Analysis: Big pharma emerging mkts tactics shift as growth slows
San Francisco (Reuters) - Major pharmaceutical companies aiming to jumpstart growth by investing in emerging markets are reassessing strategies after less-than-stellar results in 2012.
New tactics are expected to include more joint ventures where risks are shared with local partners.
Multinational drugmakers such as Pfizer Inc (PFE.N), AstraZeneca PLC (AZN.L) and Roche Holding AG (ROG.VX) are depending on rising demand in emerging markets as sales in Europe and the United States flatten due to an unprecedented wave of patent expirations on top-selling drugs.
Projections called for growing middle classes in countries like China, Brazil, and India to increase demand for pharmaceutical products, but growth has fallen short of early expectations. Some experts are skeptical the trend will change anytime soon.
"Clearly it has been a bit of a disappointment," said Jon LeCroy, an analyst at MKM Partners. "I don't think it is paying off to the magnitude that these companies need."
Pricing pressure, economic weakness and strong local competition are driving multinational drugmakers to rethink how to best capitalize on emerging markets strength.
Sales in those markets rose 6 percent for multinational drugmakers last year, half the rate seen in 2011, according to consulting firm Ernst & Young.
Early in 2012, drugmakers forecast double-digit sales from emerging markets. Current growth falls short of what is needed to achieve median company forecasts for such markets to generate 25 percent of drug sales by 2015, according to Andrew Foreman of E&Y's global life sciences team.
In China, AstraZeneca has seen "extraordinary volume growth" for certain products, but pricing has not been as strong, said the company's Chief Financial Officer Simon Lowth.
He said the European pharmaceuticals market is likely to remain constrained this year as governments there continue to institute austerity measures.
Typically, Lowth said, European government health plans trim drug prices by 5 percent or less. That impact rose to the mid- to high-single digits in 2012 and will likely stay there for the next year or so, the AstraZeneca CFO said.
MORE PARTNERSHIPS, JOINT VENTURES?
"Pharma's big challenge to growth is in the U.S. and Europe," E&Y's Foreman said. "If they don't back off from (emerging markets) forecasts, the only way to get to that 25 percent target is more M&A (mergers and acquisitions) and other deals."
Rather than out-and-out acquisitions, drugmakers are looking to joint ventures and minority partnerships with local companies to kick start growth in emerging markets, he said. Such transactions may take longer to impact top-line revenue growth than .....
Some countries, like China, have policies aimed at supporting the domestic pharmaceutical industry over multinationals.
The Chinese government said last week it would cut prices of about 400 drugs for respiratory diseases, fever and pain by up to 20 percent starting in February. It will be the fourth such price cut since 2011 - part of reforms to make healthcare cheaper and more accessible.
The trend is very different in the United States, where medical costs are unregulated and prices on brand-name drugs rose by 13 percent, or more than six times the overall rate of inflation, in the 12 months ending September 2012, according to pharmacy benefit manager Express Scripts (ESRX.O).
"I don't think the economics are changing that much - the U.S., Europe and Japan are still the primary markets," LeCroy said. "The middle class is growing in emerging countries, but these things (pharmaceuticals) are still massively expensive."
He said drugmakers - which face the loss of more than $70 billion in sales between late 2011 and 2015 as cheap generic copies replace drugs such as Pfizer's cholesterol-lowering Lipitor - are more likely to reignite sales with innovative new products.
Takeda Pharmaceutical Co (4502.T), Japan's top drugmaker, plans to double its revenue from emerging markets in the next few years. The company placed a big bet on developing countries when it bought Nycomed for $13.7 billion in 2011, and has since purchased several smaller assets including Brazil's Multilab.
"Nycomed expanded our footprint from a dozen or so countries to over 70," Takeda Chief Medical Officer Tachi Yamada, said in an interview at the J.P. Morgan Healthcare Conference last week in San Francisco. "In order to succeed we must be an international company."
Takeda gets most of its revenue from Japan, followed by the United States, Russia and Brazil.
Switzerland's Roche expects "strong growth" in emerging markets over the coming years, said CFO Alan Hippe, largely because of the company's successful use of "tiered pricing" and innovative drug access models.
By offering selective discounts on its pricey cancer drugs, Roche is able to increase sales in countries like China and Brazil.
"We want to expand internationally in a way that's accretive," said Robert Bradway, CEO at biotechnology giant Amgen Inc (AMGN.O), which last year acquired Turkish pharmaceutical company Mustafa Nevzat and said this week it would build its first Asian manufacturing plant in Singapore.
While China is the largest emerging market in which the company has no presence, Amgen has no "big bang solution" for entering it, he said.
(Reporting By Deena Beasley; editing by Andrew Hay)