Big Pharma Follows the Money

November 21st, 2008 | Sources: Economist

Subjects:

Big Pharma always had a special place in its heart for America. Why wouldn’t it? Americans spent a ton on health. Americans valued innovation and minimized regulation. Americans even let Big Pharma price its products.

And America generated half of Big Pharma’s worldwide profit.

But things change. Now, Big Pharma thinks its future lies in the developing world. Pfizer just reorganized itself to reflect that as a matter of fact. That move came after Pfizer began cultivating a presence in 130 Chinese cities. Heck, Pfizer just established a JV with a bank to develop rural markets for basic drugs in Bangladesh of all places.

Jean-Michel Halfon was describing Pfizer’s strategy when he told the Economist, ‘serving customers in developing countries is now “a business not a charity,’” but he might have spoken for all Big Pharma.

Why the change? Follow the money. Annual drug sales are expected to grow by 34% per year in emerging markets compared with 9% in the US and Japan, and 14% in Europe.  In less than a decade, drug sales in emerging markets should top $300 million, which is equal to total current sales in America and the 5 top European countries combined.

And frankly, Big Pharma doesn’t know what it’s got in the Big O. What if he were to permit the import of cheap Canadian drugs? What about his threats to have Medicare negotiate tougher price discounts? That could cut American sales by 3-10% right there, according to the Boston Consulting Group.

Meanwhile just because it’s a good idea for Big Pharma to focus on developing countries doesn’t mean it can execute. New marketing and sales strategies will be needed, not just recycled riffs designed for the American, Japanese and European markets. It can expect some tough sledding with distribution partners and regulatory complexity as well.

And what will it do about pricing?


 

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