Jill E. Sackman, PhD, is a senior consultant at Numerof & Associates, Inc. (NAI), St. Louis, MO, www.nai-consulting.com.

Jill E. Sackman, PhD

The Affordable Care Act (ACA) has elicited intense national debate and sent biopharmaceutical companies scrambling to understand how their business model, including its ability to innovate, will change as healthcare reform moves forward. Within this uncertain market, what is obvious is that the industry is in the midst of significant transition. Critical drivers of this change are largely macroeconomic; policy is simply accelerating change. Understanding this backdrop is crucial as the biopharmaceutical industry contemplates product innovation within the changing landscape of healthcare in the United States.


  Costs associated with healthcare in the US account for a significant piece of the economic pie. A few key facts:  In 2010, the US spent $2.6 trillion on healthcare or an average of $8402 per person; the share of gross domestic product (GDP) devoted to healthcare has increased from 7.2% in 1970 to 17.9% in 2009 and 2010; and healthcare costs per capita have grown on average 2.4 percentage points faster than the GDP since 1970 (1). Despite this spending increase, Americans’ average life expectancy and the efficiency of the US healthcare system are ranked near the bottom of countries with advanced economies (2). These cost increases have a significant effect on individuals, households, and businesses.

The problem is not entirely a healthcare one; it’s a much bigger economic problem. According to a Rand study, increased family contributions to healthcare absorbed almost half of the growth in US before-tax income from 1999 to 2009 (3). Howard Shultz, Starbucks CEO, has been quoted as saying that his company spends more on healthcare than it does on coffee beans.  The problem is clear: healthcare spending is affecting the economy of the US and there must be a solution.

The Patient Protection and Affordable Care Act (PPACA), also known as the Affordable Care Act (ACA) or “Obamacare”, has a number of provisions baked in that propose to address cost and efficiency in healthcare. The ACA, for example, includes demonstration and implementation of new payment and care delivery models for Medicare patients (e.g., accountable care organizations [ACOs]), provisions to better coordinate care for people dually eligible for Medicare and Medicaid, reductions in Medicare payments, and new rules (e.g., disclosure and transparency) and new institutions (i.e., exchanges). Despite these attempts at cost-reduction, healthcare expenditure in the US is still projected to increase faster than national income for the foreseeable future (1).

In the pre-healthcare reform environment, drugs and devices were generally priced at a premium based on modest, incremental improvement in features and benefits (i.e., length of drug action). A fundamental belief within the industry has been that premium pricing equals healthcare innovation. Ultimately in today’s cost constrained world, a premium price without demonstrated economic and clinical value is just a cost driver, and cost drivers are being targeted with increasing intensity by payers, providers, and patients. As risk is shifted from payers to provider systems and consumers (patients), the need to show cost-effectiveness of products becomes a core requirement for market access today and in the future. 


  With the ACA’s endorsement of ACOs, there is a clear emphasis on shifting risk associated with the quality and costs of healthcare to the provider. The focus on the ACO model of coordinated and accountable care is largely based on the belief that rising healthcare costs are, to a large degree, driven by uncoordinated care focused on treating disease rather than on maintaining health. The goals of ACOs are laudable—reduce costs and improve quality of care through coordination among providers. In the current environment, and especially in locations where hospital systems already control significant market share, moving quickly will enable them to lead in creating and controlling ACOs. The result will be that more physicians will likely become employees of systems and have less influence and control over how healthcare is provided.  

Another equally significant trend is healthcare consolidation. There has been a spike in the formation and growth of hospital systems and the employment of physicians. In addition, payers are also becoming more involved by creating partnerships with hospitals.  Data suggests that the percentage of physicians working in practices owned by a hospital or integrated delivery system increased from 24% in 2004 to 49% in 2011 (4). It’s no surprise that consolidation brings greater purchasing power. The consolidation of hospitals into fewer, larger systems increases the leverage of buyers with all suppliers, including pharmaceutical companies. Beyond that, the integration of insurers with delivery organizations potentially increases the power of administrative perspectives in purchasing decisions relative to clinical perspectives. The likely consequence is accelerated pricing pressure. 

With the consolidation of provider organizations and the employment of physicians has come a profound shift in power. Treatment decisions that historically were made at the physician level are being institutionalized, with management’s role growing at the expense of clinicians. Enterprise-level senior executives and hospital administrators increasingly are making decisions about what drugs will be on the formulary, and which will not. Not only have clinicians been forced to share decision making power with management, but administrators are increasingly restricting the access of sales reps to individual physicians. The upside is that biopharmaceutical companies will no longer need as many sales representatives to promote their products. The downside is if they want to educate physicians about the value of their products, manufacturers will need to explore new avenues for doing so.  

Even more important is that influencing decisions like what choices go on the formulary will require an entirely new approach to business development that doesn’t begin to resemble physician detailing. Finally, as healthcare systems continue to develop standardized, evidence-based care paths as a means of controlling clinical quality and costs, biopharmaceutical companies must understand the clinical and economic data these decision makers value and how this information can be communicated to them in an effective manner. In a world of new payment models and changing reimbursement values, demonstrated economic and clinical value is becoming paramount.


  Payers are already demanding data from manufacturers that demonstrates a product’s economic and clinical value in directing reimbursement decisions. Moving forward, hospital administrators with decision-making power will rely on published evidence as well as the experience of their clinical teams to determine a product’s value.  To this end, clinical studies must continue to become more comparative by design, not just to the “gold standard” treatment, but also to non-pharmaceutical comparators and watchful waiting.

 Similarly, while randomized controlled trials (RCTs) are still essential for regulatory approval and market entry, payers and healthcare administrators are becoming more focused on measuring outcomes in the broader population. Biopharmaceutical manufacturers will need to place greater emphasis on post-market surveillance studies and real world data to ensure their product’s claims of effectiveness are being met. If biopharmaceutical manufacturers fail to plan for and conduct this research, be assured that decision-makers will gather the evidence to determine how competitive products at different price points actually compare. Today, true innovation (things that make healthcare better and cheaper) that addresses broader stakeholder requirements is able to command premium pricing, but marginal improvements focused on incremental features and benefits are suffering.

As healthcare consolidation continues, payers and delivery institution management increasingly share the physician’s once exclusive role in treatment decisions. With cost as a significant driver, for example, payers and provider systems already place pressure on physicians to use generics. In fact, this pressure is built into computerized physician order entry (CPOE) systems, making branded drugs an exception requiring additional justification. Clear differentiation in terms of clinical outcomes and economic value will be a primary way for manufacturers to take on this issue. 

Within this context, the concept of bundled pricing is gaining momentum as a reimbursement model designed to address demands for better health outcomes at lower cost. Promising to deliver a standardized set of services for a fixed price with specific quality commitments will create incentives—lacking in the current fee-for-service payment system—for providers to align their efforts to contain underlying costs. Providers adopting bundled pricing must focus on evidence-based care paths that allow them to define the crucial actions, decision points, and products used in treatment. When optimally formulated, such care paths will provide the much-needed link between clinical activities and associated costs. They offer a tool that hospitals can use to gain control of their core production process, using data to collaboratively lower costs and improve outcomes. Being unable to produce a compelling economic and clinical value narrative may set the stage for a product being left out of a provider’s care path, and that will have a significant impact on market access.


  There is still an urgent need to innovate. With the decision maker (stakeholder) set expanding and the criteria for purchasing and defining innovation changing, business model change is required for success. The reality of the new world is that resistance to new products by decision makers is increasing while access and physician influence decline. Healthcare providers (and payers) are focused on the cost and quality of the care they provide and are increasingly risk-averse about new technology and products. Overall, this scenario does not augur well for innovation and, in fact, suggests the need for change in what products are developed and how they are commercialized.

 To be successful in this new environment, biopharmaceutical companies must adopt business strategies that consider the interests of all key stakeholders who can influence medical plan design, treatment, and other related decisions. This includes physicians, patients, payers, and policymakers. Every functional team within an organization, from business development and R&D to market access, pricing and reimbursement, has a role to play in making sure the company is set for success in this evolving environment:
  
  • The business development department will need to broaden the competitive set as they look at potential opportunities. More than ever, they will need to make sure that prospective assets address unmet needs, and offer meaningful differentiation that is sustainable over the product’s lifecycle.
  • R&D will need to determine the requirements for clinical differentiation and build studies to incorporate these data points, based on identification of what’s really important to stakeholders.
  • Sales and marketing departments will have to develop messages, including economic messages, targeted to the specific needs of stakeholders. They’ll also need a broader group of strategic marketing capabilities as they interface in new ways with a broader group of internal and external constituents.
  • Quality and regulatory functions will need to be prepared to meet new hurdles both before products get approved and once they’re in the market. With an increasing emphasis on post-market safety surveillance and real-world evidence, companies must have the appropriate measures put in place to capture this information. 
  • Clinical groups will need to broaden their approach to collecting data and how they look at research design. They’ll need to work closely with health economics, market access, and managed market teams. As observational and non-traditional studies play a more prominent role in defining what the specific comparators should be, companies will need to look at how they use in-market data to influence new study design and provide insights to guide future product development.
  • Market access teams will become increasingly important as they’re called upon to translate the implications of what’s happening in the external environment for their internal partners. They’ll need to take on a more strategic role as they interpret market dynamics and sort out where new thinking needs to be integrated within their current structure.
  • 	Pricing and reimbursement teams will need to clearly demonstrate how they established their price, specifically the comparators used, the data that supports it, and the particular patient population that will benefit from their product.  

Specific strategies that may be used include:
  
  • Develop “service wraps” around products/portfolios that provide more complete solutions across the continuum of care.
  • Create strategic sales teams directed at evolving healthcare delivery models (ACOs, bundled pricing, population health) and payers. Ensure this new sales team is capable of strategic conversations and joint problem solving (versus feature and benefit discussions).
  • Consider developing at-risk payment models with employers and payers based on achieving a certain outcome.
  • Ensure the early development of a strong economic and clinical value message relevant to all stakeholders for all new products. 
  • 	Ensure that the comparative value proposition for a new product is as clear as possible.
  • Consider alternative clinical data sources in addition to RCTs such as post-market longitudinal studies, patient reported outcomes, and other sources of real world evidence. 
  • Generate evidence that delivers the net benefit of biopharmaceuticals in the broadest “real world” context (i.e., clinical, economic, quality of life, and productivity measures) in addition to generating evidence that satisfies the needs of regulatory agencies.
  • 	Invest in targeted therapeutics/personalized medicine based on biomarkers with the goal of drug-diagnostic companions with the ability to demonstrate high value in small subsets of the population. 
  
   

The implications for the industry are clear: incremental innovations will be closely scrutinized. Unless there is clearly demonstrated value, new products are unlikely to command premium pricing. As “generics as standard-of-care” firmly settles in, biopharmaceutical companies will need a higher degree of clinical and economic differentiation to be successful. In today’s market, differentiation is more important than ever. Key stakeholders include payers, large employers, and increasingly, patients who care about health outcomes and affordability. In addition, it’s wise to remember that it’s a much more transparent marketplace. Government agencies are funding cost-effectiveness studies; payers and large providers are investing in health technology assessments and forming alliances to analyze real world data; and most information is available on the Internet.  

This new reality has a number of implications for innovation in biopharma companies, most of which point to the need to produce cost-effective, tangible health improvements. The business reality is that close to 11% of the US healthcare spend is on branded pharmaceuticals (5). However, the perception is that it’s drug prices that are driving healthcare costs. If generics were good before, they are even better now with multiple players in the decision-making process, including patients facing escalating co-pays and deductibles. The incentive is to select a generic over branded unless there is clear and compelling economic and clinical value.  

Despite these challenges, manufacturers must continue to innovate; significant unmet medical needs remain. Changes already taking place in healthcare are resulting in market access challenges for new technologies that, in turn, can be expected to impact innovation investment decisions. The exact magnitude of the impact remains hard to predict. 

The U.S. Health System in Perspective: A Comparison of Twelve Industrialized Nations

 (Commonwealth Fund, July 2011).
    3.	D.I. Auerbach and A.L. Kellermann, 

, 30 (9) (September 2011).
    4.	MGMA 2012 report based on 2011 data. Englewood, CO Medical Group Management Association (2012).
    5. 	R.E. Numerof, 

, is president ofNumerof & Associates, Inc. (NAI).   

Articles

The biopharmaceutical industry contemplates product innovation within the changing landscape of healthcare.

The Affordable Care Act's Impact on Innovation in Biopharma

Israel is a developed, industrialized nation that, despite ongoing conflict with neighboring Arab countries, remains committed to making technological and medical advances through education and high R&D expenditures. Over recent decades, much of Israel’s economic growth and export performance has been reliant on research-intensive industries. Its dense population and focus on innovation positions Israel well to drive a significant amount of growth for pharmaceutical and medical-device manufacturers.  
  
The infrastructure of Israel’s healthcare system has come under scrutiny in recent years as the Israeli government continues to rein in its healthcare expenditures. Even though Israel’s economy has recovered from the global financial crisis of 2008-09 better than most advanced, comparably sized economies, constraints are still being placed on the Ministry of Health’s annual budget. In recent years, the Ministry of Health has developed strong capabilities in the areas of health technology assessment (HTA), new technology prioritization, and quality monitoring for community-based care to focus more on value and minimize inefficient spending. Despite these changes, however, the Israeli pharmaceutical market is still expected to grow.

In 1995, Israel enacted a National Health Insurance Act, granting basic health insurance to all Israeli residents, covering a “Health Basket” that includes both medical services and specific medical products. The treatments and products included on this list are set by the state on an annual basis. Residents must pay a certain percentage of income (approximately 5%) to belong to one of the four non-government providers called “sick funds” (“kupat cholim”); in certain cases they are required to make a co-payment for treatment. 

While strained political relationships and terrorism remain real threats to Israel’s economy, including its healthcare market, the Israeli health system continues to provide a high standard of care to the population as a whole.  According to global data compiled by Bloomberg, Israel ranked fourth in healthcare efficiency (1). This ranking is particularly impressive considering the relatively moderate level of resources allocated to healthcare. Even though Israel, which joined the Organization for Economic Co-operation and Development (OECD) in 2010, has seen accelerated health spending since 2009, national expenditures on health remain lower than for other OECD member nations.  Health spending accounted for 7.7% of gross domestic product (GDP) in Israel in 2011, below the average of 9.3% in OECD countries (2).   

With approximately 7.4 million people at the last census in 2008 and 311 people per km², Israel’s population density is among the highest in the Western world.  More than 60% of the population is concentrated in the narrow strip along the Mediterranean Sea. Israel’s high total fertility rate has given rise to a relatively young society with 28% of the population younger than 15 years and only 10% older than 64 years of age (3).  For pharmaceutical companies looking to expand in the region, this young society provides a skilled workforce, ranking it amongst the world’s leading countries in terms of high-tech start-ups per capita as well as R&D spending per capita (4.40% of GDP) (4).   

The environment of innovation and entrepreneurship in Israel has resulted in substantial growth in the number of life-science companies from 186 in 1996 to more than 1100 in 2012 (5). Medical-device companies make up approximately 50% of that pool. The production revenue (export and local sales) of the Israeli medical devices industry in 2011 was US$1.8 billion (6). Israel is also ranked second to the United States in biopharmaceutical patents per capita, and its pharmaceutical market was estimated at US$1.78 billion in 2010 and is expected to reach US$2.3 billion by 2020 (7).
  


  New drugs registered in Israel, including biologics, must meet European Union (EU) standard GMPs in terms of quality and efficacy to ensure public safety. In addition, medical products that have been manufactured, registered, or marketed in other major pharmaceutical markets are eligible to be registered in Israel. This eligibility encourages growth in the market by allowing drugs to be shared relatively easily between Israel and other countries.  
  
Israel has become an increasingly significant location for international companies conducting multinational pharmaceutical clinical trials.  One important factor has been the fact that the entire Israeli population belongs to one of four health funds, which maintain a full history of each member’s health.  The system facilitates locating patients and allows for good follow-up over time. Israel also has the type of population frequently required for multinational studies, offering more ethnic diversity than many other countries.  In addition, Israel was one of the first countries to accept the International Conference on Harmonization (ICH) guidelines for good clinical practice (GCP), allowing for unified standards between the European Union, Japan, and the US, facilitating mutual acceptance of clinical trial data by regulatory authorities.

Other healthcare access considerations include pharmacovigilance (PV) and inclusion in the “health basket.”  The need for improved PV in Israel has been underscored in recent years by several high-profile cases in which pharmaceutical products have reached Israeli consumers with adverse side effects caused by formulation changes. In response to these developments, a branch of the International Society of Pharmacovigilance (ISoP) is being founded in Israel with the goal of increasing awareness about PV throughout the region. Furthermore, the Israeli Ministry of Health recently mandated that all prescription products must have multilingual labels in Hebrew, English, Arabic, and Russian.  

Historically, the high price of drugs has not been part of the public debate in Israel, and the government has rarely used price controls as is the case in other countries. However, recent economic stress in the form of rising military and defense costs coupled with a slowdown in the global economy has led the government to search for budgets to cut and taxes to raise. As such, the Israeli Ministry of Health is now placing new and existing products under greater scrutiny to limit spending.  For instance, only 77 new medications and medical devices were added to the basket of reimbursed products in 2012. This number was significantly lower than the approximate 200 new drugs and technologies that were included in each of the previous two years (8).  Inclusion of drugs and technologies in the National Health Basket is crucial for organizations seeking marketing success in Israel. Here, manufacturers will require data on clinical, epidemiological, and economic characteristics, including its predicted impact on the available budget.
  
  

Successful market entry and in-region partnering


  Israel is home to one of the world’s largest generic-drug makers, Teva Pharmaceuticals, yet despite its presence, the Israeli pharmaceutical market remains in favor of patented medicines. In 2010, it was reported that patented drugs accounted for more than 50% of all pharmaceutical sales in the country and approximately 70% of the prescription drug market (9).  Moreover, according to Benny Zeevi, co-chairman of the Israel Advanced Technology Industries (IATI), Israel’s flourishing biotechnology industry is transitioning from a period of incubation to one of maturity. The number of biotech companies has nearly tripled since 2003, and the number of registered clinical trials is continuing to rise (10).   
  
The government recently established a new biotech incubator that joins more than 20 other incubators or accelerators to help attract large, international pharmaceutical companies to Israel. Although some large pharmaceutical companies may be turned off by Israel’s moderate population size or by the perception of a volatile political environment, other large global organizations recognize the market opportunities that exist in this country. In 2009, Pfizer partnered with Protalix Biotherapeutics and together developed the first approved plant-based biologic for treating type 1 Gaucher’s disease (11). In 2011, Merck KGaA’s subsidiary Merck Serono invested US$13 million in a new drug development incubator with the goal of having at least six startups working on new medications or technologies by 2018.

Israel’s dynamic venture capital market has delivered a stream of substantial investments in R&D.  With increasing awareness of chronic diseases and a highly skilled workforce, Israel’s pharmaceutical and diagnostic markets are expected to grow even stronger. Taken together, Israel seems like a great place to turn to for future investment opportunities.
  
  


  Israel has a long history of biotechnology innovation and growth and with an educated and diverse population, high-quality healthcare system, and resilience to global financial stress it remains a strong partner for R&D, clinical research and market growth. Additionally, Israel is a popular destination for medical tourism. As of 2010, up to 30,000 foreigners come to Israel every year for treatment, mostly from Russia (12). Israel, like the US, is also a frequent “first adopter” of new technology and medical innovation. Manufacturers, however, need to be aware that the Israeli government’s fiscal austerity and sick funds traditionally have kept the most expensive branded drugs and treatments unavailable. Cheaper generics and low physician and healthcare provider salaries have been used to control overall costs.
  
  


  1.	“Israel ranks 4th globally in health care efficiency,” 

  (August 2013).
  2.	OECD Health Data (2013).
  3.	OECD Reviews of Health Care Quality: Israel (2012).
  4.	The World Bank, Research and development expenditure (% of GDP) (2013).
  5.	M. Scudellari, 

(July 2013).
  6.	Meidata, Israel Medical Devices Industry-Market Overview 2012.
  7.	Global Data, Research and Markets: Healthcare, Regulatory and Reimbursement Landscape--Israel (2012).
  8.	Scripp Business Insights, The Pharmaceutical Market in Israel  (2012).
  9.	Industry Trend Analysis, Investment In Innovation Necessary (2010).
  10.	N. Elis, 

(April 25, 2013).
  11.	J. Fox, Nature Biotechnology (June 2012).
  12.		“Health Ministry to probe Israel medical tourism industry following Haaretz exposé,” haaretz.com (November 2010). 
  
  --Jill E. Sackman, D.V.M., PhD, is a senior consultant and Michael Kuchenreuther, PhD, is a research analyst, both at Numerof & Associates, Inc.

Israel's diverse population, high-quality healthcare system, and resilience to global financial stress make it a strong partner for R&D, clinical research, and market growth.

Biotechnology Innovation and Growth in Israel

The Middle East and North Africa have been rocked in recent years by upheaval ranging from moderate protest to full-scale revolution, leading to a variety of changes in government with more changes to come. Medical products companies such as GE Healthcare, however, have described the region as a “hidden jewel,” citing rapid spending growth by the various government ministries, resulting in new and growing hospitals (1). On the pharmaceutical side, countries like Morocco have enacted legislation in the past decade to attract foreign investment in the country. While the Middle Eastern environment remains unsettled, the market for pharmaceutical products is still expected to grow in many countries across the region. Credit: Wajahat/Flickr Open/Getty Images (Doha, Qatar)
  
  

Middle East health and pharmaceutical market overview


  Many consider the Middle East to be a group of closely related, culturally uniform states with relatively similar forms of governance and levels of infrastructure. In fact, the region known as the Middle East contains a mixture of countries with significant differences in wealth, standard of living, and healthcare system sophistication. The region, however, does share a common thread: each country struggles with balancing a shift toward modernity with strong traditions rooted in the past. This effort is particularly evident in gender disparities in healthcare.
  
Geographically, the Middle East is divided into two main regions: Western Asia and North Africa. Western Asia includes the Gulf Council countries of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates (UAE); these countries are considered middle-income due to the influence of oil. The Persian Plateau includes Iran, Afghanistan, and Pakistan. The Levant includes Jordan, Lebanon, Syria, and Israel. North Africa is comprised of Algeria, Egypt, Libya, Morocco, and Tunisia.

GE’s observation that rapid spending growth in the Middle East has made it a “hidden jewel” is not merely anecdotal. Qatar, for example, went from spending US$1561 per capita on healthcare in 2010 to US$1920 in 2011, and the Ministry of Health’s Primary Health Care Corporation has called for additional spending increases from now until 2022 (2). Qatar has also announced plans to introduce a form of social health insurance by 2016. 

Other countries in the region, including those much poorer than Qatar, have also begun working on increasing access to health insurance. Morocco, for example, launched a program called Regime d’Assistance Medicale (RAMED) in 2012, offering economic assistance to pay for medical care to 8.5 million people (28% of the overall population) (3,4).

These two cases illustrate the vast difference in wealth across the region. The International Monetary Fund places the Gross Domestic Product based on purchasing power parity per capita for Morocco at US$5265 in 2012, compared to US$102,211 in Qatar (5,6). Still, the governments in both countries are working to improve access to care for their citizens. 

In contrast, Jordan has served as a medical tourism destination for decades, but its healthcare system faces new challenges as a result of the Arab Spring. In 2010 and 2011, protests, government changes, and regional unrest led to declining medical tourist numbers (7). More recently, refugees from civil war-stricken Syria have overwhelmed the Jordanian healthcare system. Jafar Hassan, Jordan’s minister of planning and international cooperation, has expressed concern that resources in the country simply would not be enough to meet the needs of the 2000 Syrian refugees coming into the country every day (8). Jordan does serve as a major manufacturer of pharmaceuticals, exporting the majority of its drugs to other Arab countries (9).

Overall, according to the Central Intelligence Agency’s (CIA) 

, the population is growing in every Middle Eastern and North African country, and is generally younger than the emerging markets of Southeast Asia and Korea. Demand for healthcare products is growing as the population increases, but demographically, this region does not have the same health requirements as the aging populations characterizing many developed markets in 2013 (10).


  Regulations vary considerably across the region. Turkey, for example, has introduced market exclusivity as part of its efforts to become a European Union (EU) member state and has introduced other reforms to bring greater consistency with the rest of the EU. Enforcement remains an issue, and the EU has rejected several of Turkey’s GMP certificates. 
  
The Pharmaceutical Research and Manufacturers of America (PhRMA) has flagged Algeria and Lebanon as being particularly concerning for manufacturers. In a report to the Office of the United States Trade Representative, PhRMA called out these two countries as requiring review. In Algeria, PhRMA cites weak patent protection, government-mandated price referencing, and importation restrictions as barriers to market access. The lobbying group does note that it is encouraged by the Minister of Health’s announcement at a PhRMA meeting that the government would reduce the review time required for marketing authorization and increase intellectual property protection.

In Lebanon, PhRMA notes some regulatory reforms that have improved market access, but still argues that Lebanon needs to make further changes. In particular, the group cites ineffective data protection, the lack of a regulatory system to monitor and confirm bioequivalence studies, and the existence of a “grey market” for medicinal products (11).
  


  Implications for successful market entry and in-region partnering


  Despite regional conflict and social and economic upheaval in the Middle East, it is likely that there will be a surge in demand for healthcare products and services over the next few years. Socio-economic advancement, including increased disposable income and access to modern goods and services, is leading to changes in the region’s nutritional and lifestyle habits, increasing the frequency of lifestyle-related health concerns, such as obesity, diabetes, and heart disease. 
  
As the standard of living in the region generally improves, healthcare providers will face rising expectations for more and better quality services. These expectations, together with population growth and increasingly educated consumers (patients), will likely drive investment in hospitals and medical facilities, and increase demand for innovative drugs, healthcare services, and the latest medical technologies. 

Regionally, many countries (i.e., UAE, Qatar) are setting standards that provide state-of-the-art healthcare services, not only for the growing local population, but also for expatriate workers and patients seeking high quality medical care. In contrast, other countries in the region are struggling with overburdened government-run health systems and are turning to the private sector to provide much-needed investment and expertise (i.e., Kuwait). 

In light of predictions that the region’s healthcare market is expected to continue growing over the next few years (compared to the low growth predicted in the mature markets of the US and Europe), the Middle East seems like a good place to turn to for investment.

Perhaps unique to the region is the social demand to make healthcare focused on serving the needs of the population rather than strictly profit making. Zakat, the Islamic principle of charity, is the driving force behind this perspective. Regional governments are interested in supervising and regulating the healthcare sector to ensure that private healthcare players fully understand, and embrace, this concept and preserve the existing culture.
  


  Population growth, rapid economic growth, and a willingness to invest in capital projects will likely make the Middle East a major growth focus for the healthcare market over the next few years. Some of the biggest opportunities will likely be in healthcare infrastructure initiatives, which has already attracted GE and Siemens, both of which have large infrastructure businesses and serve as major suppliers of healthcare IT and diagnostic imaging technologies. GE recently opened their new headquarters in Dubai Internet City, as well as a production facility in Saudi Arabia to manufacture diagnostic imaging systems.
  
Creation of ‘free zones’ for foreign companies, including full ownership and tax benefits, are likely to attract more organizations to the region. Recent increases in foreign direct investment particularly in biotechnology research, is fueling growth in the market for biotechnology products. Leading international biotech companies, including Amgen and Genzyme, have already set up operations in DuBiotech (Dubai Biotechnology & Research Park), with smaller companies certain to join them.

 (Jan. 25, 2012).
  2.	F. Astorri, “Qatar Needs More Healthcare Staff, Funding,” arabianbusienss.com (June 10, 2013).
  3.	WHO, “Constraints and obstacles to social health protection in the Maghreb: the cases of Algeria and Morocco” (World Health Organization, October 2011).
  4.	“The King of Morocco Officially Launches the RAMED Plan for Medical Assistance,”

 (September 2012). 
  5.	“Report for Selected Countries and Subjects: Morocco,” International Monetary Fund (April 2013). 
  6.	 “Report for Selected Countries and Subjects: Qatar,” International Monetary Fund (April 2013). 
  7.	“Jordan: Managing Medical Tourism,” The Oxford Business Group (Feb. 2, 2012).
  8.	Sen, Ashish Kumar, “Official: Syrian Refugees Straining Jordan’s Resources,” 

s (Feb. 12, 2013). 
  9	“Pharmaceutical Industry,” The Jordanian Association of Pharmaceutical Manufacturers (August 2013).
  10.	CIA, 

 (Washington, DC: Central Intelligence Agency, 2013).
  11.	PhRMA, “Special 301 Submission 2013,” Pharmaceutical Research and Manufacturers of America (PhRMA) (2013).


Jill E. Sackman, D.V.M., PhD, is a senior consultant at Numerof & Associates, Inc 

The pharmaceutical industry grows despite conflict in the Middle East.

Report from: Middle East and North Africa

The bio-pharmaceutical business outlook in South Korea remains positive. (JASON TEALE PHOTOGRAPHY WWW.JASONTEALE.COM/GETTY IMAGES)South Korea is a rapidly growing pharmaceutical market. Previously considered a developing economy, this country was reclassified as a developed economy in 2010, though it is still considered an emerging market. In recent years, South Korea's high growth rate has continued amid worldwide economic downturns and is expected to continue in years to come. It is estimated to be the fastest growing developed market in the world. Other characteristics, such as recent free-trade agreements strengthening intellectual property rights and an aging population, make the market attractive for multinational companies. There are, however, considerable challenges. While South Korea's overall economy has outpaced other countries in the years since the worldwide economic downturn, rapidly rising healthcare costs caused the government to cut drug prices in 2011.  Because the government is the single payer, this rise in costs has had a profound impact. South Korea's new president, Park Geun-Hye, has made building a safe and happy population a centerpiece of her platform. As a result, the Ministry of Food and Drug Safety (MFDS) has highlighted their own goal of becoming an international model for drug safety. 

South Korea health and pharmaceutical market overview

The International Monetary Fund (IMF) considers South Korea to be a "graduated" developing economy, with the 15

  highest gross domestic product (GDP) per capita worldwide and the 12

  highest purchasing power parity (PPP). It is now the fourth largest healthcare market in the Asia-Pacific region, following Japan, China, and Australia (1). According to the Korean Pharmaceutical Traders Association, Japan and China are also the largest buyers of exported drugs from South Korea (2).  			

Over the past four decades, South Korea's population has consistently migrated from the countryside to cities, especially the capitol, Seoul. With 9.8 million inhabitants at the last census in 2005 and more than 24.5 million people in the surrounding areas, Seoul is the most densely populated city in the OECD. The population is one of the most ethnically homogeneous, but low birth rates and a rapidly aging population have resulted in increasing immigration since 2000, largely from other Asian countries, with government projections that the immigrant population could be as high as 6% in 2030 (3). The government has also created incentives for fertility and adoption in recent years to balance the rapidly aging population.  

Population demographics have two particular implications for pharmaceutical companies looking to expand in the region: first the labor participation rates of the Korean population will decrease, and second, the aging population will face greater health needs.   

Healthcare is paid for by National Health Insurance (NHI) with financing help from employee/employer contributions and is compulsory. Eligibility extends to all residents of South Korea, regardless of their nationality. This program does require copayments for pharmaceutical products, set at 35

40%. Because the copay is a percentage, some individuals also purchase private plans to offset additional costs in the case of expensive diseases such as cancer.   

The MFDS has established a number of specific goals for the pharmaceutical industry in South Korea. First, as part of President Park's goal to "open a new era of safe society and happiness for all people," the Minister of the MFDS, Chung Seung, has stated that his goal is "to become a globally recognised nation for food and drug safety" (4). Strategies for his work include promoting consumer participation in safety efforts.   

There have also been changes to Korean pricing for drugs that have had the effect of slowing pharmaceutical market growth in recent years. In the past, Korean pharmaceutical companies had primarily focused on generics, with name-brand drugs produced by international companies. In January 2012, in response to rapidly rising healthcare costs, the government announced its plan to cut the price of drugs dramatically once patents expire. Previously, drug prices had been capped at 80% of original prices once the patent expired for original drugs, with generics capped at 68%. The new pricing scheme lowered those caps to a range of 59.5% to 70% for innovator drugs for the first year, and additional cuts after that (5). The stated goals of these cuts were twofold: to reduce the percent of government spending for drugs and to encourage Korean companies to pursue more innovative research. The Ministry of Health and Welfare also pledged financial incentives to companies that make innovative drug development a priority.    

The MFDS has also worked in recent years to expand the manufacture of biosimilars. In 2009, the Ministry introduced regulatory guidelines and funding to promote biosimilar development. The stated goal of the government is for South Korea to achieve 22% global market share by 2020. The government's funding has been supplemented with private funding, with investments from companies such as Samsung Electronics ($389 million over five years) (6).   

Other regulatory changes include the Korea-US Free Trade Agreement, which went into effect in March 2013. This agreement reduced tariffs between the two countries, and creates additional protection for patented drugs from generics-drug competition by increasing the testing requirements (and associated expenses) for generics and specifies additional data protection requirements.   

Implications for successful market entry and in-region partnering

South Korea, with its pharmaceutical market ranked in the global top 10 with sales of approximately $16.5 billion in 2011, clearly offers significant business opportunity. Trade has become significantly easier with the recent signing of the South Korea-EU Free Trade Agreement (FTA) in July 2011 and South Korea-United States (KORUS FTA) in March 2012. KORUS is widely seen as the most significant free-trade agreement ratified by the US since the North American Free Trade Agreement (NAFTA). For the US, KORUS-FTA opens up Korea's $1 trillion economy to "America's workers and businesses, while also strengthening our economic partnership with a key Asia-Pacific ally," said US Trade Representative (USTR) Ron Kirk (7). Along with KORUS-FTA, there has also been a significant commitment to strengthening to intellectual property rights and enforcement provisions. 

For the biopharmaceutical market, KORUS is important because it not only focuses on intellectual property rights but also establishes discipline in the Korean Government's approach to drug reimbursement and pricing. As a single-payer system, gaining access to the Korean national healthcare system is a crucial element for success in this market.   

On a cautionary note, Pharmaceutical Research and Manufacturers of America (PhRMA) CEO John Castellani is on the record as stating that, "while this FTA represents a 21st-century standard that should be a model for other agreements including the Trans Pacific Partnership (TPP), we [PhRMA] are highly concerned that the Korean government has not implemented certain provisions requiring transparency and due process in the manner that Korea prices and reimburses biopharmaceutical products" (8). 

Also on the horizon is reform of the pharmaceutical reimbursement process. Recently the national health system announced reimbursement reform aimed at increasing "rational resource use in drug spending" (9). Following policies similar to those set in many EU economies, South Korea's national health system aims to take cost-effectiveness and budget impact of new drugs into consideration in payment decisions. If these policies are implemented, South Korea will be the first Asian country to officially use economic evaluation in healthcare. 

South Korea has sustained rapid growth, low debt, and resilience to global financial stress. South Korea's high-quality healthcare system has stimulated demand for medical tourism with strong government support. Implementation of free-trade agreements with the EU and US will likely have a considerable positive impact on the healthcare market through IP protection, opening of access to the single-payer government system, and a reduction in trade tariffs (estimated to eliminate 95% of tariffs within five years). Overall, the pharmaceutical and biotech business outlook in South Korea remains positive. 

On the flip side, manufacturers will need to keep a close eye on reimbursement reform as it progresses, and be prepared to provide both strong clinical and economic data to justify pricing and market access.  

1.  WHO, Global Health Expenditure Database, World Health Organisation, 2010, 

http://apps.who.int/nha/database/PreDataExplorer.aspx?d=1

2. Korean Pharmaceutical Traders Association, 

, Korean Pharmaceutical Traders Association (2010), 

www.kpta.or.kr/eng/Info/statistics_export.asp

www.businessweek.com/articles/2013-02-21/south-koreas-hottest-import-foreign-workers

.  Ministry of Food and Drug Safety, 2013. 

www.koreaherald.com/view.php?ud=20110812000778

www.reuters.com/article/2009/07/15/us-samsung-bio-idUSTRE56E0ZP20090715

7. Office of the United States Trade Representative. Press Release (21 Feb., 2012). 

, (2008) Jan-Feb;27(1):179-87. doi: 10.1377/hlthaff.27.1.179. 

The bio-pharmaceutical business outlook in South Korea remains positive.

Report from South Korea

TRAVELSTOCK44 - JUERGEN HELD/GETTY IMAGESSoutheast Asia is a growing pharmaceutical market. Much like Latin America, the countries of southeast Asia, especially the members of the Association of Southeast Asian Nations (ASEAN: Brunei, Burma, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, and Vietnam), have taken initial steps towards seeking more harmonized regulation of pharmaceutical and medical-device industries. There are still significant differences, however, in how these markets are regulated, and these countries vary widely in their stage of development.  

Southeast Asia health and pharmaceutical market overview

Healthcare has been designated a priority sector for the ASEAN countries for several years. With a population of more than 600 million, this market represents another rapidly growing emerging market. In general, the market has become more attractive in recent years as wages have risen and country governments have made healthcare sector growth a priority. Country governments are actively courting investments in the sector, and opportunities for contract manufacturing abound. Regional sales of pharmaceuticals in Asia have more than doubled from $97 billion in 2001 to $214.2 billion in 2010. It is predicted that sales will reach $386 billion by 2016 (1). 			

Variation between countries within the region, however, greatly impacts the opportunities for pharmaceutical companies. The Indonesian pharmaceutical industry, for example, has experienced high growth in recent years. There are a number of reasons for this. The market has a large (and growing) population (237 million according to a 2011 census), a steadily growing economy, and rising rates of chronic diseases like diabetes, obesity, and cardiovascular disease. Increasingly, we are seeing rates of chronic diseases in developing economies that have historically plagued more developed countries. Estimates for India and China, for example, suggest that these countries have the largest diabetic populations in the world (2). In addition, the Indonesian market has grown in part through the government's efforts to provide a system of universal healthcare. In its 2010 announcement, the government said that it would allow 100% foreign ownership of pharmaceutical companies. As a result, the pharmaceutical sector sales have experienced nearly twice the growth rate of gross domestic product (GDP).  

In contrast, the Philippines' pharmaceutical industry has grown more slowly in recent years. The Philippines also has a large population (92 million according to its 2010 census) and is experiencing similar trends in the rate of chronic disease as Indonesia. But since the passage of the Universally Accessible Cheaper and Quality Medicines Act of 2008, the market for pharmaceuticals has noticeably changed. The law affected the market in several key ways. First, it set a maximum drug retail price that represented a 50% decrease for more than 100 drugs. It also accelerated the process for bringing generic drugs to market and disqualified drug makers from being able to patent new uses of previously existing drugs.  

Other countries in the region possess unique characteristics that pharmaceutical companies should understand as well. Singapore, Brunei, Malaysia, and Thailand, for example, all have greater GDP per capita than Indonesia or the Philippines. Even though these countries contain fewer people than some of the others in the region, their demographics (e.g., higher incomes and increased life expectancy) may still make them attractive markets. In addition, characteristics like the fact the Singapore promotes itself as a center for medical tourism can impact the market as well. 

Despite all the market potential, Asia remains a fiercely competitive region for pharmaceuticals. Part of the source of competition comes from the highly fragmented industry with literally thousands of smaller manufacturers. Many of the larger firms have been able to grow their market share partly through intensive competitive pricing (1). 

In terms of regulation, the ASEAN countries are becoming more synchronized in the regulatory sphere. The ASEAN Leaders have resolved to form the ASEAN Economic Community (AEC) by 2015. The goal of the AEC is to establish ASEAN as a single market and production base. Tariffs will be eliminated and other barriers between the countries will be phased out. Work on harmonizing standards began in 1997, with pharmaceuticals, medical devices, and health supplements earmarked as priorities. Specifically, ASEAN leaders have agreed to mutual recognition of inspections of medicinal-products manufacturers, including post-market assessments. ASEAN has required the filing of an ASEAN Common Technology Dossier (ACTD) as the only regulatory filing required for pharmaceutical companies to gain approval of their drugs in the 10-member ASEAN states starting in 2012. In general, this standardization should reduce complexity for manufacturers interested in expanding into this region. Harmonization of standards will help member countries to lower costs and increase the quality and availability of medicines in the region. It also formulates rules for importing medicines to ensure quality drugs for the region. Recalls or product alerts in one country will be applicable for all the member nations. 

Pharmacovigilance (PV) in Asia is evolving, as the region becomes one of the largest players in the pharmaceutical market. With increased numbers of clinical trials occurring in China, India, and the ASEAN region, the importance of managing adverse drug events/adverse drug reactions (ADEs/ADRs) is gaining recognition. There are a number of challenges that manufacturers will face with regard to developing a PV plan in ASEAN. These challenges include cultural variation in medical practice (Western vs. traditional), lack of PV expertise, lack of human and financial resources in regional regulatory agencies, few robust PV regulations, hesitation on the part of healthcare professionals to report adverse data, drug counterfeiting, and variable quality in drug manufacturing.  

Some ASEAN countries have reasonably structured PV systems. In Singapore, for example, the Vigilance Branch of Health Sciences Authority employs a number of post-marketing risk assessment approaches to ensure the continued safe use of medical products. These include mandatory reporting from pharmaceutical manufacturers, spontaneous reporting from health professionals, literature reviews, and the exchange of regulatory information with other national drug regulatory bodies. 

Many regulators in Southeast Asia are in the process of revising their existing regulations. There is also an ongoing collaboration across the region regarding harmonization and enhancement of drug safety as part of ASEAN. 

Other healthcare access considerations include country-specific items like the government's role in overall health spending. Singapore, for example, has rejected the idea of a generous welfare system, but does fund free medical care at government hospitals for the needy, and has created a universal health system characterized by medical savings accounts. While this system is supported by subsidies, no healthcare services in Singapore are provided to patients free of charge; the out-of-pocket expenses act as a deterrent from seeking out unnecessary services. Just less than half the hospitals in Singapore are government run and tend to be less expensive for patients than their private equivalents.

Other countries in the region such as Thailand have funded largely government-run programs to achieve near-universal health coverage for years, and other countries (e.g., Vietnam) are looking to employ some of the same tactics. Understanding the payer mix and the challenges facing each of these payers will be crucial to understanding the market opportunities in each of these markets.  

In contrast, many of Indonesia's more than 250 million residents find even minimal healthcare inaccessible. Access to a physician or other healthcare professionals across Indonesia's 6000 inhabited islands varies greatly. While larger cities generally offer a range of medical services, in remote areas such as the province of Papua, it can take days to reach medical care.  

Under the ASEAN Economic Community (AEC), a single regional common market of countries will be created in 2015. The regional objective is to create a highly competitive market of more than 600 million people with free flow of goods, services, investment capital, and skilled labor. This shift will also include reductions in tariffs and regulatory and administrative procedures, all elements that should stimulate pharmaceutical market growth.  

The eight Asian countries that are part of the ASEAN region represent a market that has historically generated relatively little industry or investor interest, but this situation is changing. Diverse influences from deregulation and better trade links to improved medical access and the rise of medical tourism are resulting in a market with an increasingly important global role to play. 

As the single common market develops, specific implications for the pharmaceutical industry have emerged: 					

Regulatory capacity in many ASEAN nations is constrained by human and financial resources requiring pharmaceutical companies to invest in developing in-region capabilities. 

Gaps often exist between written regulatory guidance and actual enforcement throughout the region, again reflecting the gap in human and financial investment. 

All ASEAN countries are net importers of pharmaceuticals (with the exception of Singapore) due to lack of investment in R&D capacity and capabilities (versus regulatory framework). 

New, harmonized drug regulatory frameworks reduce administrative barriers and encourage research and development of drugs and vaccines. 

Additionally, as the healthcare sector has an immediate impact on the pharmaceutical sector, shifts in healthcare policy have enormous implications for the industry. Health insurance payment and infrastructure are relatively new and vary greatly among the ASEAN countries. In many countries, the majority of the population pays out-of-pocket for drugs and health services. And even in countries with health insurance infrastructure, there are limited resources available, so high drug prices are largely unsustainable.  

There are many opportunities for pharmaceutical companies looking to expand in Southeast Asia. As regulation across the region becomes more harmonized and complexity decreases against a backdrop of largely sustained economic growth, the ASEAN region looks increasingly attractive. Understanding the unique demographic and payer mix of each country will be crucial to move forward and take advantage of the opportunities presented in this region. 

 is a senior consultant at Numerof & Associates, Inc. 

 1. "Asia Competition Barometer: Pharmaceuticals," 

A unique demographic and payer mix make ASEAN an increasingly attractive region.

Report from Southeast Asia

Comelia Doerr/Getty ImagesLatin America is one of the top emerging markets in the bio/pharmaceutical industry. This region shows a great deal of diversity in its approach to pharmaceutical products as a result of differences in economics, resources, access to care, and definition of regulatory requirements by country. 

Common guidelines from groups like the Pan American Health Organization (PAHO), part of the World Health Organization (WHO), and the Mercado Común del Sur (Mercosur), a lead trade organization, are just beginning to be implemented. There’s interest in greater harmonization, like Eastern Europe, across the region, but there still remains great divergence between individual countries.  

With its population reaching 600 million people in 2011, Latin America is a fast growing region with equally fast growing economies. The top four Latin American economies and pharmaceutical markets account for more than 60% of the total population: Brazil (194 million), Mexico (115 million), Colombia (46 million), and Argentina (41 million). Other major players include Chile, Peru, and Venezuela (1).Latin American pharmaceutical sales in 2011 were at $62.9 billion, registering 8.9% growth in 2012. This is particularly significant when considered within the context of global sales of $995 billion in 2011. The diversity of the region, however, presents some challenges. In addition to the fact that guidelines from PAHO and Mercosur are just beginning to be implemented, it’s also worth noting that what exists are just guidelines, subject to regional and country specific variations. Other differences (e.g., economic differences, population differences, political differences) have profound implications for the pharmaceutical marketplace in Latin America. 

The primary regulatory consideration across the Latin American region for pharmaceutical companies is the increasing trend toward standardized regulations.  Each of the seven major markets has adopted regulations that are based on Mercosur or PAHO’s recommendations.  For example, Brazil revised its GMP standards in 2010 to ensure greater consistency with Mercosur/PAHO recommendations. Updates to Brazil’s GMPs addressed the areas of quality, sanitation, hygiene, qualification and validation, contracts, and computer system validation. Since then, Brazil has been moving ahead with implementation, including the release of a guidebook for inspections in May 2012.  

In other cases, such as Mexico, international agreements like the North American Free Trade Agreement protect foreign companies interested in expanding their business into the region. The Mexican federal commission for sanitary risk (COFEPRIS) also holds equivalence agreements with Health Canada and FDA for the regulation of drugs and medical devices.  Additionally, in September 2012, COFEPRIS and the Chilean Public Health Institute signed a cooperation agreement that will allow for the harmonization of regulatory requirements within the Americas region, breaking the entry barrier present in many countries. The agreement, which is still at the “memorandum of understanding” (MOU) stage, is a bilateral mechanism that is eventually expected to allow the mutual recognition of marketing authorizations, inspection visits, and GMP certification. Mexico has also signed other equivalence MOUs with El Salvador and Ecuador, and a MOU is in the making with Colombia. MOUs with Brazil and Argentina are expected in the near future.  

Even with all of these agreements, there is no Latin American equivalent of the European Medicines Agency—no common body with the power to facilitate greater consistency across countries. Mercosur and PAHO can make recommendations, but cannot enforce a common set of rules the way a common governing body can. And to complicate matters, even as countries implement regulations to be more aligned with Mercosur and PAHO recommendations, they may not implement the same regulations at the same time.  

Despite the many efforts carried out by the major Latin American markets, the road toward total harmonization is steep. The main reasons are the size of the region and the number of countries included in the area, each of them with their own regulatory system, political background, and policy approach to healthcare and pharmaceuticals. One proposal has been that of convergence rather than harmonization similar to what is in use in the Asia Pacific Economic Cooperation Area (APEC). Regulatory convergence is a voluntary process in which the countries in question agree to work toward regulatory requirements that are similar, but not fully harmonized. Harmonization would require changing laws in each country and is, therefore, more difficult to achieve. Convergence of regulations is considered as the most viable solution for the Latin American region. 

Other considerations for pharmaceutical companies interested in expanding in Latin America include regulatory risk profile. In general, Latin American pharmacovigilance systems have developed considerably since the early 1990s and continue to strengthen. Several countries have set up adverse events reporting systems for products in the market, and 10 countries have regulations reporting adverse events during clinical trials. 

Countries that currently have low pharmacovigilance requirement levels must still develop a system and appropriate monitoring measures. They are strongly encouraged by the WHO to do so in a timely fashion. The Subregional Pharmacovigilance Programmme and the Pan American Network for Drug Regulatory Harmonization also assist countries in Latin America in developing pharmacovigilance regulations that are harmonized with other Latin American countries. 

The way that payment is structured varies tremendously. For example, in Mexico, the government pays for approximately 45% of healthcare—significantly less than other Latin American countries. Other markets in the region, particularly Venezuela and Chile, have implemented Latin American social medicine (LASM) practices. In Venezuela, these practices have manifested as Mission Barrio Adentro, a national social welfare program comprised of neighborhood healthcare clinics built in the past decade intended to provide universal primary care to Venezuelans. Though both WHO and UNICEF have praised the program for its holistic approach to community health, critics have argued that building the planned 8500 local clinics siphons resources away from traditional hospitals.  

It’s crucial that pharmaceutical companies understand how healthcare is delivered in each Latin American market, because there is such a degree of diversity. How payment is structured and care is delivered impact the number of stakeholders to whom companies have to present the case for their products.  

Beyond understanding the regulatory landscape of each market, there are other market characteristics to consider as well. For example, in some markets like Argentina, the majority of pharmaceutical sales are currently going to domestic companies. Chile, on the other hand, only produces a small amount of medical equipment locally, though some protectionist regulation meant to encourage local industry complicates the landscape for companies looking to expand there. Some countries, such as Colombia, produce pharmaceuticals that are imported by other countries in the region, especially Venezuela.  

Beyond the current makeup of the pharmaceutical industry in each nation, understanding the demographics and political landscape of each market is essential. Chile, for example, while smaller in market size than Brazil or Argentina, has the highest gross domestic product (GDP) per capita in Latin America. In May 2010, Chile became the first South American country to join the Organisation for Economic Co-operation and Development (OECD).  

The Mexican market offers some other demographics that make it attractive for healthcare. The population has continued to grow by nearly 9% between 2005 and 2010, at the same time that life expectancy also increased. In addition, the Mexican government has, in the past decade, launched programs aimed at expanding health insurance. In 2003, the government started Seguro Popular, which offered publicly provided health insurance to some poor families. In the years since, Mexico has launched other initiatives, including Medical Insurance for a New Generation aimed at disadvantaged children under the age of five, and Universal Care Coverage for Pregnant Women in 2009. Health spending is still lower than the OECD average, but coverage has increased. 

The existing infrastructure must be kept in consideration. Mexico has a considerable manufacturing industry, but its research and development sector is less developed. Mexico spent $6.4 billion, or 0.4% of its GDP, in R&D across all sectors in 2011.  As a percentage of GDP, this is less than half as much as Brazil spent the same year, and less than a quarter of the OECD average (2, 3).    

Latin America clearly offers substantial business opportunities for pharmaceutical companies. The region represents a growing consumer base for the drug industry; by 2020 the regional population is projected to be as high as 687 million. The Latin American pharmaceutical market is now worth $45 billion and multinational companies consider success in Brazil and Mexico as essential. Some of the main challenges and opportunities in the region include:

Intellectual property. Legal oversight of intellectual property is often weak or not enforced in a number of Latin American countries. 

Generics. Regional governments are making serious attempts to encourage the use of generics. This push may be a significant opportunity for pharmaceutical manufacturers with generic portfolios. 

Clinical trials and R&D. Companies are finding Latin America attractive for R&D and clinical development. There are currently an estimated 4000 clinical trials being conducted. High enrollment rates, lower labor costs, and improving regulation have encouraged growth in outsourcing.  Modernization of local regulatory guidelines is ensuring faster project start-up and shorter clinical trial approval times. There is also a strong knowledge and practice of International Conference on Harmonization (ICH) good clinical practice (GCP) guidelines and western medicine standards.

Political situation. Unsettling for multinational companies is the political shift to the left in some countries. However, a number of countries are working to introduce universal healthcare coverage that could create excellent long-term opportunities. Despite the political situation, many governments are highly motivated to make the region favorable for clinical studies and R&D. 

As a developing market, Latin America is quite complicated and diverse in terms of regulatory, reimbursement, market, demographic, and political characteristics.  As regulatory trends converge and the market continues to grow, the region represents a substantial opportunity for pharmaceutical companies, especially those that take the time to understand these characteristics and anticipate the direction each market will take.  

1.  The World Bank, Data, Population, total, 2012,  http://data.worldbank.org/indicator/SP.POP.TOTL, accessed Mar. 4, 2013. 

2.  “Battelle R&D Magazine Annual Global Funding Forecast Predicts R&D Spending Growth will Continue While Globalization Accelerates,” 

, 2011.  http://www.battelle.org/media/news/2011/12/16/battelle-r-d-magazine-annual-global-funding-forecast-predicts-r-d-spending-growth-will-continue-while-globalization-accelerates, accessed Mar. 4, 2013. 

3.  Ministry of Commerce of the People’s Republic of China.  http://www.mofcom.gov.cn/article/i/jyjl/j/201301/20130108520271.shtml, accessed Mar. 4, 2013. 

Latin America&apos;s diverse growing market seeks regulatory harmonization.