Contract R&D and Clinical Materials Outsourcing in Emerging Markets

As emerging markets become increasingly important for the pharmaceutical majors, companies are re-evaluating their outsourcing strategies. This article is part of the 2010 Outsourcing Resources special issue.
Aug 01, 2010
Volume 2010 Supplement, Issue 3

The role of emerging markets in pharmaceutical outsourcing is evolving as the strategic importance of these markets is increasing, based on strong current and projected growth. Historically, outsourcing in select emerging markets such as India and China was primarily centered on chemical production for raw materials and early (i.e., non-good manufacturing practice (GMP)) intermediates. But as time progressed, outsourcing activities expanded to include production of advanced intermediates (i.e., GMP intermediates) and finished active pharmaceutical ingredients (APIs), particularly for generic drugs and drugs late in their product life cycle, where low-cost production is a consideration. Although those activities and functions are still important, the potential for outsourcing in emerging markets is moving beyond low-cost chemical production to other parts of the drug development and pharmaceutical value chain.

Emerging-market strength

The pharmaceutical majors' strategic shift to emerging markets relates to those markets' strong growth. The global prescription-pharmaceutical market was valued at $837 billion in 2009, according to an April 2010 analysis by the market research firm IMS Health. Led by growth in emerging markets, the global prescription-drug market increased 7% in 2009, up from 4.8% growth in 2008. IMS projects that global pharmaceutical sales growth will increase 4–6% in 2010 and will increase at a 5–8% compound annual growth rate during the next five years, when the market is projected to reach $1.1 trillion in 2014.

Growth in the pharmerging markets, defined by IMS to include Brazil, Russia, India, China, Turkey, Mexico, and South Korea, will be more than double overall pharmaceutical industry growth. Pharmerging markets are expected to grow at a 14–17% pace through 2014, compared with only 3–6% growth in the developed markets. Relating these percentages to absolute growth, the aggregate growth through 2014 from pharmerging markets will be similar to the growth experienced in developed markets; both will be around $120–140 billion. This projected parity of aggregate growth compares with growth during the past five years of $69 billion in pharmerging markets and $126 billion in developed markets.

Emerging-market strategy

Part of the focus of the pharmaceutical majors' activities in emerging markets has been to expand into these markets with locally based companies that have manufacturing, supply, and distribution networks in their domestic markets, as well as in other markets in India, China, South America, and Central and Eastern Europe. The focus is largely on established products—generic drugs or innovator drug products that may be late in their product life cycle—reflecting the lower-cost product mix that may be needed to compete effectively in those markets.

Kimberly Wagner, senior partner and managing director at The Boston Consulting Group, who spoke at the Drug, Chemical, and Associated Technologies Association's (DCAT) Business Development Forum held during DCAT Week in mid-March 2010, explained some of these differences (1). "In established markets, product strategy evolves around new chemical entities, a long innovation cycle, building a strong patent position, and seeking registration or approval of pharmaceutical products in the US and European Union," she said. "In contrast, the criteria for success in emerging markets evolve around line extensions and fixed combinations, a rapid innovation cycle, speed to market, brands, and local registration," she said. With these requirements, the emphasis in emerging markets is on local manufacturing, low-cost sourcing and manufacturing, and product registration of multiple small products that can be differentiated at a local level, explained Wagner. For established markets, the product strategy is different, marked by an emphasis on achieving higher scale in manufacturing to meet larger volumes, the use of imports from high-cost countries such as the US or countries in Western Europe, and more reliance on the global blockbuster model (1).

lorem ipsum