PharmAsia News Presents: Notable Notes On Emerging Markets (Vol. 1, No. 2)

In this periodic feature, PharmAsia News highlights recent analyst notes with a unique viewpoint on Asia or other emerging markets. The previous issue appeared in PharmAsia News, June 14, 2011.

In this periodic feature, PharmAsia News highlights recent analyst notes with a unique viewpoint on Asia or other emerging markets. The previous issue appeared in (Also see "PharmAsia News Presents: Notable Notes On Emerging Markets (Vol. 1, No. 1)" - Scrip, 14 Jun, 2011.).

"Emerging Markets The Next Key Destination For Indian Pharma Companies" (July 14, 2011), First Global, Hitesh Kuvelkar

Indian pharma companies, which have traditionally focused on the U.S. generics market, are now looking to expand into emerging markets to take advantage of growth opportunities. Attractive markets include Brazil, Russia, Mexico, South Africa, Venezuela and Vietnam, according to Kuvelkar, who singled out the recent deal between Sun Pharmaceutical Industries Ltd. and Merck & Co. as an example of how Indian pharmas are diversifying into emerging markets (Also see "Merck Establishes JV With India's Sun Pharma To Develop Novel Combinations Of Branded Generics For Emerging Markets" - Scrip, 11 Apr, 2011.).

Interestingly, Kuvelkar also points to the attractive margins in emerging markets, at least from an India pharma perspective. Although margins are less than in regulated markets like the U.S. and Europe, the analyst estimates that margins in emerging markets will likely exceed 20%, much higher than the Indian market. Margins in emerging markets are driven by branded generics and out-of-pocket spending, Kuvelkar says.

"Russia Pharma Visit Notes: Playing Field Favors Domestic Players" (July 1, 2011), Credit Suisse, Jo Walton

Although most forecasts call for 12%-15% growth in the Russia pharma market in the next few years, Walton estimates growth for Western companies will be closer to 7%-9% given government policies that support locally sourced products. Once a local option is introduced, multinationals should expect rapid import substitution particularly for products purchased via government tenders, Walton says, singling out human growth hormone, factor VIIa and beta interferon as recent examples where local manufacturers took almost all of the market share from companies like Bayer AG and Novo Nordisk A/S. Johnson & Johnson's Velcade (borezomib) and Roche AG's Pulmozyme (dornase alfa) may be the next major products at risk for import substitution by domestic manufacturers, Walton predicts.

One strategy that many MNCs are pursuing is to localize manufacturing in Russia; locally sourced Western drugs currently account for 7%-10% of the market, according to Walton (Also see "Pfizer Joins Russia Land Rush, But Chooses To Partner Rather Than Build" - Scrip, 6 Jul, 2011.). It is unlikely that Russia would require local production of active pharmaceutical ingredients given the strength of the ruble and local capabilities. Currently only 20 out of 430 international companies have full local Russian production, and 50 have local packaging, the analyst says. Among domestic manufacturers, 10% are compliant with current good manufacturing practices and 40% are partially compliant, although the government is making a major push to increase compliance by 2014. Looking ahead, many stakeholders expect Russia to reintroduce price penalties of up to 15% in tenders for imported products.

"Increasing Partnerships With S. Korean Pharma Is Underappreciated" (June 28, 2011), Collins Stewart, Louise Chen

During the next several years Chen expects U.S. and European companies to ink more strategic alliances with Korean pharmas due to Korean expertise in biosimilars and their exposure to fast growing emerging markets. An early push into biosimilars has provided Korean companies with a first mover advantage and makes them an attractive partner, both for second-generation biosimilars (monoclonal antibodies) and biobetters of first-generation biosimilars like erythropoietin, Chen says (Also see "Merck Lands Late-Stage Enbrel Biosimilar In Deal With South Korea's Hanwha" - Scrip, 14 Jun, 2011.). Leading biosimilars players include Celltrion Inc., Medy-Tox Inc., LG Life Sciences Ltd., ISU Abxis, Green Cross Corp., Hanmi Pharmaceutical and Dong-A Pharmaceutical Co. Ltd.

Several Korean pharmas, including Hanmi and LG Life Sciences, also have a strong presence in emerging markets, particularly China, which provides attractive partnership opportunities for U.S. and EU companies, the analyst says. Chen also is bullish about Korean capabilities in small molecule drugs, vaccines and plasma derivatives. As more Korean companies look to expand overseas given regulatory and pricing challenges at home, partnerships will increase, the analyst says. Companies to watch include Hanmi, Dong-A , Green Cross, LG Life Sciences and Daewoong Pharmaceutical Co. Ltd.