London: GlaxoSmithKline believes it can outgrow its rivals in emerging markets, the new battleground for the world`s top drugmakers as sales stall in Western markets.
Abbas Hussain, the company`s head of emerging markets, said on Thursday his three-pronged strategy included scaling up branded generics, winning extra vaccine business and pushing traditional patented medicines into developing markets.
"It`s very reasonable to say that my ambition is that we will beat the market growth rate," he told reporters ahead of a briefing for investors.
"Emerging markets today are roughly worth 50 billion pounds ($81 billion). By 2015 this should double and by 2020 you are looking at emerging markets in size being equivalent to the US market and the major five in Europe."
The new middle classes of Asia, Latin America, the Middle East and Africa are luring the world`s top pharmaceutical groups as generic competition and disappointing new drug pipelines erode sales growth in the United States and Europe.
Glaxo and others are also eyeing new opportunities in Japan, where a raft of medicines that are already well established in home markets are winning approval and being launched.
Emerging markets currently make up 13 percent of Glaxo group sales and Japan some 4 percent.
Healthcare information group IMS Health sees demand for drugs in emerging markets growing by 13 to 15 percent a year in the coming decade, compared with just 1 to 3 pct for mature markets, and Hussain reckons Glaxo can do even better.
But patent-protected drugs -- the mainstay of Big Pharma sales in the West -- can only play be a relatively small part.
The lion`s share of sales will come from cheaper generic products, carrying the Glaxo brand as an assurance of quality, as well as vaccines, designed to immunise millions of children against a range of common diseases.
Lower prices in emerging markets mean lower profitability than in Western pharmaceutical markets but Hussain said operating margin levels of around 35 percent were around the group average and would not change significantly in future.
"Going forward, in the mid-30s is probably around where we can expect the margins to remain," he said.
At present, the cost of goods represents around 35 percent of emerging market drug sales and operating expenses about 30 percent.
"The mix will change slightly as we accelerate some of the more aggressive pricing strategies," Hussain said. "But over time as we move out of the investment phase ... our operating expenses as a percent of sales will go down."
Glaxo Chief Executive Andrew Witty told the Reuters Health Summit last month the group`s diversification strategy would not have a major impact on overall margins, adding that emerging market research costs were very low compared with developed markets.
Hussain said Glaxo would continue to look for new deals, including acquisitions, in emerging markets but added some company valuations were "unreasonable".
He declined to comment on the possibility of taking a stake in Dr Reddy`s, with which it already has an extensive product development and distribution deal.