pnpThe worldwide pharmaceutical market is expected to grow by 5% to 7% in 2011 to $880 billion, a welcome rebound over last year’s 4% to 5% growth. But much of this expansion will be driven by an explosive 15% to 17% growth in 17 emerging countries led by China, which will become the world’s third-largest market for pharmaceuticals. These developing countries, which also include Brazil, Russia, and India, represent a “pharmerging” market of $170 to $180 billion in 2011, according to IMS Health (Norwalk, Ct.).

The consulting company’s annual forecast for 2011 predicts that the pharmaceutical market in the United States will grow by 3% to 5% while Europe (Germany, France, Italy, Spain, and the United Kingdom) and Canada will grow by only 1% to 3%. This is because developed countries will continue to be impacted by revenue losses as blockbuster drugs go off-patent ($30 billion expected in lost sales in the United States alone) and as governments and payers seek to reduce drug prices to contain rising healthcare expenditures.

“While the overall market will appear to rebound somewhat in 2011, the underlying constraints to growth in developed markets are stronger than ever,  including the impact of major patent expiries and payer mechanisms to limit drug spending,” says Murray Aitken, MBA, senior vice president at IMS.

Blockbuster drugs expected to lose patent exclusivity in the United States this year include Lipitor (Pfizer Inc.), Plavix (Bristol-Myers Squibb/Sanofi Pharmaceuticals), Zyprexa (Eli Lilly and Co.), and Levaquin (Ortho-McNeil-Janssen Pharmaceuticals Inc.). These four accounted for more than $17 billion in U.S. sales last year.

The full impact of these losses is not likely to be felt until 2012, when the shift to generic substitutes and other brands in their therapy classes will be complete due to the timing of patent expirations and expected competition among generic competitors, IMS said.

Additionally, constraints imposed by governments and private health plans in developed nations will affect both branded and generic drugs. Spain and Canada are expected to eliminate generous pharmacy rebates for generics in 2011, resulting in reduced government spending. Turkey and Greece will impose across-the-board price cuts on branded pharmaceuticals. In the United States, private health plans will increase pre-authorizations and cost-sharing provisions to address rising healthcare expenditures.

China powerhouse
China is clearly the powerhouse among the world’s emerging markets. Its pharmaceuticals market is projected to grow by 25% to 27% in 2011 to more than $50 billion, according to IMS. If trends continue, China will overtake Japan to become the second-largest market for pharmaceuticals by 2015. “We expect the pharmerging markets to continue their rapid expansion [in 2011] and remain strong sources of growth,” Aitken said.

China’s robust market is a strong magnet for Big Pharma, not just for sales, but also for manufacturing and research. Last year Roche increased its Chinese workforce by 25%, even as it cuts jobs in the United States and in Europe. Lilly and Sanofi-Aventis announced new R&D centers in China, joining Merck, Novartis, AstraZeneca, and others. In July, Merck signed an agreement with China National Pharmaceutical Group Corporation (Sinopharm) to cooperate on commercializing Merck’s human papillomavirus vaccine and other “mutually selected” vaccines and possibly promote and market other Merck pharmaceutical products in that country.

The president of Merck’s China operations, Michel Vounatsos, told Reuters last September that a rapid expansion of medical spending in China could help make that country one of Merck’s top five global markets within the next 10 years. But Merck CFO Peter M. Kellogg, MBA, also cautioned against overestimating the value of pharmerging markets.

“Remember that emerging markets are very small today from a pharmaceutical sales standpoint,” Kellogg told the Jefferies 2010 Global SpecPharma & European Healthcare Conference in London last October. “In China, the top Western pharmaceutical company only has about 3%  or 4% market share. So don’t get the sense that these markets have market leaders that are taking off,” he said, according to Bloomberg News Service.

According to IMS Health, most of the pharmaceutical growth in China is expected to come from branded generic products manufactured and marketed by established domestic companies, although demand for innovative products from multinational companies is increasing. Other emerging countries include Brazil, Russia, and India, each of which is expected to add $5 to $15 billion in annual pharmaceutical sales by 2013. An additional 13 countries will contribute $1 to $5 billion each in annual sales growth by 2013. They include Venezuela, Poland, Argentina, Turkey, Mexico, Vietnam, South Africa, Thailand, Indonesia, Romania, Egypt, Pakistan, and the Ukraine.

Like many other countries, China is attempting to control the growing cost of healthcare services for its people. In late November, Beijing’s National Development and Reform Commission announced that innovative drugs manufactured by foreign companies would come under government price control measures. They had been exempt from these control measures since 2000. In some cases, drug prices had grown to be 10 times higher than for similar products made by domestic companies, the agency said.

Global R&D efforts
In the R&D arena, pharmaceutical companies in 2011 are likely to continue post-merger cost-cutting, restructuring, and operational streamlining, according to R&D Magazine’s 2011 Global Funding Forecast published last month. Some of the largest cuts are still to come from Merck (post-merger with Schering Plough), which is closing eight global R&D facilities; Pfizer (post-Wyeth merger), which is signaling cuts of up to $3 billion in its R&D budget over the next few years; AstraZeneca, which has announced plans to cut R&D budgets by $1 billion in the next four years; and Abbott Laboratories (post-Solvay acquisition), which has also announced big R&D cuts.

But a reversal may also be in the offing for some consolidated companies as they repackage post-merger IP and R&D portfolios that are outside of the company’s focus and spin them out into new companies. For instance, GlaxoSmithKline has taken an equity interest in a new company, Convergence Pharmaceuticals Ltd., which is developing analgesics using some of GSK’s molecular pain IP. “Industry observers have noted that this may be a likely strategy for Roche and others going forward,” R&D Magazine said in its report.

About the Author
Contributing editor Ted Agres, MBA, is a veteran science writer in Washington, DC. He writes frequently about the policy, politics, and business aspects of life sciences.