Tony Daltorio, The Investment U Research Team
The shape of the global market for pharmaceuticals is undergoing a rapid change.
As recently as 2006, more than half of the market growth was in the United States. This data comes from IMS Health, a consultancy that is a leading provider of pharmaceutical trends.
However, the necessity for the pharmaceutical industry to develop new markets is urgent. The latest forecasts from IMS Health suggests that global sales in the industry will grow by just 2.5 – 3.5 percent this year, the smallest expansion it has ever recorded. The United States – which still accounts for two-fifths of all revenues – will decline by 1-2 percent.
Many large pharma companies are now realizing that a lot of future growth is likely to occur outside of what used to be their core markets. Recent months have seen ambitious geographical diversification plans adopted by a number of pharmaceutical companies. These plans aim to boost sales, mainly in the emerging world.
This is a new strategy put into place by many pharmaceutical companies. We will take a look at the state of the global pharmaceutical industry and how this new trend of diversifying into emerging markets may lead to profits for investors in these companies.
The “Pharemerging” Markets
The figures from IMS Health did highlight one source of optimism for pharmaceutical companies: The seven countries IMS Health calls the “pharemerging countries”… China, Brazil, India, Russia, Turkey, South Korea and Mexico.
The potential for the pharma companies to increase their revenues is enormous, as these seven markets represent about 45 percent of the world’s population. And there are a half billion people living in these seven “pharemerging markets” that can afford Western medicine.
Sales in the “pharemerging markets” will expand by 13-14 percent in 2009. This will account for 52 percent of all global growth in pharmaceutical sales. In 2006, only 12 percent of the growth in global pharmaceutical sales came from these countries. These countries currently account for only 12 percent of the global dollar value of the pharma industry (About $80 billion), but that still represents a significant shift in market dynamics.
Despite the current economic crisis, these “pharemerging markets” are expected to continue growing. IMS forecasts similar growth trends over the coming five years as rising incomes and expanding health insurance coverage combine with increasing demand for top-shelf medical treatments.
One of the main factors that will be driving this growth is government policy.
