IHS Global Insight Perspective | |
Significance | Merck & Co (U.S.) is implementing an emerging market strategy with special focus on India following completion of the integration of Schering-Plough (U.S.)'s business, and as the pharma market's dynamics shift, with emerging markets experiencing double-digit growth, and developed markets stalling at 6% annual growth. |
Implications | With increased competition from generic firms and increasing pricing pressures, Merck is altering the way in which it gains market share and revenue in India and other emerging markets, opting for patient-access programmes, cost efficiencies in manufacturing and distribution, and collaborations and acquisitions with/of other companies and organisations. |
Outlook | Increased patient access and doctor awareness of the firm's brands, tiered pricing, and having a suitable broad-spectrum product portfolio as well as the inclusion of branded generics will benefit the U.S. major in the next five years, helping it break into the top-three pharma majors in the emerging markets. |
Merck & Co Sets Sights on Emerging Markets
As developed pharmaceutical markets see increased pricing pressures and stalling growth, U.S. pharma major Merck & Co (Merck, Sharp & Dohme outside North America) is setting its sights on tapping emerging markets to make up 25% of total revenues by 2013. As part of its emerging market strategy, the U.S. major aims to become one of the top two Big Pharma in India over the next 5 to 10 years. Merck's strategy is being driven by growth forecasts for 17% per annum in emerging markets over the next five years, while developed drug markets are set to grow at a rate of only 6%. Merck's 2009 merger and subsequent integration with Schering-Plough provided the company with a portfolio of drugs covering the therapeutic areas of cardiovascular disease, oncology, vaccines, infectious disease, women's health, respiratory, and diabetes products—all relevant to emerging markets.
At present, emerging markets account for 18% of Merck & Co's revenues, with the firm ranked fifth in emerging markets and 29th in India, with a 1% market share. The U.S. firm's goal is to become the first or second in seven key countries including China, India, South Korea, Russia, Brazil, Mexico, and Turkey within the next five to seven years. Factors driving the change in strategy include changing disease profiles: while most emerging markets are still burdened by communicable diseases, economic growth and lifestyle changes are seeing a rise in non-communicable diseases, hence a double-burden disease profile. Examples of this trend include a 50% increase in hypertension in China from 2005–15, while 75% of the global diabetic population now live in emerging markets. Rising income levels, increased health insurance coverage, and growing populations mean greater healthcare and drug demand, and improved affordability.
Strategies
- Broad Product Portfolio—Acquisitions/Alliances: Merck & Co plans to drive its emerging market growth through a broad portfolio of new, in-line, and mature products. It is planned for gaps in its product portfolio to be filled with local and regional partnerships, or through acquisitions. In addition to plugging such gaps, the U.S. firm plans to add branded generics to cater for wider populations. With this in mind, Merck plans to launch two new drugs in India in the first six months of 2011, including a rotavirus vaccine and an unspecified cardiovascular drug. Examples of this strategy already in play include an exclusive licence agreement with Saudi Arabia's national pharma firm, Saudi Pharmaceutical Industries and Medical Appliances Corp (SPIMACO), which will see the Saudi Arabian firm manufacture, market, distribute, and sell products Merck & Co branded products (see Saudi Arabia: 2 November 2010: SPIMACO, Merck & Co Sign Exclusive Market Licence Agreement). In South Africa, Merck expanded its cross-distribution deal for sub-Saharan Africa with Adcock Ingram, which will see both firms use each others' marketing and distribution facilities to sell their products. (see United States - South Africa: 2 September 2010: Adcock and Merck & Co Expand Cross-Distribution Deal).
- Lifecycle Management—Patient Programmes: The U.S. major is also set on increasing focus on product-lifecycle management to cater for local customers' needs. As part of this mechanism, the firm plans to use patient-access programmes to increase access to and affordability of its products. These programmes offer expensive therapies to patients either free of charge or with medium-to-high discounts, and are normally carried out through doctors' networks or hospitals, further increasing Merck's inroads in emerging markets. To kick-start this strategy, Merck initiated an extensive national study on cervical cancer in combination with clinical trials of its cervical cancer vaccine, Gardasil (human papillomavirus vaccine), to raise awareness and promote the use of the vaccine. It is also working with the Indian Council of Medical Research (ICMR) to study Gardasil in under-served populations in India, and has partnered with U.S.-based non-governmental organisation PATH to conduct demonstration projects for the drug. Merck will also be partnering with the AIDS Society of India to provide affordable anti-retroviral (ARV) medicines in India, providing Isentress (raltegravir)—launched in India in April 2010—at a cheaper rate based on a tiered pricing policy.
- Cost Efficiencies: In a bid to increase its output, the firm is to expand its low-cost manufacturing and marketing network and increase investment in clinical trials across emerging markets. In February 2010, Merck & Co joined forces with Pfizer (U.S.) and Eli Lilly & Co (U.S.) to set up a non-profit cancer research organisation, the Asian Cancer Research Group in Asia (see United States - Asia Pacific: 23 February 2010: Big Three Join Forces to Set Up Cancer Research Unit in Asia), enabling the firm to reduce research and development (R&D) overhead costs while tapping various research networks.
Outlook and Implications
Merck's emerging market strategy is years behind those of Pfizer, Sanofi-Aventis (France), Novartis (Switzerland), and GlaxoSmithKline (U.K.), which have continuously penetrated newer markets with alliances, local presence, and acquisitions in order to increase their global presence and market revenues. Its decision to target emerging markets follows the general industry trend, however, with both pharma and generic firms looking to emerging markets to increase revenues and cut costs. Recent acquisition activity includes Abbott (U.S.)'s acquisition of Indian generic firm Piramal's health solutions business, while Daiichi Sankyo (Japan) recently took over Ranbaxy (India), and Eisai (Japan) has moved to establish a manufacturing facility and increase its R&D capacity in India. Growth in India and all emerging markets will be driven by the introduction of new treatments, an increasing number of pharma consumers, and improved healthcare access as governments look to meet their Millennium Development Goals and implement health insurance programmes (see India: 5 November 2010: India's NHI Scheme Expanded to Include 18 More Districts). Merck's life management patient programmes strategy will be paramount in these markets, especially when pertaining to new therapies, as they serve to educate patients and raise treatment awareness among doctors, since increased doctor awareness and support for a product generally results in increased uptake. Although this strategy is just a start, it is a stepping stone to expanding presence in markets where healthcare is largely underdeveloped and characterised by great disparity between urban and rural areas. Merck will have to adopt competitive pricing in order to compete with generic firms, which have a strong hold in most of these markets, especially India. Merck's product portfolio is well-suited to the changing disease profiles in these markets, meaning it is well-equipped for a venture into India and other territories where anti-infectives, oncology drugs, antidiabetics, and cardiovascular ailments make up the largest demand. If Merck can leverage its partnerships, pricing strategies, and product portfolio well over the next five years, it should be able to break into the top three firms in emerging markets.