New perspectives on consumer health in pharmerging markets

CONSUMER HEALTH
EMERGING MARKETS
New perspectives on consumer health
in pharmerging markets
The global market for consumer medicines (over the counter medicines, OTC) is
worth $111Bn1 in sales and continues to demonstrate strong growth potential,
with growth over 5% in the latest year. Pharmerging countries2 are at the forefront
of this robust growth, fuelled by higher out-of-pocket expenditure, favorable
demographic trends and a growing and increasingly prosperous middle class.3
In these markets, distant from the corporate headquarters of multinational
companies, OTC is growing faster than in mature markets, and consequently has a
larger share of the total healthcare market.
This briefing paper offers a summary of the insights and key learnings from a recent IMS Health study conducted
by the global Consumer Health (CH) team in collaboration with IMS Health local CH experts. It reviews CH
market trends and dynamics, key stakeholder interactions, how companies have been able to succeed in these
markets and what is likely to be required for success in the future. Webinars with the lead consultants will take
place in late Q3/early Q4 2014.
In Pharmerging countries, the OTC market has
grown at nearly 15% CAGR over the past 2 years,
and is now valued at 20% share of the total pharma
market compared to only 9% in the leading
mature markets (Figure 1).
Across all these countries, eight of the top ten
companies in terms of value share of the OTC
market are multinationals (MNCs). While this
picture might suggest that MNCs have a dominant
position in the OTC market and enjoy universal
success, in fact they dominate the market because
they operate globally and the reality is, of course,
more nuanced than this.
Pharmerging countries contribute to only
32% of the global sales of the top 10 OTC
multinationals, lower than the 35% overall
contribution of Pharmerging countries to
global OTC sales, indicating that MNCs are
underweight in Pharmerging countries
•
• What is more concerning is that these leading
OTC players are also losing share in Pharmerging
countries to more aggressive local competitors.
The position of MNC’s in Pharmerging countries is
thus, under threat. Local players have numerous
home advantages and in many cases are better
positioned to anticipate and take advantage of
changes in the economic, regulatory and political
environment in contrast to US or European-origin
MNCs. However, with the right go-to-market
strategies, we at IMS Health believe that MNCs
can compete on a better footing with locals in
Pharmerging countries and potentially reverse
their underweight performance trend
Consumer Health growth drivers in
pharmerging geographies
Typically, out-of-pocket (OOP) expenditure on
healthcare products in Pharmerging countries is
high in comparison to mature markets. According
to the World Health Organization (WHO), OOP
accounted for 46% of total healthcare expenditure
in APAC and 39% in LATAM countries, compared to
only 11% in the US and 13% in EU5. The emergence
of a new middle class in Pharmerging countries,
IMS HEALTH New perspectives on consumer health in pharmerging markets
Lo
Low
Medium
CONSUMER HEALTH
The segmentation can vary within each
country depending on the CH category
High
Degree of localisation
02
* Saudi remains an exception in its region with the pharmacy chains representing half of the retail market
Figure 1: Pharmerging vs. top 8 mature markets pharma sales
Pharmerging pharma sales
Top 8 mature markets pharma sales
$ Bn
$ Bn
300
700
600
500
200
29%
400
100
34%
200
0
20%
7%
10%
MAT
Q1 10
MAT
Q1 11
MAT
Q1 12
MAT
Q1 13
Original Rx brands
MAT
Q1 14
Rx Generics
68%
300
100
0
MAT
Q1 10
MAT
Q1 11
Consumer health
TCM*
MAT
Q1 12
MAT
Q1 13
MAT
Q1 14
16%
9%
7%
Other*
2-year CAGR (MAT Q1 2012-2014)
Segment
Pharmerging
Mature
Original Rx brands
Rx Generics
Consumer health
10.2%
13.1%
14.9%
-0.2%
9.7%
1.8%
Note that ‘Consumer Health’ is de ned by ATC class for products most often dispensed without prescription in
addition to the OTC ag in IMS MIDAS and the total di ers from the CH value in IMS OTC Global Analysis
Source: IMS MIDAS, Q1 2014, constant exchange rates. Top 8 includes EU5, Japan, US, Canada
• ‘TCM’ = Traditional Chinese Medicine. ‘Other’ includes products that are unclassi ed due to country data limitations and products that pre-date protection
• Excludes Vietnam, Romania and Algeria as no market segmentation available for these countries No data for Ukraine & Nigeria. Both retail & hospital panels
included. Non retail panel included for Brazil and Mexico.
expected to reach 4.8Bn by 2020, from 3.6Bn
in 2010, with two thirds of the growth coming
from India and China, has driven a preference
for quality branded medicines over the locally
manufactured generic medicines provided by
financially constrained public healthcare systems.
This consumption preference, combined with a
bulge in the 20-50 year age band (the population
cohort most inclined to self-medicate to avoid
absenteeism from work and study) are the principal
socio-demographic trends that are driving OTC
market growth today.
In addition to the increasing affordability of
medicines (arising from higher disposable
incomes), limited access to public or high quality
private healthcare services are also helping to
propel the market. Lastly, improving patient/
consumer literacy and greater health awareness,
supported by the increase of social media and
internet usage to obtain information on health
related subjects, also play a role in the growing
demand for public healthcare provision in general,
and for OTC products in particular.
Building the right go-to-market
strategy
While ‘pharmerging’ remains a useful label for a
collective of countries with low GDP/capita and
significant growth potential, it does cover a wide
range of countries that are divergent from each
other in a number of important respects.
As each pharmerging market has distinct
characteristics, building a tailored go-to-market
strategy, adapted to local market conditions
and preferences and deploying a talented local
workforce with in-depth knowledge of local
market nuances in each country are of paramount
importance.
A strategy is unlikely to succeed if it fails to
take proper account of local health policy and
regulations; local physician and consumer
preferences; the capabilities and product portfolios
of existing players and participants; and the
consolidation now taking place in the local retail
sector in many geographies (see figure 2).
IMS HEALTH New perspectives on consumer health in pharmerging markets
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CONSUMER HEALTH
03
Figure 2: Factors that influence the go-to-market strategy
Policy and
regulations
In this
environment, what
are the strategic
options for
multinationals?
Pharmacy
dynamics
Health policy and regulations
A key difference observed between pharmerging
and mature markets is that the usual market
segment silos don’t exist in many of the developing
markets – in some pharmerging markets there is no
clear OTC classification and in others pharmacists
dispense Rx drugs without prescription as common
practice. As a result of this lack of regulation or lack
of enforcement there is much more interplay, or
customer switching between prescription (Rx) and
OTC medicines.
For manufacturers who operate in both the Rx and
OTC markets, this interplay creates the opportunity
to leverage a physician sales force across an
OTC portfolio that is itself likely to have a wider
reach across more conditions, while “pure” OTC
companies will need to consider how to address
this issue. The observed interplay also calls for CH
players and industry associations such as WSMI4,
ILAR5 and APSMI6 to liaise with government
agencies to properly define the OTC market and
to draw policymakers’ attention to the potential
healthcare benefits and public expenditure savings
to be gained from a growing self-pay CH sector
– particularly at this time when governments
in many pharmerging countries are looking
to expand the provision of healthcare while
struggling to cover the costs.
As pharmerging markets develop, regulations
are expected to become more transparent
Physician and
consumer
preferences
Players /
Participants
and enforced more rigorously. However, such
formalization is expected to take place slowly and
the current situation, characterized by considerable
confusion across familiar healthcare market
segments, is expected to persist for some time. And
even where regulations do change, the way they
are applied in practice in the future may not.
Physician and consumer preferences
The main stakeholder for OTC remains the end
customer, and therefore successful commercial
models will need to take account of all influences
on the purchase decision. Local players may be
aggressive in their use of direct-to-consumer
advertising and other promotional activities.
In-store influence can play an important role
and, given the interplay between medicine silos,
prescribers can also be influential, with many
patients placing high levels of trust in these
professionals. Identifying and then reaching out to
targeted doctors and pharmacists may therefore
be particularly beneficial. As a result, a mix of pull
(direct to consumer model) or push (healthcare
practitioners model) strategies can be applied
depending on the different stakeholder influences
in each country or category of CH products.
In addition, the self-pay nature of the market
means that affordability and willingness to pay
will continue to influence buying patterns in the
future and should be considered when developing
optimum CH brand portfolios.
IMS HEALTH New perspectives on consumer health in pharmerging markets
CONSUMER HEALTH
04
Players and participants
Pharmacy dynamics
Local competition enjoys the ‘home’ advantages
of local knowledge, existing distribution networks
and brand familiarity, which together enable these
businesses to understand and serve the needs of
their customers. In response, many multinationals
have acquired local companies and/or their brands
and, in doing so, have established a presence in
the market. Whilst these early movers have already
acquired some of the best local partners, given
the interest of aspiring consumers in international
brand names and the continued growth of
the middle classes in the cities, considerable
opportunities remain.
Consolidation of the retail channel in many
Pharmerging countries is happening quickly. The
development of retail chain pharmacies comes
with risks and opportunities for multinational
consumer health players.
Multinationals can learn how these opportunities
can be exploited by reference to the successes
of local players who have been aggressively
competing with multinationals in the CH space.
For example, the Brazilian consumer goods
company Hypermarcas achieved growth in excess
of 17% (Q1, 2014) – a performance that was
matched by only one multinational, Pfizer, in the
last 12 months’ period. The success of these local
companies has been largely built on their ability to
respond quickly to local needs, their regular launch
of affordable products, their ability to recruit and
retain local talent, and their insight into the needs
and preferences of local stakeholders, including
regulators and policy-makers.
Many of these factors can be replicated, although
local embedment and fleetness of foot to ensure
timely responses to a changing environment are
essential.
For example, it brings about a more efficient
distribution of pharmacy products and greater
accessibility. And whilst the expansion of new
services at the point of sale, (e.g professional advice
and diagnostic tests) supports CH promotion and
selling at point of sale, the expansion of pharmacy
chains responsible for this consolidation puts
downward pressure on prices and margins. Some
chains are also creating their own private label
brands that either compete directly with products
from multinational players or even de-prioritise
their placement in retail pharmacy shelves.
The degree of concentration occurring in any
market, driven by the level of urbanization
and the extent of pharmacy consolidation, will
largely impact on the commercial model that
should be adopted locally and is relevant when
multinationals think about where to target their
future operations.
CH multinationals may decide to embrace this
expansion by targeting new pharmacy chains
based on their concentration in different product
categories and by creating attractive product
packages that could include a mix of brands,
including some with lower retail prices, heavier
product promotion, and additional support
services to stimulate a higher volume of business.
Alternatively, partnership arrangements, including
category management projects with developing
chains, might confer valued preferred supplier
status.
IMS HEALTH New perspectives on consumer health in pharmerging markets
CONSUMER HEALTH
05
Key learnings and best practices
To succeed in pharmerging markets players need
to take full account of specific market dynamics,
particularly assessing the degree of localization and
concentration:
1.Localization will help determine the product
portfolio required to succeed i.e it answers the
question ‘how to win?’:
Where localization levels are low then the best
portfolio strategy is likely to involve matching
the existing portfolio to unmet needs and
leveraging global reputation and ‘powerbrands’
(as in the case of Johnson & Johnson and Reckitt
Benckiser). In this situation global brands may
also allow premium pricing. Conversely in
a highly localized market adapting existing
products to local habits and acquiring local
companies with a strong local presence as well
as building an innovative portfolio unique to the
market are more likely to be key to success
portfolios. For example, GSK, Reckitt Benckiser
and Bayer have all embraced and developed
traditional remedies to include in their CH
portfolios.
• Acquiring an already successful product or
company in a pharmerging market enables a
fast implementation in the market. Examples
include: Reckitt Benckiser’s acquisition of
the Oriental Medicine Company in China
and of Paras in India, Takeda’s acquisition of
the Brazilian company Multilab, and Bayer’s
purchase of the OTC brand portfolio of Sagmel
in CIS countries
•
• In the case of China, for example, the need to
localize portfolios has meant multinationals
have invested, acquired, or developed
partnerships
develop09:10
traditional
Chinese
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medicines and incorporate them into their OTC
2. Market concentration will help determine
what type of business operation is required to
succeed, i.e. it answers the question ‘where
to play?’:
Where concentration levels are low, the focus
should be spread across multiple cities. This
suggests broad based mass media promotional
campaigns and an emphasis on local
commercial partnerships and other schemes to
facilitate the expansion into small cities/towns
and rural areas
•
Figure 3: Where to play and how to win?
Country Segmentation
*
LatAm
and medicinal habits
• Impact largely the portfolio (product type,
positioning & pricing)
• Relevant to establish how to win?
East EU
Medium
• Market concentration
• Driven by urbanisation level and pharmacy
consolidation
Asia Pac
Low
• Impact largely the business operation
(commercial model to adopt)
• Relevant to establish where to play?
MENA
Low
Market concentration
High
Illustrative
• Localisation:
• Driven by local roots due to culture, linguistic
Medium
Degree of localisation
High
The segmentation can vary within each
country depending on the CH category
* Saudi remains an exception in its region with the pharmacy chains representing half of the retail market
IMS HEALTH New perspectives on consumer health in pharmerging markets
CONSUMER HEALTH
• Account segmentation and distribution/supply
chain management are the key capabilities
required to respond to the complex network of
distributors and pharmacies
• Where concentration levels are high, (i.e. the
opportunity is focused on just a few cities or
in consolidated chains of pharmacies), the
focus can be tighter, on fewer customers, and
micro-segmentation of customers and targeted
promotional campaigns are more likely to
succeed
06
• Key account management and multi-channel
marketing are the key capabilities required
to build strategic partnerships with the main
stakeholders and to reach out to the right
customer segments using targeted promotional
campaigns
References:
1 IMS MIDAS MAT Q1 2014
2 Pharmerging markets are defined by a combination of their relatively low GDP per capita (less than $25k annually per head)
and their significant future market growth potential (adding on at least $1bn of pharma market value in the next five years).
This includes 21 countries: China, Brazil, Russia, India, Algeria, Argentina, Colombia, Egypt, Indonesia, Mexico, Nigeria,
Pakistan, Poland, Romania, Saudi Arabia, South Africa, Thailand, Turkey, Ukraine, Venezuela and Vietnam.
3 We use the $5,000 (USD) per year threshold for household disposable personal income to define minimum income necessary
to be part of the middle class.
4 WSMI: World Self medication Industry association
5 ILAR : Industria Latinoamericana de Automedicaciόn Responsable
6 APSMI: Asia-Pacific Self-Medication Industry
For further information how IMS Health can help structure and execute your where to play and how
to win questions in the consumer health arena in Pharmerging countries, please contact: Andy Tisman,
Senior Principal, Consumer Health: [email protected] or Dr Srikanth Rajagopal, Principal, IMS
Consulting Group: [email protected]
IMS HEALTH New perspectives on consumer health in pharmerging markets
CONSUMER HEALTH
About IMS Health’s Consumer Health business
IMS Health’s Consumer Health business is a critical partner for helping companies operating
in the Over-the-Counter, Personal Care, Patient Care and Nutrition sectors worldwide realize
their full potential. We collaborate with our clients to make critical business decisions, build
commercial excellence and grow their consumer healthcare business in an increasingly
challenging environment.
Combining our unique and deep understanding of the consumer healthcare market, our
global and on-the-ground experts in four continents and our differentiated suite of data assets,
IMS Health helps clients to ‘win’ in the consumer health space, supporting global strategy
development, market entry and portfolio optimisation, performance management, social media
initiatives and go-to-market commercial implementation.
IMS HEALTH New perspectives on consumer health in pharmerging markets
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