Over There: Sanofi-Aventis Details Plans for Emerging Markets

Citing a "competitive advantage," Sanofi aims to double sales in new markets from €6.5 billion in 2008 to €17 billion by 2013.

As Big Pharma strives to educate Wall Street on the promise of emerging markets, Sanofi-Aventis has come out swinging: in a statistic-filled July 2 analyst forum, top executives noted they have a bigger market share and more experience than rivals in some of the fastest-growing countries.

As of the first quarter of 2009, Sanofi's market share in emerging markets was 6 percent (including its latest acquisitions of Zentiva, Medley and Kendrick) and it ranked number one in Eastern Europe (including Russia and Turkey), Latin America, and Africa and the Middle East. (Also see "South of the Border: Sanofi’s Tailored Approach To Emerging Markets" - Pink Sheet, 15 May, 2009.)

That places Sanofi ahead of competitors such as Pfizer and Wyeth, Novartis, GlaxoSmithKline, and the soon-to-be combined Merck and Schering-Plough, according to Hanspeter Spek, executive vice president of pharmaceutical operations. Sanofi may be only the third-largest multi-national corporation in Asia, with a 2.9 percent market share, but that's because it has a smaller presence in Japan than its competitors, he noted.

In China, which market researchers expect to become the world's third largest pharmaceutical market by 2013, Sanofi has been particularly aggressive. It currently has 4,000 employees there, in vaccines, R&D, commercial operations, and manufacturing, said Thomas Kelly, vice president of Sanofi's Greater China operations. Between 2004 and 2008, the sales force more than doubled from 900 to 2,100 reps. And Sanofi has spent the past five years building its infrastructure in the country, where its business has almost doubled in the past 18 months.

Moreover, the Chinese health care system is undergoing unprecedented change -- which is, importantly, backed by a government commitment to spend €96 billion on achieving near-universal access to health care for its 1.3 billion citizens by 2011. Another goal: 100 percent access. Currently, only employed urban dwellers have access to meaningful government-backed reimbursement for their health care expenses. Not surprisingly, Sanofi and its rivals are in a race to exploit the opportunity.

This scenario is almost certain to change as the government races to achieve its goal - with a particular emphasis on improving care in rural areas and among the urban unemployed, Kelly noted. It also earmarked €300 million in 2008 to improve the country's immunization programs.

Much of the initial investment is going into large infrastructure projects, and better training of providers. In addition, the government is setting up a system of rural health care in some parts of the country and working on other approaches to improving health care delivery, Kelly said.

In addition, as part of these reforms, reimbursement schemes for drugs are under discussion. Currently, about 50 percent of healthcare spending in China goes toward pharmaceuticals (the Chinese pharma market is current estimated to be about €24 billion), which are paid for largely out of pocket, and mostly bought by those urban residents with the means to afford them. About 80 percent of drugs are purchased at hospitals, which rely heavily on profits from those sales to subsidize losses they incur from their medical services offerings.

The national government has a list of drugs it pays for, which covers the urban insured, a small percentage of the population. That list is updated every five years - and an update is expected by the end of 2009. For Sanofi, getting its long-acting insulin, Lantus , onto the list will be critical for its plans in China.

In a complicated scheme, the diabetes drug gets some reimbursement from regional government payers, but is not currently on the national list, even as diabetes becomes a major disease in China. Optimistically, the company is building a plant near Beijing to manufacture Lantus locally beginning in 2012. The company is investing €61 million in the plant, which will have the capacity to make 48 million units of Lantus a year.

As part of health care reform, the national government is also in the process of establishing an Essential Drug List for rural and unemployed urban dwellers. It is expected to consist of 300 traditional Chinese medicines and 300 Western medicines, which will have to be used before any other treatments in order to fall within new insurance schemes, Kelly said. Details about the list aren't known yet--but an announcement is imminent, Kelly added, noting this presents a major opportunity for multinational corporations to bolster sales. Those companies with drugs on the list can lower prices, and boost volumes significantly, and ultimately increase their markets, said Spek.

Although most of its sales from China come from branded generics, which face multiple, local, unbranded generic competitors, Sanofi's business in China grew exponentially last year, reaching more than €540 million in sales, Kelly noted.

Multinational corporations have been able to expand in highly competitive markets like China, where local generics companies play havoc with patents, because innovators can charge a 25 percent to 30 percent premium for their branded products and still grab market share, Kelly added. This may change as the government gets more involved in paying for health care, but right now, out-of-pocket payers are willing to pay more for what they believe is guaranteed quality.

In the Asia-Pacific region, where Sanofi has sharply increased its presence in the past two years, the company now employs more than 10,000. It has 10 manufacturing plants and 11 R&D units in the region as well.

-Wendy Diller ([email protected])