‘Pharmerging’ markets: Dealing with uncertainty

Executives in the life sciences industry reveal their key concerns in cross-border acquisitions in pharmerging markets

A recently published Baker & McKenzie report shows that global pharmaceutical companies continue to set their sights on emerging markets, but are cognizant of the challenges these markets can present.

From 2012 to 2017, global pharma sales are expected to rise 13 per cent in ‘pharmerging markets,’ compared to just two per cent for the top mature markets, such as the US, according to the IMS Institute for Healthcare Informatics.

“Key growth markets include China (16.1 per cent, valued at $100.6 billion), India (13 per cent, valued at $17 billion) and Venezuela (56.4 per cent, valued at $15.3 billion). Businesses are attracted to these pharmerging markets for a number of reasons,” explains Jane Hobson, Head, Baker & McKenzie’s global life sciences industry group.

“Many governments in these markets are making large investments in healthcare, such as the Chinese government’s announcement in 2009 that it would spend $124 billion over 10 years to expand healthcare coverage for its 1.3 billion citizens and invest in projects such as upgrading and constructing new hospitals and health clinics in areas ranging from urban centres to remote villages,” informs Hobson.

With multiple challenges facing the global healthcare industry, many major drug companies have been turning to acquisitions and licensing transactions over R&D investment to grow their profit margins and boost share value. In fact, 2014 was a record-breaking year for M&A in the healthcare sector, with deal values reaching $363 billion, 94 per cent higher than those in 2013. Of those deals, $178 billion – almost 50 per cent – were cross-border transactions involving buyers acquiring target companies or assets in countries outside their local markets.

But, while investing in pharmerging economies can bring significant benefits, it is not without challenges. Not surprisingly, life sciences executives cited compliance and regulatory challenges as the two areas which cause the most concern and can be detrimental to business if not managed properly. The Baker & McKenzie report, ‘Dealing with Uncertainty’ therefore sets out a number of recommendations on how to plan for these challenges and handle them appropriately.

In China, for example, Tracy Wut, Co-Chair of Baker & McKenzie’s Global Life Sciences Industry Group explains, “A lot of domestic companies don’t have robust corporate compliance programmes or they may have policies but they’re not closely monitoring or strictly enforcing them. The buyer may need to educate the target’s management on the importance of compliance from the start, and target problem areas quickly.”

EP News Bureau – Mumbai