The shape of the global market for pharmaceuticals is undergoing a rapid change. As recently as 2006, more than half of the market growth was in the United States. This data comes from IMS Health, a consultancy which is a leading provider of pharmaceutical trends.
However, the necessity for the pharmaceutical industry to develop new markets is urgent. The latest forecasts from IMS Health suggests that global sales in the industry will grow by just 2.5 – 3.5 percent this year, the smallest expansion it has ever recorded. The United States – which still accounts for two-fifths of all revenues – will decline by 1-2 percent.
The figures from IMS Health did highlight one source of optimism for pharmaceutical companies – the seven countries IMS Health calls the “pharemerging countries” – China, Brazil, India, Russia, Turkey, South Korea and Mexico. The potential for the pharma companies to increase their revenues is enormous as these seven markets represent about 45 percent of the world’s population. There are a half billion people living in these seven “pharemerging markets” that can afford Western medicine.
Sales in the “pharemerging markets” are expected to expand by 13-14 percent in 2009. This will account for 52 percent of all global growth in pharmaceutical sales. In 2006, only 12 percent of the growth in global pharmaceutical sales came from these countries. These countries currently account for only 12 percent of the global dollar value of the pharma industry (about $80 billion), but that still represents a significant shift in market dynamics. IMS forecasts similar growth trends over the coming five years as rising incomes and expanding health insurance coverage combine with increasing demand for top-shelf medical treatments.
One of the main factors that will be driving this growth is government policy. One of the most notable government actions is the recent Chinese commitment to invest $123 billion in reforms that will improve healthcare provision for its 1.3 billion citizens. In 2008, China’s pharmaceutical market was only around $20 billion, less than one-tenth the size of the Western market. China is now the fastest growing market for pharmaceuticals, expanding at 20% a year. With the reforms now taking place in China, IMS predicts that by 2013, China will be the third largest pharmaceutical market worldwide in value terms – up from ninth in 2003. China is expected to be the largest pharmaceutical market by 2050.
And that’s just China. IMS estimates the pharmaceutical industry sales in emerging markets will total more than $300 billion by 2017. That’s the same size as the American market and the top five European markets.
While European pharmaceutical companies are leading the push into the “pharemerging markets”, American companies have lagged so far because of the robust growth in the United States market. Due to strong domestic growth, many US pharmaceutical companies simply didn’t bother to look for opportunities outside the American market. It is now the companies that are the most dependent on the U.S. pharmaceutical market that are in trouble.
Some of the international pharmaceutical companies which trade here in the United States include: Teva Pharmaceutical ADR (NASDAQ: TEVA), GlaxoSmithKline ADR (NYSE: GSK), Sanofi-Aventis ADR (NYSE: SNY), AstraZeneca ADR (NYSE: AZN), and Novartis ADR (NVS). Some of these companies like Sanofi-Aventis and GlaxoSmithKLine are moving aggressively into the “pharemerging markets.”
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