Nigeria 2016 Pharma Outlook by Pharma Business Review

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Our view and tips for Success (Part 1)

It is another year and in the coming weeks, if not already, most pharma companies will be reviewing and fine-tuning plans at the respective 2016 sales conferences towards achieving the sales and marketing objectives for the year. Lessons from 2015 are reviewed and opportunities refined to set clear focus for the year and appropriate measurement criteria. However, it is vital to keep in mind that the pharma industry is not insulated from emerging economic realities, government policies, consumer behaviours, disposable income changes, purchasing powers and even the global market environment.
In this article, we have reviewed available pharma market data, market dynamics, policies, macro and micro economic data to propose expectations in the Nigeria pharma market in 2016 and useful tips to stay ahead of the market:

The Economy: Increased money supply, double digit inflation, increased prices and inflation

On Tuesday 22 December 2015, President Muhammadu Buhari presented the 2016 Budget to the National Assembly, described as “the Budget of Change”. While recurrent expenditure is fairly on target capital expenditure is significantly below budget while debt servicing has far exceeded budget. A supplementary budget of NGN574.5 billion was approved on 1 December 2015 in addition to the original expenditure of NGN4.5 trillion.In the 2015 budget, real GDP was projected to grow at 5.50%. However, according to the Nigeria Bureau of Statistics (NBS), the real GDP growth in the first, second and third quarters of 2015 were 3.96%, 2.35% and 2.84% respectively. Consequently, the 2016 budget makes a conservative assumption of 4.37% overall GDP growth rate (5.5% was projected for 2015). This projects a marginal slip in the GDP, reflective of the expectations in terms of economic growth. The CBN also reduced the Cash Reserve Ratio (CRR) from 25% to 20% with the expectation that there will be increased money supply but with attendant increase in inflation rate to likely double digit. The increased capital expenditure also gives a promise of increased cash in circulation.

Nigeria Pharma Market in 2016: Growth Projections and Revenue

Modest combined estimates from pharma sector reports (BMI, Frost & Sullivan, EM etc) project that the pharma market in Nigeria will be worth NGN298.02bn (US$1.78bn), thus posting a CAGR of 15.7% in local currency terms and 14.1% in US dollar terms.We admit paucity of in-market, real sales data and would best adopt these estimates for the moment with cautious optimism on the growth expectation but with higher expectation on projected revenue for the industry in 2016. The aforementioned economic realities will lead to increased prices of drugs due to scarcity of foreign currencies and naira devaluation to the dollar (for companies dependent on importation of finished or bulk active materials). Patients and healthcare payers on the other side will experience increased pressure on available resources thereby demanding for lower prices and relaxed payment terms.

Pharma businesses (companies, distributors, wholesalers and retailers) that depend strongly on financing from banks will have more financing options as banks seek to increase loan facility to shore up the bank’s bottom line as the Federal Government’s TSA mops up cash reserves from the banks, which hitherto could have been used for financing of bigger projects in other sectors.  

Pharma Companies Reactions to Market and Economic Realities
1. Price Increases

While some companies increased prices of products in 2015, we foresee another wave of price increases in Q1 2016 should the naira-dollar exchange rate persists or worsens in addition to scarcity of foreign exchange. While the easy assumption would be that this may not affect local pharma manufacturing companies, the cost of importation of actives and manufacturing inputs (often about 70%+) and cost of energy, may eventually predispose local manufacturers to the same ordeal. However, Local manufacturers may be well able to control costs of goods through reduction of loss in manufacture, operational excellence and effectiveness, increased capacity utilization (more output for same input), and supplier optimization through renegotiated pricing. While the technical facts justifying price increases are evident, we advise that this be cautiously reviewed.

Prices should not be increased in isolation from other marketing mixes. Critical questions should be asked, appropriate answers provided and plans put in place to mitigate these price increases looking through the eye of the payer, channel partners and patients.

Critical questions will be:

  1. What is the pattern of price increases among key competitors in our segment e.g% increase vs. competing brand, channel or customer specific price increases, special pricing options to hospitals, institutions etc)?
  2. How do we communicate the price increase to customers without straining the relationship and yet building stronger mutual understanding?

iii. What reaction do we expect from customers and competition (worse and best case scenarios) and what is our reaction plan?

  1. Is price increase the best option or can we explore other options to grow our profit without hitting our brand profit projection for the year e.g. margin trade off for volume and revenue increase, franchising the product to distributors and eliminate A&P spend on the brand, channeling the sales force to other brands or portfolios etc 
  2. Should we consider strategic local 3rd party manufacturing with local currency pricing options and contractual agreement on pricing terms (although medium term as this may take not less than 8-10 months to set up appropriate technology transfers, manufacturing validation processes, site regulatory inspections, product site change applications and product stability studies)

We posit that price increases should also inform alignment across the entire marketing mix with key areas like:

(a). Promotion: Increased brand promotion to build and sustain brand equity so as to shore up better customer brand appreciation and adoption (as increasing prices tends towards a value pricing proposition). However channel optimization may be the value driver for matured and established brands.

(b). People: Provide appropriate marketing support to the sales team who will eventually bear the brunt of the reaction on price increases from customers. Also, effectively communicate to the team and also provide Q&As for effective engagement of external customers. With the increased price and higher sales targets, it is expected that there will be pressure on the team to deliver on the sales objectives. This requires focused, mature, emotionally balanced and inspiring leadership from line managers.

(c). Distribution: This may be a game changer for pharma in 2016. Pro-activeness, flexibility, customer-focus and speed are useful metrics. This is particularly important for brands with available substitutes (generics) or brands with other substitutes from other therapy segments. It is also imperative to provide customers with the right mix of products at every right time.

  1. Increased Focus on Pharmacy Channel

It is general knowledge that access to medicine in Nigeria is largely out-of-pocket and mostly from the retail pharmacy and other trade channels.In view of this fact, pharma companies will continue to focus on the pharmacy to drive brand penetration. This ranges from dedicated pharmacy sales force and key account teams to value added services and promotions to pharmacists for brand equity building. This pattern cuts across multinational to local generic companies.The pharmacy channel is particularly important since majority of brand switches happens here. This increased pharmacy focus will further increase the power of distributors and wholesalers who will demand more relaxed credit terms, bargain further price cuts and even engage in round tripping,while also having high stock holding without commitment to pay except when sold (S.O.R). This will predispose more companies to risks of expiry and receivables. The aforementioned therefore requires a wider review of the pharmacy focus strategy to mitigate against the risks.

We are of the view that while the pharmacy is the battleground for brand penetration in pharma, a more pragmatic approach should be considered in reviewing the pharmacy strategy in the following areas:

(a). Right Metrics for Pharmacy Calls: With increasing headcount and spend on this channel, it’s high time we rethink the KPIs for assessment of performance. This should move away from just the regular ‘5 calls per day’ or ‘how many packs sold’ to metrics that measure performance of the brand in-store e.g. brand presence (is our brand in the pharmacy), brand pressure (how many packs are on shelf and in store), brand position (where is our brand located in the store), and in-store marketing effectiveness (how well POS materials are deployed in and ex-store).

(b). Right Reps and Capability for pharmacy: Are we deploying reps with strong commercial acumen and right personality type to pharmacy channels or rather reps with sound product and disease knowledge but inept on getting the sales in high numbers? What is the rep selection criteria during recruitment and does the training content align to realities of winning in the pharmacy? It is important to state that if the reps are for pharmacy,then they should be trained to win at the pharmacy. A rep with highly cerebral and oratory capability but low entrepreneurial drive, may be hampering your execution of your pharmacy strategy. You can train on skills but you cannot change personality and drive through training or even coaching.

(c). Obtain & Leverage Pharmacy Insights: In reviewing the pharmacy engagement plan, do we have a lucid understanding of the needs of the pharmacist? How did we get it? Is it quantified, well described and documented? Has this formed the strategy for our pharmacy activation, brand campaign and marketing communication development? Do we have qualitative and quantitative assessment of our brands in pharmacy? Which brands are performing well or poorly and why? What is competition doing in the pharmacy and how does that impact on us? Do we have a proactive communication platform for sales teams to report happenings in pharmacy? These questions require honest answers and strategies that align to insights to win in pharmacy in 2016.

(d). Innovative & Differentiated Promotional Tactics or Value Added Services: Companies should seek to move from product and sales benefits to offering customer solutions. How do we become a partner for the success of the pharmacy? How do we add value to pharmacy’s daily operations, profit, capability and practice? Answer to these questions will require more innovative approaches and thoughts. Innovation may range from technology solutions (mobile based inventory monitor, online direct purchase from company, wholesaler or distributor) to educational support (online CMEs awarding training accessible on mobile platforms). Promotional materials can be better designed to reflect what really matters to pharmacist such as hotlines for bulk discounted offers, phone lines to call for delay in supply or other complaints etc.

 

Marketing, Regulatory Environment, Market Analytics, Outsourcing (Part 2)

 

In this second review of the Nigeria pharma market 2016 outlook, we state our views on the regulatory environment, pattern of industry marketing spend, product and portfolio optimization, and strategic outsourcing.

1.0 Regulatory Environment
The pharma environment will experience significant regulatory changes in the coming years, 2016 – 2017 being significant landmark years. A preview into coming realities has been echoed by the Pharmacists Council of Nigeria, a key industry regulator, under the leadership of the Registrar/Chief Executive, Pharm. Elijah Mohammed, who stated in an interview with Saturday PUNCH (December 26, 2015): ‘“Let me assure Nigerians that in two years’ time, the idea of open drug market would be a thing of the past. When they are relocated to the CWC, they will be highly regulated and any product coming in must be certified by the PCN. So wherever there are open drugs will be shut down, because that is the bedrock of most of the fake drugs we have in this country.”

No doubt this development will further safeguard the health of Nigerians; however, it is a wake up call for pharma companies to review her route to market architecture. While closure of open drug markets is well overdue, a company that is subtly reliant on sales from these channels will experience significant hit, though short term if well managed. It is imperative for every company to have in 2016:
(a) A route to market plan with clearly stated channel objectives and policies 
(b) Reasonable support for channel partners to empower them redistribute into channel down lines 
(knowing that scarcity breads counterfeits, hoarding and price instability) e.g. redistribution infrastructure, margin shed off that with value transferable to channel partners e.g. to wholesalers to aid proactive re-supply to retail and hospitals. 
(c) Reallocation of sales teams (before involved in direct company supply to wholesale and retail pharmacies) into brand building and full detailing. Alternatively, these can be out rightly transferred to wholesalers to undertake redistribution to retail pharmacy. The latter is important in view of the fact that the new national drug distribution policy no longer allows company reps to sell directly to wholesalers and retail pharmacies (reported in Guardian Newspaper of July 2, 2015.

Global pharma trends reveals increasing focus on ethical practices in pharma marketing, selling and interaction with healthcare practitioners; in 2016 we foresee local industry regulators toeing the same line through advocacy and enforcement.  Companies that rely on unethical promotional tactics,  offering healthcare practitioners ‘incentives’ or ‘PR’ for prescriptions must rethink and reorganize operations by practicing professional and ethical pharma sales and marketing. It’s no news that in other industries, implementation of new regulations have wiped out whole businesses who choose not to operate ethically or by the rules. For avoidance of this impending risk, we advise companies to:
(a) Train and re-train sales and marketing teams on effective and ethical ways of brand promotion.
(b) Undertake internal capability assessments of sales and marketing teams to ensure the right skills are in place.
(c) Develop and establish standards for sales and marketing teams to imbibe especially as it relates with interaction with healthcare practitioners (focus on brand equity building and solution marketing)
(d) Recruit only individuals with history of abiding to ethical standards.

2.0 Marketing & Sales Expenditure: Tight Controls and Demand for proof of ROI
While there is no data on average % industry advertising and promotional (A&P) spends, our estimate is that majority of companies set A&P spends between 4%-10% of total brand revenue for the year. We expect that this range will persist for the year however companies will be more conscious of the ratio of the A&P spent versus sales at every point in the year, with more spend in the first half of the year in anticipation of an evident impact on sales and ROI in the second half of the year. Marketing teams will experience more hurdles in obtaining approvals for marketing and sales expenditure demanding more convincing presentations and proposals on how such spend will create value for the organization (market share, brand equity, penetration and sales).

This certainly is not new to most marketing professionals, however the impending hurdles for the year for marketing teams will be:
(a) Inadequate data on market opportunities, competitors, therapy segment and sales trend across the channels (actual sales, prescription profile etc) to support marketing planning and metrics.
(b) Poor disease epidemiology and patient population data to justify targeting of segment with highest opportunity.
(c) Management’s consistent demand for immediate sales growth from marketing campaign activation, a promise of which cannot be guaranteed.
(d) Difficulty in segmentation of customers (doctors, pharmacists, channel partners etc) in a manner reflective of realities in the field and also usability of such segmentation to the sales team.
(e) Marketing leadership’s dilemma of attracting, motivating and keeping talents with requisite pharma marketing knowledge, skills and experience.

3.0 Market Research, Insight and AnalyticsIt is no doubt that the Nigeria pharma industry is behind most developed and emerging markets that have ‘big data’ and cloud systems, 2016 may be a starting year for the industry to begin useful discourse on importance of data capture, analytics and its eventual deployment in marketing planning, execution and metrics. Companies and marketing teams should consider more data-driven planning and execution by making the right investment in primary and secondary research e.g. uncovering insight in a segment or channel. Pharma companies can no longer afford to overtly rely on ‘guess-timates’ and estimates when formulating strategies and plans without recourse to data (market, customers, patients, competitor and channels).In 2016, real data and insight may be a game changer conferring a compelling competitive advantage. Key question to marketing leadership would be how much is allocated for primary and secondary research in 2016? Is the emphasis on data and insight as bedrock for planning instilled in the team? Historically, is the budget for primary and secondary research decreasing or increasing? These questions call for sincere reflections. How do you aim at what you do not know?

4.0 Local Outsourcing: Focus and Resource Optimization
Strategic outsourcing is one way organizations focus energy and resource on areas for which they have high internal capability. This also helps to focus on core value drivers of the business, with expectation that the external third party can utilize her in-house capability to cover up for the company’s weaknesses, delivering better quality and at lower costs. 2016 will be another year pharma companies will toe this line, with the intent of reducing costs of operation, internal focus on the organization’s strength and also driving greater value from the key growth drivers.

We are of the view that there will be local outsourcing in the following areas:
(a) 3rd Party manufacturing: The years 2013-2015 saw key local players attaining the WHO pre-qualification for pharmaceutical manufacturing, raising the Nigeria’s profile among West African nations. To mitigate risks of outright government ban on importation of some molecules, increasing cost of goods, cost of importation, and dwindling exchange rates, contracting a 3rd party manufacturer may be worth the consideration. This surely is not an immediate intervention as the technology transfer and validation processes may take between 8-12 months to complete.The Federal government and industry group clamour for development of the local industry is also worth the attention of companies that import most essential, non-innovative medicines e.g. antibiotics, multivitamins, some analgesics etc and most molecules on the essential medicines list.
(b) Marketing and Regulatory Outsourcing: Start-up pharma companies desirous of early sales and ROI growth,  may seek to outsource other functions like regulatory and marketing, so as to keep lower overheads and other operating expenditures. Key tasks like market research and insight, brand and marketing planning, new molecule selection and pricing strategy development, new product registration and renewals etc will be key tasks outsourced.(c) Outsourcing of Warehousing and Distribution: Companies will opt for 3rd party warehousing and distribution to save costs and to comply with regulatory requirements for distribution and medicine storage. This will be a major advantage only if proper 3rd party pre-qualification and due diligence is carried; expensive, poor warehousing and ineffective distribution infrastructure may do more harm than good.

 

Investments, Portfolio, Emerging Themes & Areas of Focus (Part 3)

In this last review of the Nigeria 2016 Pharma Outlook, we share perspectives on sector investments and market entries, portfolio optimization, emerging themes and focus areas for consideration in execution of your business plans for the year.

New Market Entries and Increased Investment
Notwithstanding the challenging economy, Nigeria is still considered a major investment destination and growth driver for organizations seeking to venture into Africa. With a “rebased” gross domestic product (GDP) data, Nigeria is ahead of South Africa as the continent’s biggest economy. The Nigerian GDP now includes previously uncounted industries like telecoms, information technology, music, online sales, airlines, and film production. GDP for 2013 totalled 80.3 trillion naira (£307.6bn: $509.9bn), the Nigerian statistics office said. That compares with South Africa’s GDP of $370.3bn at the end of 2013. Even though many analysts are of the view that this ‘Changes Nothing’, the increasing intent of major pharma companies to further invest in growing businesses in Nigeria cannot be ignored.

In view of this growing interest, we foresee the following dynamics in the market:
(a) More pressure on existing trade channels and hospitals to spread thin resources across increasing number of products and companies (also consider growth ambition of existing companies).
(b) Talent migration as new or ambitious companies headhunt talents.
(c) Increased rep competition for time to detail physicians and increased promotion to healthcare practitioners,
(d) Further development of existing therapy segments (healthcare practitioner knowledge, evolution in prescription patterns and doctor or pharmacist sponsorship).

(e) New product registration and launches,
(f) Offer of more incentives to trade channel partners and pressure on brand profit margins

The aforementioned events will lead to development of the industry while also creating healthy competition that drives innovation and job creation.

It is therefore key for marketing teams to continue to devise insight-driven strategies and tactics that will spur sustainable brand and service differentiation. Perspectives must drift from selling a product to building brand equity (across the entire marketing mix).

Internal Portfolio Optimization
In 2016, we foresee companies reviewing existing portfolio of products to drive profitability, reduce waste, effective resource utilization and positioning product line to meet present and future market needs. It is no longer acceptable to review only total  brand sales; further analysis of the brand contributions and P&L is of importance. Huge brand revenue and low brand contribution may be put offs for many organizations. Still others may choose to retain such brands for cash flow management; however decreasing brand profitability will be major reason to consider discontinuation off such brands, franchising or simply sell out to third parties. This will be a tough call, but it is needed to keep the focus of the company. Also, Brand, Product and Marketing managers must develop competency for financial analysis of brand health and guide brand spend based on periodic analysis. Internal frameworks, platforms and technologies must be in place to provide visibility of brand financials on a quarterly if not on monthly basis.

We propose a purposeful review to include the following:
(a) Stage of brand in its product life cycle (PLC): We propose continued investment in new products with tangible and measurable market and segment opportunities. Growing brands should be optimized across all channels by ensuring stock levels and appropriate demand planning is in place. For mature brands, continue to optimize channels and manage margins and pricing opportunities. You may want to manage life cycle of declining brands by line extensions or product augmentation if the segment and eventual differential value of the brand justifies the investment and effort. Brands in declining segments and markets may be considered for outright discontinuation. Segments with high saturation, difficult line of differentiation, high price scheming and low space for pricing elasticity may not be worth the investments.
(b) Products for today and pipeline for tomorrow: It is important to consider the viability of your portfolio of products to meet patient and customer needs in the medium and distant future. Changing disease demographics, government policies, consumer and patient spending patterns etc all demand continued portfolio evaluation. You may want to refrain from launching new brands you ‘feel’ will sell without thorough research to understand the need and dynamics at the point of prescription, dispensing, and existing pricing patterns.
(c) Internal capability and customer perception of what your company is best at: You may want to be cautious about advisable launching products you lack internal capability to promote and sell. Example is launching a specialty brand (e.g. oncology, haematology etc) for which your team lacks the competency (disease, product, market, customer knowledge) to promote. However the right investment and time frame should be allocated if the product and portfolio present justifiable opportunities.  is simply a recipe for disaster. In this case, it is important you are realistic on sales growth expectations and time to break-even. It is worthy of note that your organization’s popularity in a therapy area may be an opportunity to be further harnessed, by increasing your product offering in that area.
Emerging Themes: Digital Marketing, HMO & Market Access, Analytics
The Nigeria pharma industry is yet to fully maximize increasing penetration of internet connectivity, patient access platforms and collaborations, healthcare financing and analytics for decision making.

Social media platforms: It is on record that the number of internet users on Nigeria’s telecoms networks has hit 97.21 million, up from the 95.37 million recorded in August 2015, according to figures released by the Nigerian Communications Commission, NCC. Many Nigerians are now in the habit of seeking for health information on the internet via Google search and other search engines. Social media platforms like LinkedIn connects thousands of healthcare practitioners seeking to network and share information. These are useful contact points for pharma companies to promote the organization’s corporate image, values and CSR activities to the public while also passing useful information (such as invitation to scientific symposium, webinars etc) as in-mail messages to target healthcare practitioners.

Health Management Organizations (HMOs): HMOs are key stakeholders currently changing the dynamics of brand selection and pricing in major private hospitals and clinics. Also of mention is government’s renewed interest in the National Health Insurance Scheme. All these challenge pharma organizations to develop capability for patient access management by first gaining understanding of needs of key stakeholders in the system. Easy steps will be face-to-face interaction with select HMOs to better understand the workings of the system and development of special access schemes for select challenged groups e.g. oncology and HIV, not currently covered under most HMO schemes.

Conclusively, 2016 industry winners will be masters in the following three areas:

  1. Excellence in execution of the basics (sales, marketing, supply and logistics etc)
  2. Excellent execution of insight-driven pharmacy strategy
  3. Excellent People management and team motivation

 

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