Fast-growing economies such as China and India could provide lucrative new markets for Europe's pharmaceutical industry, but emerging nations are investing heavily in their own medicines sector and look set to challenge Western dominance of the healthcare market.

Overview

Europe's strong pharmaceutical sector has been eyeing up the potential of emerging markets for some time and new free trade agreements may help increase exports to fast-growing populations where people are now living longer and becoming relatively wealthier.

European medicines manufacturers are looking to Asia for new markets for existing products as well as the chance to develop medicines for diseases which are less common in the developed world.  Some estimates suggest emerging countries could account for up to 25% of future pharmaceutical revenues.

However, the indigenous pharma and biotech sectors in emerging nations look set to change the game. Not only are they keen to produce medicines for their own people but it now seems likely that the big names in future drug innovation will come from Asia.

When Chinese firm BGI became the world leader in gene sequencing capacity earlier this year, it confirmed what analysts have been predicting for some time: emerging global powers are moving into pole position in developing the medicines and diagnostics of the future. 

Experts believe that so-called 'high throughput' research infrastructure will be the key to innovation in the health sector, particularly when it comes to diagnosing (and predicting) illnesses and developing personalised medicines.  

Ten years ago, gene sequencing was a slow, laborious process. Now, with the help of technological advances and an army of technicians, high-tech underdogs can leapfrog incumbent market leaders within a couple of years. In a world where size matters, China, India, Brazil, Russia, Turkey and Indonesia have the capacity to leave Europe in their wake.

Despite the rapid pace of progress, a host of hurdles remain for the new world economies, including historically weak education systems, infrastructure deficits, and the ongoing battle against counterfeit medicines. 

Issues

The accelerated rise of Brazil, Russia, India and China (the so-called 'BRIC' countries) is one of the most profound legacies of the financial crisis. Asian economies have come out of the downturn with strong growth rates and, in most cases, without having had to bail out financial institutions.

While Europe is dealing with deficits, capital-rich China is pumping money into beefing up its research capacity.

India is already the biggest producer of generic medicines in the world, and it is now also looking to establish its research-driven industry. A report by McKinsey, a consulting company, says India's pharma industry will quadruple by 2020 as it ''moves towards the top tier''.

The BRIC countries are investing in innovation and have demographics on their side – a young workforce keen on science and technology. Even EU thinkers expect India and China to have overtaken Europe on R&D by 2025. The days of Asia relying on low-tech, low-cost products appear to be numbered as the BRICs move up the innovation value chain.

Strength in the medicines sector – fuelled by innovation in the biosciences and pharmaceutical industries – is often seen as an index of how advanced an economy is. It is the quintessential knowledge-economy industry.

EU medicine makers head to Asia

The combination of lower costs and rising standards, along with the need to be on the doorstep of emerging markets, has seen several global pharmaceutical companies open research and manufacturing plants in Asia.

Drug-maker MSD has broken ground on a €120 million medicine factory in Zhejiang Province, China and GSK has joined forces with Korea's biggest drug-maker, while Astra Zeneca has expanded its presence in Asia. Asia promises growth at a time when European markets are shrinking as governments seek to slash their medicine bills.

On top of marketing and distribution, R&D has also left Europe. Over the past five years, fewer than 40% of patients enrolled in major clinical trials examined by the European Medicines Agency were European. India, Vietnam and Indonesia are just some of the countries to which clinical trials have been outsourced.

When the H1N1 influenza pandemic hit in 2009, the big names in European and US pharmaceuticals set about developing a vaccine and bringing it to market as quickly as possible. However, it was a Chinese firm, Sinovac, that was first to announce a single-dose vaccine.

All signs point to a growing role for emerging economies in the pharmaceutical sector, even if European firms might still hope that the overall size of the market will expand greatly as Asian consumers become better off.

Can trade deals boost medicines exports?

Free Trade Agreements currently being negotiated between the EU and South Korea, India and the Mercosur countries could boost exports for Europe's pharmaceutical sector.

The deals, each at different stages of negotiation, are also likely to include tighter intellectual property protection, which could help protect Western companies from local copycats.

Emerging markets still have catching up to do

Intellectual property protection is just one area where countries like India and China are working to improve enforcement. Both countries are major sources of counterfeit medicines – a phenomenon that hurts local research-based firms as much as thwarting Europe's exports.

A generation ago, China had barely begun the 'reform and opening up' policy which set it on its current high-growth path. Unsurprisingly, standards of schools, universities, factories and laboratories are patchy. Some newer universities in 'tier one' cities on China's eastern coast are top of the range, but many others look untouched by the economic boom. Similarly, India and Brazil have huge impoverished populations.

The arrival of the BRIC countries at the top table of knowledge-driven industries like the pharma and biotech sectors forces a reappraisal of what it means to be a 'developed' or 'developing' country.

The EU and US have been making noises about redefining what it means to be a developing nation. There should, say some, be a number of categories reflecting various stages of development, thus separating China and Brazil from the Ivory Coast and Sudan.

At the European Business Summit in Brussels, the US trade ambassador referred to China as an 'advanced emerging economy', while EU trade chief Karel De Gucht said China and Brazil are not in the same boat as poor African nations.

The Chinese Ambassador to the EU, Song Zhe, has said China remains a 'rising developing country' with shortfalls in scientific and innovation capacity.

For Western politicians, awkward questions are beginning to arise, such as how much help emerging economic powers will receive from Europe given that they are already eating into market share. Will Europeans still help their competitors when those competitors are juggling investment in innovation with lifting people out of poverty? Rising competition in the high-value medicines industry may help illustrate how the world is changing.

Positions

Jack Radisch of the Organsiation for Economic Cooperation and Development (OECD) says more should be done to tackle infectious diseases in developing countries, but industry would have to be confident of a return on investment.

''Countries in the Organization for Economic Cooperation and Development (OECD) account for about 80% of gross expenditure in research and development globally, but their collective health research output has not led to new medicines for many of the infectious diseases that afflict developing countries. Development and delivery of medicines for such diseases face significant challenges, including cost, safety, stability, formulation and resistance. Low returns on investment combined with high developmental risks discourage business from engaging in this type of research,'' he said. 

Radisch said that only 10% of global health research is devoted to conditions that account for 90% of the global disease burden.

However, emerging economies are still seen as the best chance of future growth for pharmaceutical companies.

''85% of the world's population lives in the emerging markets, and during the past five years, all real economic growth has come from these markets,'' Patrick Keohane, vice-president (VP) for Asia Pacific R&D at AstraZeneca, told Nature.

The challenge will be adjusting the traditional business model to cater for the fact that while Asian populations are huge, they are also predominantly poor, says Sandy Macrae, senior VP for Asia Pacific, Japan, and Emerging Markets R&D at GlaxoSmithKline.

''You have to be aware of the wealth pyramid and the fact that although there are many people at the top of the wealth pyramid who can afford the same medicines that are available in the United States and in Europe, there are many more who survive on significantly less money,'' she says.

Stefan Oschmann, president for emerging markets at MSD said the company's long-term strategy is to expand its geographical presence in emerging markets. ''We expect sales from these markets to be a key contributor to our future performance and growth. As part of our pursuit of that growth we will strive to expand our presence across emerging markets by actively seeking local collaborations,'' he said.

Médecins Sans Frontières Executive Director Tido von Schoen-Angerer has warned that the EU-India Free Trade Agreement will hamper access to cheap generic medicines for the world's poorest people.

A European Commission study has shown that emerging markets have weathered the financial storm better than European countries have, and suggests they will remain a source of global growth for the foreseeable future.

''The core fundamentals of the emerging economies suggest that most of these countries have the potential to generate sustained high growth over the longer term, so the shift in the locus of global growth from the advanced economies to the EMEs is likely to continue,'' the report states. 

Bengt-Åke Lundvall, a professor of economics at the University of Aalborg who has worked on innovation policy in several countries including China, has warned that Europe could learn lessons from China's approach to policymaking.

For Lundvall, one major weakness of the EU's 'Innovation Union' plan is that it takes a general approach instead of setting out different policies to suit individual sectors and regions. He believes the new strategy is not as focused as the 15-year plan laid out by Beijing four years ago, which was developed over a three-year period under the leadership of Premier Wen Jiabao.

Timeline

  • Sept. 2008: European Business and Technology Centre opens in India to help EU firms gain a foothold in major Indian cities.
  • 12 Dec. 2008: EU leaders endorse Small Business Act, which includes encouragement for European firms to break into emerging markets.
  • Sept. 2009: European task force publishes 'The World in 2025' document, which predicts that China and India will be world leaders in R&D within 15 years.
  • Jan. 2010: EU reveals plans for business advice centres in China, India, Thailand, Russia, Brazil and others.
  • July 2010: European Commission unveils new strategy to encourage businesses to 'internationalise' and take advantage of fast-growing markets in the East.
  • 6 Oct. 2010: EU launches 'Innovation Union' strategy.
  • 28 Oct. 2010: European Commission publishes new industrial policy.
  • Dec. 2010: EU SME Centre to open in Beijing.
  • 2011-2012: European business support offices to open in key emerging markets.