Forecasting: "No such thing as 'rest of the world' anymore"

Arnaud Grunwald, director of global market analytics and forecasting, Novartis, on forecasting for emerging markets

Arnaud Grunwald, director of global market analytics and forecasting, Novartis, on forecasting for emerging markets

Pharmaceutical emerging markets used to be compelling opportunities; now theyre strategic imperatives.

Next year, China is expected to become the third-largest pharmaceutical market, with projected revenues increasing more than $40 billion by 2013.

The rest of BRICBrazil, Russia, and Indiaare expected to add $5 to $15 billion in pharma revenues apiece in that same time frame, with Brazil edging ahead of the UK by 2011.

In March, IMS Health upped its total count of pharmerging marketsthose countries that exhibit a growing GDP, expanded healthcare access, and an improved regulatory environmentfrom seven to 17.

Venezuela, Poland, Argentina, Vietnam, South Africa, Thailand, Indonesia, Romania, Egypt, Pakistan, and Ukraine all made the list for the first time.

In a nutshell, there is no such thing as rest of the world anymore, said Arnaud Grunwald, director of global market analytics and forecasting, Novartis, at eyeforpharmas Pharma Forecasting Excellence Summit, held in Zurich.

Pharmerging markets

To accurately predict a brands performance in this shifting global landscape, Grunwald believes pharma companies must change the way they forecast.

In the past, forecasters generally applied the 80-20 rule.

They forecasted the US, Japan, and the European top 5 to 80 percent, then added 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.

By 2005, however, they represented 25 percent, by 2010, 35 percent.

By 2013, IMS projects emerging markets will account for 41 percent of the total pharma market.

Im not sure were going to be able to convince our management that we can only forecast 60 percent and take two-thirds of it and add it on top, Grunwald said. (For more on emerging markets see, Reassessing Russia's pharma market; Breaking into the Brazilian pharma market; Cracking the Chinese pharma market; The Middle East: A pharma market in the making; and How to get ahead in 'pharmerging' markets.)

The Novartis method

Novartis has devised a new method.

The company realized that by forecasting the BRTCBRIC minus India plus Turkeyit could return to that 80-20 breakdown without cutting corners.

(India was removed from the equation because, as Grunwald put it, no one has figured out how to make money in India, unfortunately.)

To forecast the BRTC with the same rigor that Novartis applied to the Top 7, however, required a large increase in capacity, global bandwidth at headquarters, and involvement from the BRTC regions and countries themselves.

Novartis took care of the first challenge by building offshore capacity in, ironically enough, India.

Today, a 12-person team located in Hyderabad supports the global forecasting team as well as forecasting units in individual countries.

We have people [in India] who are experienced, theyre good modelers, theyve forecasted many products, and theyre really smart, young, and motivated, Grunwald said.

So we have [additional] forecasting experience, forecasting hands, and we can also help the countries with capacity and capability. (For more on emerging markets, see Forecasting in emerging markets and Forecasting for pharmerging markets.)

Striving for standardization

In order to make such a global cast of forecasts compatible, Novartis equipped themselves at global with a standard Internet tool that Grunwald called a data-mart.

The tool allows countries to upload forecasts into a single repository that holds not only other forecasts but also all of the assumptions those forecasts are built on.

This is a place where peoplesenior managers, our colleagues from marketing science, and other forecasters from other countries, can see the forecasts, slice and dice, see the numbers but also the assumptions, Grunwald said.

That is critical for alignment and consensus.

The online tool also allows forecasting teams to log in for online training.

Grunwald has found that, despite the common assumption that communication is strained with teams in emerging markets, most regional teams have expressed interest in learning from global.

Its quite easy to talk to these countries and theyre quite eager to talk to you because they need the expertise, they need the talent, Grunwald said.

He and his team have also increased the amount of local training sessions they run in person around the world.

Data challenges

All of this increased capacity, training, output, and alignment gets the global forecasting team to 80 percent.

To estimate the final 20, Grunwald says its critical to apply a growth rate to the rest of the world, which can be accomplished by way of numerous metricsthe price priority index and the purchasing power index, to name two.

The importance is to acknowledge that even the smallest rest-of-the-world markets are growing these days (whereas they used to be pretty stable), and those dynamics must be accounted for.

Indeed, accounting for and embracing uncertainty is crucial in devising a modern method for global forecasting, Grunwald said.

Forecasting in China, India, Venezuela, Vietnam, you name it, presents very real challenges: poor quality of data, language barriers, unknown product timelines.

Theres a lot of uncertainty, Grunwald said.

Some products go really fast in the pipeline, some of them take a lot of time. Even after approval, you dont really know if youre going to have problems at customs, if your product can even enter the country.

Nonetheless, Grunwald believes that wrestling with this uncertainty, quantifying it, and integrating it into forecasts, rather than just applying a simple percentage to estimate it, makes the company smarter.

Global brand teams are told, 'Theres tremendous potential, double-digit profit,' et cetera, but they dont really know what the potential is, Grunwald said.

And they dont really know what the drivers are. They attend luncheons and learn that China is huge but what does it really mean for them?

By going into detail and actually forecasting China for some brand teams, they learn a great deal with us, Grunwald concluded.

We are a means for them to learn and align their strategies with the local tactics.

Learn more at the Pharma Forecasting Excellence Summit in Boston from October 5-6, 2010.

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