Emerging Life-Sciences Markets: New Partnerships, New Competitors

lvcandy/Gettyimages

Distant destinations have never looked better for multinational and middle market life-sciences companies. While multinationals fill their innovation pipelines in North America, branded and generic-drug producers alike are finding fertile ground for growth in new markets in Asia and Latin America.

Although economic growth has slowed in countries such as China and Brazil, demographic trends continue in the biopharmaceutical sector’s favor. Aging populations, increased healthcare spending, and growing incomes are creating potential new customers in such countries as China, Russia, and Brazil, with rising rates of chronic illness associated with affluence. Global healthcare spending is projected to grow by an average of 5.3% annually from 2014-2018, with much of the growth occurring in Asia (1).

Cost pressures are intensifying as countries seek to restrain healthcare expenditures. Facing serious margin pressure from generics, many top brands are looking to emerging markets, not only for new customers, but also for low-cost land and labor. At the same time, economic development incentives from governments such as Turkey, Mexico, and South Korea are fueling growth in facilities and infrastructure in those locations through incubators and research parks.

Top global markets and the competitive landscape
Along with ranking the top United States life-sciences clusters, the 2015 edition of JLL’s Life Sciences Outlook report highlights global trends and countries with promising advances in economic openness, innovation, and opportunity. The following offers additional details about some global clusters to watch (Figure 1).

Figure 1: Demographic trends, as well as promising advances in economic openness, innovation, and opportunity, are working in the biopharmaceutical sector’s favor in key countries around the world. Data source: JLL, 2015 Life Sciences Outlook. [Courtesy of author]

Brazil. With nearly 20 years of political stability and recent years of economic growth, Brazil has dramatically grown its middle class and per-capita healthcare expenditures. Improvements to manufacturing capabilities and processes are well under way across the country. Brazil is the top medical device producer in South America (2).

The bulk of the Brazilian government’s investment in the sector is aimed at attracting foreign direct investment and multinational partnerships by improving intellectual property protection and technology transfer, and creating research parks and incubators. Multinational companies are concentrated in Brazil’s leading clusters of São Paulo, Minas Gerais, Rio de Janeiro, and Rio Grande do Sul, which is home to the country’s leading universities.

China. China’s biosimilar expenditures could soon comprise 20% of biosimilar expenditures worldwide (2). A major driver of this trend is that few originator biological medicines are reimbursable in China, while less-costly biosimilars often are. Significant domestic competition and lengthy regulatory processes create risks for global players looking to enter the market, so many seek manufacturing partnerships with domestic biosimilar companies. Joint ventures already in place include Pfizer with Hisun; Merck with Simcere; and Focus with Lonza.

China is also becoming a leading location for research. Once known primarily for its low-cost manufacturing, China is shifting its capabilities into more high-tech R&D functions, ramping up its life-sciences patent portfolio and making major investments in facilities and resources (see Figure 2 to compare the number of patent approvals among the life-sciences clusters in the world). Furthermore, repatriation of highly skilled scientists trained overseas is helping companies based in China establish cost and resource advantages.

Figure 2: The competition for innovation has become global. Three of the top four life-sciences clusters in the world for patent approvals were in Asia in 2013. Europe has fallen far behind the United States and Asian markets in terms of patent development because of cuts to R&D funding. Data source: Organization for Economic Cooperation and Development. [Courtesy of author]

India. With population growth, an increase in chronic illness, and increased spending on healthcare, India is expected to become second only to the US among the world’s largest pharmaceutical markets by 2020 in terms of volume (3). India’s contract manufacturers are highly competitive, producing more than 20% of the world’s generic medicines and vaccines. Nonetheless, large companies such as Sandoz, Pfizer, GSK, Apotex, and Teva, along with mid-tier companies such as Watson Pharma and Eisai, have begun to build their own production facilities, sometimes through subsidiaries, and other times in joint venture partnerships with domestic Indian companies.

India has aspirations to expand its dominance in manufacturing into R&D. The state of Gujarat, in particular, has become a research hotspot, offering strong infrastructure, an R&D-driven environment and access to a large talent pool from numerous educational institutions. Numerous R&D incentives have attracted major companies, including Sun Pharma, Teva Pharmaceuticals, and Claris Lifesciences (4).

Indonesia. A growing middle class is supporting development of the life-sciences industry that, historically, has been undersized relative to the population. The Indonesian government, however, has significantly increased its healthcare spending in recent years. Combined with a growing population and rising incidence of chronic disease, Indonesia is expected to see double-digit growth in pharmaceutical and medical-device sales.

In particular, Indonesia’s medical device market is projected to grow by 15% in the near future (5). Despite weak intellectual property laws, few domestic raw materials, and regulatory obstacles to foreign investment,

Indonesia is nonetheless an attractive manufacturing location thanks to its low land and labor costs. Furthermore, the government is working to improve manufacturing standards and lessen regulatory barriers to foreign direct investment from global life-sciences corporations.

Israel. Israel has long been a leader in life sciences and is a well-established life-sciences destination for multinational corporations. Israel, however, is better known as a research destination than a major consumption market, given that it has a relatively small population. With its well-developed economy, Israel’s life-sciences sector is attracting attention for its burgeoning entrepreneurship culture as a hotbed of innovation--and its domestic companies have grown at the remarkable rate of more than 400% since 1996 (2).

Mexico. Mexico has traditionally been a magnet for low-cost medical product manufacturing and home to production subsidiaries of nearly all the major multinational companies. To build on this prominence, Mexico has revamped its regulatory framework to ensure GMP and boost multinational confidence in its manufacturing capabilities. Free-trade agreements with 45 countries have made the country the Latin America leader in pharmaceutical exports. Additionally, companies can operate under a Mexican shelter corporation structure and avoid legal liabilities for product problems, while still benefiting from government tax and duty abatement programs.

Manufacturing is only part of the story; like other global markets, Mexico is working to expand its R&D capabilities in places like the state of Morelos. Morelos is investing $29 million to create a biomedicine cluster, expanding on its current 39 research institutions, robust clinical trial activity, and ongoing research (5).

Russia. Russia’s spending on medicines has grown dramatically over the past five years and is expected to grow anywhere from 8-13% by 2020 (6). The Russian government is focused on growing domestic capabilities and limiting drug imports. Therefore, the preferred strategies for entering the Russian market are through building local facilities, acquiring local companies, or establishing joint ventures with local entities while carefully navigating political uncertainty.

In 2015, for example, Novo Nordisk opened a $100-million insulin plant in the Kaluga region southwest of Moscow with the intentions of serving Russia and exporting products as well. India’s Lupin is acquiring Russia’s ZAO Biocom, a manufacturing company. Novartis is completing a $150-million plant near St. Petersburg, and Abbott Laboratories-active in Russia since 1978-is acquiring Russian generic-drug manufacturer Veropharm.

South Korea. In 2014, the South Korean government reinforced the country’s five-year plan to support healthcare as a strategic industry, simplify regulatory approvals, support R&D, and help its domestic life-sciences companies expand overseas. The country’s pharmaceuticals market is the 10th-largest in the world; major Korean conglomerates such as Samsung and LG are key players, along with multinational companies actively engaged in R&D collaborations and licensing agreements with domestic companies.

In 2009, the South Korean government committed to establishing a life-sciences hub by investing $5.3 billion in the Osong Bio Valley over the next 30 years, and a high-tech medical complex in Daegu (5). Osong Bio currently hosts more than 50 domestic and international companies, six governmental institutions, and numerous universities and research centers. To attract companies to the area, Korea offers reduced or waived taxes and rent for businesses involved in developing cutting-edge technologies.

Singapore. With its strong intellectual property laws, stable and industry-supportive political structures, and mature business environment, Singapore is poised to enlarge its high-tech research sector. The country is already a major re-exporter of pharmaceuticals-but its larger vision is to be the leading biomedical hub in Asia, providing services from basic research to clinical trials, product development, manufacturing, and clinical healthcare delivery.

Crucial steps toward this goal were the mid-1990s establishment of Tuas Biomedical Parks 1 and 2 and a more recent investment of $1 billion to develop several research institutes and the Biopolis R&D complex. Together, the investments have attracted more than 30 major global life-sciences companies and created an effective ecosystem that harnesses the benefits of economies of scale and knowledge transfer (2).

Turkey. Turkey’s “Vision 2023” plan includes the goal of becoming a global life-science and health leader (5). The government has created nearly 60 new technology and development zones, offering numerous subsidies, tax-incentive programs, facilities, and educational investments to support the biopharmaceutical sector (7).
As a result, many multinationals have become active in Turkey. Baxter, for example, operates a joint venture with Turkey’s Eczacıbaşi and has invested upwards of $170 million in domestic production facilities. Recent developments include GE Healthcare Life Sciences’ new technology and training laboratory, Covidien’s $21-million medical device innovation center in Istanbul, and Recordate’s $50-million new plant.

An era of partnership and competition
A theme across many global markets is the value of partnerships. Life-sciences companies are finding success when global best practices from multinational companies are combined with an increasingly sophisticated pool of domestic companies offering local market expertise backed by government support. The increased frequency of joint ventures, partnership agreements, and joint research and clinical trial initiatives reflects this rising tide of cooperation between local companies and global life-sciences corporations. Even as cooperation rises, so does competition. Time will tell which locations-and which partnerships-will best serve the needs of the world’s aging population.

References
1. The Economist Intelligence Unit, World Industry Outlook: Healthcare and Pharmaceuticals, pp. 6-7 (May, 2014), accessed Sept. 18, 2015.
2. JLL, 2015 Life Sciences Outlook, pp. 3 (2015), accessed Sept. 18, 2015.
3. H. Kubavat, P. Miller, and F. Wang, “Tipping the Balance: Risks and Opportunities in Biosimilars,” Pharmaceutical Market Europe (Feb. 6, 2013), accessed Sept. 9, 2015.
4. McKinsey and Company, India Pharma 2020: Propelling Access and Acceptance, Realizing True Potential,  pp. 16, (2015), accessed Sept. 18, 2015.
5. JLL, Life Sciences Cluster Report, pp. 118 (2014), accessed Sept. 18, 2015.
6. J. Cronin and P. Speksnijder, “Investment in Mexico’s Pharmaceutical and Biotech Industries,” Mexico Health Review 2014, (March 2014), accessed Sept. 9, 2015.
7. Association of Research-Based Pharmaceutical Companies, “Turkey’s Pharmaceutical Sector Vision 2023 Report Summary Presentation,” prepared by PwC, accessed Sept. 18, 2015.

Article DetailsPharmaceutical Technology's Partnership Strategies in Outsourcing Supplement
Vol. 40
Pages: s38–s44

Citation:
When referring to this article, please cite it as R. Humphrey, "Emerging Life-Sciences Markets: New Partnerships, New Competitors," Pharmaceutical Technology's Partnership Strategies in Outsourcing Supplement, 40 2016.