Whats next for pharma in emerging markets?

From Mckinsey and Company, originally posted here

Succeeding in emerging markets has been a challenging undertaking for multinational pharma companies, but those that adapt their end-to-end model for emerging markets could well thrive.

Afew years ago, multinational pharma companies seeking growth and respite from market uncertainty in Europe and the United States found a haven in emerging markets. Their rapid economic growth triggered an expansion in healthcare coverage and the emergence of a new cohort of consumers able to afford larger out-of-pocket spending on drugs. But early euphoria was soon replaced by a more somber outlook. Some emerging markets either suffered downturns or showed weaker growth forecasts as commodity prices fell; some healthcare systems struggled to scale up adequately their provision of care; and local companies became increasingly effective competitors in the pharma market. Furthermore, multinationals themselves often found it difficult to scale up in emerging markets, with particular challenges in talent recruitment, compliance, and organizational setup.

By contrast, developed markets like the United States were doing rather well. Pipelines have been refreshed—for instance, the top ten pharma companies have some 650 products in development for oncology1 —and new drugs are showing great promise. So should multinationals turn their attention away from emerging markets?

Although that might be tempting in the short run, we believe emerging markets are following a predictable cycle that will likely return them to a positive outlook before long—perhaps as soon as the current wave of launches is complete. In fact, we believe emerging markets could still see a doubling of pharma revenues for the top 20 markets in the next ten years (exhibit). The opportunity remains attractive even if we do not account for China, a large and strategic market for most pharma companies, independent of their strategy in emerging markets.

Exhibit

To capture opportunities for growth in these markets, multinationals must be prepared to take a long-term view, continue investing in emerging markets, and take calculated risks (see sidebar “Three insights”). To succeed in this and move on from the old “go and grow” mind-set, they need to (1) define clear long-term strategic objectives for emerging markets, (2) adapt the business model to the nature of emerging markets, and (3) build an agile organization tailored to emerging-market needs.

Clearly define the long-term strategic objectives

Some pharma multinationals capture opportunities from time to time in emerging markets, without clearly outlining the role of emerging markets in their overall strategy. Others are more purposeful, adjusting expectations and resetting aspirations with a longer-term perspective, as well as identifying how to achieve wider business goals from their emerging-market presence (see sidebar “Which markets?”). In addition to looking for scale and growth, these successful multinationals have broadly used their emerging-market activities to pursue three strategic objectives:

  • Grow and expand patient access. With many underdiagnosed and undertreated diseases, emerging markets still offer an attractive growth prospect for pharma companies, as several of these countries see rapidly rising incomes, better-informed patients, and expanding access to healthcare. Furthermore, operating in emerging markets requires multinationals to make their medicines available to lower-income countries and patients. Forming partnerships or voluntary licensing deals can help them broaden patient access, build their reputation, and attract incremental revenues while keeping a lid on investment.
  • Create an innovation hotbed. Multinationals with global operations across emerging markets can leverage the cross-fertilization of ideas across mature and emerging markets. In particular, emerging markets can be at the forefront of innovation and a test bed for innovative business models and technologies. For example, to address challenges in local healthcare systems, Asia and Africa lead innovation on the business-model front for pharma, through innovative digital health and home delivery channels. Furthermore, some markets, such as China, can also drive pipeline innovation, as per recent trials in oncology, hepatitis C virus, and diabetes.
  • Diversify risk. Emerging markets can enable companies to hedge against top-line risk by providing an income stream to help offset disappointing launch performance or loss of exclusivity in developed markets; against pipeline risk by generating sales from mature products to support the development of innovative new products; and against currency and economic risk by extending the footprint of the business to a wider range of markets.

Adapt the business model

Successful companies don’t simply replicate the business model they use in developed economies but adapt it to the challenges of emerging markets. The following five lessons stand out:

Prioritize your portfolio country by country. Products that are commercially successful in developed markets won’t necessarily do as well in emerging markets, due to their price levels, local clinical pathways, or disease prevalence for an emerging market. This calls for a careful mapping of products for each country in emerging markets. For mature products, companies could pursue a traditional approach to differentiation based on share of voice, key-account management, and other familiar elements, while specialty products call for a more innovative approach involving both public and private partnerships, strong market-access capabilities, and novel pricing models.

Explore new commercial models and channels. Building partnerships across the value chain can help companies shape the market and address unmet needs in emerging markets in areas such as screening, diagnostics, and supply chain. In particular, companies should adapt their channel mix to local requirements. For example, they could develop tendering capabilities, develop home delivery channels such as in Asia and Latin America, or launch digital patient platforms specifically tailored to patients’ needs in emerging markets, such as telemedicine for remote areas. Additionally, companies could leverage more advanced analytics and digital solutions to target physicians and pharmacies at a granular level.

Pivot from traditional commercial approaches to access-driven ones.2 Multinationals need to rethink their market-access approach by building strong local relationships with governments, upgrading market-access talent, deploying an innovative approach to pricing (for instance, using GDP-based models), and entering creative access partnerships (such as volume agreements with government institutions and outcome-based contracting).

Adjust to the needs of out-of-pocket and consumer markets. Out-of-pocket spend and private insurance make up a sizable share of healthcare expenditure in emerging markets, with some markets almost fully out-of-pocket. To capture this opportunity, companies should be more systematic in identifying patient pools that meet certain affordability criteria; focusing on the cities with the largest pools, including new emerging urban centers with growing middle classes; and at the same time testing scenarios for reaching a wider population at a lower price with a second brand. Companies also need to consider how to adapt to local consumer preferences (for instance, offering smaller blister packs to suit more frequent dispensing, often preferred in some markets) and financing needs (for example, forming partnerships with credit providers to offer loans, or collaborating with private insurers to create insurance policies targeting specific diseases). In addition, companies can explore approaches inspired by consumer industries—for example, loyalty programs, similar to those for retail and airlines, that help companies build their brands, and improve patients’ adherence to chronic treatment.

Think beyond the commercial model. In pursuing opportunities to differentiate themselves, companies should look beyond sales and marketing. Even when R&D is organized globally, it can still adapt to local conditions by undertaking licensing and M&A to enrich the country portfolio, for instance, or by developing medicines specifically to meet local constraints, such as medicines’ stability at higher temperatures. Local manufacturing too can act as a key differentiator, when it is not a requirement for entry. And supply-chain excellence can confer a competitive edge in markets such as sub-Saharan Africa, where getting drugs to patients via pharmacies and other channels remains a challenge.

Build an agile organization

To capture opportunities in emerging economies, multinationals should carefully design their organizations to support their emerging-market strategy and withstand volatility. Successful pharma companies tend to do the following:

Organize emerging and developed markets separately. This allows strategies to be adapted to each type of market, gives emerging markets a voice in R&D and at the corporate level, makes it easier to rotate local talent and share best practices between markets, and allows for more flexibility in rebalancing activities when volatility occurs. Some companies create regional structures specific to emerging markets, or group countries by archetype, depending on their access environment; others take a bolder approach and group all emerging markets under a single arm, independent of geographic proximity, extending from Latin America to Asia and Africa.

Strike the right balance between global and local capabilities. Consolidating mission-critical capabilities above the country level creates a pool of expertise in functions such as pricing (with innovative pricing and contracting tools); digital and channel capabilities (with scalable tools and approaches, such as disease-screening applications and disease-management platforms); marketing support; and distributor management (such as a center of excellence to manage distributors across multiple countries). Conversely, the capabilities that make the most difference in engaging stakeholders in a market—especially sales, market access, and government affairs—should be organized locally, as they are key to building relationships and partnerships.

Improve foundational agility. To be able to maintain a long-term view of market prospects while adjusting quickly to short-term shocks and volatility, companies need flexible organizational structures supported by the right governance—such as above-country hubs with cross-country performance-management processes and budgets—that enable them to redeploy resources quickly to the most attractive geographies.

Despite recent turbulence, emerging markets continue to represent an important source of value for multinational pharma companies. But simply being present in emerging markets is no longer enough to earn a good return. Instead, companies need to recognize the differences between emerging and developed markets, adapt their approach to these markets’ characteristics and needs, commit to a long-term vision, adapt their business model, and build an agile organization fit for the purpose of capturing growth from new opportunities as they emerge.

Should sub-Saharan Africa make its own drugs?

Originally from Mckinsey & Company here

A comprehensive analysis of the business, economic, and public-health impact finds the potential for local production of pharmaceuticals to be a mixed bag.

With imports comprising as much as 70 to 90 percent of drugs consumed in most countries in sub-Saharan Africa, many governments are considering whether it’s time to promote more local production. Drug imports, including both over-the-counter and prescription drugs, do considerably exceed those into China and India—where comparable populations import around 5 percent and 20 percent, respectively. And it does put strain on government and household budgets and already limited foreign exchanges.

To better understand the realities of promoting local drug production, we undertook a systematic analysis of the current state of the market. The analysis focused on simple, small molecules, such as generic drugs, since the economics and technical challenges would vary for more complex products, such as combination drugs, injectables, and vaccines. We evaluated the costs and benefits of increasing production not only in economic terms but also in their impact on the wider economy and on public health systems. We then compared that to local measures of feasibility, including government will, demand, investment attractiveness, and implementation capacity, especially with respect to quality (Exhibit 1).

Exhibit 1

The analysis depicts an opportunity that varies from country to country. In some countries, a manufacturing hub is unlikely to be economical. In a half dozen or so others, such a hub could be viable if it can overcome structural obstacles—a relatively small, if growing, market; a global excess of manufacturing capability for some kinds of drugs; unreliable infrastructure; and an underdeveloped talent base. For those countries, a local industry might make drugs modestly more affordable—an important factor in an area where out-of-pocket drug costs can be a significant impediment for all but the most wealthy consumers. It could also improve public health, enhancing access to drugs at a time when the donor programs that have long provided drugs in some countries are facing flat or declining budgets. Even there, however, the effect of local production on jobs and GDP would likely be minimal relative to the size of these economies overall.

Pharmaceutical production in sub-Saharan Africa lags behind comparable regions

Some African countries have a handful of local companies who produce for the domestic market. Most do not—and are currently uncompetitive for local drug production (Exhibit 2). The continent overall has roughly 375 drug makers, most in North Africa, to serve a population of around 1.3 billion people. Those in sub-Saharan Africa are largely clustered in just nine of 46 countries, and they’re mostly small, with operations that do not meet international standards. By comparison, China and India, each with roughly 1.4 billion in population, have as many as 5,000 and 10,500 drug manufacturers, respectively. And the sub-Saharan market’s value is still relatively small, at roughly $14 billion compared with roughly $120 billion overall in China and $19 billion in India.1

Exhibit 2

In sub-Saharan Africa, only Kenya, Nigeria, and South Africa have a relatively sizable industry, with dozens of companies that produce for their local markets and, in some cases, for export to neighboring countries. Local producers also play in a limited range of the value chain. Almost all of them are drug-product manufacturers—that is, they purchase active pharmaceutical ingredients (APIs) from other manufacturers and formulate them into finished pills, syrups, creams, capsules, and other finished drugs. Up to a hundred manufacturers in sub-Saharan Africa are limited to packaging: purchasing pills and other finished drugs in bulk and repackaging them into consumer-facing packs. Only three—two in South Africa, and one in Ghana—are producing APIs, and none have significant R&D activity.

What’s the value of increased local drug production?

Developing a local drug industry in sub-Saharan Africa would take decades of sustained and careful effort. Examining the value of such an undertaking involves more than the economics of individual-company-level business. Because pharmaceutical products have such wide-ranging effects, country governments and citizens often think about the industry’s impact in broader economic terms, including economic growth and job creation, and in terms of public health, such as access to medicines and preparedness in the event of disease outbreaks. To examine which dimensions really matter, we disaggregated the notion of impact into affordability, health impact, and economic impact.2

More affordable drugs

We frequently encounter public-health officials and potential investors who argue variously that locally manufactured drugs would be cheaper once all the costs are factored in—as well as others who take it for granted that it’s cheaper to produce drugs in India than it would be in Africa. The analysis suggests some truth to both arguments: drugs today are cheaper when imported, but with comparable facilities some drugs tomorrow could be cost competitive or even cheaper than imports from India. This is more likely true of basic oral solids than more advanced and larger-molecule drugs.

Consider our modeling of comparable plants producing one common over-the-counter drug, for example. We found that when imported, the drug’s landed price in Ethiopia consists of the manufacturer’s price in India plus a more-than-20-percent markup as a result of freight, duties, and value-added tax (Exhibit 3). If the same drug were manufactured in Ethiopia: the raw materials would still be imported, but the import costs would be lower because of their relatively low value. Adding the local conversion cost due to lower manufacturing efficiency and the producer margin to the total leads to a price that is higher than in India, but the lower transport cost to reach the distributor means that the locally manufactured product is still more affordable at the point of entry into the local supply chain. In fact, for a range of products, including tablets, capsules, and creams, costs for most drugs produced in Ethiopia and Nigeria tend to be about 5 to 15 percent lower than the landed price of imports from India.

Exhibit 3

For most countries in sub-Saharan Africa today, this is largely a theoretical scenario. With current facilities, costs there today are typically higher because production facilities generally have less capacity and lower utilization rates than plants in India. Moreover, the affordability of drugs also depends on the structure of local supply chains, which differs between regions. Supply chains in anglophone countries of sub-Saharan Africa are more informal than in francophone countries. Markups and pricing are often unregulated in the former and also feature substantial numbers of informal stores.

Improved public health

Increased pharmaceutical manufacturing can affect a population’s health in various ways, such as its access to, awareness of, and availability of needed medicines. It can also impact the systems that regulate quality and safety. These effects will vary country by country because they are influenced heavily by each country’s configuration of the health system and health market. Yet our analysis for Ethiopia and Nigeria highlighted some effects that may be applicable for other countries as well.

Access to medicines, for example, is often limited to outdated drugs because global drug originators, or patent holders, lack incentives to undertake the cumbersome process of registering and promoting all their products for each small African country market. As a result, many African countries still use drugs older than what is recommended by the World Health Organization’s (WHO’s) essential drug list. Local manufacturers often have the incentives and resources to introduce newer generation generics into smaller African markets. In Ethiopia, when one local player became the first in the country to produce a newer-generation antibiotic, the government added it for the first time to the list of products available to public health facilities. In Nigeria, regulations allow local drug manufacturers to also be drug importers. Many of the leading local drug manufacturers are also representatives of global drug originators, and hence have a strong incentive to invest in local drug registration and the introduction of lucrative new products. That said, few markets in Africa are as potentially lucrative as Nigeria. Therefore, we expect the impact of increased local drug manufacturing in most other countries to more closely resemble the economics in Ethiopia than in Nigeria.

Another arena in which we expect increased local drug production to have positive effects is in the regulation and quality assurance of drugs in local African markets. In Ethiopia, for example, the government’s desire to spur local drug manufacturing has come hand in hand with a commitment to strengthen its national drug regulator, the Food, Medicine, and Health Care Administration and Control Authority. The government has also committed to reducing delays in product registration, ferreting out counterfeit drugs, and pushing manufacturers to meet standards required for exports. Overall, Ethiopia is investing ahead of the curve in regulatory capacity. Although its pharma market is only valued at approximately $600 million, its regulator’s budget is $6.6 million, a higher ratio than observed in Brazil, Russia, and Turkey.

Improved economy

Proponents of local drug manufacturing in sub-Saharan Africa often express their argument in economic terms: economic diversification, GDP growth, the impact on the balance of trade, and job creation. However, our analysis suggests that pharmaceuticals would remain a relatively small sector of the overall economy, even assuming significant growth. The effect on annual GDP growth would likely be negligible—on the order of $190 million per year by 2027 for Ethiopia and $230 million per year for Nigeria, over a period when we project annual growth for the two countries could be on the order of $14 billion and $27 billion, respectively.

The largest effect would be on the balance of trade. If Ethiopia and Nigeria were to increase their local share of production from roughly 15 to 20 percent to around 40 to 45 percent, both countries could expect to see their trade balances improve by $150 million to $200 million annually. In Ethiopia, trade imbalances have been a critical issue for several years as the country has dealt with a severe shortage of foreign exchange. A swing of a couple of hundred million dollars in a decade’s time would certainly be welcome. But it would be hard to feel, since it amounts to less than 5 percent of Ethiopia’s projected foreign currency needs—not including the additional capital investments needed to build industrial parks and upgrade national regulators.

An increase in local production would not create many jobs. Modern pharmaceutical plants employ only a few hundred workers. New entrants tend to be even leaner: the two new Chinese entrants into the Ethiopian market, for example, are building more automated production facilities and hence employ only around 200 workers on average. Altogether, the total job creation affected by increased local pharmaceutical production is likely to be on the order of a few thousand jobs at best—even including any impact it has on jobs upstream and downstream, in its suppliers and distributors.

Is it feasible?

The feasibility of building an industry in any country is influenced by both private- and public-sector factors. On the private side, the inherent market dynamics, and the attractiveness of available investments, will determine whether there is a strong business case for putting money into the pharmaceutical sector. These include, for example, whether there’s enough unmet demand to make a sizeable plant competitive and the practicalities of exporting excess production. On the public side, governments have several potential levers to encourage local production. These include local production incentives in national tenders, subsidies and tax breaks, investment in special economic zones, and talent- and skill-building programs. The availability of these levers varies across countries, and individual governments’ attitudes toward the pharmaceutical industry influence their willingness to employ these levers.

Overall, our analysis convinced us that increased local drug production is feasible in about a half dozen sub-Saharan African countries at current and projected demand levels. While only South Africa is currently as attractive to private-sector pharmaceutical investors as Brazil and India, other countries are rapidly improving their investment climate. Each has its own strengths and weaknesses relative to Brazil, China, and India. Some are stronger in areas like logistics, business climate, and tax policies. Others might do well in some areas, such as tax policy, logistics, and technology, but show weaknesses in government and business climate. Still others could quickly become attractive to international investors with continued improvement.

Creating a sustainable pharma sector in sub-Saharan Africa

In those countries where increased local production of pharmaceuticals would be both feasible and have a positive impact, the question is how to do it. Through our research, we have distilled five lessons that could help them do so in a way that contributes most to the health of their people and the well-being of their economies. These include a focus on quality, production capacity (or scale), regional hubs, drug-product formulation, and value-chain effects.

Focus on quality

Regulatory standards and enforcement across sub-Saharan Africa typically lag behind global standards. There are only six companies operating in the region that have achieved WHO prequalification.3 The fight against counterfeit, expired, and substandard drugs is improving, but it is still common in some countries in the region.

As sub-Saharan Africa develops its local pharmaceutical industry, it is imperative that countries continuously upgrade their quality standards and enforcement. Beyond saving lives, a stronger regulatory system would allow for a fair and competitive playing field, eliminating low-priced, substandard products from the market. To do so, country leaders may need to commit to ongoing funding for their regulatory agencies in accordance with established global benchmarks or perhaps consider continent-wide efforts such as those in Europe. This would allow regulators to address some of the existing gaps in training, capabilities, and manpower in regulatory oversight and quality control. Another priority should be cultivating and sustaining a healthy pipeline of regulatory talent, since turnover is brisk for many agencies as trained staff quickly leave for private-sector jobs.

Build plants with sufficient production capacity

Any theoretical production-cost advantages that countries in sub-Saharan Africa might enjoy could be outweighed by their lower production capacity and utilization relative to India. Most production in the region today is in small plants with low capacity—plants need to be big enough and have enough capacity to get the benefits of scale economics. And utilization is affected by unreliable infrastructure, frequent power interruptions, and high logistics costs.

At what point would manufacturing plants there become competitive with imports? According to our analysis, production volume—that is, the plant’s capacity times utilization—affects economics and affordability disproportionately more than other commonly cited concerns, such as labor productivity and electricity costs. The cutoff for output depends on product type, but for a tablet-based product it would be around 500 million tablets (Exhibit 4). Smaller plants are unlikely to be competitive with imports, even running at full utilization, and plants operating below the cutoff today may not be sustainable over the long term.

Exhibit 4

Thus, as old plants get upgraded and new plants get built, companies in sub-Saharan Africa should ensure that they will meet a certain threshold of production while ensuring that there is sufficient market demand to maintain health utilization. Companies should estimate the necessary break point for their specific mix of products and location, and plan their investments accordingly. Country governments might also reconsider incentives to companies that meet competitive levels of production.

Create regional hubs that include smaller countries

Given the minimum production requirements and the fact that there are only a few countries where pharmaceutical manufacturing is feasible, sub-Saharan African countries could work together to encourage a handful of globally competitive industry clusters. These clusters have a better chance of producing affordable, high-quality drugs than if efforts were dissipated across a larger number of subscale investment attempts throughout the continent. With proper regulatory harmonization, smaller countries could experience faster lead times and more responsive supply chains because they could be served by local, and not overseas, suppliers.

There is already a broader movement to create freer trade across Africa. The newly established Continental Free Trade Area (CFTA) seeks to bring the 55 members of the African Union together. By spring 2018, 44 states had formally joined CFTA. Predating the CFTA, regional economic communities have also been working on removing tariff and nontariff barriers to trade.

Yet these efforts are not enough to enable the creation of regional hubs for pharmaceuticals, since drugs are such a highly specialized product. The African Medicines Regulatory Harmonization effort has yielded noteworthy results, with the East Africa Community countries at the stage of conducting joint assessments and inspections. However, it is still not possible for companies to file a single registration that is recognized by neighboring countries anywhere in sub-Saharan Africa today. Until that happens, no at-scale company can realistically serve multiple countries.

Focus on drug-product formulation, but keep an eye on new technology

Focusing on the right part of the value chain will be critical to the success of a pharma sector in sub-Saharan Africa. APIs today are very scale sensitive and hard to manufacture. Most countries in the region lack the requisite chemicals sector for API production, which our modeling suggests would already be 10 to 15 percent costlier than imports from India. That makes drug-product formulation the better bet, while continuing to import APIs—for now, at least.

Looking ahead, this focus could evolve. New technologies could lower API costs—whether by changing the scale economics needed to keep prices competitive, making manufacturing easier, or improving quality. Indeed, one advantage that sub-Saharan Africa has is the opportunity to adopt cutting-edge technologies without worrying about replacing existing technologies in legacy plants. Some of the most promising technologies on the horizon include improved process chemistry, continuous manufacturing, and modular plant design. Using Ethiopia as an example, employing improved chemical-synthesis processes could reduce costs by approximately 5 to 35 percent, and continuous production could cut costs by another 10 to 25 percent, if the right molecules are chosen for production. In addition, modular plant design could speed construction of these plants and ensure tighter quality assurance.

Upgrade the value chain

Though the focus may be on drug-product manufacturing, countries might also consider upgrading the value chain beyond just manufacturers. Many countries in sub-Saharan Africa have a highly fragmented landscape of distributors, wholesalers, and retailers, who all add their individual markups to the product. In some countries, for example, it’s not unheard of for a drug to be marked up by nearly double the manufacturer’s price by the time it reaches the end consumer. In addition to raising the price of drugs, this system also has the effect of compromising quality assurance, since each additional step creates the potential for improper storage, tampering, or delay, even as drugs near their expiration dates.

To get the value chain under control, governments might better enforce quality standards in distribution, wholesaling, and retailing, for example. Many tiny unregulated shops today don’t meet standards already on the books. If they did, it may encourage some industry consolidation and encouraging discipline that will also lead to better patient outcomes.


There is already a broader movement to create freer trade across Africa. The newly established Continental Free Trade Area (CFTA) seeks to bring the 55 members of the African Union together. By spring 2018, 44 states had formally joined CFTA. Predating the CFTA, regional economic communities have also been working on removing tariff and nontariff barriers to trade.

Yet these efforts are not enough to enable the creation of regional hubs for pharmaceuticals, since drugs are such a highly specialized product. The African Medicines Regulatory Harmonization effort has yielded noteworthy results, with the East Africa Community countries at the stage of conducting joint assessments and inspections. However, it is still not possible for companies to file a single registration that is recognized by neighboring countries anywhere in sub-Saharan Africa today. Until that happens, no at-scale company can realistically serve multiple countries.

Focus on drug-product formulation, but keep an eye on new technology

Focusing on the right part of the value chain will be critical to the success of a pharma sector in sub-Saharan Africa. APIs today are very scale sensitive and hard to manufacture. Most countries in the region lack the requisite chemicals sector for API production, which our modeling suggests would already be 10 to 15 percent costlier than imports from India. That makes drug-product formulation the better bet, while continuing to import APIs—for now, at least.

Looking ahead, this focus could evolve. New technologies could lower API costs—whether by changing the scale economics needed to keep prices competitive, making manufacturing easier, or improving quality. Indeed, one advantage that sub-Saharan Africa has is the opportunity to adopt cutting-edge technologies without worrying about replacing existing technologies in legacy plants. Some of the most promising technologies on the horizon include improved process chemistry, continuous manufacturing, and modular plant design. Using Ethiopia as an example, employing improved chemical-synthesis processes could reduce costs by approximately 5 to 35 percent, and continuous production could cut costs by another 10 to 25 percent, if the right molecules are chosen for production. In addition, modular plant design could speed construction of these plants and ensure tighter quality assurance.

Upgrade the value chain

Though the focus may be on drug-product manufacturing, countries might also consider upgrading the value chain beyond just manufacturers. Many countries in sub-Saharan Africa have a highly fragmented landscape of distributors, wholesalers, and retailers, who all add their individual markups to the product. In some countries, for example, it’s not unheard of for a drug to be marked up by nearly double the manufacturer’s price by the time it reaches the end consumer. In addition to raising the price of drugs, this system also has the effect of compromising quality assurance, since each additional step creates the potential for improper storage, tampering, or delay, even as drugs near their expiration dates.

To get the value chain under control, governments might better enforce quality standards in distribution, wholesaling, and retailing, for example. Many tiny unregulated shops today don’t meet standards already on the books. If they did, it may encourage some industry consolidation and encouraging discipline that will also lead to better patient outcomes.


There are some who have questioned the ability of the countries in sub-Saharan African to build a local pharmaceuticals industry, and others who question the wisdom of doing so. To those skeptics, the analyses presented here should provide comfort that the potential for building a robust local industry could be real in some countries under the right conditions. It is now for public- and private-sector leaders in the region to decide whether to try.

Africa: A continent of opportunity for pharma and patients

Originally from Mckinsey & Company here

Africa may be the only pharmaceutical market where genuinely high growth is still achievable. Here’s what’s driving that strength and how companies should react.

Open interactive popup Article (PDF-225KB)

The value of Africa’s pharmaceutical industry jumped to $20.8 billion in 2013 from just $4.7 billion a decade earlier. That growth is continuing at a rapid pace: we predict the market will be worth $40 billion to $65 billion by 2020 (exhibit). That’s good news for multinationals and pharmaceutical companies seeking new sources of growth as developed markets stagnate. It’s also good news for patients, who have gained access to medicines previously unavailable on the continent. Yet it isn’t enough to know where the industry’s next growth engine can be found. Leaders must also understand what is driving growth, what challenges they are likely to face, and how to collaboratively work with health systems to win in this complex environment.

Exhibit

Read more about Pharmaceuticals & Medical Products
ArticleThe road to digital success in pharmaArticleMaintaining momentum in Brazil’s pharmaceutical marketInterviewNovartis on digitizing medicine in an aging world

What’s driving growth

Africa’s pharmaceutical markets are growing in every sector. Between 2013 and 2020, prescription drugs are forecast to grow at a compound annual growth rate of 6 percent, generics at 9 percent, over-the-counter medicines at 6 percent, and medical devices at 11 percent. Three factors are driving this growth:

  • Urbanization. Africa’s population is undergoing a massive shift. By 2025, two-fifths of economic growth will come from 30 cities of two million people or more; 22 of these cities will have GDP in excess of $20 billion. Cities enjoy better logistics infrastructures and healthcare capabilities, and urban households have more purchasing power and are quicker to adopt modern medicines.
  • Healthcare capacity. Between 2005 and 2012, Africa added 70,000 new hospital beds, 16,000 doctors, and 60,000 nurses. Healthcare provision is becoming more efficient through initiatives such as Mozambique’s switch to specialist nurse anesthetists and South Africa’s use of nurses to initiate antiretroviral drug therapy. The introduction of innovative delivery models is increasing capacity still further.
  • The business environment. To create a more supportive environment for business, governments have introduced price controls and import restrictions to encourage domestic drug manufacture; required country-specific labeling to reduce counterfeiting and parallel imports; and tightened laws on import, wholesale, and retail margins. In the pharma industry, meanwhile, pharmacy chains are consolidating, horizontal and vertical integration is on the rise, and manufacturing is expanding. A flurry of mergers and acquisitions, joint ventures, strategic alliances, partnerships, and private-equity deals are further extending Africa’s markets.

What it takes to win

In a world of slowing and stagnating markets, Africa represents perhaps the last geographic frontier where genuinely high growth is still achievable. Early movers can take these four steps to pursue competitive advantage:

  • Focus on pockets of growth. Africa is not one unified market, but 54 distinct ones, with wide gaps between countries in terms of their market size, growth trajectory, macroeconomic landscape, legal structure, and political complexities. Over the past decade, ten countries have delivered more than two-thirds of Africa’s GDP and cumulative growth.1 However, much of the opportunity lies not at country level, but in cities. In fact, our analysis shows that 37 percent of African consumers are concentrated in 30 cities, which will have more consuming households than Australia and the Netherlands combined by 2025.
  • Build strong local teams. Real talent is key and requires investment in big, effective local marketing and sales teams. That means hiring more pharmacy representatives, building teams’ technical skills, and selecting and developing strong local managers to lead them. Sales teams also should be set up in a flexible way that enables them to be responsive to the needs of local markets.
  • Forge partnerships. Global pharmaceutical companies need local business partners—manufacturers, packaging companies, and distributors—to help them navigate the continent’s many markets, with their widely varying consumer preferences, price points, manufacturing, and distribution infrastructures. In the absence of a pan-African pharma regulatory body, they also need to invest in local partnerships to understand varying regulatory environments. Partnerships with governments are equally important, whether they involve working with medical opinion leaders to guide research priorities and secure funding, or collaborating with health ministries and nongovernmental organizations to provide public-awareness campaigns, health screening, treatment, equipment, and training for hospitals and clinics. Johnson & Johnson, for example, has partnered with the South African government to introduce an education program for maternal, newborn, and child health that operates via mobile-phone messaging.
  • Address supply and distribution challenges. In parts of Africa, supply and distribution mechanisms still pose challenges: regulations are evolving, transport and logistics infrastructures are patchy, and lead times can be long. The ability to innovate the distribution channel and set up effective operations against this challenging backdrop is critical to capturing growth opportunities. Helpful strategies include locating fixed assets in countries with well-established political and business structures, outsourcing supply chains to third-party operators, and partnering with local logistics providers to identify efficient transport routes. In the key area of customs and border control, companies should work with the most reliable agents to minimize shipping delays, use only bonded distribution centers, and ensure all customs paperwork is airtight.

In a world of slowing and stagnating markets, Africa represents the last geographic frontier where high growth is still achievable. As ever, the key to success lies in understanding individual markets in granular detail. Early movers with the right approach should be able to capture competitive advantage. Africa will continue to grow for the foreseeable future. Now is the time for drug companies to decide whether they want to be part of that growth and, more important, play an active role in improving public health.