Emarging Market

Topics: Developed country, Emerging markets, Investment Pages: 7 (1859 words) Published: May 9, 2013
un 1, 2012 (Vol. 32, No. 11)

Emerging Markets Turn to Innovation

Governments Increasingly Seek to Build Their Economies through Life Science Investments

• G. Steven Burrill
|Click Image To Enlarge + | |[pic] | |Real GDP Per Person |

In April 2011, Ascletis launched with $100 million in backing from a Chinese billionaire to discover and develop new treatments for cancer and infectious diseases in China. The company’s management team, based in Chapel Hill, NC, is made up of seasoned pharmaceutical industry veterans, but most of its staff is based in the company’s Hangzhou, China, offices.

Ascletis is not the first company attempting to marry U.S. expertise in drug development with affordable talent in China. But the company hopes to seize opportunities created by cultural differences between the two countries that may allow it to in-license promising products that have been shelved by pharmaceutical companies because they were seen as undesirable products for developed markets.

For example, Americans want once-a-day pills instead of injections, whereas people in China are more concerned about pricing, efficacy, and safety rather than convenience.

Ascletis reflects not only the new global marketplace—single, flat, interconnected, and increasingly borderless—but the opportunity life science companies have today to exploit the availability of capital and the differing value assets from one country to another.

It also points to a harsher reality of which the pharmaceutical industry has taken note. After decades in which the U.S., Europe, and Japan were the principal drivers of global economic growth, the tide has shifted to developing nations in Asia, Latin America, and other parts of the world where a rising middle class is fueling an economic boom.

These emerging markets—China, India, Brazil, Russia, South Korea, Indonesia, and Turkey, among others—are becoming the new economic heavyweights. China surpassed Japan as the world’s second-largest economy in 2011 and is projected to overtake the U.S. by 2020. India is expected to become the third largest economy within the next couple of years. And Brazil and Russia’s GDP is higher than any European country with the exception of Germany.

Within Brazil, Russia, India, and China, the middle class is expanding rapidly—growing at 21% a year to reach 1.8 billion people by 2014. The increased affluence is creating a greater demand for healthcare, in part because with changing lifestyles have come a growing incidence of chronic disease. India and China will make up nearly one-third of the world’s total patients with type 2 diabetes in 2030, with more than 150 million people afflicted with the disease by then.

|Click Image To Enlarge + | |[pic] | |Pharmaceutical Sales and Growth in Emerging Markets |

The pharmaceutical industry has targeted these emerging markets as a primary source of sales growth in the coming years. With many products facing patent expirations and slowing sales growth in developed countries, big pharma sees emerging markets providing an opportunity to extend product life after loss of exclusivity in established markets. These markets have a high regard for brands, giving the originator a leg up over generic competitors.

Big Pharma is also investing in research and development around the world to take advantage of low-cost talent, local expertise, and proximity to new markets. For example, Merck in 2011 said it would commit $1.5 billion to expand its research and development activities in China. Every multinational pharmaceutical company now is establishing a presence in the major emerging markets countries.

And it’s not just traditional big pharma, but biotechs as well. Amgen has been steadily...
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