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 A few years ago, the developing world was seen as a savior as patent
after patent expired across the United States and Europe, but
emerging market sales growth at the top drug firms slowed to less
than two percent in the latest quarter.
Forecasts from independent experts IMS Health now suggest the United
States will account for 55 percent of sales growth between 2016 and
2020, with emerging markets only contributing 30 percent.
The slowdown in China and other top emerging markets is being driven
by a number of factors: government pressure on drug prices, slowing
economies and in some cases significant currency devaluations.
But the end result is that prescriptions for Americans will fund an
even greater slice of the $1 trillion-a-year pharmaceuticals
industry.
Company executives insist markets from China to Colombia to Mexico
to Myanmar are an important engine of long-term growth, given rising
populations, increasing wealth, and the global march of diabetes,
heart disease and cancer.
"We have seen some flattening of growth, notably in Brazil and
Russia, but in the long run we still expect that emerging markets
will outgrow mature markets by 2 to 3 percentage points," Olivier
Charmeil, who heads up emerging markets operations at French
drugmaker Sanofi, told Reuters.
GlaxoSmithKline's incoming chief executive Emma Walmsley, meanwhile,
highlighted the potential of China, saying after being appointed to
the top job this week that she was "very excited about what we can
do with GSK there".
NOT PRETTY
But the short-term picture is not pretty. Emerging market growth is
the slowest since drug companies started breaking out such regional
sales numbers about seven years ago, with GSK languishing at the
bottom of the class.
GSK's drug sales in China fell 14 percent in the three months to the
end of June as the company continued to reshape its business
following a damaging corruption scandal in 2013, leaving a question
mark over whether it can return to growth this year as hoped.
Others are doing better in China, which is now the world's second
biggest drugs market behind the United States, but all are
struggling with slowing sales growth, which slipped to its lowest
rate since 2008 in July.
"Across the board, we are seeing emerging markets register lower
growth in local currency and in many cases there have also been big
currency devaluations," said Murray Aitken, IMS Health senior vice
president and executive director.
The pharmaceutical industry tends to measure its sales performance
in local currencies but in dollar terms devaluations wiped an
estimated 77 percent off emerging market growth between 2013 and
2015, IMS calculates.
"Some of our biggest emerging markets have seen huge currency
devaluations," said Christophe Weber, CEO of Takeda Pharmaceutical,
which ramped up its exposure to new markets in 2011 by buying Swiss
group Nycomed.
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"But in the long term, when you have a world of more than seven
billion people, I feel more comfortable if we are providing our
medicines to a wide range of people."
RICH PICKINGS
Succeeding in developing markets has never been plain sailing, with
lower profit margins than developed markets due to competition from
low-cost local suppliers and the need for investment.
By comparison, the United States offers rich pickings at the moment
thanks to hugely profitable new drugs for diseases such as cancer
and hepatitis C.
That disparity is an issue for investors trying to value growth
outside the West, with some of the most highly rated drug stocks
being those that have stepped back from emerging markets, such as
Bristol-Myers Squibb.
Its trades at 21 times this year's expected earnings whereas Sanofi
is valued at just 12.5 times earnings.
The French firm takes top spot in emerging markets among
multinationals, with 29 percent of its second-quarter sales
generated there, followed by AstraZeneca on 26 percent, according to
Bernstein analysts.
Many companies' sales in developing economies come from so-called
branded generics, or off-patent medicines that command a premium to
those made by local suppliers because the Western drugmaker's name
is a proxy for quality.
That business is now under threat as governments promote cheaper
unbranded products as a route to universal healthcare.
"There is a lot of emphasis on providing essential medicines, which
is providing growth for cheap local generics but not necessarily for
multinational companies," said Aitken.
One sign of the tougher times is the relative dearth of acquisitions
in emerging markets by international players after a slew of
multibillion-dollar deals between 2008 and 2011.
Still, Sanofi's Charmeil is scouting: "We are looking for
opportunities and if we think it makes sense for our portfolio, we
are ready to go for it."
(Editing by David Clarke)
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