Friday, May 08, 2009

Pfizer Adds More Transparency on Emerging Markets

Pfizer has repeatedly stated that emerging markets is one of its top growth prospects for the future: when it announced plans in January to buy Wyeth, Jeff Kindler, CEO, emphasized that the newly combined company would have a “leading market-share position in important growth areas such as Brazil, Russia, India, and China.”

The catch is that the company’s new Emerging Markets Business Unit—which began operations Jan. 1—saw sales fall 9% to $1.35 billion in the first quarter year on year – hardly an auspicious beginning. True, the blame lies mostly with foreign currency fluctuations, which had a negative 14% impact. On an operational basis, the unit grew 5% in a very tough economic climate, as Pfizer executives pointed out. Even so, the results give the unit a run rate of $5.4 billion for the year—not enough of a contribution to the company’s stated long-term growth projections, some analysts believe.

Company executives acknowledged on the company’s first-quarter earnings call April 29 that the unit’s results were below the goals it needs to drive long-term expectations. But, as Ian Read, Pfizer’s president of global pharmaceutical operations, told analysts: “We clearly have to expand our portfolio. One way we are doing that is by partnering with the appropriate companies in the appropriate geographies to get the benefits of both their scale and their expertise. I think you can continue to see us look for selected partnerships, expanding our ability in both branded generics and generics.”

And execs have also pointed out that key BRIC markets saw operational growth of 16% in Q1. China was the biggest contributor—its sales were up 28%, compared to the same period last year.

Whatever the argument, Pfizer is one of the first big multinationals to break out its emerging markets revenues—GlaxoSmithKline is another and Sanofi did so for the first time in 2008. Novartis and Schering Plough also offer information—in the latter case, if reporting sales from Latin America and the Asia Pacific region counts for emerging markets.

Greater transparency would be welcome, given pharma’s increasing urgency to push aggressively in those high-growth regions. The group of countries which IMS refers to as “pharmerging”—China, Brazil, Mexico, Turkey, India, South Korea, and Russia—are expected to grow at a compounded annual rate of 13 % to 14% between 2009 and 2013, from $85 billion to $95 billion to $155 billion. This kind of growth leaves increasingly stagnant traditional markets in the shade.

However, pharma performance in these regions has been difficult to assess and varies significantly by company and country; for starters, each company defines emerging markets differently. “Not all of the drug companies are willing to disclose their levels of sales in the Emerging Markets regions,” notes Sanford F. Bernstein analyst Tim Anderson in a new report on pharma in emerging markets. “To some degree it is the only indicator we have of company performance…Our guess (hope?) is that the level of disclosure will only increase over time, given how much each company is now talking about the opportunity.”

According to a rudimentary estimate by IMS, Bayer by far derives the greatest percentage of its revenues from emerging markets—about 15% of revenues from June 2007-June 2008. And it has grown rapidly in those areas—at a compounded annual growth rate of roughly 15% CAGR between 2003 and 2008. Next up: a collection of European companies—no surprise given European pharma’s traditionally greater emphasis on international growth. Novartis, Sanofi, and Boehringer Ingelheim belong to this group—along with the sole American, Schering-Plough—which on average had sales of slightly less than 10% from pharmerging markets. Most American companies – BMS, Pfizer, Lilly, Wyeth, Merck, Abbott—are clustered in the 5% range, and Pfizer’s merger with Wyeth won’t, at least initially, move the needle, IMS says.

Longer-term, however, Pfizer believes it can use its infrastructure and key relationships in countries like China, where it had 1,800 sales reps as of the end of 2008, to drive sales of important Wyeth products. Wyeth has a limited presence in China, where it currently sells Prevnar, a vaccine against pneumococal disease and meningitis, through large public health clinics. Pfizer’s sales reps in China can expand interest in the vaccine to pediatricians and its contacts with thought leaders and government agencies can also drive demand, Read told investors at a Jan. 27 luncheon, in explaining the merger.

CFO Frank D’Amelio has previously pointed out that Asia Pacific, excluding Japan, New Zealand, and Australia, currently represents a $50 billion opportunity, of which Pfizer alone has a 4% market share, offering a revenue contribution of about $2 billion.

His argument is pretty well known on Wall Street by now—if Pfizer just maintains its current share of the market, it can expect a $3.2 billion contribution to 2012 sales because the overall market will reach $80 billion by that time; if the company achieves 6% share the contribution jumps to $4.8 billion, or $3 billion of incremental revenues. Pfizer is betting that such opportunities will move the needle, no matter what happens to foreign currency.--Wendy Diller

photo by flickr user country_boy_shane used under a creative commons license

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