Merck Climbs on the Emerging Markets Bandwagon

Merck (NYSE: MRK) wants to be either number one or two in China’s healthcare market within the next five to seven years. Much like all the major multinational pharmas, Merck is de-emphasizing its old business model, based on patented blockbuster drugs for Western markets, and turning to emerging markets for its future growth. The company wants emerging markets to generate one-fourth of all revenue by 2013, up from 18% currently, according to a Bloomberg story.

“The reality is that we are playing catch-up,” said Ramesh Subrahmanian, President of Merck’s Asia-Pacific region. “We really have quite a lot of work to do to be able to not only keep up with the very fast growth that’s happening in these markets in general, but to be able to grow our market share.”

IMS, a global health consultancy, expects 50% of global growth in healthcare revenues to come from just 17 key emerging markets over the next five years. For big pharma, that makes for an irresistible logic. China pharma spending could be up 27% to $50 billion next year, says IMS.

On a wider basis, emerging markets are expected to increase 17% annually over the next five years, against 6% in developed countries.

Merck is currently ranked fifth in emerging markets. It has set itself the goal of becoming first or second in seven key countries within the next five to seven years. The countries are China, India, South Korea, Russia, Brazil, Mexico and Turkey.

A very large driver of the growth will be Merck’s purchase last year of Schering-Plough. In contrast to Merck, which was focused on the US, Schering-Plough had a larger presence internationally. That distribution network will now help move Merck’s products as well. Also, Schering-Plough is known for its contraception and fertility products, which are well-received in emerging markets.

Another piece of its strategy is Januvia, the innovative oral drug for type 2 diabetes. “Beyond the sheer numbers of people, it’s disease burden” that drives growth in emerging markets, Subrahmanian said. “What they all have in common is that basic diagnosis and treatment rates are abysmally low. Even if there were no more diabetics ever found in Asia, if we just raised the level of treatment, these are vast numbers of people who are either not treated or under-treated.”

Even in emerging countries, where low-margin, low cost products like vaccines do well, Merck wants to stress its innovative products. However, so far, it has not invested in a China R&D center, preferring to work through partnerships. After Merck absorbs the $50 billion Schering-Plough acquisition, it may give another look at joining its big pharma brethren with a China facility focused on indigenous health problems.

Disclosure: none.