It is a truth universally acknowledged that a developing country with a rising middle class must be in want of a higher standard of living.
In other words: Emerging economies want more stuff, they want better stuff, and they're willing to pay for it... and this is as true for medicine as for luxury cars and Levi's.
That's why these economies are driving the bulk of growth in the global pharmaceutical market.
Worldwide pharma is a $959 billion market and is expected to grow around 4.5% per year between 2012 and 2016, according to industry research firm IMS Health.
But pharma in emerging markets will grow at nearly three times that rate.
IMS Health calls the biggest players behind this growth the "pharmerging markets."
To qualify as pharmerging, these countries must meet two criteria set forth in IMS Institute for Healthcare Informatics's 2012 "Medicines Outlook Through 2016": They must have more than $1 billion in pharmaceutical spending growth over 2012-2016, and they must have per capita gross domestic product (GDP) of less than $25,000.
Unsurprisingly, China tops the list, followed by the other three BRIC members - Brazil, India, and Russia - in order of 2011 pharmaceutical spending. The remaining countries, also in order, are Mexico, Turkey, Poland, Venezuela, Argentina, Indonesia, South Africa, Thailand, Romania, Egypt, Ukraine, Pakistan, and Vietnam.
These 16 countries are expected to have a compound annual growth rate (CAGR) of between 12% and 15% over the next four years for a total pharmaceutical spend between $345 billion and $375 billon.
That's 31% of the total market.
Even better for investors: There's a major change developing that will benefit drug companies with a strong presence in emerging markets...Drug Stocks: Rise of the Generics
You see, generic pharmaceuticals are emerging as a serious player in the global pharma market.
Pressures on reducing healthcare costs in the United States alone have resulted in nearly 80% of all U.S. prescriptions being filled with a generic.
And nearly 83% of the growth in pharmerging markets will come from generics and other products, including branded generics, over-the-counter medication, and diagnostics.
This is why David Ansellem, a managing director and senior research analyst with Piper Jaffray, told The Wall Street Transcript that the emerging markets are an "intriguing area of opportunity for global generic players."
Generic usage is still not high, he said, but "if you look at all the big generic players, the best topline growth rates, segment growth rates, are coming out of the emerging markets."4 Drug Stocks to Buy for "Pharmerging" Profits
A few companies in particular seem to be well positioned for investors to take advantage of the coming boom. Although none of the companies on this list can be considered "pure-play" generic manufacturers, they all have strong and growing positions in multiple pharmerging markets.
Israel-based Teva Pharmaceutical Industries Ltd. (NYSE ADR: TEVA) is the largest of the four companies to look at here. It posted about $10.3 billion in generics revenue for 2012, up about 2% over last year, out of a total $20 billion in revenue.
Teva claims a leading position in Russia, where revenues grew 14% from 2011, and has announced that it is building a manufacturing facility there to gain favorable treatment from the government. The company also claims a strong position in Latin America, where revenue grew 9%.
Teva isn't going to be a play for all investors, as the events of the last few weeks make it more speculative than the other companies here.
The recent departure of the company's chief executive officer, Dr. Jeremy Levin, after only 18 months has sent the stock to the bottom of its 52-week trading range, around $36 per share at this writing. The company's fundamentals are largely unchanged, and although the pipeline and market position look strong, the balance sheet (with $11 billion in debt net of cash) does not.
Novartis AG (NYSE ADR: NVS) is the largest pharmaceutical company in Russia. Its subsidiary Sandoz is one of the largest generics manufacturers in the world.
Novartis reported revenue for Sandoz of $8.7 billion, of which $2.3 billion, approximately 26%, was from the emerging markets. Sales in China were up 22% in 2012 and up 14% in Russia. The company says that it is preparing for a shift in the "geographic center of gravity" for its business into the emerging markets.
For an accessible play in India, you might want to look at Abbott Laboratories (NYSE: ABT). India accounts for $933 million of Abbott's $39.1 billion in 2012 revenue. According to an August 2013 investor presentation, India accounts for around 15% of the company's $5.1 billion in generic sales.
Abbott's generics business, called "Established Pharmaceuticals," is entirely outside the United States, and 60% is in emerging markets. It intends to boost that percentage to 75% by 2016.
By acquiring Brazil's Medley Pharmaceuticals in 2009, Sanofi SA (NYSE ADR: SNY) became the largest generic pharmaceutical manufacturer in Latin America. The company holds a 12% market share in Brazil and reported annual revenue for its generics business of around $2.4 billion, a 5% increase over 2011 in constant exchange rates. Sanofi reported 2012 earnings of approximately $46 billion.
Note: Our Private Briefing investment service continues digging out blockbuster drug stocks. Editor Bill Patalon shared one with his subscribers on Feb. 1, which has since seen gains as high as 327% at its peak. We think there are more to come - and for a close look at why, Patalon detailed an exclusive conversation with this company's CEO in "What This Biotech CEO Told Us Over Dinner."
- Yahoo! News:
Big Generic Drug Players See Best Topline Growth Rates in Emerging Markets
Why Big Pharma Won't Get Its Piece of the $1.2 Trillion Global Drug Market
- IMS Institute for Healthcare Informatics:
The Global Use of Medicines: Outlook Through 2016
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