Emerging markets: the engine of growth in the world economy

Rebecca Aris interviews Jim Furniss

Bridgehead Consulting

Emerging markets are of increasing importance in terms of the overall share of the pharmaceutical market. The growth we see in these areas often surpass that of other more established markets. What can we expect then of markets such as India and China?

Ahead of his speaking engagement at NextLevelPharma’s upcoming Market Access in Emerging Markets Jim Furniss spoke with us on his view on such emerging markets and highlighted the trends he’s noted.

To listen to the full interview, please click on the play button below, with a shortened transcript of some edited highlights shown in print below.

Interview summary

RA: So, hello Jim, thanks for your time today. Can I ask you to start by telling me about your back ground and your current role?

JF: My background is essentially as a bureaucrat or to put it more positively as a payer. I worked for many years in the Department of Health (DOH) in the NHS and for the first half of the 90’s, I was Head of the Pharmaceutical Industry branch in the DOH, so I was responsible for the UK’s price control scheme, The Pharmaceutical Price Regulation Scheme (PPRS). I was responsible for the NHS drugs budget, which in those days was about £6 or 7 billion and I also represented the UK on pharmaceutical issues of the European Commission, so I had a lot of contact with my counterparts from the other health ministries around Europe. I then moved into consultancy and I have been in consultancy for about 15 years now, for the last 9 years with Bridgehead International, where I am Director of Global Market Access Strategy, so overseeing market access activities globally. The main focus of that work is established markets, Europe and the US, but increasingly we are also seeing interest from our clients in emerging markets, and increasingly we are focussing on those markets.

“…the engine of growth in the world economy is the emerging markets…”

RA: What opportunities do you see from a market as dynamic as China presenting to pharma?

JF: Looking at things from a global perspective it is fair to say that even before the current financial crisis there was something of a shift in the balance of commercial activities from the established markets to the newer emerging markets. Clearly China is one of those.In actual sales now it is probably the largest and the potential is enormous, particularly now that we are facing quite difficult economic times. You might say that the engine of growth in the world economy is the emerging markets. Certainly for pharmaceutical companies where historically we have seen growth in the range of 6 –10% in the established markets, that is no longer the case and I don’t think this is just due to the recession. The great thing about the pharmaceutical industry is it seems to be pretty much recession proof. Nnevertheless we are seeing growth rates coming down to something in the order of 2– 4 % in the established markets, which is a lot lower than historically we have been used to! It is the emerging markets, and China in particular, that now embody the growth potential. We can still look towards grow of 10% plus in those markets. They are increasingly important in terms of the overall share of the pharmaceutical market.

“It is the emerging markets, and China in particular, that now embody the growth potential..”

RA: What would you consider to be the key challenges to market access in China?

JF: As a market it is very different from the established markets that the pharmaceutical industry is used to. The key challenge is that the balance of products is different and whilst there are opportunities for high priced new medicines, for the most part we are talking about a generic market and it’s a market where we can expect growth to be driven by generics. But that is not to say there are not opportunities for high priced products. There certainly are, but that is not the key area of growth in that market. It is posing a challenge for pharmaceutical companies and we are starting to see in big pharma companies something of a shift towards a broader perspective on their product range,, looking not just at the patent-protected products, but at the so-called ‘heritage brands’ – established brands that maybe have lost exclusivity, but still have very substantial sales. So partly driven by China and other emerging markets, big pharma companies are modifying their approach to their portfolio.

RA: How do you see new healthcare reform and new pricing regulation in China impacting on market access in this area?

JF: Well there are two, not quite contradictory but separate, elements here. One is healthcare reform. One of the aims of healthcare reform is to expand coverage in terms of population. Up until now we have seen a situation where the urban population has had at least basic healthcare coverage, where as in the rural areas that has been much less the case. The urban population is of course growing rapidly, but even so the majority of the Chinese population is still rural. One of the key elements is expanding coverage to a much broader population and clearly when you are talking about expanding coverage to another 1/2 billion people that is not insignificant. But the other thing is that as coverage expands and as the government, whether at a regional or at a national level, takes more responsibility for coverage, including meeting some of the costs of coverage, then inevitably pressure on price is going to grow. I think that is part of the reason why I would see generics as a key sector and maybe ‘heritage’ brands as part of that. That is where growth will be focused because price regulation will limit access to higher priced medicines.

“…partly driven by China and other emerging markets big pharma companies are modifying their approach to their portfolio.”

RA: How do you see stakeholders in countries such as China differing from those in developed markets?

JF: Well if you put markets on a spectrum the key difference in stake holders is the extent to which individual patients are stakeholders in a financial sense and the extent to which health insurance or government bodies, of one kind or another are the key stakeholders.

In the developed markets the expectation is that for most patients, most of the time the vast bulk of the cost is met by third party payers through insurance or cash-based system and the patient is a minor stake holder. In that context you are looking mainly at national and regional payers as the key stakeholders. In the emerging markets you go to the other extreme, and maybe India is at the other end of the spectrum, where the third-party payment is limited to a very small private health insurance sector, the state has a minimal role in paying for healthcare generally or medicines in particular, and this is essentiallyan out of pocket payment market. China is somewhere between those and it’s moving towards the more developed market end of the spectrum quite significantly. It’s further along that spectrum for example then maybe Russia is in terms of insurance or regional and national government accepting the responsibility for healthcare and for medicinal products

“…when you are talking about expanding coverage to another 1/2 billion people that is not insignificant.”

RA: And India and China are both strong emerging markets, which do you see as the strongest contender in terms of moving ahead in pharma and why?

JF: In terms of a pharmaceutical market I have no doubt in the short term China is by far the stronger. Their policies are directed towards investing in healthcare, improving access to healthcare and so on, and that is a key driver of the growth in the market, along with economic growth. India has still, by developed market standards, pretty healthy economical growth, but in terms of healthcare it is much less developed and I think it’s some way from starting to make the strides in terms of healthcare coverage that China is already making. So I think it is a much messier, more difficult place to do business in terms of the pharmaceutical market than China is and will be for the foreseeable future

RA: Jim, thank you for your time and your insights

About the interviewee:

Jim Furniss will be speaking at the upcoming Market Access in Emerging Markets event, organised by NextLevelPharma.

What does the future hold for pharma in China?