Jonathan Wilkins discusses the latest trends and challenges in the pharmaceutical sector, particularly in the context of emerging Asian mark
On the morning of September 28, 1928, serendipity struck when Sir Alexander Fleming discovered he had accidentally left the lid off a petri dish that contained Staphylococcus. The good doctor concluded the bluish mould growing inside the dish was inhibiting the bacteria’s growth and so, penicillin was discovered. Or so the story goes. Today’s pharmaceutical landscape is very different from Fleming’s world and although accidental discoveries still take place, the approach to new drug development is much more complex.
Global industry trends have brought on significant changes in the way pharmaceutical companies operate. Business models have to be adapted continuously to respond to shifting healthcare patterns and increasing regulatory compliance requirements. Drug research and development is moving faster than ever before and pharmaceutical manufacturing is incorporating increasing levels of industrial automation.
The big picture
The pharmaceutical industry is at a critical junction. The global population is increasing rapidly; average life expectancy is growing every decade and the middle class is becoming a more prominent population sector in emerging markets. The demand for healthcare services is amplifying every day. In this sea of opportunities, it’s only the most agile pharmaceutical companies that will survive and grow.
One thing pharma knows better than any other industry is that behind every opportunity lies a hidden threat. Increasingly strict regulatory compliance along with product security and complex supply chains are the main concerns of companies when it comes to cost management. According to the latest UPS study of the pharmaceutical supply chain, companies are trying different approaches to reduce their manufacturing and delivery costs. The results show that 66 per cent of respondents said they have been increasing technology investments with the aim of making research and development (R&D), manufacturing and testing more cost-efficient and flexible in the long run.
In the last few decades, emerging markets have been regarded as the promised land of the pharmaceutical industry, with their total value expected to amount to a third of the global pharmaceutical market by the end of this decade. In 2013, IMS Health identified 21 geographic regions it considered essential for the growth of pharmaceuticals. These countries were given the slightly awkward name ‘pharmerging markets’. The classification was based on per capita GDP, combined with market data forecasts from IMS Market Prognosis. The conclusion was that between 2012 and 2017, pharmerging markets would have growth rates far higher than mature markets. In fact, they were predicted to grow from a fourth of the global pharma market in 2012 to a third by 2017. The main drivers of industry growth for this period of time were government and private healthcare investment, as well as the increasing burden of chronic diseases in pharmerging markets.
As is always the case in industry, some pharmerging markets have more potential than others and classifications differ. According to the IMS Health report, the only tier one market is China, expected to account for nearly half of pharmerging market growth. The tier two countries, as you might expect, are Brazil, India and Russia, while tier three unites countries with a wide array of income levels and healthcare sophistication, including Turkey, Saudi Arabia, Vietnam, Indonesia and Thailand.
A different classification featured in PWC’s Pharma emerging markets 2.0 report uses a different system to describe this dynamic, yet highly diverse group of countries. Tier one comprises of the BRICMT group, meaning Brazil, Russia, India, China, Mexico and Turkey – countries that are now comparable in size to mature Western counterparts. Second tier markets include economies from Eastern Europe and Southeast Asia, like Indonesia, Vietnam and Thailand. Finally, the third group is made up of African markets, which are highly populous, but still have relatively small market sizes.
Regardless of which classification you prefer, several common traits can be identified between most of these markets. For one thing, the balance between the young and old population is shifting.
If in 2010, only ten per cent of the global population was aged 60 or over, by 2050, the number is expected to grow to 21 per cent.
Fifty-eight per cent of people aged 60 or over have at least one chronic condition, which means they require some form of healthcare or medication.
Rising income levels in these countries are also likely to result in a shift towards lifestyle diseases, with different cardiovascular and respiratory diseases potentially on the rise. According to Frost and Sullivan, the estimated number of diabetics in India will grow to 70 million, with China not far behind, with a total of 50 million.
Finally, growing public and private investments in healthcare and pharmaceutical are likely to drive the market even further. Similar to the US and Western Europe, the integration of pharmaceuticals, diagnostics, medical devices, patient monitoring and healthcare IT is likely to result in minimal risk, low cost and safer healthcare.
Although the road is long and difficult, changing business models have already started to take shape. Two of the most obvious trends in pharmerging markets, particularly the Asian ones, are increased investment in research and development, as well as improved manufacturing standards. The aim is to reduce the time dedicated to clinical trials and ultimately move towards just-in-time (JIT) manufacturing and flexible production facilities, like the ones used by the automotive industry.
Automation and control
Industrial automation and control systems integrate IT technology with mechanical systems. One of the biggest advantages of industrial automation is that it helps standardise products, while reducing waste, saving energy and continuously monitoring production efficiency and product quality. For these reasons and others, industrial automation solutions are crucial for the pharmaceutical industry, particularly when it comes to the manufacturing and packaging stages.
North America is currently leading the industrial automation revolution in pharma, but Asia is expected to see high growth rates in the next five years. In fact, China and India are predicted to become the fastest automation and control system markets in the pharma and biotech industry, despite challenges like an insufficiently skilled workforce and increasingly uncompromising industry standards.
Just as a visit to any Chinese city will leave you astonished at the scale and development of modern China, its remote rural areas will impress by how well it has conserved a way of life that is irrevocably lost to the modern world. Similar, if less poetic, contradictions can be identified in China’s pharmaceutical industry.
To deal with the largest elderly population in the world, China’s out-of-pocket and private insurance healthcare payments have been rising steadily in the last decade. Government healthcare payments are also on the rise. After the United States, China ranks second for the number of FDA-registered drug establishments and sixth among the largest providers of drugs and antibiotics to the US.
Large international players are already present in China and have seen increasing competition from local companies. To address the growing pressure, many Western pharma companies have upgraded their production sites. Pfizer, for example, recently announced that a $90m facility would be built at its Suzhou site, to address a growing demand for dietary supplements and multivitamins in the first stage, with the option of expanding to other production ranges in the future. The new facility is also expected to feature a state-of-the-art R&D lab.
This is by no means a solitary example. The biggest industry names including Roche, Bayer, Merck KGaA, Johnson & Johnson and Sanofi all have projects underway to try and reach the growing – and aging – middle-class population of China.
But it’s not all milk and honey when it comes to the Chinese pharmaceutical market. Counterfeit pharmaceuticals are a huge problem in any emerging market and China is no exception. In fact, counterfeit pharmaceuticals originating in China are often so expertly copied that only a lab analysis could distinguish between real and fake. Because of its copycat culture, China often faces questions even when it comes to the quality of genuine pharmaceutical products. This is still an opportunity for Western companies who are either exporting to China or have a joint-venture set up with domestic manufacturers.
Despite intense cost pressures, branded generics marketed in China by Western producers are still in high demand because they’re typically associated with uniform specifications, rigorous testing and stable formulas. However, this demand is starting to fade. Pharma innovation in China has traditionally been slowed down by lack of expertise, a shortage of manufacturing facilities and even a slow review process by the State Food and Drug Administration (SFDA).
Perhaps China’s great potential lies somewhere between innovation and duplication. One thing is certain: with the number of R&D and production facilities on the rise, China is more than just a vast market opportunity; it’s an agile and fierce competitor.
The situation is similar in the Indian subcontinent, with the pharmaceutical industry witnessing healthy foreign direct investment and joint ventures. Branded generics dominate, representing up to 80 per cent of the pharma retail market. What is currently missing in the Indian pharmaceutical landscape is an increase in R&D budgets. According to a recent statement from the Health and Family Welfare minister, Indian pharma manufacturers are spending less than two per cent of the total turnover on R&D.
New opportunities, like patented products, consumer healthcare, biologics and vaccines also appear to be emerging in India. Rising affordability and public health budget increases will be the primary drivers for these opportunities. For the time being, multinational companies are the ones making meaningful investments in the pharmaceutical sector.
However, this year, the Indian medical sector has seen a new drive, with the announcement of India’s first medical device industrial park in Gujarat and discussions underway for a second park in the south Indian state of Tamil Nadu. India currently imports 70 per cent of its medical devices, but with government initiatives like Make in India, chances are domestic industry will start accounting for more of the market, in both the medical and pharmaceutical sectors.
In January 2014, the Indonesian government launched an ambitious new scheme aimed at establishing a compulsory national health insurance system that would make healthcare available to all by 2019. Criticised by many as an overly ambitious plan, the JKN scheme has proven popular with the wider population and independent surveys have shown a relatively high level of customer satisfaction.
The introduction of this scheme is symptomatic of an expanding market that has seen recent investments in the pharmaceutical sector. A report compiled by CPhI South East Asia found that Indonesian pharmaceutical manufacturers are operating at capacity and don’t yet have the ability to expand quickly. This represents an opportunity to get a foothold in the market for Western companies.
To succeed in emerging markets, pharmaceutical companies need to become more agile and change the business models that have made them into what they are today. Whether it’s adapting to local demands, understanding the culture or adapting the production process to make it more flexible and efficient, a paradigm shift is clearly under way in the pharmaceutical sector. After all, the industry needs to evolve and look to the future. There is no way of going back to the good old days of Doctor Fleming’s accidental discoveries.
Jonathan Wilkins is marketing director of industrial automation parts supplier European Automation. European Automation stocks and sells new, used, refurbished and obsolete industrial automation spares. Its global network of preferred partner warehouses, and wholly owned distribution centres, enables it to offer a unique service within the automation industry, spanning the entire globe. It provides worldwide express delivery on all products meaning it can supply any part, to any destination, at very short notice.