Navigating the Global Manufacturing Supply Chain

As the strategic value of emerging markets increase, pharmaceutical companies increase their R&D and manufacturing investments.
Mar 02, 2013

Emerging markets are an important part of the pharmaceutical majors' growth strategy. As these markets become of increasing strategic value, pharmaceutical companies are ramping up investment in R&D and manufacturing (API and finished drug product) in these areas.

Evaluating the market

Emerging markets are playing an increasingly important role in overall pharmaceutical industry growth. The global market for medicines is expected to rebound from a recent low of 3-4% growth in 2012 to 5-7% growth in 2016, according to a July 2012 analysis by the IMS Institute for Healthcare Informatics. Growth will primarily be from emerging markets as growth in established markets in the United States, Western Europe, and Japan remains weak comparative to historical levels. Overall, annual global spending on medicines will rise from $956 billion in 2011 to $1 trillion by 2013, and to nearly $1.2 trillion in 2016, representing a compound annual growth rate (CAGR) of 3% to 6%. For purposes of the IMS analysis, spending is reported as ex-manufacturer prices and does not reflect off-invoice discounts and rebates and is converted from local currencies to US dollars. Absolute growth in global pharmaceutical spending between 2012-2016 will be between $220 billion and $250 billion, compared with $298 billion in the prior five years.

Growth in annual global spending is forecast to more than double in 2016 to as much as $70 billion, up from a $30-billion pace in 2012, driven by volume increases in what IMS terms the "pharmerging" markets and some uptick in spending in developed nations. The "pharmerging" markets are defined by IMS as countries with greater than $1 billion in absolute spending growth between 2012-2016 and that have gross domestic product per capita of less than $25,000 at purchasing power parity. Using that criteria, China is classified as a Tier-1 country, and Brazil, Russia, and India as Tier-2 countries. Tier 3-countries are Mexico, Turkey, Poland, Venezuela, Argentina, Indonesia, South Africa, Thailand, Romania, Egypt, Ukraine, Pakistan, and Vietnam.

IMS projects that healthcare systems in pharmerging markets will nearly double their medicine spending over the next several years. Annual spending on medicines in the pharmerging markets will increase from $194 billion in 2011 to between $345 billion and $375 billion by 2016, or $91 in drug spending per capita, according to IMS. The increase will be driven by rising incomes, continued low cost for drugs, and government-sponsored programs designed to increase access to treatments. Generic drugs and other products, including over-the-counter medicines and diagnostics will account for approximately 83% of the increase.