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Unlocking
pharma growth
Navigating
the intricacies
of emerging
markets
Unlocking
pharma growth
Navigating the intricacies of emerging markets
Contents
Introduction
1.
Rethinking the big pharma sales model: Thoughts from China
2.
As the ranks of Chinas field forces continue to swell, pharmas traditional commercial model
isshowing signs of strain. Its time for multinationals to get smarter about how they sell.
Bing Chen, Franck Le Deu, and Jin Wang
Winning in the emerging middle class: Findings from Brazil
10.
Global pharma companies are missing a chance to serve Brazils increasingly prosperous and
growing middle class. Although wealthier segments spend more on drugs per capita, the scale
of the underserved middle-class market is almost twice as big.
Sanjeev Agarwal, Joo dAlmeida, Tracy Francis, and Paula Ramos
Using behavioral segmentation to boost salesforce effectiveness
14.
Many companies segment their customers by behavioral characteristics to increase sales,
but segmenting the field force is a new approach. Early experience in India suggests that it could
improve salesforce effectiveness in emerging markets.
Kaustubh Chakraborty, Javed Kadir, and Sathya Prathipati
Counter strategies: Getting more value from the retail channel
20.
Most pharma companies operating in emerging markets gear their sales and marketing efforts to
physicians and hospitals. Its time they widened their horizons: building retail muscle could help them
address a large and neglected opportunity.
Sanjeev Agarwal, Putney Cloos, Alka Goel, and Mary Rozenman
Publicprivate partnerships: An untapped strategic lever
28.
Traditional approaches to PPPs have focused on their role in raising a companys profile or improving
its corporate image. Now pharma companies are entering partnerships with governments and global
organizations that deliver solid business benefits too.
Doan Hackley, Jorge Santos da Silva, and Lieven Van der Veken
How sustainable are branded generics?
36.
Branded generics are delivering great growth and profitability in emerging markets, but how much
longer can they continue to do so? A new approach helps companies assess the prospects
marketby market.
Sanjeev Agarwal, Andrew Cavey, and Ali Murad
Growth in Brazils branded generics market: Perspectives from Maurizio Billi,
42.
president of Eurofarma
The leader of one of Brazils most eminent pharma companies talks about building a platform
forgrowth and how local players can capitalize on their market knowledge.
Nicola Calicchio and Tracy Francis
Chinas digital healing
46.
The worlds biggest and most dynamic social media market is talking about health care.
But are companies really listening?
Cindy Chiu, Chris Ip, Ari Silverman, and Florian Then
Breakthrough R&D for emerging markets: Critical for long-term success?
52.
Pharma companies pursuing growth in emerging markets will increasingly need to adapt their
portfolio to address local requirements.The right R&D strategy will involve reducing costs so that
theycan develop innovative drugs tailored to emerging market needs and still make a profit.
Sanjiv Talwar, Shail Thaker, and Matthew Wilson
Cutting through the complexity: Insights into the future of clinical trials in
60.
emergingmarkets
As investing in emerging market infrastructure becomes a pillar of pharma growth strategies,
conducting clinical trials in these markets should be more attractive than ever. So why are
such trials declining, and how should executives evaluate the opportunities in this increasingly
complexenvironment?
Jackie Hua, Shail Thaker, and Matthew Wilson
Managing pharma supply networks in emerging markets
66.
Before they rush to secure sources of supply in emerging markets, pharma companies should take
care to ensure they have the right long-term strategy, the right partners, and the right organizational
resources to manage their partnerships.
Vikas Bhadoria and Jaidev Rajpal
The outlook for Chinas medical products industry
72.
Robust growth prospects are creating tailwinds for Chinas medical products industry. However,
multinationals should prepare for turbulence ahead as market access becomes more complex,
pricing pressures increase, and local competition intensifies.
Lifeng Chen, Yinuo Li, Rajesh Parekh, and Jin Wang
Winning in Russia pharma: The next growth horizon
80.
Over the next ten years Russian pharma will more than double in size. Companies seeking to capture
a share of this growth must prepare to face the challenges of increasing pharma regulation and
intensifying competition.
Jan Ascher, Sean OConnell, Shail Thaker, and Tim Zwerink
Helping Indian pharma reach its full potential
92.
What will it take for India to join the worlds leading pharma markets? As a period of flux brings
proliferating opportunities, companies should quickly adapt their sales and marketing models,
refocustheir commercial investments, and collaborate within and beyond the industry.
Vikas Bhadoria, Ankur Bhajanka, Kaustubh Chakraborty, and Palash Mitra
Tracking shifts and spotting opportunities in Mexican health care
104.
Mexicos health care has improved thanks to recent public initiatives, but rising costs, capacity
constraints, and growing disparities pose new challenges. To keep pace with these shifts, pharma
companies need to raise their capabilities to global standard and preserve the flexibility to update
their plans as often as every quarter.
Julio Dreszer, Pablo Ordorica, Lisa Ramon, Safa Sadeghpour, and Jorge Torres
About the authors
110.
Introduction
1
28
+ 7.3 x4
2.4 107
35
8 brands
2 0
6
These approaches have cut costs and companies cover more than a hundred
been welcomed by physicians who cities and thousands of hospitals. The
resented the old hard-sell tactics.1 field force for blockbuster primary-
care brands caneasily reach 500
However, the new techniques have yet representatives, and teams of 130
to make real inroads in China, which still reps for one brand are not unusual in
relies on face-to-face selling on a huge specialty care such asoncology.
scale. There are several reasons for this:
The stage of market development.
The broad range of drugs being Because many therapeutic
promoted. Many portfolios include not categories are still at an early stage of
only innovative patented drugsthe development, companies need to invest
mainstay of developed marketsbut in educating physicians to improve
also off-patent, mature brands that still diagnostics, establish standards of
have room to grow in China despite care, and drive large-scale adoption of
competition from generics. Both require therapies. It is reps who do the work
face-to-face selling to physicians. of conveying medical and product
The need to cover a vast territory. information during their frequent
Most prescriptions are written in interactions with doctors.
hospitals, and there are many large The use of single-line sales forces.
hospitals for reps to visit. Most Most reps covering larger cities and
multinationals derive the bulk of their hospitals sell only one product, and their
business from the top 50 to 80 cities companies tie their monetary incentives
and 500 to 1,000 hospitals, but leading to that product so as to maximize its
Unlocking pharma growth 5
Rethinking the big pharma sales model: Thoughts from China
chances against heavy competition. This priority over training, defining account
approach also meets physicians needs, potential, tracking performance, and
since it helps them split their business building IT support systems. Reliable
among multiple companies and reps so information on account potential,
that they arent perceived as being too competitive dynamics, and customer
close to any individual or organization. needs was in short supply. Investments
The escalation in competitive in market research, voice-of-the-
intensity. Increasing competition for customer studies, and on-the-ground
share of voice, the need to respond to observation were limited, partly because
expansion by competitors, and the fear sales came easily. Accurate data on
of falling behind in market coverage doctor-level prescriptions and salesforce
have all contributed to the growth in effectiveness barely existed. As a result,
fieldforces. the deployment of field reps was patchy,
with big performance gaps between one
city or hospital and another.
Expansion involved moving into
Signs of trouble less productive accounts. Having
covered the top hospitals and cities,
If this traditional sales model has companies started to add lower-tier
delivered attractive returns, why change hospitals in smaller cities and rural
it? We believe that the way the Chinese areas to their customer base. These
market is evolving is putting the model accounts cost more to serve and are
under strain. The chief challenges it less productive, so each new rep must
faces are a lack of productivity growth visit more of them to cover the same
and intensifying cost pressures. potential. Many are located in territories
with entrenched local competition and
Productivity is declining limited access to the local formulary. As
A crude measure of the average a result, penetrating new accounts calls
productivity of multinationals can be for patience and strong cross-functional
obtained by dividing total sales by collaborationoften difficult to achieve
the number of reps. On this measure, in China.
the annual productivity of the top 10 Staff turnover is high. Most companies
multinationals has declined by 2 percent have staff turnover rates in excess of
overall in the past five years. Although 20 percent per year. As well as direct
some companies have managed to raise hiring costs, high turnover creates
their headcount and their productivity at the indirect friction costs, such as the
same time, many others found that taking damage caused by leaving a territory
on more reps diluted their performance. temporarily open in a promotion-
sensitive market. To reduce turnover,
What accounts for this weak showing? companies are increasing employee
We see three factors as key: benefits and providing better promotion
opportunities, but we dont expect a
Companies focused on boosting rep
dramatic improvement any time soon.
numbers, not productivity. In the rush
to scale up, multinationals paid too little
Other factors also contribute to low
attention to the skills, capabilities, and
productivity. Because turnover and hiring
support needed to drive performance
are so rapid, few reps have more than two
in the field. Recruiting and hiring took
6
Share of off-patent brands in total sales remains high but with large variations between companies
$ billions
100% = 10
Highest 98
Patented 20
Price pressures are
expected to grow on
Average 80
off-patent brands
Off-patent 80
35
Lowest
2011
Share of EDL* drugs adds to exposure and also shows significant variations between companies
$ billions
100% = 10
Highest 34
List of 307 EDL
molecules is expected
Non-EDL 87 to expand to 400 in
Average 13
2012 and 800 in the
medium term
EDL
13 Lowest 4
2011
* Essential drug list; currently comprises 307 molecules (205 western medicine molecules and 102 traditional Chinese medicines)
Source: industry association; GBI Source; SFDA; McKinsey analysis
sales reps capabilities. Running pilots in between the two were tenuous at best.
individual cities or hospitals helps to limit But now that brands reach hundreds of
risk and enables the new model to be millions of dollars in annual revenues and
fine-tuned before it is rolled out nationwide. new launches face a more competitive
and difficult-to-access environment,
Choose your core footprint and marketing budgets can easily stretch
focus your field force accordingly. to $30 million. Companies should take
Many emerging opportunities, such as a hard look at how resources are being
community healthcare clinics in large cities spent and decide whether to double
and county hospitals in rural areas, require down or pull back on some initiatives.
new sales models. Companies busy They should also consider how marketing
addressing performance gaps and keeping can support the sales team effectively
up with growth in the core business of and help implement brand strategy.
large hospitals and big cities may not
have the capacity to address lower-priority Embrace the power of price elasticity.
markets. If they do, they should carefully Multinationals have largely overlooked or
evaluate the tradeoffs, resources, and underestimated the power of price elasticity
organizational changes needed. Success to boost demand. When local companies
calls for a granular view of sources of launch a generic drug, they typically sell
growth, clarity over resource allocation, it at a price 30 to 50 percent lower than
and the decisiveness to walk away from that of the branded equivalent, spurring
some opportunities. Half-hearted short- additional demand for the molecule at the
term efforts are no way to win in China. lower price. For instance, Sino Biopharm
has achieved impressive uptake for
Allocate resources thoughtfully across Runzhong, its generic version of Baraclude
brands. New product launches are (entecavir)Bristol-Meyers Squibbs
likely to expand companies portfolios of drug for hepatitis Bsince launching it in
patent-protected drugs, while off-patent March 2010.2 To get ahead of this curve,
drugs should continue to perform well companies could review price points for
for many years. Both categories require mature brands every three to five years so
heavy investment to create demand in as to tap latent demand and capture value
a developing market. With profitability in that would otherwise go to local generics.
mind, multinationals must choose which
opportunities to pursue and which to Pilot new channels. Although China
forswear. They should identify mature still lags some years behind developed
brands that have limited appeal and markets, local companies have started to
could be de-emphasized, low-demand offer services that allow multinationals to
products that could be outsourced, target customers or communicate with
new launches that will require heavy stakeholders in smarter, more efficient
investment to build up capabilities in ways.3 New channels such as online
unfamiliar therapeutic areas, and so on. learning modules wont replace traditional
channels any time soon, but companies
Develop marketing as a key function. should start investing in them to strengthen
Formany years the sales function took prescribers loyalty, promote academic
center stage in China while marketing activities, and expand their market reach.
languished in the background. Links
Unlocking pharma growth 9
Rethinking the big pharma sales model: Thoughts from China
Notes
1 See Drug sales reps try a softer pitch, Wall Street Journal, 10 January 2012.
2 Lefei Sun, Jinsong Du, and Iris Wang, Bottom-fishing Future Winners in China, Credit Suisse report,
6 October 2011.
3 See Chinas digital healing, pp. 4651.
This is an edited version of an article first published in China Healthcare: Entering uncharted waters,
McKinsey & Company, 2012.
Bing Chen is an associate principal and Franck Le Deu and Jin Wang are principals in McKinseys
Shanghaioffice.
10
Many multinationals are hungry to say that the middle class prefers to
sell their goods and services to the rely on public health services, whose
emerging markets growing middle physicians prescribe only generic drugs.
class, comprising nearly 2 billion people Moreover, these executives believe that
with $7 trillion in spending power. That even when physicians prescribe branded
immense opportunity has put this group drugs, cost-conscious middle-class
at the center of many global corporations patients ask pharmacists to switch their
strategies. But the worlds leading medications to less expensive generics.
pharmaceutical companies are holding
back: the top five generate less than As a result, global pharma companies have
20percent of their sales in these markets. concluded that they must focus on Brazils
wealthiest consumers and can reach
Our study of Brazils pharma market, the the middle class profitably only through
second largest in the emerging world, generics and branded genericsa strategy
confirms that global pharma companies that at least five of the top ten pharma
are missing a significant opportunity to companies have recently announced.
make profits serving a big part of the With local players as the driving force,
countrys middle class120 million strong the generic-drug market is growing at a
and growing fast. Just as important, 28 percent compounded annual rate.
expanding the reach of research-driven
global pharma companies would give But a closer look at Brazils pharma market
millions of Brazilian households access to suggests that its time to rethink this
the highest-quality patented medicines. In approach. Over the past two decades,
2010, the value of the prescription drugs growing incomes have allowed the middle
sold to Brazils middle class was $8 billion, class to satisfy not only its basic needs
mostly for unpatented medications. but also its interest in beauty products,
consumer electronics, and more upscale
While global pharma executives services. Proprietary McKinsey research
acknowledge the recent increase in the conducted during late 2010 and early
disposable income of Brazils middle 2011 found that better health care and
class, they think that this group is education are increasingly important to
more interested in spending money on large segments of Brazils middle class.1
categories such as consumer electronics, Sixty-three percent of it considers brands
cosmetics, and travel than on health very relevant for medicine and would pay
care. In discussions with us, executives a premium for trustworthy onesa finding
12
typical of the vast majority of Exhibit 1: Four segments among Brazil's middle class
consumer goods categories.
Willing to spend on healthcare Rely on public healthcare services
Most global pharma companies
havent invested in this Committed Self-assured SUS* compliant Struggling
I love my health Im confident about I dont have private I rely on SUS and do
population segment, however, insurance. I go out making my own health insurance. not see any value in
so it has little or no awareness of pocket to avoid choices and getting I follow what my branded medicines.
lines and buy what the most value out SUS doctor
of their corporate brands. my doctor tells me. of my healthcare prescribes for me
spending. and currently spend
little on drugs.
Three factors lead us to
believe that high-quality
Share of total 20% 27% 23% 30%
patented medicines are a *
Sistema nico de Sade, Brazils universal healthcare system
large, profitable opportunity. Source: 201011 McKinsey quantitative and qualitative surveys of >800 middle-class patients
major barrier and tend to segment the Retailers and consumer goods companies,
prescriptions they write by their patients especially local ones, can offer pharma
perceived social status. In our research, companies valuable lessons in serving
when physicians serving the middle class the countrys middle class. While it does
are presented with profiles of different not spend as much per capita on out-of-
people, the prescriptions they write are pocket drugs as the upper classes do, its
determined by accent and appearance. sheer size translates into total spending
Our research also showed that while almost double that of wealthier segments.
physicians think that the ability of middle-
class patients to pay for branded drugs
has increased over the past three years,
they continue to underestimate the
willingness to buy these medications
among Brazilians who value health care. Global pharma companies would do well
to take note of these findings and tailor
Global pharma companies must think their strategies accordingly. We believe
creatively about how to develop the that the lessons from our research apply
middle-class segment of Brazils pharma not only to Brazil but also to China, India,
market. As expected, pricing is an Russia, and other emerging markets
important issue. The middle class, with that exhibit significant out-of-pocket
an average monthly household spend spending on medications, an increase in
of $38 on medications, cannot afford the penetration of private health insurance,
the three top-selling patented drugs and a growing aspirational middle class.
in Brazil, which average $60 each.
Note
1 The research included qualitative and quantitative elements and was conducted in five regions in Brazil.
It covered 800 middle-class patients, more than 400 physicians, and pharmacy employees from both
independent and chain stores.
This is an edited version of an article first published in McKinsey Quarterly in April 2012.
Sanjeev Agarwal is a principal in McKinseys New Jersey office; Joo dAlmeida is an associate principal,
Tracy Francis is a principal, and Paula Ramos is a consultant in the So Paulo office.
14
In India, as in other emerging markets, the five years. In doing so, they have tried
pharmaceuticals sector is getting crowded. to ensure consistency and effectiveness
As companies put more feet on the street, by using traditional tools such as sales
the demand for sales talent is outstripping reviews and exerting tighter control over
supply, hindering pharma companies in effort metrics by, for instance, tracking
their efforts to build effective relationships doctor visits through daily reports. Some
with doctors. Reps are also spending less companies are investing in formal training
time interacting with their line managers mechanisms to increase the effectiveness
as sales organizations increase their of their sales managers; others are
numbers of levels and spans of control. upgrading their incentive schemes to
look beyond sales figures and track
Even so, sales reps continue to play a metrics such as consistency and brand
critical role in pharma sales in the absence performance. Leading companies are
of other profitable and scalable commercial making more extensive use of technology;
models, especially in emerging markets. some issue their sales reps with tablet
Our projections show that the number computers so that they can track the reps
of pharma sales reps in India is set to performance and activities in real time and
increase threefold over the next ten years. take corrective actions when necessary.
Given the shortage of sales talent and
management time, companies will need Up to a point, these steps have worked:
to improve the way they manage their companies deploying superior salesforce
reps. A few leading pharma companies effectiveness practices have seen the
in India are already making strides in this impact of their field forces improve
direction by adopting a new approach noticeably. However, as sales divisions
that involves segmenting and tailoring have grown beyond a few hundred
incentive systems for their sales forces. medical representatives, national sales
managers have started to encounter a
fundamental difficulty. Most traditional
field force effectiveness tools involve
The problem with one size making interventions across the whole
fitsall sales force. Yet these interventions
influence different people in very different
Most large pharma companies in India ways. When incentives are redesigned,
and other emerging markets have doubled for instance, some individuals respond
their sales forces over the past four or positively, while others are indifferent.
16
Talent baselining. Once the analysis has analysis to track areas that may be at
been completed, the results are shared risk. Depending on how the individuals
with the individuals immediate manager, performance has correlated with
who combines them with their own expectations over the past month or
observations to create a personal dossier. quarter, the manager can then intervene
The manager goes through this process for to help the individual improve their
each of their reports in turn to understand performance in the next month or quarter.
the factors that drive their behavior. A
sample dossier is illustrated in Exhibit 2. Customized interventions. The
Then the company holds a workshop to segmentation enables the sales manager
sign off on the final segmentation, specific to devise the most effective tactical
issues affecting individuals, and customized interventions for each individuals
development plans for each segment. behavioral type, as outlined in Exhibit1.
For instance, when dealing with a rep
Once the segmentation exercise is whobelongs to the ROI maximizer
complete, the results can be used segment (number 5 in the exhibit), the
to shape two main interventions: sales manager should spend time with
the rep to explore where to invest the
A monthly look-ahead analysis. promotional spend for a new launch to get
After an individual has been categorized the greatest strategic return. For instance,
as belonging to a given segment, their should they try to convert new doctors or
sales manager can do a forward-looking maximize prescriptions from core doctors?
* Manipulating sales to maximize incentives by alternating between excellent and poor performance in successive quarters
Unlocking pharma growth 19
Using behavioral segmentation to boost salesforce effectiveness
Kaustubh Chakraborty is an associate principal in McKinseys Delhi office; Javed Kadir is a consultant and
Sathya Prathipati is an associate principal in the Mumbai office.
20
Market share of
Total pharma market Retail pharma market Retail pharma growth top 5 retail chains
2010, $ billion 2010, $ billion 200910, percent Percent
Brazil 33 21 20 29
China 104 25 14 10
India 16 11 18 1
Mexico 17 9 10 46
Russia 22 13 11 10
France 53 29 2 98
US 396 207 6 57
have considerable control over script more directive when prescribing acute
outcomes. In India, for example, some treatments or drugs, such as anti-
two-thirds of drugs are sold by a epileptics, because their effects may be
recommending pharmacist or bought altered by excipients or differences in
by a self-prescribing patient with little the manufacturing process.
input from a physician. In Brazil, on The balance between players. In
the other hand, pharmacists often some emerging markets, wholesalers
prompt switching. A recent survey and distributors exert more influence
indicates that more than 40 percent of on the retail channel than pharmacies
Brazilian pharmacists suggest generic do. Mexico, for instance, has two major
alternatives to prescription drugs wholesalers, Casa Saba and Nadro, that
without being asked by the customer.1 dominate the market with a combined
By contrast, the majority of scripts in 70 percent share and have exclusive
China are originated and filled at the contracts with some manufacturers.
hospital, and retail pharmacists seldom Distributors play a leading role in Russia,
question physicians recommendations where CV Protek, one of the countrys
or suggest substitution.2 largest distributors, is forward integrated
The product type. The level of with Rigla, a leading pharmacy chain.
influence exerted by retailers on drug The format and concentration of
purchase also depends on the type of the retail channel. Some markets
product involved. Pharmacists may feel are dominated by chain pharmacies,
more comfortable switching lifestyle, others by independent stores. India, for
primary care, or chronic scripts than example, falls into the latter category,
specialty, acute, or curative scripts. with more than 800,000 pharmacies of
This reflects physicians tendency to be which only 3 percent are chains. Turkey
Unlocking pharma growth 23
Counter strategies: Getting more value from the retail channel
has an even smaller share of chains To understand and manage their retail
among its 24,000 pharmacies. In Brazil, customer base, most consumer packaged
by contrast, the top chains have been goods companies adopt a customer
outperforming independent pharmacies segmentation strategy. At a basic level,
and growing at 25 percent per year. this involves segmenting customers
Thelargest chain, BR Farma, has almost by size and format, but best-practice
doubled in size to more than 700stores segmentation goes beyond this to classify
in just three years. Russia is also retailers by attributes such as customer
experiencing accelerating consolidation, demographics and types of location. In
as seen in the recent merger of the A5 addition, best-practice segmentation
pharmacy chain with Mosoblpharmacia is dynamic, with updates every year or
to create a joint franchise with 1,300 two to capture changes in the market;
stores to rival local leader Rigal. complete, covering all retailers and not
just existing customers; action oriented,
As this complex picture suggests,
driving real differences in service levels
pharmaceutical companies need to
and investment; and forward looking,
think carefully about the dynamics of
reflecting the strategic and economic
individual markets and the nature of the
potential offered by different segments.
products they are selling before launching
their country-specific retail strategies.
Segmenting the retail customer base
in this way enables a company to
identify priority segments and focus
Learning from the consumer its strategy and resources on them.
packaged goods industry
Tailoring value propositions
Consumer packaged goods companies tocustomer segments
have spent decades refining their Consumer goods companies have
approaches to working with retailers, and many options at their disposal to
there is much that pharma companies can vary the value proposition they offer
learn from them. In particular, there are to different retail customers:
three best practices that are immediately
relevant to the pharma retail context: Product portfolio. Consumer goods
companies often tailor the SKUs and
Understanding and segmenting merchandise they offer to particular
customers outlets in response to local customer
Global mass-market consumer goods needs. In Brazil, Unilever won market
companies need to understand the share by offering small rural retailers
diversity of their retail customer landscape. reduced-size packs of its ALA laundry
In order to drive market share, they need detergent that were affordable for
to ensure they are relevant to their entire customers on very low incomes.
range of retail customers, from highly
sophisticated retailers like Walmart to Trade terms and discounts. One leading
mom and pop neighborhood stores, consumer goods company invests in
and from bricks-and-mortar outlets to long-term growth by offering considerably
online marketplaces. They also need to more favorable trade terms to the future
understand the role of distributors and stars among its retail customers. Byusing
wholesalers in each market. its insights into customer segments
24
Operations support Help with improving supply chain Greater profitability and
Margin shift from wholesaler to pharmacist improvement in operations
Wholesaler negotiation/vertical integration
Disintermediation
Additional discounts or OTC offerings
Account management Inventory management, supply chain, etc. Superior effectiveness and
support Samples and training performance
Deferred financing terms/locked-in supply
dimensions might include store format to fulfill orders instantly? Regular calls
(supermarket, national pharmacy chain, from a representative who helps them
regional chain, independent pharmacy, manage for stockouts and educate their
wholesaler, stockist, and so on), volume pharmacists? Visits from physicians?
of prescriptions sold, percentage of
shelf space occupied by prescription Step 4: Define go-to-market models.
drugs, and location. Armed with the Companies then need to decide how
segmentation, companies can then to reach their priority retail segments.
prioritize the segments they want to reach. Should they work through their physician
sales force or does the retail channel
Step 3: Develop a tailored value offer enough potential to justify setting
proposition for each segment. up a separate dedicated sales force?
Byprofiling the needs, capabilities, and If so, should it be organized by region,
economics of target retail segments, retail format, or product portfolio? What
pharma companies can identify the role should key account managers play?
value propositions and products that will Do large customers and international
resonate most with their priority customers chains warrant a global key account
(Exhibit 2). Value-added services such as management team? What is the best
marketing support, logistics, and account way to reach more fragmented retailers?
management are powerful tools for Should some retailers be served through
developing long-lasting retail relationships. intermediaries such as wholesalers, or is
Different segments have different needs, it better to deal direct? Do some retailers
so companies should establish which lend themselves to strategic alliances?
services each target segment is likely to
value most: software that allows them
26
Notes
1 Perceptions of Drugs, IBOPE Inteligncia for Interfarma, October 2011.
2 Retail pharmacies account for about one-fifth of scripts in China, although they are gaining ground on
hospitalpharmacies.
Sanjeev Agarwal is a principal and Putney Cloos is an associate principal in McKinseys New Jersey office;
Alka Goel is a principal and Mary Rozenman is an associate principal in the New York office.
Unlocking pharma growth 27
Counter strategies: Getting more value from the retail channel
28
Publicprivate partnerships:
An untapped strategic lever
Unlocking pharma growth 29
Publicprivate partnerships: An untapped strategic lever
Doan Hackley, Jorge Santos da Silva, and Lieven Van der Veken
Few of the major PPPs in existence today are more than ten years old, yet many have
already achieved an impact beyond anything that the public or private sector could
have achieved alone. They have raised awareness for causes, made these causes a
priority on national and international agendas, secured funding, and spurred the
development of new products.* Many have succeeded in infusing a private sector
mindset and cultureespecially a focus on performance and outcomesinto areas
long dominated by the public and civil sectors. The private sector now provides about
half of all health services in many African countries, making a major contribution to
public efforts to improve service delivery and health outcomes.
Although PPPs can generate substantial benefits, they also carry real costs. Substantial
resources may be required to create and maintain the infrastructure needed to serve
the partnership. All partners must invest time and effort in learning how to work
together and understand each others priorities. In addition, coordinating multiple
partners can frequently lead to delays in decision making.
Changing models
In the past, companies entered into PPPs for largely philanthropic reasons, shaping
their partnerships around donation or sponsorship programs undertaken as part
of a corporate social responsibility effort. Some of these partnerships progressed to
a social investment model, where companies share their capabilities, knowledge,
and technology to improve local health and expect that some indirect and long-term
business opportunities will be created in the process, such as access to patients or
manufacturing capacity. Our focus in this article is on the third type of PPP, a business
partnership model where a company works with local public partners to develop
products, commercialize them, access new channels, and so on, undertaking activities
that are central to its strategy and intended to create near-term business value and
competitive advantage.
The business partnership model is gaining traction as public and not-for-profit
institutions in emerging countries seek to implement long-lasting change in their
local health systems. This means forming partnerships that go beyond low-cost or
free drug provision, financial support, and capability building to focus on creating
local supply chains, manufacturing capacity, R&D knowledge, and market innovation.
MNCs are well positioned to participate in these partnerships to create fully fledged
markets by supporting the development and commercialization of products, building
new channels, and monetizing services. A few early movers are already pursuing this
strategy with the aim of generating new business and gaining competitive edge.
* Kent Buse and Andrew Harmer, Seven habits of highly effective global publicprivate health partnerships: Practice
andpotential, Social Science & Medicine, volume 64, 2006, pp. 25971.
he Business of Health in Africa: Partnering with the private sector to improve peoples lives, International Finance
T
Corporation, World Bank Group, December 2007.
32
Inaddition, the set-up stage is the best This will help not only to ensure that
time to instill a performance culture thepartnership meets all its objectives
by having all parties agree to clear but also to mitigate some of the
milestones for delivery and assessment. inherently higher risks of operating
This sets the tone for the partnership inemerging markets.
and defines the standards against which
the PPP, its activities, and its partners
will be judged. It is equally important to
discuss and define the exit strategy for
all partners. If the PPP has time limits,
Every year emerging markets move
the partners need to agree on them and
further up the MNC agenda, and their
put triggers in place for any renewal of
contribution to overall revenues and
the partnership.
margins has reached a record high. With
Taking steps to identify and seize this greater prominence comes more
opportunities. As competition increases investment in these markets, but also
in emerging markets and PPPs become a more rigorous focus on performance,
more widespread, companies need to risk, and sustainability. PPPs can play an
be constantly alert to opportunities that important role in translating the ambitions
can help them achieve their strategic of companies, governments, and non-
aspirations. A proactive approach can profits into working relationships that
achieve faster impact by helping to satisfy the objectives of all sides. They
position the first mover as the preferred operate as more than a vehicle for social
partner. For example, in Russia, Novartis contribution, increasingly representing a
worked directly with members of the powerful tool for companies to improve
cabinet to understand their needs. It their market access and grow their
was then able to raise its public profile business. When designed for purpose
and market visibility with a $500 million and set up skillfully, PPPs can attain the
pledge to invest in new R&D centers next level of impact and performance,
in Skolkovo, in a direct response to delivering lasting benefits for both the
President Medvedevs plan to create a countries and the companies involved.
world-class biotech cluster.
Creating a strong governance
structure. Partnerships can be
complex, especially in emerging
markets. Different players have different
objectives, and academic centers,
global institutions, governments, and
companies all operate in different ways
and according to local cultural and
business norms. A strong governance
structure is essential for keeping
partnerships on track, and must be
developed in close conjunction with
governments and their legal structures.
Unlocking pharma growth 35
Publicprivate partnerships: An untapped strategic lever
Notes
1 From an emerging market perspective, we define PPPs as any form of collaboration with public or not-for-
profit institutions that goes beyond a customer/supplier relationship and focuses on a goal such as economic
development, disease awareness, or capability building while providing short- or long-term benefit for the
private partner.
2 For more on this subject, see Breakthrough R&D for emerging markets: Critical for long-term success?,
pp. 5259.
3 See PublicPrivate Partnerships: Harnessing the private sectors unique ability to enhance social impact,
McKinsey & Company, 2009, at http://mckinseyonsociety.com/public-private-partnerships-harnessing-the-
private-sectors-unique-ability-to-enhance-social-impact/.
Doan Hackley is a principal and Lieven Van der Veken is an associate principal in McKinseys Geneva office;
Jorge Santos da Silva is an associate principal in the Zurich office.
36
Over the past five years, generic and identify those markets where branded
branded generic (BGx)1 drugs have generics will remain a sustainable
continued to grow strongly in emerging proposition and those where conditions are
markets, often at a pace two to five likely to become more challenging. In this
times faster than branded originals. article we outline an approach to assessing
Inthose emerging markets where brands markets that leaders can use to establish
are seen a proxy for quality, and where a fact base to inform their discussions
physicians retain considerable control over on investing in branded generics.
prescriptions and patients over purchasing
decisions, branded generics have been
more successful than their unbranded
counterparts, and have maintained Recent investmentsand
their prices for longer. Recognizing new challenges
this opportunity, many global pharma
companies have announced plans to Global pharmaceutical companieshave
boost their emerging market business by adopted a variety of approaches to
investing in branded generics, whether enter the branded generics segment
by launching their own portfolios or by inemergingmarkets:
acquiring those of other companies.
M&A. Many multinationals pursue
an acquisition strategy to build their
However, the landscape for branded
branded generics business. For
generics is far from uniform, with individual
instance, Sanofi-Aventis expanded its
markets evolving in markedly different
portfolio and footprint by acquiring the
ways. In some markets, such as Turkey,
Czech Republicbased Zentiva and
governments are implementing cost-
Brazils Medley in 2009. Similarly, Abbott
reduction measures. In other markets,
acquired Belgium-based Solvay and
such as South Africa, payors are putting
Indias Piramal in 2010, and in the same
pressure on prices. By contrast, some
year Pfizer acquired a stake in Teuto
markets, such as Brazil, are continuing
inBrazil.
to see rapid growth in branded generics
as the emerging middle class acquires Long-term partnerships. Several
increasing purchasing power.2 global pharma companies have
embarked on joint ventures with local
Given such differences, multinational players. For instance, GSK set up a
pharma companies need to examine their partnership with Aspen, a South Africa
portfolios and geographic footprints to based generics manufacturer, in2009
38
Source: interviews; How half the world shops, McKinsey Quarterly, November 2007; EGA Medicines Association; Economist Intelligence Unit;
BMI; WHO; OECD; McKinsey analysis
become sharper following the introduction That said, the preference for brands in
of international price benchmarking, and eastern Europe is expected gradually
regulatory standards have risen as the to weaken as the introduction of EU
Saudi Food and Drug Authority evolves. standards leads to a rise in quality across
the board. Over time, these markets could
In Turkey and South Africa, meanwhile, begin to resemble those of France and
government pressures to reduce Germany, where strong regulatory systems
pharmaceutical costs are making have combined with austerity pressures
the branded generics markets less to limit the appeal of branded generics.
attractive despite the strong preference
for brands in these countries.
Notes
1 Branded generics are off-patent products sold under a trade name and usually at a price premium by
companies other than the originators. Formulations and dosages are modified in some cases.
2 See Winning in the emerging middle class: Findings from Brazil, pp. 1013.
3 The approach is not predictive and does not take into account every aspect of sustainability.
Sanjeev Agarwal is a principal in McKinseys New Jersey office; Andrew Cavey is an associate principal and
Ali Murad is a consultant in the London office.
42
The leader of one of Brazils most eminent pharma companies talks about
building a platform for growth and how local players can capitalize on
their market knowledge.
Billi takes these competitors very seriously, Getting closer to some multinationals
admitting: They have the same problems and even being an arm of them in
we have they need to win space. They thesemarkets.
have access to the same technology in
product development and in marketing. Creating a culture of agility without
They know where the good physicians much bureaucracy, without exchanging
are. We are determined to do things the too many emails, without too many
right way, but the others also are. PowerPoint presentations.
This is an edited version of an article first published in Perspectives on Healthcare in Latin America,
McKinsey & Company, 2011.
Nicola Calicchio is a director and Tracy Francis is a principal in McKinseys So Paulo office.
46
The worlds biggest and most dynamic social media market is talking
about health care. But are companies really listening?
Even without Facebook, Twitter, and insights represents one of the largest
YouTube, Chinas voracious appetite for untapped opportunities for healthcare
all things social has spawned a dizzying companies in the Chinese market.
array of social media platforms, many
with tools more advanced than those in
the west (Exhibit 1). Chinese users were
able, for example, to embed multimedia A matter of trust
content in social media 18 months before
Twitter users could do so in the United Social media began in China in 1994
States. Thats helped to turn the worlds with online forums and communities, and
biggest internet user base513million migrated to instant messaging in 1999.
people, more than twice the 245 million User review sites emerged around 2003,
in the US1into the worlds most blogging in 2004, and social networking
active environment for social media. sites such as Tencents QZone in 2005.
Sina Weibo launched in 2009, offering
More than 300 million people use blogs, microblogging with multimedia. Location-
social networking sites, and other online based player Jiepang appeared in 2010.
communities.2 And they are active and
engaged: 91 percent have visited a Chinas social media users are not just
social media website in the past six more active than those elsewhere; more
months, as against 67 percent in the than 80 percent have multiple social
US and 30percent in Japan. Moreover, media accounts, compared with just
three-quarters of users are creators 39 percent in Japan.4 They increasingly
of contentactive posters rather use social media on the move too,
than mere spectatorscompared to with mobile users expected to grow at
just a quarter in the US. They spend about 30 percent per year from a base
more time on social media too: over of more than 100 million in 2010.5
20percent more than users in the US,
and six times the average for Japan.3 This explosive growth shows few signs of
abating, given the increasing affordability
Chinese users tend to get quite of broadband, the proliferation of mobile
personal, talking in detail about their devices with internet access, and the
condition, treatment, and standards fact that the government cannot censor
of care, and naming the products and social media as easily as other information
brands that feature in their treatment channels, which leads users to put
regimes. Mining this wealth of more trust in social media content.
48
Social 2
7 networks
Micro- Sign up for a personal feed to
Reviews broadcast activities and
Evaluate and rate blogs receive real-time updates on
products and services news, friends, celebrities, etc.
6 Social 3
media
Media
Create individual blogs Blogs sharing
to discuss opinions Upload, share, and comment
and experiences 5 on photos, videos, and audio
4
Social
Communities gaming
Yet untrustworthy sources do exist, notably Patients reach out to new friends
artificial writers that seed positive and andfamily
negative content in the hope it will go viral. Chinese users greatly value the advice of
In some cases, negative publicity about opinion leaders in social networks, in part
companiessuch as allegations of product because of doubts about the credibility
contaminationhas prompted waves of of formal institutions. One survey found
microblog posts from competitors and that 66 percent of consumers in China
disguised users. Companies need to be relied on recommendations from friends
on their guard against such situations and family when buying moisturizer, for
when mining social media for insights instance, compared with just 38 percent
lest they draw the wrong conclusions in the US. In effect, social media is serving
about users behavior and preferences. as a digital extension of friends and family.
Recent NM Incite research reported more
than 1 million consumer posts about
diabetes in just six months on Weibo and
Stakeholders embrace other platforms, some of them highly
social media specific: 18 percent mentioned individual
products, and 6 percent named brands.
To understand Chinas social media
landscape better, lets look at the key Patients also use online sources to
stakeholders: patients, professionals, make decisions about their health care.
providers, and manufacturers. A McKinsey survey revealed that when
Chinese patients are selecting a hospital,
Unlocking pharma growth 49
Chinas digital healing
they are less likely to seek information account, announced in February 2012
from traditional sources such as print that it will integrate the microblog
media (chosen by fewer than 10 percent accounts of hospitals, hospital
of patients) than the internet (17 percent). departments, and physicians into a
Younger patients are much more likely to single account. It also mandated more
use online information than their elders than 50 hospitals, the Beijing medical
(28 percent of under-25s, compared authority, local health bureaus, and
with 8 percent of over-45s). Similarly, other agencies to open accounts.
12 percent of younger consumers
look to social media for information Manufacturers test the waters
about treatment and medication. Although many multinational pharma
companies have been building an
Medical practitioners take up integrated digital presence in their home
microblogging markets, progress in China has been
Social media has been widely adopted mixed. Some companies have set up
by medical practitioners as a platform Weibo accounts much as they would
for professional interaction. One establish a Facebook or Twitter presence
prominent site for healthcare workers, elsewhere; the Mercilon contraceptive
DingXiangYuan, is used by 3 million and Acuvue disposable contact lenses
professionals including almost 900,000 both have their own sites, for instance.
doctors, with 30,000 new users joining As yet, though, companies have made
every month. It offers information on limited use of social media to bring
drugs and other topics, blogging, content to physicians and patients.
career services, and an online store.
There is a large untapped opportunity
Most doctors are aware of microblogging, for companies to listen carefully to
and more than half use Weibo themselves.6 physicians and patients to understand their
Some leading physicians have hundreds preferences and identify their unmet needs.
of thousands of followers. Oncologists
and doctors who treat chronic diseases
tend to be the most popular.
Listening for social
Providers move online media insights
Healthcare providers are migrating online
to recruit and retain patients, improve Listening to conversations between
patientphysician relationships, and patients, caregivers, and healthcare
expand the influence of their key opinion professionals helps companies understand
leaders. Some set up social media who is talking about which treatments,
accounts for their medical staff, mandate products, and brands, what they are saying
physicians to use them to communicate about disease management and treatment,
with patients, and help to maintain and what their needs are. Leading
the microblogs of popular doctors. companies are already taking steps in
this direction: for instance, in March 2012
Government departments are supporting GlaxoSmithKline signed a multi-year,
this trend too. For instance, Beijings multimillion-dollar global deal with Infosys
municipal health department, which and Fabric Worldwide to monitor and
boasts 40,000 followers on its Weibo
50
analyze social media discussions to inform How can we draw out actionable
its marketing and promotion strategy. insights from the wealth of
informationavailable? How will
Companies should strive to identify all theseinsights change the way we
the needs and priorities of their target engage withphysicians?
patient groups, including what information How well do we understand the rules
they find valuable and where they get of the social media game? Do we know
it. Listening and monitoring trends can how to listen to stakeholders properly?
help companies shape their strategies How far should we go in engaging
and business decisions and inform customers? How can we mitigate
product design, brand campaigns, and regulatory risks?
rapid responses to customer concerns.
How does social media fit into our
However, patient privacy rules are still
planning processes? Who in our
evolving, so companies need to be
organization should take responsibility
careful about how they use patient-
for it? What capabilities do we need?
specific information from social media.
Notes
1 Internet World Stats data as of December 2011; US figures from March 2011.
2 McKinseys 2012 iConsumer survey on Chinese consumers also finds that 91 percent of internet users in
tierI to tier III cities use social media. Tier I cities include Beijing, Guangzhou, Shanghai, and Shenzhen;
tier II comprises about 40 cities and tier III about 170. The tiers are defined by urban population and by
economic factors such as GDP and GDP per capita.
3 McKinseys 2012 iConsumer survey.
4 McKinseys 2012 iConsumer survey.
5 IDC and iResearch.
6 DingXiangYuan survey, June 2011.
This is an edited version of an article first published in China Healthcare: Entering uncharted waters,
McKinsey & Company, 2012.
Cindy Chiu and Florian Then are consultants and Ari Silverman is a principal in McKinseys Shanghai office;
Chris Ip is a director in the Singapore office. The authors would like to acknowledge the contributions of
NMIncite, TC Chu and Davis Lin to the development of this article.
52
in developing products to meet local Early evidence of the quality of local work
needs. They go beyond duplicating or can be seen in the innovative products
reformulating global drugs and develop developed in emerging markets that
genuinely innovative drugs. Examples are beginning to reach global markets.
include Simceres innovative cancer As Exhibit 1 indicates, there are at least
drug Endu in China, Hanmis novel 11such drugs from China and India
combination Amosartan in Korea, and alone in Phase II and III at the moment.
CP Guojians pipeline of innovative
monoclonal antibodies, again in China. Another indication of improving local
capabilities is the growing number of
Local R&D capabilities are improving. new partnerships in which multinationals
Academic, government, and private sector seek out innovation from local emerging
investments into life science research are market players. Examples involving Indian
beginning to pay off. If we take publication companies include Sanofis deal with
as a measure, China now ranks fourth Glenmark on an immunology monoclonal
in the world for medical publications in antibody, Pfizers pact with Biocon for
general3 and is not far behind Japan its insulin portfolio, and Mercks joint
for publication in top journals.4 Other venture with Sun Pharma for innovative
countries are not far behind, with formulations. The alliance between Roche
average citations for papers produced and Russias TeaRx for the development
in South Korea, Singapore, and Russia of Factor Xa inhibitors is another example
running at levels comparable to those of a global company pursuing innovation
of many western European nations.5 with the help of a local partner.
Unlocking pharma growth 55
Breakthrough R&D for emerging markets: Critical for long-term success?
Local R&D can help to secure access to for the local market. However, such
some key growth markets. Governments efforts are still in their infancy and do not
are increasingly rewarding local R&D efforts represent a general trend as of yet.
that go beyond including local patients
in global clinical trials. Many countries
have identified the development of local
pharma R&D as a strategic priority and Where is the real opportunity
are aligning their policies to support it. for innovative R&D?
Examples of therapeutic
Area areas and products Considerations for multinationals
Global 3 Opportunities created Diabetes May involve research in different areas (e.g., gene
diseases by differences in local polymorphism in diabetes)
with local standard of care or Alternative target product profiles may be needed to meet
nuances epidemiology local prescribing preferences
4 Diseases with high COPD (chronic obstructive Must be well recognized by payors or prescribers
incidence in emerging pulmonary disease) (e.g., depression has high incidence in emerging markets
markets but low priority HPV (human papillomavirus) but is often not diagnosed or treated)
at global level Hepatitis
industry? The most common Following normal revenue growth decline curve
*
Explore new drug development India and elsewhere suggest that they may
paradigms. Leveraging adaptive be able to shave even more off this cost.
trial design to reduce the powering
of trials and rethinking trial arms offer Target filing with regulators in emerging
opportunities to depart from the markets only. In the past, regulators in
traditional drug development approach. emerging markets have been unlikely to
approve products from multinationals
Take advantage of low-cost local R&D that target only emerging markets.
capabilities. Conducting all aspects of the However, the SFDA (State Food & Drug
R&D process in emerging marketsfor Administration in China) and DCGI (Drugs
instance, using local patients only, rather Controller General of India) have shown
than those from Europe or the USand increasing willingness to make independent
taking advantage of lower labor and per approvals, and pathways such as EMA
patient costs will help save money across Article 58 and WHO prequalification offer
the entire value chain. Factoring in lower potentially cheaper and faster alternatives
costs for internal clinicians and forming to a traditional FDA or EMA filing.
partnerships with large hospitals to recruit
patients rapidly and at lower cost per As Exhibit 4 illustrates, rough estimates
patient would enable a Phase II trial to be indicate how these approaches could
run for $8 to $16 million as opposed to cut risk-adjusted R&D costs from
the usual $30 to $50 million in developed traditional levels of $750 million to
markets. Interviews with local companies in $1.3billion down to as little as $220 to
Lead
Target Hit to optimi- Pre- Phase I Phase II Regis-
Phase III
to hit lead zation clinical tration
Traditional Cost 12 35 612 715 1020 3050 80150 2030 Total risk-
western ($ million)
adjusted cost
R&D per NCE*:
Success rate 80% 75% 85% 70% 60% 33% 60%
$7501,300 million
Alternative 1 2 3
model Total risk-
Focus Source Conduct all R&D in emerging markets to leverage savings in adjusted cost
mainly on leads from cost base (e.g., in per patient costs) per NCE*:
published, low-cost
validated HTS 4 6 $220475 million
targets providers Leverage adaptive trial File only
design to reduce powering with EM
of trials regulators
5
Focus on local standard
of care for trial arms
(e.g., arms against
traditional medicine, not
expensive comparators)
Cost
01 0.52 24 35 48 816 2550 48
($ million)
*
New chemical entity
High-throughput screening
58
Notes
1 For more on China, see Debunking the myths about R&D talent in China, Evolution or revolution? McKinsey
perspectives on drug and device R&D 2012, McKinsey & Company, 2012, pp. 96105.
2 Clinical trials submitted in marketing authorization applications to the EMA, EMA, November 2010.
3 SCImago Journal & Country Rank, October 2010.
4 PubMed; the top journals are Science, Nature, Cell, New England Journal of Medicine, and PNAS.
5 Robert D. Atkinson and Scott M. Andes, The Atlantic century: Benchmarking EU and US innovation
and competitiveness, Information Technology & Innovation Foundation, February 2009.
This article was first published in Evolution or revolution? McKinsey perspectives on drug and device R&D 2012.
Sanjiv Talwar is an associate principal in McKinseys New Jersey office, Shail Thaker is a principal in the
London office, and Matthew Wilson is a principal in the New York office. The authors would like to thank Ajay
Dhankhar, Matthias Evers, Sumin Koo, Martin Mller, Charles Sekwalor, and Navjot Singh for their contributions.
60
5%
1,650 4%
6%
1,350 728
611
340 270
7% 8% +6%
234 174 193 200 251
140
*
Phase II and Phase III trials sponsored by industry; 2011 number annualized based on January to October count
Source: Clinicaltrials.gov; McKinsey analysis
225
CAGR
200
200508 200811
175
China 20 1
150 India 29 26
Russia 18 17
125
Poland 12 14
100 Brazil 13 19
US 4 10
75
Worldwide 0 9
50 Argentina 7 26
25
2005 2006 2007 2008 2009 2010 2011
*
Phase II and Phase III trials sponsored by industry; 2011 number annualized based on January to October count
Source: Clinicaltrials.gov; McKinsey analysis
supply lifelong medical supplies for This transition is likely to happen against
patients participating in trials. In some a backdrop of considerable evolution
other countries the cost of cross- over the next five years. Many challenges
border drugand biosample delivery in the clinical development ecosystem
has soaredand is now higher than in will ease as regulatory capabilities
developed markets. advance and the investigator base
matures. As global contract research
Collectively these factors add up to
organizations (CROs) gain scale in many
a significant complexity challenge
emerging markets, they will be better
for global pharma companies.
able to support local trials. In addition,
some local CROs, such as TigerMed
and Fountain Medical in China and the
Sino-Japanese joint venture Rundo, are
What next?
developing their capabilities to meet the
needs of global pharma companies.
Our discussions with heads of clinical
operations at major global pharma
companies revealed that there are We also foresee a growing emphasis
substantial variations between companies on the role of clinical trials within a
in the proportion of patient trials conducted portfolio of initiatives demonstrating
in emerging markets and the strategies commitment to local markets. Regional
adopted to pursue them. As Exhibit 3 and local trials focused on market-
illustrates, there is a cadre of companies specific needs will continue to grow,
that are yet to shift significant trial volumes and will include outcomes research
to emerging markets, but plan to do so and investigator-initiated trials to
in the next five years to catch up with help engage opinion leaders and key
their peers. A consensus seems to be institutions on local medical needs.
emerging that the right allocation of trials
in emerging markets is about 40 percent.
35
30 29
20
18
15
To capture the most value from trials Objectives. Clinical objectives need to
in emerging markets, companies need be aligned with enterprise-wide strategic
to get the following things right: objectives, not emerge out of ad hoc
decisions by study teams. To develop
Global footprint. To ensure an efficient
a thoughtful strategy on global trial
and streamlined approach, companies
allocation, companies need to establish
need to strike a balance between
a genuine dialogue between their R&D
breadth of exposure to emerging
and commercial people and weigh up
markets and focus in key markets.
the challenges and benefits of each
Mostof the clinical leaders we spoke to
market. The needs of individual trials will
are exploring the possibility of reducing
always vary substantially, but decisions
the number of countries where they
on where to invest and how to balance
conduct trials by giving lower priority
the often conflicting goals of speed,
to second- and third-tier emerging
quality, cost, and commercial potential
markets. For instance, one company
call for an independent holistic analysis
has reduced its clinical trial footprint
to align the organization and provide
from 60 countries to just 25.
strategic guidance to teams.
Investment. The winning formula is
likely to involve investing heavily in a few
key markets in order to secure access,
mitigate compliance risk, and retain
talent. Companies will need to build
solid relationships with investigators In this rapidly evolving landscape, each
and institutions, work with regulators company will need to revisit its approach
to drive quality standards, and develop to clinical trials in the light of its commercial
world-class local talent. This could aspirations for emerging markets, its
mean investing in captive centers in overall cost requirements, and its existing
the near term, as Pfizer did with its footprint. Companies need to be clear
Phase II supercenters in India and about their strategic objectives and about
Argentina, or pursuing a virtual model the scope for industry-level actions to help
via local partners, as Merck did through unlock opportunities. For those companies
its relationship with Fuwai hospital in that are able to navigate the growing
Beijing, China. complexity of this landscape, the next
fiveyears continue to offer great potential.
Collaborations. Companies should
develop creative collaborations with
their peers to tackle key local challenges
such as the availability of GCP-trained
investigators. These collaborations
should also be used to address
compliance concerns and provide a
uniform view for regulators.
Note
1 Our discussions took place during McKinseys annual conference for heads of clinical operations in
November2011.
Jackie Hua is a consultant in McKinseys New Jersey office, Shail Thaker is a principal in the London office,
and Matthew Wilson is a principal in the New York office.
66
Potential Preferred
suppliers partner(s)
Structure ongoing
Set scope of partnership
management
Exit
Define conditions for exit at
multiple levels such as products, Portfolio/
markets, and whole partnership market Outcomes of
8 1 defining end-state
Risk management design and
Define and agree on overall risk management Value
selecting products
framework and specifics (e.g., action in the 7 2 chain
event of sale, quality issues)
Partnership
Governance model
Structure partnership
Define day-to-day management 6 3
Define communication flows, cadence
of review, KPIs, penalties, change Exclusivity
management process, etc. Select full, partial, or no exclusivity
Define methods for resolving disputes 5 4 based on strategic and business case
(e.g., performance, payments) analysis as it affects cost of goods
sold and license fee
Compensation
Partner resources
structure
Choose dedicated
Specify what will or shared resources
and will not be
Choice affects cost
paid for
structure
Choose fixed,
variable, or
mixed model
Base choice
on products
strategic and
business potential
ensure they have the right mechanism in size, complexity, and strategic importance
place to monitor ongoing supplier behavior of the deal. At minimum, it could be an
(such as right-time delivery and quality), account manager within the purchasing
and they should be able to respond function, but such a light approach
quickly to correct issues as they occur. In should be limited to the very simplest,
our experience, this is the step that most non-strategic supply arrangements. Most
often trips up pharma companies. What substantial ventures require a dedicated
they need is a proactive approach to the cross-functional management team
management of new supply contracts. based either at corporate HQ or, ideally,
One top-ten pharma company seconded on the ground in emerging markets so
a supply executive to its partner to that staff can build strong relationships
manage the relationship early on. Another with their counterparts at the supplier and
scheduled monthly supplier reviews respond quickly when things go wrong.
involving senior management from both
sides at the beginning of the relationship. In most cases, there will be a handover
between the cross-functional team that
Managing supply relationships effectively negotiated and established the new supply
involves establishing rigorous procedures relationship and the one that will run it.
for performance management and issue Companies must manage this process
resolution as well as designing an effective with great care, particularly as it happens
organization to support the external supply during the early stages of supply when
network. The size and nature of this problems and disputes are common
organization will naturally depend on the as company and supplier iron out their
Unlocking pharma growth 71
Managing pharma supply networks in emerging markets
This is an edited version of an article first published in Pharmaceutical Manufacturing, October 2011, pp. 2930,
and reprinted with permission of Putnam Media.
Vikas Bhadoria is a principal and Jaidev Rajpal is an associate principal in McKinseys Delhi office.
72
Below we explore the state of the market Product segments. For multinational
today, the opportunities and challenges companies, the key segments of the
it is likely to present in the next few market are capital equipment (worth
years, and the issues that multinational $5billion), personal medical equipment
companies need to consider as they ($3 billion), implantables ($2 billion), in vitro
develop their China strategies. diagnostics ($2 billion), and other high-
value medical devices or consumables
($1 billion). The remaining third of the
market ($7 billion) is made up of low-end
The market today consumables and equipment such as
surgical dressings, drug delivery systems,
To understand the growth prospects of and standard diagnostic equipment.
Chinas medical products market, we
need a clear view of its size and structure. Competition. Multinational companies
This is not easy to obtain, for several face strong local competition in all market
reasons. The market is heterogeneous segments. Overall, local companies
and fragmented, with more than command 40 percent of the $13 billion
6,000 manufacturers; the channels for market addressable by multinationalsthat
distributing products to hospitals and is, all major segments except low-end
other treatment centers are complex; consumables and equipment. However,
and reliable data is in short supply. the balance of market share between
74
multinationals and locals varies greatly from urbanization is continuing: the number
segment to segment. Local companies of city dwellers reached 680 million
have a majority share of 60 percent in in January 2012, outnumbering the
personal medical equipment, and large rural population for the first time.
shares of 40 percent in capital equipment
and implantables. On the other hand, Scope for market development.
multinationals have a 65 percent share There is still plenty of scope for growth
in in vitro diagnostics, and a 75percent in the market, especially in complex
share in other high-value medical products therapies, but even for more mature
such as top-end surgical tools. therapies too. For instance, the use of
coronary stent implants among urban
Similarly, there are marked differences Chinese patients with acute coronary
within subsegments such as orthopedic syndrome was only about 9 percent in
implants. For instance, a few large 2009, lower than India, with 11 percent,
multinationalsMedtronic, Johnson and much lower than Germany (44
& Johnson, Stryker, and Synthes percent), South Korea (60percent),
(acquired by Johnson & Johnson in and Switzerland (71 percent).
April 2011)collectively account for
more than 70 percent of the market Increasing affordability. Along with
for spinal implants, with the remaining rising disposable incomes, an expansion
30percent split between some 50 local in medical insurance is making medical
companies. By contrast, local companies devices more affordable. Government-
such as Trauson and KangHui Medical sponsored insurance coverage extended
currently have about 60 percent of to more than 95 percent of the population
the market for trauma implants. in 2011, affecting rural as well as urban
dwellers.2 The governments focus
will shift from expanding coverage to
increasing insurance subsidies, with
Drivers of future growth the aim of bringing out-of-pocket
spendingwhich stood at more than
In the next five years we expect Chinas 60percent in 2006 and had come down
medical devices market to continue to 35percent by 2011below 30 percent
growing at 15 to 20 percent, more than of total health expenditures by 2015.
doubling in size. This growth will be
driven by steady increases in patient Healthcare reforms. The mandate for
flows, the scope for market development, developing a system of primary healthcare
the increasing affordability of treatment, services has boosted demand for medical
and the effects of healthcare reforms. products, particularly for capital equipment
for lower-tier medical service providers.
Growth in patient flows. Two main Central and local government spending
demographic changes will affect the on refurbishing equipment in county and
market for medical products. First, township hospitals and clinics has brought
Chinas population is aging rapidly. the total national expenditure for medical
Between 2010 and 2020, the over-50 products to about $6.2 billion. Over the
population will grow by about 150million, next five years, the priorities set out in
roughly the population of France and the governments Twelfth Five-Year Plan
Germany combined. Second, massive should help the sector to sustain healthy
Unlocking pharma growth 75
The outlook for Chinas medical products industry
Technological Focus on prevention studies through disease screening and early warnings in order to
achieve early diagnosis and improve cure rates
Develop 50 to 80 diagnosis and treatment technologies, health promotion technologies,
and innovative products for rural areas
Economic Improve export value beyond 5% of the global medical products market
Form 8 to10 large medical products companies with revenues exceeding 5 billion
renminbi (US$800 million)
growth, although their real impact will not overcome hurdles such as new product
be seen until more specific implementation registration, distribution, and tendering.
plans are put in place (Exhibit 1).
Registering new products is a complex
endeavor. Since the publication of the first
guidelines for medical device registration
The challenges ahead in 1996, the government has released
about ten revisions and addenda of
Most companies competing in the medical increasing stringency. For instance, local
products market in China have been clinical trials are increasingly required
reasonably successful for the past 5 to 10 for imported Class III products (such as
years, but from now on we expect to see implantable medical devices). As a result,
an increasing separation between winners although the number of registered medical
and losers. The three main challenges for products has steadily risen, the number of
multinationals are the complexity of market registered Class III products has remained
access, mounting pressure on prices, largely unchanged for the past five years.
and the growing intensity of competition.
The distribution system is another
Market access remains fragmented source of complexity. There are more
and complex than 15,000 medical products dealers,
Market access for medical products mostly small, regional, and focused on
companies in China has never been a few products. To reach the market
straightforward. Decision-making efficiently, multinationals have to make
processes differ from place to place, even use of multiple distribution models based
among hospitals within the same city. on product, geography, or both, and
As multinational companies penetrate deal with hundreds of distributors either
more deeply into China, they will need directly or via intermediary distributors.
to invest in building capabilities to
76
The complexity of market access and containment measures will put indirect but
pricing pressures are magnified by real pressure on medical product pricing.
another distinctive feature of the Chinese
market. Tendering for medical products Competition hots up
has historically been chaotic, and in its In the past, there was a clear distinction
search for a better model, the government between multinational and local companies
recently moved tendering to the provincial in terms of market segments, product
level. In 2011, tenders in Guangdong quality, and technical sophistication.
and Henan led to price cuts of 20 to More recently, though, boundaries
30 percent. The status of the ongoing have blurred: for example, locals have
Beijing tender is unclear, but the capital taken over the coronary stent market
city government is said to be aiming for a created by multinationals and now
similar level of price reduction on high-value command a 75 percent share (Exhibit2).
consumables such as drug-eluting stents. The midrange marketthe segment
between the premium market and the
The fragmentation in the tendering economy market in which multinational
process is echoed by Chinas system and local companies respectively have
of service charges and reimbursement, the majority shareis set to become a
where policies are formulated and applied major battleground as companies expand
at local level. This leads to considerable their product portfolios and cater to
variations: for example, the usage fees broader needs among Chinese patients.
for one surgical procedure range from
200 renminbi in Yantai to 30 renminbi Local companies have mostly focused
in Changzhou, and are not chargeable on easier categories, including low-
in Shenyang. The process for obtaining end capital equipment in relatively well-
approval for service fees is also quite developed markets with established
cumbersome, and can take more than procedures. We do not expect to see them
a year. Similarly, reimbursement for spearheading major market developments
medical products varies by city, and and therapy introductions in the next few
the processes for obtaining it vary years, but with the support of government
significantly at local level, with some policy and capital markets they are likely to
hospitals operating their own policies. move into more sophisticated categories.
Multinational 25
companies 30
45
50
Local
75
companies 70
55
50
Key questions for leaders hospital classes and city tiers, inaccurate
predictions about the rate of change in
To address these opportunities and medical standards (which may be faster
challenges and sustain a winning strategy or slower than experience in the US or
for China, multinationals need to ask Europe would suggest), or a lack of insight
themselves a few key questions: into the motivations and incentives of key
stakeholders involved in the procurement
Which opportunities and segments and usage of medical products.
should we focus on?
The attractiveness of opportunities How do we navigate the complexities
varies considerably by segment and ofmarket access?
product category. Aiming for broad- A well-conceived market access strategy
based leadership in China in every and the ability to leverage scale matter
segment in which a company participates more than ever, particularly for companies
globally is likely to prove futile. Unless with multiple business units. Multinationals
companies have a deep understanding need to build strategic partnerships
of the dynamics of a given medical and relationships with central and
category, it is easy for them to over- or provincial governments. At a local level,
underestimate the likely scale of an they need to develop capabilities and
opportunity and their ability to capture a involve distributors as partners to deal
share of it. Misunderstandings may arise with issues such as tendering, service
because of a failure to recognize the fees and pricing, and reimbursement.
differences in rates of adoption across
78
Notes
1 The market sizes quoted in this article have been calculated using ex-manufacturer prices and thus do not
reflect the channel markup that results in significantly higher purchase prices for hospitals and patients.
2 Official government statistics put coverage at 95 percent of the population, but the double-counting of people
with multiple types of public health insurance means that the actual figure is likely to be lower.
This is an edited version of an article first published in China Healthcare: Entering uncharted waters,
McKinsey & Company, 2012.
Lifeng Chen is a consultant, Rajesh Parekh is a director, and Jin Wang is a principal in McKinseys
Shanghaioffice; Yinuo Li is a principal in the Beijing office.
80
Over the next ten years Russian pharma will more than
double in size. Companies seeking to capture a share of this
growth must prepare to face the challenges of increasing
pharma regulation and intensifying competition.
+9% p.a.
~41
+12% p.a.
3 7N*
4 DLO/ONLS
Introduction
DLO reform; of co-pay 45 NDI
introduction ~26
Introduction 6 Hospital
of 7N* 2
of DLO 3
23
15 4 13 Retail OTC
1 2
2 7
6 5
3 1 11 Retail Rx
1 8
1 2 5
1 1 2
State spend
as percent of 21 36 36 ~42 ~42
market
* Seven nosologies: rare and expensive-to-treat diseases (multiple sclerosis, Gauchers disease, haemophilia, hypophisial nanism, mucoviscidosis,
myeloid leukemia, transplantation)
A state reimbursement program
Projected values
Source: Thomson Reuters Web of Science; McKinsey analysis
corporations (MNCs) will make Russia has again increased in complexity. The
a more challenging market to win in. government is also making a strong
push to improve transparency and ethics
The ministry of industry and trades in the market, with new regulations for
development strategy, known as Pharma fairer and more effective public tenders
2020, signaled the governments intention and a proposed law for imposing
to increase local presence substantially constraints on promotional activity that
in a market dominated by foreign MNCs, are much more in line with compliance
with their 94 percent share of value and requirements in the west, such as no
59 percent share of volume in 2009. gifts, limited travel for education, and
Pharma 2020 sets clear though often very restrictions on the hours when company
aspirational goals for massive development representatives may call on physicians.
in local manufacturing and R&D by 2020.
The strategy stipulates that MNCs must As regulation has increased, so has
make serious commitments to localization the level of competition. Over the past
in exchange for stable market access. five years all major multinationals have
formulated ambitious growth strategies
Moreover, the degree and pace of and invested heavily in their field forces.
regulatory changes are increasing: prices What was once a penetration game has
for drugs deemed essential by the state turned into a fierce share of voice battle
are now regulated and the process in the most attractive territories. On top
for obtaining marketing authorizations of this, Pharma 2020 has fueled the rise
Unlocking pharma growth 83
Winning in Russia pharma: The next growth horizon
* At ex-manufacturer prices
Price per pack (most common dosage and pack size)
*Source: Pharmexpertprices
At ex-manufacturer
Price per pack (most common dosage and pack size)
*Source:
At ex-manufacturer
Pharmexpertprices
Price per pack (most common dosage and pack size)
Source: Pharmexpert
an antiviral sold only in Russia, where it is developed-country diseases such as
the best-selling OOP drug on the market. cardiovascular diseases and cancer,
coupled with diseases typical of developing
Actovegin, Detralex, and Heptral show how countries such as tuberculosis and
prescription drugs with strong branding HIV, is creating a healthcare crisis. In
can develop into bestsellers in Russia. For addition, hazardous lifestyles and a
example, Heptral is an amino acid complex culture of indifference lead to high levels
(SAMe) sold asahepatoprotector at more of alcohol and tobacco abuse, the
than $60 per pack. cause of almost 40 percent of deaths.
spending on health care from todays ten to 12 regions that will be instrumental
4.3percent of GDP to roughly 7 percent. in defining the characteristics of the NDI.1
Pharma companies should follow these
As expected since 2007, the government pilots closely over the next few years.
aspires to improve access to medicine
through the introduction of a new Given the attractive growth outlook for
national drug insurance (NDI) scheme both OOP and state-funded channels,
for the general public. At present drug winning companies will need to maintain
reimbursement is limited, with only well-balanced portfolios. In the prescription
10percent of the population covered by drug market, three different models have
federal and regional programs (Exhibit 3). been successful: a branded play in off-
patent products with focus on the OOP
The shape and mechanics of the NDI will segment (as pursued by Servier, Berlin-
have important implications for pharma Chemie, and Nycomed); growth through
companies. Key factors will include the acquisitions (Novartis/Lek, Sanofi/Zentiva,
intensity of OOP cannibalization and Teva/Ratiopharm, and Abbott/Solvay);
the degree to which patients will chose and growth through leading positions in
to co-pay for more expensive branded state-funded channels (Roche and J&J).
drugs (co-payments are likely to fall under However, given the rising importance of
state influence). One important unknown the state, companies with strong track
is the extent to which the government records in state-funded channels are likely
will succeed in driving a shift toward to have an advantage, while purely OOP-
unbranded generics through the NDI. focused players need to rapidly build skills
Starting in 2012, it is launching pilots in at managing government relationships.
Current
reimbursement
system
underdeveloped
New national
drug insurance
(NDI) expected
to fill the space
~6 ~9
~0.1 (6%)
(4%)
(0.1%)
Total funding
816 1,142 831
US$ million
*
All diseases for selected groups (e.g., veterans, Chernobyl accident victims, children under 3 years, disabled)
Selected socially important diseases (e.g., diabetes, cancer)
Currently out-of-pocket retail market (Rx and OTC); in 2010 approximately US$8.1 billion at ex-manufacturer prices (US$57 per capita)
Source: 7N auction result documentation; Ministry of Health and Social Development; RosStat; market experts; press reports
86
Localize drugs development Replace foreign pharma Develop pharma export industry
and production companies and imports
Develop and produce innovative
Support competitiveness of local Push full-cycle production drugs with 50% local production
pharma companies
Improve effectiveness of state Substitute domestic for
Promote education and procurement foreign drugs
innovation investments Substantial exports
Drive modern domestic generics
Modernize pharmacopoeia Pure generics market with
License domestic generics of fewer branded generics
Spread good manufacturing exclusive innovative drugs
practice
Ensure adequate domestic
Reduce corruption supply of strategic drugs
Source: Russia Ministry of Trade and Finance, Strategy for development of pharmaceutical sector until 2020 (Pharma 2020)
Unlocking pharma growth 87
Winning in Russia pharma: The next growth horizon
As this suggests, local R&D is the next to take effect in recent months as prices
horizon. The link between R&D investment come under detailed review as part of
and access benefits is less clearly recurrent re-registrations of all drugs. In
defined than that for local manufacturing, time it could have a major impact given
but local R&D represents a critical that prices in Russia have been higher
opportunity to demonstrate commitment than in Europe and other CIS countries.
to Russia and thus to ensure continuing
access to state-funded channels. It is Changes to the registrationprocess
hardly surprising, then, that the early Some of the changes that the government
R&D movers are successful players in has introduced in the registration process
government channels. For example, have increased its complexity and given
Roche has announced the development Russian pharma companies certain
of 10 HIV compounds in partnership with advantages over MNCs. A requirement
ChemRar, and GSK the development of a for local trials has been introduced, but
vaccine in partnership with Binnopharm. is waived if at least two investigational
Clearly, local R&D is an area that still sites in Russia were included in a global
allows MNCs to differentiate themselves development program. MNCs must run
by moving quickly and decisively and local clinical safety and bioequivalence
establishing close relationships with the and therapeutic equivalence studies.
best scientists and the most influential
stakeholders close to government officials. Draft law on ethics
The government has also drafted a law
New price regulation to improve ethics in health care. Although
As well as implementing Pharma 2020, market experts initially questioned whether
the government is also tightening it would ever be passed, an emerging
existing regulation. Since April 2010, new consensus suggests it will become
maximum price regulations apply to all effective during 2012. One of the biggest
drugs included on the essential drug list changes will be a ban on representatives
(EDL) of drugs eligible for state purchases. visiting doctors during the hours when they
These regulations differentiate between see patients. Pharma companies will need
imported and locally manufactured to find ways of interacting with physicians
drugs, and between those new to the outside the workplace or outside patient
market and available previously. hours. Lead physicians and hospital and
polyclinic managers will become more
Among the important implications for important, since they will be responsible for
pharma companies are that manufacturers monitoring compliance with the new law.
will bear inflation and currency
devaluation risks because prices have Increased competitive intensity
to be registered in rubles. In 2011, only Especially since the introduction of
locally managed drugs were eligible for targeted drug coverage through the ONLS,
compensation for inflation. With inflation a state reimbursement program, in 2004,
running at around 8 percent, the impact many MNCs have treated Russia as a
on profitability could be significant. priority market. Making large investments
in field forces, combined with building a
The new price regulation dictates that few strong brands, was a winning strategy.
drug prices must be referenced to a The result has been a raging battle for
basket of 21 countries including the share of voice that has led to intense
country of origin. This rule has started market competition even as the prospect
88
Against this backdrop, pharma companies given the race for share of voice and
need to redefine their risk appetite notoriously high staff turnover rates.
and possibly adjust their ambitions: is Pharma companies often try to retain
there really a solid business case to rep talent by offering early promotions
support capital investments of $100 to first-line sales manager positions,
to $150 million? Companies that but this leads to a lack of sufficiently
already have critical mass will have experienced and trained leaders in the
an advantage over smaller players. field and is the first issue that companies
need to address. Disease and product
Further investments in share of voice knowledge needs to be continuously
need to be analyzed rigorously. Pharma upgraded, as do reps sales skills.
companies should pressure-test Segmentation and targeting remain a
their deployment models and their challenge in this huge and diverse country
investments in the last increment of in which little physician data is available.
20to 30 percent of reps and ask: is the
ROI really attractive enough or are there Innovating the marketing mix will
alternative channels (call centers, the become more important given the likely
internet, part-time reps) to reach lower- limitations on access to physicians
potential customers in remote places? and the need for more cost-effective
channels to reach remote customers.
Reaching critical mass and utilizing sales For example, companies could start
assets effectively will become even more testing call centers and using web
important as drivers of profitability. In- and broadcasts as part of local meetings.
out-licensing, second brands, partnerships, The governments push for ethics in
and acquisitions should be on the strategic health care and price regulation also
agenda for all pharma companies that demands a greater focus on compliance
are struggling to fill open call slots in their monitoring and a strong pricing function.
sales lines, or that cover only a fraction of
the market with their current portfolios. Manage complexity
Pharma companies operating in Russia
Upgrade key functions will see substantial growth in the breadth
While a broad portfolio of strong brands of their roles and the complexity of
and a competitive field force will remain the challenges they face. As well as
key assets, real differentiation will focusing on sales and marketing, it is
probably come from local embedding likely that they will also need to manage
and distinctive stakeholder management. local manufacturing and R&D, act as an
The market access and government ambassador to government authorities,
affairs function will need to position the and cope with greater attention
company as a preferred partner for the from headquarters. Meanwhile, their
government in pursuing its healthcare organizations will be growing, and more
policy goals. Pharma companies need to business issuessuch as regional market
design a well-orchestrated set of market- accesswill require a cross-functional
access initiatives and an integrated approach. Companies will therefore need
corporate communications campaign. to build more organizational capacity,
perhaps by introducing general managers
Field force effectiveness is becoming an for larger regions, creating a COO role,
even more important driver of profitability, or reorganizing local management.
90
Notes
1 The pilot regions are likely to include Moscow, the Moscow region, St Petersburg, and Bashkortostan.
2 Decree 1141-p, 6 July 2010.
Jan Ascher is a principal in McKinseys Geneva office, Sean OConnell is a principal in the Moscow office,
Shail Thaker is a principal in the London office, and Tim Zwerink is a consultant in the Frankfurt office.
Unlocking pharma growth 91
Winning in Russia pharma: The next growth horizon
92
What will it take for India to join the worlds leading pharma markets?
As a period of flux brings proliferating opportunities, companies should
quickly adapt their sales and marketing models, refocus their commercial
investments, and collaborate within and beyond the industry.
The Indian pharmaceutical market past few years, it is now facing a period
presents a unique set of opportunities and of flux. The broader healthcare sector
challenges that arise from its distinctive is witnessing rising public spending,
nature. Branded generics account for a increasing patient awareness, expanding
huge sharemore than 80 percentof insurance coverage, and the emergence
the retail market. Local players dominate of new hospital formats. Within the
thanks to their early investments and pharmaceutical industry, the leader board
capabilities in formulation development. has changed out of all recognition in
And intense competition has kept prices the past few years, with new entrants
low, which explains why India ranks in the occupying four of the top ten places,
top three markets in the world in terms of including the number one slot. In addition,
volume yet only in the top fifteen in value. sources of growth are changing: we
expect that new products will no longer
Most of all, though, Indias story is one drive growth, and existing large brands
of growth, with an annual growth rate will need to make up the gap. Meanwhile,
of 13 to 14 percent over the past five the distinction between local players and
yearsa sharp rise from the 9 percent multinational companies has become
CAGR recorded between 2000 and 2005. increasingly blurred, to the point that they
Our analysis shows that the market is will all face the same set of imperatives in
likely to grow to $55 billion by 2020, the next few years, as we explain below.
driven by a steady increase in affordability
and a step-change in market access.
This growth would make the Indian
market comparable to all developed The drivers of growth
markets except the US, Japan, and
China. The analysis also indicates that As the market becomes more diverse,
India should achieve an impressive level the drivers of growth are proliferating
of penetration that makes it a close and becoming more nuanced. They
second to the US market in volume fall into four main categories:
terms. This growth in value and volume
should be accompanied by an upgrading Epidemiological factors. Population
of therapy and treatment levels. growth of around 1.3 percent per year
and a steady rise in the prevalence
Despite the Indian pharma markets of disease (with an increase of 25 to
enormous gains in confidence during the 40percent in diabetes and cancer,
94
655 Growth
Affordability. As incomes 140 Percent
Rashtriya Swasthya Bima Yojana
Employees' State Insurance Corporation
As health insurance spreads in Source: Employee State Insurance Corporation; Rashtriya Swasthya Bima Yojana; McKinsey analysis
in medical infrastructure, Source: Ministry of Health & Family Welfare; Central Bureau of Health Intelligence;
Reserve Bank of India State Finances; McKinsey analysis
increased government
spending on health care, new
business models for tierII
towns and rural areas, and launches governments public health spending. This,
of patented products should make combined with new business models such
drugs accessible to more people. More as Sanofis Prayas and Novartiss Arogyra
than $200 billion is likely to be invested Parivar, should translate into greater
in creating and upgrading medical access in tier II and rural markets and
infrastructure, with more than 160,000 reduce the wide gap in per capita spending
hospital beds added every year, a total between these markets and urban areas.2
increase of 1.9million by 2020. The annual Finally, although relatively few patented
growth of 18 percent in government products have been launched since
spending on healthcare since 20052006 2005, the recent successes of Januvia
(Exhibit2) should create a $4.5 billion and Galvus indicate that they could drive
segment of pharma products within the tremendous growth in a few disease areas.
Unlocking pharma growth 95
Helping Indian pharma reach its full potential
Specialty therapies for chronic and Metro and tier I markets drivegrowth
niche acute conditions have grown at while rural markets increase share
well above the market rate and should Metro and tier I markets account for
command half of the market by 2020. about 30 percent of the market each. They
We see three developments in this area: should grow in line with the overall market
the upgrading of therapies, sometimes to produce a market worth $33billion by
in response to the launch of patented 2020. Growth is likely to be driven by three
products, as with the dramatic rise of the factors. First, urbanization should see
DPP IV category in diabetes; growing 250million people moving to towns and
awareness and treatment of nuanced cities over the next two decades. Second,
medical indications, as in the case of medical infrastructure should expand,
metabolic disorders; and the firming with corporate hospital chains extending
up of treatment protocols, particularly their networks in the top 70cities and
for critical and life-saving treatments. innovative formats plugging gaps in
healthcare delivery in tier I markets. Third,
Super-specialty therapies are niche organized initiatives could sharply push
areas such as oncology, urology, and up compliance, which is comparable to
nephrology where fewer than 20 percent that in rural areas even though diagnosis
of prescriptions come from generalists. and treatment levels are higher.
They represent only a small segment, but
the momentum they have acquired from Rural markets are likely to grow by a
growing at nearly twice the market rate is few percentage points above the overall
likely to increase their value to more than market as a result of income growth and
$5 billion by 2020. We expect growth to be greater penetration, and their share should
driven by private investments in tertiary and rise from 20 to 25 percent by 2020. By
quaternary care capacity in the metros, contrast, tier II markets are likely to get
the introduction of new molecular entities marginally squeezed, though they will stay
(NMEs), and increases in private insurance relevant.4 Increased affordability is likely
coverage enhancing the affordability of to be the single biggest driver of growth.
high-cost therapies such as biologics. More than 28 million householdsnearly
20 percent of all rural householdsshould
These trends have two major implications climb out of the deprived income class
for pharma companies. First, they cant in the next decade. Health coverage
confine themselves to increasing their through RSBY should enable rural
share in existing markets but must patients to be treated for serious illnesses
actively shape market evolution if they and with more expensive procedures.
want to maintain a leadership position. These markets could grow further if the
Inmass therapies, for instance, they need shortage of medical staff is addressed.
to move down the physician pyramid
to drive growth in chronic segments, a Players will need to adapt their business
step that will involve tradeoffs between models in response to these changes:
greater scale and near-term dips in for instance, in urban areas, they need
profitability. Second, companies need to build customized models to serve
to develop new capabilities such as the hospital segment and undertake
collaborating with payors and providers targeted programs to drive compliance,
to reduce the total cost of treatment whereas in rural areas, they need to create
in super-specialty therapies. completely new business models, including
98
business models, and maintained the ensure they are institutionalized instead
momentum of new product launches. of relying on the senior management
capacity that was adequate when the
All these are steps in the right direction, but market was smaller and simpler.
as competition intensifies and the market
evolves, much more needs to be done. Adopt new salesforce practices
Below we highlight the most critical tasks. To sustain high growth, companies will
need to adopt innovative salesforce
Rediscover the essence ofmarketing coverage models. Our research indicates
Launch marketing and brand planning that representatives are getting crowded
based on prescriber shifts and competitor out of doctors chambers, especially in
strategies remain important, but metro and tier I cities. In addition, therapy
three other areas need attention. and brand choices are increasingly
being determined by hospital purchasing
First, as new launch possibilities committees, payors, pharmacists, and
dwindle, building big brands will be vital other influencers. Selling efforts must
for profitable growth. As many as half change to reflect these new dynamics.
of late-launch successes have been
launched as brand extensions.5 To instil Traditional management approaches,
a culture and mindset of building large such as doctor segmentation and
brands, companies will need to actively targeting based on prescribing patterns,
manage the portfolio, set high aspirations, are geared to capture incremental share
and build competitive differentiation. and are not suitable for driving market
growth. Companies will need to shift their
Second, capabilities in disease focus to key differentiators that will help
management and market creation will be them achieve salesforce excellence.
crucial. Companies will need to work with
doctors to shape therapy and undertake The first of these is enhanced performance
direct-to-consumer activation in a way that management and dialogues. For instance,
complements their efforts. An example instead of focusing on the previous month
is the collaborations that orthopaedic or quarter, the top team should develop
implant companies are entering into a forward-looking view of performance
with key opinion leaders and other and drive interventions accordingly.
physicians to increase awareness of joint
replacements and reduce fear of surgery. The second differentiator is a sharper
focus on people. National and regional
Third, companies must sharpen their sales heads should identify where talent
customer focus, moving away from can make the biggest difference.
a standardized approach to provide
more customized messages. Marketing The third differentiator is a readiness
teams need to understand and engage to challenge entrenched views about
distinct segments of physicians, what is possible. One example is the
pharmacists, and patients instead of view that newly deployed sales reps
using a one-size-fits-alll approach. need two to three years to become
fully productive; in fact, with the right
None of these capabilities are new to expectations and support they can ramp
the industry, but leaders will need to up in as little as 12 to 18 months.
102
Notes
1 We define upper income households as those with annual incomes above $11,000 and middle income
households as those with annual incomes between $4,500 and $11,000 at 2001 prices.
2 In 2007, per capita spending on pharmaceuticals was US$1.8 in rural markets and $15.6 in urban markets.
3 India Pharma 2015: Unlocking the potential of the Indian pharmaceutical market, McKinsey & Company, 2007,
page 54.
4 Tier II markets provide critical support to access for rural markets by acting as sales headquarters, supply-
chain stocking points, and centers for primary and secondary care.
5 We define late launches as brand launches that are not among the first five launches in a molecule or
molecule combination.
6 For more on PPPs, see Publicprivate partnerships: An untapped strategic lever, pp. 2835.
Vikas Bhadoria is a principal, Palash Mitra is a director, and Kaustubh Chakraborty is an associate principal
in McKinseys Delhi office; Ankur Bhajanka is a consultant in the Mumbai office.
104
Source: World Bank, OECD Health Data, 2001; WHO National Health Accounts, 2009
Different systems also provide
significantly different levels
of care: for instance, Pemex
instance, generics have the lowest co-pays spends almost nine times as much per
and branded products the highest). capita as the Seguro Popular. There
are major geographical differences too:
The government could set the stage for rich states such the Federal District
integration by developing a compelling have about six times more specialists
case and creating political momentum. and three times more hospital beds
Itcould also create a financial oversight than poorer states such as Chiapas.5
authority to mediate payments between
payors and providers within a single system To address these disparities, the
or across systems, helping to encourage government could consider developing
the separation of payors and providers. initiatives for specific geographic settings.
The government could also work with the In urban areas, the integration of health
108
Notes
1 Federacion Mexicana de Diabetes, INEGI.
2 Reforma, 2010.
3 WHO.
4 Milenio, 2010.
5 Mexican Ministry of Health, 2010.
This is a revised version of an article first published in Perspectives on Healthcare in Latin America,
McKinsey & Company, 2011.
Julio Dreszer is a principal in McKinseys New Jersey office; Pablo Ordorica is a director, Lisa Ramon
is a consultant, and Jorge Torres is a principal in the Mexico City office; and Safa Sadeghpour is a consultant
in the So Paulo office.
110
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