Predictions for emerging markets hit new realities

Eli Lilly, Pfizer adjust expectations as growth in China slows
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For several years now, Eli Lilly ($LLY) has been telling shareholders that China would pay off big time for the drugmaker. Its plan was to be the fastest-growing company in Big Pharma, reaping sales from the expanding middle class and government's expanding health programs. It intended to do the same in other emerging markets.

Now, Lilly is saying: not so fast. At least, its sales are saying that. In its second quarter, sales from emerging markets were actually down 4%, raising some doubts about its predictions of doubling its 2010 sales by 2015 to $4.6 billion. Pricing restrictions in some countries and slower than expected growth in China are to blame, a spokesperson tells The Wall Street Journal.

The IMS Institute for Healthcare Informatics still says there will be big growth in emerging markets, increasing $157 billion in the next 5 years. At $345 billion, emerging markets will make up about a third of global sales. Still there are factors now putting in doubt how much Big Pharma is going to get and for a variety of reasons. For example, not all consumers are ready to give up their loyalty to cheap, locally produced drugs and embrace what Big Pharma has to offer.

"The majority of the growth is going to local companies that" sell low-price generics, Pfizer ($PFE) CEO Ian Read recently confided to the WSJ. "It is difficult for multinationals to keep up with that growth because we don't have the products there."

Pfizer racked up some big sales there. Emerging market growth was $2.6 billion, up 8% last quarter, but as the new reality has set in, Pfizer says it now expects more growth in that range instead of the double digit expansion it earlier suggested.

In fact, there is a $47 billion shortfall between what the big players have suggested that they will earn and what they actually can reasonably expect to dig up in the next four years, Ernst & Young has forecast.

Some companies haven't stopped banging a drum for emerging markets. While sales in China have slowed for Novo Nordisk ($NVO), it still expects to grow emerging market revenue to 25% of its total in 5 years from 20% today. 

But Benjamin Shobert, founder and managing director of consultancy Rubicon Strategy Group, recently raised a red flag about China's potential as well, pointing to China's pricing policies on domestic-made drugs as it tries to get more medications to a population with growing expectations. He also warned that China could go into a recession, changing all of the predictions there.

- read the WSJ story (sub. req.)

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