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The E7 economies represent increasing opportunities for pharmaceutical companies constrained by maturing markets in the west.
Less reliance on mature markets
A report from PricewaterhouseCoopers (Pharma 2020: The vision: Which path will you take?) highlighted the dangers for the pharmaceutical industry of relying on existing mature markets such as the USA in the period to 2020. Pressures on pricing and greater payor influence will reduce the relative profitability of the USA, meaning that the industry will do well to look elsewhere for growth.
Huge potential in E7 markets
The emerging 'E7' countries represent the best prospect for growth. The potential of these countries is huge: they have a combined population of over three billion people, and their economies are recovering from the economic downturn. One consequence of this increasing wealth is a growing financial capacity to treat previously unmet health needs. Another is increasing incidence of 'affluence' diseases such as diabetes, as people live longer and have more sedentary lifestyles.
Highlights from the report
Brazil is the second most attractive BRIC market for pharmaceutical producers. Controlled drug prices are growing at below inflational levels but price controls are not directly linked to consumption levels. In fact, between 1997 and 2008, the pharmaceutical market by volume increased significantly only in 2004. Demand should increase as the country is emerging from the economic downturn much quicker than anticipated, therefore the outlook is very positive compared to other Latin American markets. The exchange rate of the real against the US dollar fell in early 2009, but it has now recovered. This is good news for producers as imports are now cheaper; Brazil, in contrast with other BRIC countries such as India, still relies on raw material imports, which diminishes its market strength.
China's pharmaceutical market looks set to grow even further in the short-term, with the establishment of an Essential Medicines System during the 2009-2011 period. The plan calls for an estimated 300-400 essential medicines to be made available at all public facilities, starting at the grassroots level. In October 2009, the NDRC reduced the prices of 2,349 drugs by an average 12%. These drugs represent around 45% of drugs on the Essential Medicines System. The prices of 49% of drugs on the list will not be reduced while the remaining 6% that are in short supply will see their prices increased moderately in order to encourage their manufacture.
India has a huge population in excess of one billion people and a growing middle class with access to high quality healthcare. Conversely, in this geographically vast country plagued by natural disasters, the majority of the population is both rural and poor and western style pharmaceuticals are not even an issue for millions of people. India has an established domestic industry, responsible for around 8% of world pharmaceutical production. The larger domestic companies are striving to compete in the global market for both generics and original products. The market is dominated by low priced, domestically-produced generics and relatively low per capita expenditure on pharmaceuticals.
The domestic pharmaceutical manufacturing industry is strong and the country has become an attractive base for many multinational producers to operate. This is largely down to a cheap labour force and generally inexpensive production costs. In March 2009, the government announced the merger between PT Indofarma and PT Kimia, saying the partnership, once materialised, will enable them to control a 15% stake of the market. PT Kimia president Sjamsul Ariffin said feasibility studies and legal processes would take at least six to nine months before the merger can be finalised. IPR protection is generally regarded as inadequate and counterfeiting is a major problem. The country has been placed on the US government's Priority Watch List in 2009.
The current exchange rate of the Mexican peso against the US dollar is causing uncertainty, with increasing pharmaceutical import costs. This is expected to affect previously registered import levels. The overall pharmacy sector is facing stagnation, if not negative growth, in 2009. Pfizer's acquisition of Wyeth and the merger of Merck Sharp & Dohme and Schering Plough will change the sector, with sanofi-aventis being pushed down. On a positive note, the downturn and an evolving regulatory environment are fuelling generics consumption. This market is expected to double in size in 2010. The latest foreign company to enter the generic market is Valeant which acquired a local producer in July 2009; sanofi-aventis acquired a local producer in early 2009. The local company Genomma Lab launched its generic product portfolio in August 2009.
In population terms, Russia is a potentially vast market. Health spending is generally very low, however, in comparison with Western countries. Around 75% of the pharmaceutical market is supplied by imports. The domestic generic industry is sizeable, but the local production of innovative drugs is negligible. Russian manufacturers are small and under-funded, often making do with outdated equipment. The market environment remains challenging for overseas companies. Major problems reported in Russia include corruption, bureaucracy, counterfeiting and poor data confidentiality. Government officials and politicians often discriminate in favour of the domestic industry, and enforcement of existing rules is often weak.
As part of Turkey's bid to join the EU, national legislation regarding pharmaceutical regulation is becoming more aligned with that of the EU. Partly as a result of previous efforts, but also of this harmonisation, the regulatory environment in Turkey is far more complex and the processes much more comprehensive in Turkey than elsewhere in the Middle East. However, there are still concerns within the international community over Turkey's poor patent protection and intellectual property provision. Turkey has a considerable number of domestic producers, including Abdi Ibrahim, Bilim Pharmaceuticals, Eczacibasi, Embil Pharmaceutical Company, Fako Ilaclari, Milen Pharmaceuticals, Mustafa Nevzat Pharmaceuticals, Sanovel and the Turgut Group.
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