutical companies must conduct a clinical trial in Vietnam. This, says Tung, is the first challenge for launching new
products in Vietnam.
Entering the market

Under Vietnamese law, Foreign Invested Enterprises (FIE) are not allowed to distribute pharmaceutical products
in Vietnam. Therefore, foreign drug companies generally turn to Vietnamese distributors to sell their products
on the Vietnamese market. A number of firms are lobbying to change this law, under an organisation called the
Pharma Group, though progress to date remains slow. AmCham Vietnam, an independent association of American
and international businesses is another organisation attempting to improve the environment for multinationals
operating within Vietnam.
Drugs are distributed via commercial channels (pharmacies) or hospitals in Vietnam. Which channels to focus your
attention on will depend on specific therapies and there target markets. For high price treatments, the key channel
to influence decision makers will be hospitals. Foreign companies take part in a bidding process to have their drugs
prescribed at hospitals, though the process is far from transparent. A government inspection in 2010 uncovered
extensive corruption, with hospital authority members bribed by some companies.
Patient Assistance Programmes

Patient Assistance Programmes (PAPs), which assist individuals unable to pay the cost of their medication, are yet to
be widely implemented in Vietnam. There is evidence to suggest though that PAPs will become more common in
future, particularly after the success of initial attempts. Nguyen Van Tung of Roche states that his company has been
one of the first to implement such a programme in Vietnam. While this type of pioneering should be celebrated, he
admits that it has brought a lot of challenges, and progress is on-going step by step.
Finding accurate data

Another key challenge with the Vietnamese market, as with other emerging markets, is the lack of availability of
quality patient data. Determining the number of patients with a specific therapy need, or their ability to pay for that
therapy is not a straightforward process. At present, pharmaceuticals firms must extrapolate from expert opinions,
estimating the potential market for particular drugs. This makes marketing a challenge. Nguyen Van Tung, Market
Access & KAM Director at Roche in Vietnam, reveals that in order to build a picture of the market they estimate
based on ideas collected from key opinion leaders and an advisory board.
Reimbursement challenges
Even if a drug obtains the necessary approvals for distribution in Vietnam, winning reimbursement from the
11
government remains an uphill struggle for many multinational companies. Nguyen Van Tung points out that
reimbursement challenges arent only a feature in Vietnam, but everywhere governments are trying to limit expenditure on high priced medicines. Because governments are obviously facing serious budget challenges, Tung believes
that the solution is not to ask the government for more funding. Instead, he advocates sourcing more revenue
from private channels, holding up the new Chinese health insurance model as an example to follow in Vietnam. The
introduction of private health insurance in China has been highly successful, according to Tung, and now around
ten million people have bought private health insurance. Tungs view is that this is one way companies like Roche
can share the burden with government going on to say that he supports the introduction of a similar scheme in
Vietnam from next year. According to a report by Booz & Company, Vietnam is implementing a centralized annual
tendering program in 2013 and has introduced a price cap in order to help make drugs more affordable.
Olivier Jarry, Managing Partner at 3xBL notes that Vietnam is appealing as a booming economy. Jarry also points
to the attractiveness of a relatively undeveloped local pharmaceutical sector and few competitors. One of the
challenges in Vietnam is that a large proportion of the country dwells in rural, isolated locations. Another key issue
is heavy government involvement and a high rate of corruption. There is still a persistent culture, Jarry notes of
favouring local businesses or extracting money from rich foreigners. This leads to a slowdown of the progress for
companies in Vietnam says Jarry, though despite the roadblocks, the potential benefits of entering this market
still outweigh the risks. Many companies are looking to enter the market but they are moving slowly, according to
Jarry and in many cases flip flopping between positive and hesitant rhetoric.
12 |
Indonesia
Indonesia GNI per capita (US$)
3,500
2,940
3,000
2,500
US$
2,000
GDP per capita: $3,556.79

Growth: 6.2%
1,500
Population: 247m
Life expectancy: 69
1,000
IMR: 27 deaths/1,000 live births
Healthcare spending: $52.7bn
500
560
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Source: World Bank
Overview
The Indonesian pharmaceutical market is estimated to be worth approximately $5bn. The country is developing at
a fast pace, with GDP growth in 2013 set to reach 6.2%. While recent downgrades in growth prospects for emerging
markets have slashed the perceived opportunity in many first tier countries, Indonesian growth is still anticipate to
stay close to this level by the majority of economists and industry analysts. Driven by macroeconomic, social and
political factors the pharmaceutical sector is set to grow at between 12% and 13% this year. Indonesia is spending
more on healthcare as its economy develops. Annual pharmaceutical spending per capita is anticipated to rise from
just $18 in 2010 to $125 per year by 2014.
Olivier Jarry believes that Indonesia is an appealing country for pharmaceutical companies, and a key second
tier emerging country because of its size (in terms of population), as well as the preferable government attitude
and regulatory system. As in other South East Asian economies, Indonesia is seeing the emergence of universal
healthcare, as the government boosts spending. In addition, the ministry of health plans to develop a national
health insurance system with the aim to achieve universal coverage by 2019. Foreign companies are watching the
market carefully for the rules of the new system to be clarified.
Local competition
While in other second tier countries the local pharmaceutical market is relatively undeveloped, competition is
strong in Indonesia. Jarry notes that in contrast with Vietnams emerging pharmaceuticals sector, Indonesia is much
more advanced in that respect, they do have local industry including [] a few very powerful local manufacturers
and distributors that make life challenging for foreigners. Nevertheless, he notes that this will or should not dissuade
foreign firms, thats competition and its fine he comments. Three quarters of domestic demand for drugs is met
by companies operating within the region. The largest company Kalbe Pharma dominates with 15% of the market,
while foreign firms Bayer, Pfizer and GSK hold just 8% together.
Regulatory challenges
While the market is attractive, local regulations make accessing the market challenging. There are strict rules
governing foreign ownership of Indonesian businesses, which essentially rule out straightforward acquisitions as
a route to entry, though would-be buyers can partner with local firms to do deals. Under the legislation, foreign
companies are not permitted to hold more than 75% of domestic drug companies. The other 25% of a company
must be owned by an Indonesian national. Indonesias MOH has hinted that it wants to drop restrictions on foreign
ownership of Indonesian pharmaceutical firms. While this has not yet taken place, hopes are growing for a shift in
policy. If restrictions on foreign ownership are lifted, many foreign pharmaceutical executives have said they would
like to expand their Indonesian operations. For example Novartis president revealed that the company would be
interested in opening R&D facilities in Indonesia if rules were relaxed. Evidently then, although there are ways to
13
overcome the rule, it has discouraged potentially transformative investment. In other policy areas the Government
has been more progressive. Investors in the country have welcomed reforms to legislation. Until recently, all drugs
registered in Indonesia had to be locally manufactured, which meant that firms had to invest in major facilities
or partner with a local manufacturing company in order to gain access. A few years ago however, the Indonesian
government altered its definition of local manufacturing to include packaging and labelling activities. This means
that foreign companies who wish to build up a presence in the country no longer need to invest in expensive
manufacturing plants but can meet local regulatory requirements by building more basic packaging facilities.
Navuluri notes that Indonesia has a relatively complimentary regulatory and tax regime compared to other
countries in the region. This said, he welcomes the recent change in the definition of local manufacturing, which
has made it easier for foreign companies to enter the country. While company ownership laws and the law on
manufacturing are still restrictive, multinationals cannot ignore, Indonesia, Navuluri believes. With a population of
nearly two hundred million people, its an important market and firms must find ways to navigate the regulatory
challenges. He points to one of his clients, a top ten pharmaceutical firm globally, as an example. Managing the
widely differing challenges in Southeast Asian markets, They have a hub in Vietnam and a manufacturing plant in
Indonesia thereby approaching each country in terms of its individual nuances and demands.
Accessing a rural population

One of the other challenges posed by the Indonesian market, according to Olivier Jarry, is that it is geographically
complex. There are very few large cities and while these are relatively straightforward to cover, the rest of the
country is more challenging in terms of organising a system, compared to countries like India or China. While
security in Indonesia was historically a major problem (Jarry reflects on race riots in the country thirteen years ago)
nowadays it has calmed down and is OK for doing business, he says.
Pierre Morgon points out that one of the biggest challenges for market access in Indonesia is navigating the
multiple layers of regulatory approvals created by the countrys geography and disconnected authorities.
Companies must work on two different levels for market access, he notes. The first is the national level, where
the decision makers are the ministry of health which is fairly standard. However, the unique challenge with the
Indonesian market is that parliament must also approve medical spending. This can be a long process, so Morgon
advises foreign players with an interest in gaining access to Vietnam to consider ways to accelerate it. This means
understanding who is pulling the strings in the political system, in terms of which committees hold the greatest
influence. In addition, its helpful to understand what kind of rhetoric is being published surrounding drugs and for
Vaccines, which is Morgons area of speciality who has been using vaccination as part of their election messages.
Beyond this national level though, there are regional provinces, who can opt in or out of a vaccine that hasnt been
approved at national level. In a way this is a positive, says Morgon, because if you fail nationally you can try at a local
level. The key though is to ensure that you build national dialogue as well as influence decision makers regionally,
avoiding any accusations of discriminating against certain regions which may be less lucrative.
More and more foreign drug companies are looking to Indonesia for future profits. Despite restrictions on manufacturing and ownership, more than 50 international pharmaceutical companies have business in Indonesia. Wyeth,
Sanofi and Merck all have a considerable presence in the country. In October 2012, Merck opened a $21 million
packaging plant in Indonesia. It expects annual sales in the country to increase by up to 18% in 2013. Other Western
companies, like Novo Nordisk and Novartis, are heavily engaged in community outreach and education activities.
For example, Novo Nordisk recently launched an extensive diabetes education campaign for doctors, healthcare
professionals and the public. Novartis is running a similar program for communicable diseases.
14 |
Thailand
Thailand GDP per capita (US$)
6,000
5,500
US$
5,000
GDP per capita: $5,473.75
4,500
Growth: 6.6%
Population: 66.79m
4,000
Life expectancy: 74
IMR: 15.9 deaths/1,000 live births
3,500
3,000
2008
2009
2010
2011
2012
Source: World Bank
Overview
Thailand boasts the largest market for pharmaceuticals in Southeast Asia, with strong growth prospects. In 2012 the
market was valued at a total of $4bn. The industry is expected to grow at a compound annual growth rate (CAGR) of
approximately 11% between 2011 and 2020, by which point analysts expect its value will have reached $9bn.
Positive macroeconomic trends, coupled with social reform are the key drivers behind the improving outlook for
the drug sector. Per capita income has risen by more than seventy per cent over the last decade, while healthcare
spending reached $205 per capita in 2012, up from just $74 per person in 2002. According to the World Health
Organization, the total expenditure on healthcare was about 6.6% of Thailands GDP in 2010. As with other South
East Asian economies, the Thai government have been moving towards universal sponsored healthcare coverage:
today, almost all of Thailands population are covered.
Thailand has a relatively well-established local pharmaceutical industry, however the attractive regulatory regime
means there are many foreign firms are active in the market. The major market players in the Thai pharmaceutical
industry include Pfizer, GlaxoSmithKline, Merck, Novartis, Thai Meiji, Greater Pharma, and Sanofi-Aventis among the
many others. Other foreign firms active in the region include Japanese pharma player Daiichi Sankyo and Indias
Ranbaxy Laboratories, in which it owns a 64% stake. The country has ambitions to become a healthcare industry
hub for the region, with middling levels of success along this strategy line to date. Some firms, such as Merck, have
opted to utilise Thailand as a base to export across ASEAN (Association of Southeast Asian Nations) countries. Sanofi
has also been investing heavily in the region, currently carrying out clinical trials for a major dengue vaccine.
Key challenges
Thailands pharmaceutical sector faces major challenges related to patents and counterfeit drugs. Although
the country is a member of the WTO and has signed the Patent Cooperation Treaty, the government has issued
compulsory licenses for drugs used to treat heart diseases and HIV, deterring foreign investors in the process.
Firms operating in Thailand must work alongside the Government Pharmaceutical Organisation (GPO), a state
enterprise operating under the Ministry of Public Health that seeks to supply government hospitals with essential
drugs. The organisation creates a strong demand for generics in Thailand, as public hospitals are obliged to spend
60% of their budget on drugs from the GPO.
Dr Suthat Fucharoen notes that there are a number of unique challenges related to Thailands market. Firstly, he says
its important to understand that Thailand is in the throes of a period of significant economic transformation. The
country is not in the developing stage, its in the transition period. As a result of this, infrastructure is under development. He also notes that, Thailand is a peculiar market and you cannot apply regional experience to the country.
If you have experience in Hong Kong or Singapore and you think you can export this success to Thailand, - that is
15
not true, warns Dr Fucharoen. This is because a range of different factors, in particular the healthcare infrastructure
and the decision makers, influence the system in a different way to elsewhere. Like some other emerging markets,
Thailand operates under a largely opinion leader-driven healthcare system. Even if you can convince the opinion
leaders though, says Dr Fucharoen, you still need to convince the government and regulatory gatekeepers, which is
a challenge.
16 |
Pakistan
Pakistan GDP per capita (US$)
3,100
3,000
2,900
US$
2,800
GDP per capita: $1200
2,700
Growth: 3.5%
2,600
Population: 185m
Life expectancy: 65
2,500

2,400
2,300
2008
2009
2010
2011
2012
Source: World Bank
Overview
Pakistans economy will expand 3.5% in fiscal 2012/13, according to the IMF, which marks a slowdown from its peak
of 9% in 2004. The last five years have seen the rupee lose 40% of its value, with the country struggling to stem
the tide of capital flight. The Asian Development Bank estimates that at present approximately $500m flows out of
Pakistan each month, driven by stabilizing economic policy in the developed world as well as weakened growth
prospects in Pakistan. In general, appetite among foreign players to invest in Pakistan has weakened from a relatively
low base in recent months, in favour of more attractive target regions. Particularly for firms in the pharmaceutical
industry, who would need to invest heavily to enter Pakistan while managing complex regulatory challenges, the
market has lost much of its draw, with many believing that the risks now significantly outweigh the benefits.
Pakistan is one of the most challenging markets in the world for foreign pharmaceutical firms. Weak regulation of
the local pharmaceutical industry and poor enforcement of intellectual property rights have hindered development.
At present the market for pharmaceuticals is worth just $2bn, which is low given the countrys population is 179m.
The market is dominated by local players, due to an unfavourable environment for foreign firms to operate in. In
addition, low quality drugs have flooded the market, with illegal trade occurring as a result of the weak regulatory
environment.
At face value, Pakistans geographical positioning, rising GDP per capita and large population make it highly
attractive to pharmaceutical firms. However, recent years have seen an exodus of leading players, with only 22
multinationals currently operating in in Pakistan compared with 380 local firms. The reason? One pharmaceutical executive noted that they were quitting the country because of stifling pricing controls and an adverse
regulatory environment. Searle Pharmaceuticals, Organon, MSD Pharma, Stiefel Pharma and Bristol-Myers Squibb
Pharmaceuticals are among those who have exited Pakistan. Roche Pakistan, Abbot Pakistan and Johnson &
Johnson Pakistan have minimised their activities in the country.
One of the major issues with the Pakistani pharmaceutical sector, according to the co-chairman of Pharma Bureau
of Pakistan Shehryar Ansari, is that generic drugs can be registered without bioequivalence tests. Another key
challenge is that the government force low prices on both patented and generic drugs, which deters investment
from multinational companies.
Ban on Indian generics

Padmanabham Navuluri, at Genpact notes that Pakistans ban on Indian drug import, a relic of poor interstate
relations, causes a number of negative outcomes in the pharmaceutical sector. India has a very well established
and evolved generics industry, so they supply to a lot of emerging markets says Navuluri. The ban has a big impact
on Pakistan [] and they miss out on a major supply of generic drugs. There are two knock on consequences,
according to Navluuri. The first is that the cost of healthcare is going up in Pakistan, and secondly there is an
17
illegal drugs market, with illegal drugs coming from gulf countries and Sri Lanka. He notes that there are calls for
progress and that the Pakistani government, are trying to fix things and improve regulation, however overall, it
remains unclear how to go about [entering] the Pakistan market, due to the uncertainty and the somewhat unclear
regulatory regime.
Olivier Jarry reflects that historically Pakistan was an attractive market. Pharmaceutical business leaders looked at
Nestle and said, if Nestle is a success, why not a Swiss pharmaceutical firm? As a result of this basic observation,
they would invest in the country and achieve some success, says Jarry. Pakistan used to be more structured than
India and progress orientated, he notes. However, in recent years the situation has deteriorated. Jarry goes as far as
to say that today, nobody wants to do anything there.
18 |
Ukraine
Ukraine GDP per capita (US$)
4,500
4,000
3,500
US$
3,000
2,500
GDP per capita: $7,600
2,000
Growth: 3%
1,500
Population: 45.5m
1,000
Life expectancy: 71
Healthcare spending: $24bn
500
0
2007
2008
2009
2010
2011
2012
Source: World Bank
Overview
Ukraine is one of Central and Eastern Europe (CEE)s most promising pharmaceutical markets, worth US$3.75bn in
2012. Total sales of drugs in the Ukrainian pharmaceutical market for the first half of 2013 amounted to approximately $1.75 billion, according to the head of the Ukrainian State Service of Drugs. The same source notes that 70%
of this is accounted for by domestic production. A joint report by Invest Ukraine and Deloitte forecasts that total
healthcare spending will grow at an average of 13.9% per annum up to 2015.
In theory, foreign drug manufacturers could be highly successful in Ukraine. While per capita expenditure on
healthcare remains low compared to other countries in the region, its expected to rise in line with increasing
incomes. In addition, the market already has a strong reliance on imported medicines, which account for more than
three quarters of all medicines sold in Ukraine. However, political and economic instability deter major investment
while legislative uncertainty brings operational challenges. On the other hand, a failure among some foreign
pharmaceutical firms to recognise the individuality of Ukraine from surrounding countries and how this should
impact their approach, means that the fullest potential of the market has not yet been tapped by global players.
Who you know

Oxana Kolosova, Managing Partner at iVrach.com (a physician community) admits that the market in Ukraine is not
particularly welcoming to foreign pharmaceutical firms while noting all the major pharma companies have representative offices here, Ukraine is quite a tight market. The nature of the market makes it difficult for new entrants to
simply turn up and sell their products, according to Kolosova. You need to know people, she reveals, going on to
explain that its a relationship-centred industry. The key to cracking the market is to first, become part of the picture
and build trust only after doing which you can sell. However, far from a straightforward task, this process, requires a
lot of effort and patience, she warns.
Because of the challenges of entering the Ukrainian market, Kolosova advises that, its better to become part of
the picture in the local market earlier. She points out that, The earlier you start the better chance you have to be
perceived as trustworthy. While Ukraines economy is not developing as quickly as we would have all hoped, it is
the second biggest country in the region, so its wise not to forget about this market and to build presence as soon
as possible.
Brands vs Generics
Kolosova indicates that the on going debate over branded therapies versus their generic replacements is as big an
issue in Ukraine as it is elsewhere. The state healthcare system doesnt cover expenses, so the majority of pharmaceutical sales are funded out of pocket. In general, cash strapped healthcare consumers prefer to buy the cheaper
version, says Kolosova.
19
In terms of where the most attractive opportunities are in Ukraine; with branded therapies or generic products,
Kolosova thinks that its hard to say because of disagreement in the medical community. Among physicians there
is a big divide between those who believe that brands guarantee a certain therapeutic outcome, versus those who
dont care what sort of brand they prescribe. The latter group, says Kolosova, justify their position by arguing that
if the molecules in the treatments are the same, there is no point forcing patients to pay extra. The divide splits the
medical community approximately in half, according to Kolosova.
A market of its own

Oxana Kolosova, Managing Partner at iVrach.com, suggests that many in the international business community
may not yet have caught up with the full implications of Ukraines independence, which happened more than two
decades ago. Often the Ukrainian market is compared to the Russian market [] but now they are two separate
markets and are quite different. One of the major differences Kolosova points out is the relatively strong and well
established private healthcare market in Ukraine, whereas in Russia it is virtually non existent. As well as helping
to improve the provision of medicine, this has helped to nurture medical talent in Ukraine. Ukraine has a pool of
physicians who are very motivated to learn and access the latest information about new developments in science
and medicine.
Bespoke communications
In order to build a solid understanding of the Ukrainian market, there is no substitute for local advice. This is
particularly important when it comes to advertising material. sometimes, when large pharmaceutical firms go to
these markets they just bring forward materials that they use elsewhere. Kolosova warns that this is a poor strategy,
because, Western material is not always applicable locally, and in some cases they may lose the audience. Its
important that when it comes to communications in Ukraine, firms, think global but act local, says Kolosova,
admitting that, its a bit of a clich but its quite applicable in this particular case.
The fact that the vast majority of physicians in Ukraine do not speak English is only a small part of the challenge,
Kolosova stresses. When developing materials, companies need to make sure that whats projected in the advertising or promotional material is relevant to whats happening in Ukraine. Part of the problem, says Kolosova is that,
because in the west the population is wealthier, the problems consumers face are very different to in Ukraine,
where, some people struggle to just have enough money to buy food. This is one reason that, promotional
materials have to be adapted to reflect the differences between the two markets.
Finding the right niche

One of the most important considerations for a market entrant, says Kolosova, is working alongside the existing
industry. Ukraines got quite a few local pharma manufacturers, she points out, and their positions are quite strong.
Because of this foreign firms need to consider how they position themselves and build a presence, alongside the
local manufacturers. Unfortunately, there is no catch-all solution to achieve this in Ukraine. You need to make an
approach, market by market says Kolosova, understanding whats happening and influencing the key opinion
leaders.
Building credibility in an opinion based system

Healthcare in Ukraine is generally opinion based, Kolosova points out, although she also thinks that the market is
getting closer to accepting a more evidence based model. While the market is heavily influenced by key opinion
leaders, doctors in Ukraine are also vigilant and hungry for the latest knowledge. In my opinion, Ukrainian doctors
are hungry for new information and to be up to date with the latest developments.
In the last two years Ukraine adopted a credit based system for professional development among physicians,
says Kolosova. Working on medical articles is one way that they can earn credits. This, opens up opportunities for
pharmaceutical companies to work with their target audience, says Kolosova and develop knowledge in certain
disease areas. Its important that this opportunity is used correctly though for it to be effective, because, you dont
want to overstep the line between education and advertising.
One unique approach that some drug companies have taken is to offer therapies for free to those who cannot
afford to pay. Kolosova suggests that this is a smart move, because it allows everyone to see that these products are
effective, and helps to create a positive atmosphere.
20 |
Regulatory challenges
One of the biggest challenges in Ukraine is the often variable nature of enforcement for local regulations. Kolsova
points out that this is particularly an issue when it comes to advertising. Regulation against advertising medicine in
public is being challenged all the time, she says. This basically means that some firms are sidestepping regulations
against selling directly to the public. However, Kolosova notes that, legislation is not always clear, consistent and
transparent, which needs to be taken in to account.
Foreign companies entering Ukraine must therefore deal with a market in which many actors simply ignore the
rules, or interpret them in bad faith. Particularly with OTC products, says Kolosova, where the businesses selling
them dont necessarily have strict internal regulations; there is a big problem with a very aggressive advertising
approach. Kolosova says that this frustrates professionals who feel that companies are going, over their heads to
promote directly to consumers. This is a problem when consumers use products irresponsibly or try to administer
treatment to themselves, rather than going to a physician. When this happens, sometimes people will only visit the
doctor when their disease is, in very advanced stages.
The most extreme issue with the advertising of OTC products in Ukraine is the proliferation of miracle products
that, promise a cure from everything, including cancer, says Kolosova. While in the majority of cases these arent
medical products, manufacturers position them as such and use scientific language. As a result, consumers can
be mislead in to believing that they are being treated when in fact they are taking little more than a food additive.
Some misleading local companies even manage to get physicians on side who do not investigate the validity of
their claims or the scientific robustness of the clinical trials they say they have undertaken. If physicians do speak
out in support of a fake product, then it can be successful because of the opinion led nature of healthcare. Its also
particularly problematic because there is a lack of widely available up-to-date medical information for physicians in
Ukraine.
Often in Ukraine people are able to buy Rx products without prescription, which negatively impacts the legitimacy
of the whole healthcare system. There is also a major issue with counterfeit medicines. Kolosova recounts a time
when speaking to a marketing manager from Pfizer, who was responsible for the launch of Viagra in Ukraine. At the
meeting he produced about five or six packages of counterfeit Viagra. While aware of the scale of the problem,
Kolsova admits that she, was still impressed when he produced so many counterfeit packages. This is sold next to
the genuine merchandise in pharmacies; and it takes close scrutiny to identify the difference. This indicates profiteering from the vulnerability of consumers.
A golden opportunity
One of the best things that a foreign pharmaceutical company could do in Ukraine to build support, is to deliver
unbiased, valuable information for physicians. Kolosova suggests that this is the only way to win support. Once
physicians know that a manufacturer is trustworthy, it cements the relationship. She advises behaving ethically,
not focussing only on promotion but giving value to physicians and treating them as partners. This is a particularly
good strategy in the Ukraine, Kolosova says, because it isnt widely used, and at present, messages are dominated
by promotional materials. Those who are involved instead in the process of providing training and information to
physicians, see benefits quite quickly.
21
Conclusion
Long-term thinking, developing local partnerships and a start-up mentality: these are the cornerstones for success
in second tier emerging markets; common themes arising from the commentary we sought from industry experts.
Long-term thinking is essential because often firms are used to working to quarterly results, whereas the investment
needed in emerging markets will take more than two or three years to bear fruit, let alone the two or three quarters
most are used to measuring in.
As a result, traditional approaches to incentivising executives may not be effective in emerging markets. Local
partnerships are key because they are the only means by which companies can obtain the nuanced local understanding they need. For example, when providing promotional materials to a physician in Ukraine, it isnt enough
that its translated to her local language. The materials must also reflect the culture that they wish to penetrate. This
depth of local expertise is something that not all firms have yet mastered, though its critical to success in markets
where relationships hold an enormous amount of influence over corporate performance. Finally the start-up
mentality implies a redesign of the business model and hiring of fresh talent. Firms cannot repurpose the model
that brought success in the developed world for emerging territories. Particularly for market access, pricing and
regulatory approvals, the process will be entirely new for each country and should be approached as such.
In March, Booz & Company published the results of a survey where executives were asked about their outlook for
emerging markets. Many of the findings correlate with the findings of this white paper, suggesting that pharmaceutical firms could make the same mistakes that they made entering the first tier, in the second tier emerging
markets. One of the biggest issues is slated as insufficient tailoring of approaches to local needs. This is also the
most prominent challenge contributors to this paper raised, all advocating a respectful approach that shows an
understanding for individual countries cultures and healthcare systems. There are a number of ways in which
accepting this can lead to alterations in strategy. One is to source local talent, perhaps training individuals in head
office and then offering them the chance to lead expansion in home territories. This is a long-term strategy and it
requires that companies already have enough of a local footprint to secure such talent. Another key consideration is
to completely revise marketing and communications activity for specific markets. This will cost money in the short
term, but pay off in the long term -as materials stand out against competitors and win trust locally.
Perhaps one of the most interesting pieces of advice emanating from this research is to use the opportunity to
deliver value in markets where there is a lack of reliable, impartial information. Fast-growing Asian economies as well
as emerging Eastern European nations are the ideal places to implement a content-rich strategy where you provide
education and support to physicians, building trust in exchange. Local players and those seeking to exploit the
market for short-term gains may not invest to a comparable extent in such programmes. This should help firms that
do take the time to educate the market stand out. There is also a mass of highly educated physicians eager to pick
up new information, which will mean that such a strategy is well received and highly appreciated. It takes vision to
recognise how this will lead to increased sales, but at least two of the contributors to this paper are adamant that it
will, and crucially will do so over the long term.
Pricing will always cause disagreement between those paying for medicines and those providing them. In emerging
markets, the issue is exacerbated by the widespread inability to pay and on going government initiatives to
force prices lower. Our experts strongly advocate taking an approach that demonstrates a real recognition of the
challenges that governments have in emerging territories. In part this means communicating in a respectful way
and having realistic expectations. However, the most successful firms are those who invest in longer-term initiatives
to build trust in the country, which can lead to a better relationship with key stakeholders in the region. Across
Indonesia, Thailand, Pakistan, Vietnam and Ukraine, incomes are expected to rise over the decades ahead. Firms
need to position themselves as long term partners now if they expect to see benefits from an enlarged pharmaceuticals market in the mid to long-term future.
The long-term approach presupposes totally transparent ethical operations. The quick gains that come from
bending or working around rules in order to succeed in a local market have been shown to be prone to disaster.
Over time, the commercial environment in emerging markets will adapt and become more transparent.
International firms with a desire to be around when this happens have no choice but to apply the same level of
scrutiny to the actions of teams in developing markets as those in established territories. Corruption will continue to
impact pharmaceutical markets. To get caught up in this though will negate positive initiatives and jeopardize their
entire strategy to enter the market.
The opportunity second tier emerging markets present is large enough to have a profound impact on the overall
performance of the global pharmaceutical industry. Just the countries covered in this paper have a combined
22 |
population of more than 633 million, and an aggregate healthcare budget of almost $100bn. As governments see
the benefits from more welcoming regulatory structures and rising foreign investment, the obstacles to invest will
dwindle. Looking ten or twenty years down the line, the economic profiles of some of the countries mentioned
in this report may be barely recognisable. At this point, global players will be fighting to capture a chunk of the
important and probably still growing pharmaceutical market. However, those without heritage, local links and a
hard-won understanding of regional nuances, will arguably fall behind. Entering a new territory will always be a
major challenge, though the firms that succeed in building a footprint today are most likely to be the major winners
in the decades ahead.
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information; its a platform for debate and innovative ideas!
If you have an idea youd like to share with our audience, or if
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Emerging Markets:

The Second Tier

n Analysis of the major challenges

when launching products in second

n First-hand commentary from experts

on how to navigate key territories

n Pharmaceutical market country

profiles of Vietnam, Thailand,

eyeforpharma: Emerging Markets: The Second Tier

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Note: Bubble size is 2012 population, World Bank

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Cultivating local talent

Build pockets of entrepreneurship

eyeforpharma: Emerging Markets: The Second Tier |

Thinking beyond the pill in emerging markets

Tailoring to local needs

eyeforpharma: Emerging Markets: The Second Tier

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Out of pocket expenditure

Shifting Epidemiological patterns

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eyeforpharma: Emerging Markets: The Second Tier |

GDP per capita: $1,596

Life expectancy: 75 (2011)

IMR: 17 deaths/1,000 live births

FDI: 16.3bn (2012) (increase of

Source: World Bank

eyeforpharma: Emerging Markets: The Second Tier

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Entering the market

Patient Assistance Programmes

Finding accurate data

eyeforpharma: Emerging Markets: The Second Tier |

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GDP per capita: $3,556.79

IMR: 27 deaths/1,000 live births

Healthcare spending: $52.7bn

Source: World Bank

eyeforpharma: Emerging Markets: The Second Tier |

Accessing a rural population

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GDP per capita: $5,473.75

IMR: 15.9 deaths/1,000 live births

Healthcare spending: $12.1bn

Source: World Bank

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GDP per capita: $1200

IMR: 61.27 deaths/1,000 live births

Source: World Bank

Ban on Indian generics

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