Forecasting for emerging pharma markets
Carl Schmidt and Sandeep Sugla of MarketsandMarkets on why forecasting for emerging markets requires different methods and different expectations
By on Dec 2, 2010Why do pharma companies enter emerging markets? Because McKinsey tells them to.
At least, thats what convinces many senior management teams, according to Carl Schmidt, managing partner of healthcare practice at MarketsandMarkets.
McKinsey isnt duping them, of course; there are many good reasons to enter emerging marketsthe soaring increase of gross domestic product in some developing countries being one of the most compelling.
But emerging markets also come mired with unknownssometimes for the better, sometimes for the worse, always to the consternation of the forecaster.
You have to make senior management understand that these forecasts are not going to be like the forecasts you do for the EU, the US, or Japan, Schmidt told eyeforpharmas Pharma Forecasting Excellence summit in Zurich.
No matter how thorough your approach, forecasts wont be accurate to the same degree as those your senior management is accustomed to from developed markets.
If you give them a number, thats what theyre going to expect it to be, Schmidt said.
Instead, manage their expectations.
Make it clear that forecasting for emerging markets is an altogether different beast that requires a different approach and different expectations, expectations built around bottom-up enlightenment rather than foolproof projections.
Managing expectations
Emerging markets are known for their intangibles.
Companies will forecast 300 million in sales and end up with 6 billion. Or they will over-forecast by the same degree.
Thats the intangibles at play.
Its critical for forecasters in an emerging market to unpack these intangibles, says Schmidt, and to make senior management aware of their presence.
Whos paying, for instance?
In India, despite its massive population and the high prevalence of diseases like asthma and diabetes, 80 percent of healthcare expenditure remains out-of-pocket.
Only 15 percent is financed by the government and 5 percent by social and private insurance.
Therefore, a market that looks promising might actually be quite small for a high-priced product. (For more on India, see Getting into the Indian pharma market.)
You can look at the epistemological data, said Schmidt.
You can look at whatever historical sales. If you can find analogues, those are good. But some of these intangibles can uproot the rest of your research.
The role of government is another intangible.
China, for example, recently committed a $125 billion investment to form a national health insurance system, which opens up the door to reimbursement.
Previously, reimbursement was negligible for drugs because it was mostly out-of-pocket.
Thats the sort of change that, if unanticipated or unaddressed, will render a forecast useless. (For more on China, see Cracking the Chinese pharma market.)
What is critically important in this scenario when the swing changes so dramaticallywhich is going to be the story in emerging marketsis how quickly and proactively you identify the events which can impact your forecast, said Sandeep Sugla, CEO of MarketsandMarkets, who presented with Schmidt.
Monitoring intangibles
Other intangibles you need to monitor are the role of private insurance, competition from local industry, and patent issues.
The prevalence of such issues is one reason its important to build forecasts for emerging markets from the bottom up, said Sugla and Schmidt.
Ten years ago, it was easy to forecast for developing countries by the 80-20 ruleforecast the US, Japan, and the European top 5 to 80 percent, then add a quarter of thator 20 percentto account for the rest of the world.
It wasnt a lazy method. Looking at IMSs historical data, in 2001 emerging markets represented exactly 20 percent of the total market.
But thats no longer the case, as the growth of the BRIC countries has buoyed emerging markets to 35 percent of the total market today. (For more on the 80-20 rule, see Forecasting: No such thing as rest of the world anymore.)
The emerging market is a very dynamic market that changes very quickly, said Schmidt.
Trying to keep up and how that affects the forecast is really critical, and its tough to do from inside a corporate environment.
Opening up a dialogue with people on the groundpeople with expertise regarding the market and the political and social vagaries of its surrounding landscapeis thus essential.
Making connections
In India, theres an expression jugadh. Its one of those sayings that gets partially lost in translation, but it refers to the art of making tricky things work, said Sugla.
IP data, historic sales data, analogue data, that data is not going to be there, he said.
And if the data isnt there, youre left with market research in an environment where market research is inherently unreliable due to lack of physician access.
In other words, its a quagmire. And thats before you add stakeholder expectations into the mix.
The solution, according to Sugla and Schmidt, is to get involved on the ground.
Make connections with country managers being well aware that those country managers may be spinning information for their own good.
Make sure you have a big enough budget to do the legwork with market research and to foster connections that keep you up to date on local developments.
Most of all, make the forecasting process ultimately about the insights and the decisions rather than the final number.
Forecasting is all about decision making, Sugla said.
Youve got to ask yourself what are the decisions youre going to make? Tell me that and Ill plan the accuracy, the approach, and the budget for the forecast.
For more on emerging markets, see The Middle East: A pharma market in the making, Reassessing Russia's pharma market; Breaking into the Brazilian pharma market; and How to get ahead in 'pharmerging' markets.