Can Healthcare Save the Global Economy?
by Carolyn Steigleman ’10 (M.A.)
While most of the U.S. is still trying to claw its way out of the deep economic crater left by the recession, a handful of long-depressed cities are largely out thanks to healthcare. Pittsburgh, the once grimy steel capital, has replaced manufacturing jobs with positions in healthcare, fueling job growth in the region. About one in five private-sector employees in the Pittsburgh area today works at a hospital, a doctor’s office or in some other health-services business. In Ohio, the Cleveland Clinic has created nearly 81,000 jobs and $10.5 billion in economic output in the Northeast region of the state. The growing demand for healthcare services in Michigan is just beginning to jumpstart the state’s economy after enduring years with a declining auto industry.
Is it possible that healthcare is the panacea for global economic woes?
"Healthcare isn't going to solve everything overnight," says William Trombetta, J.D., professor of pharmaceutical and healthcare marketing, "but it can be a powerful catalyst to turn things around."
Trombetta says this is particularly evident in the pharmaceutical industry where large firms are in partnership with emerging economies to introduce blockbuster drugs and successful generics.
Instead of investing in combination therapies and "me-too" drugs, he says there has been a seismic shift in the pharmaceutical industry to prioritize research and development, innovation and discovery.
This new business model, however, has posed a challenge for the large pharmaceutical organizations that aren't as nimble as some of the smaller firms. Big pharma, companies like Johnson & Johnson, Pfizer, Sanofi-Aventis, GlaxoSmithKline, Roche and Merck & Co., are aggressively looking to emerging markets in what represents a unique and compelling way to increase revenue, improve global health outcomes and spur economic growth.
George Sillup, Ph.D., chair and professor of pharmaceutical and healthcare marketing, says many U.S.-based pharmaceutical companies are in pursuit of what economists have coined the BRIC (Brazil, Russia, India, China) for investment opportunities. Sillup says the annual growth rates of these economies have fallen recently. "In recognition of this slowing, emerging markets are interested in sustainable development opportunities — economic growth that improves lives without exhausting the environment or other resources," he says. "Partnership with pharmaceutical companies offers these economies opportunities for such growth."
So why would a major pharmaceutical company invest resources in an emerging economy when indicators warn that emerging markets are slowing down?
John Furey '08 (MBA), general manager, Pfizer Vaccines in China, says companies like his are looking at more than traditional economic indicators in their evaluation of emerging markets. China, for example, experienced a 20 percent growth in the pharmaceutical sector last year. "The pharmaceutical sector is outpacing economic indicators," he says. "The government wants to expand the drug list as part of its initiative to improve healthcare for its citizens."
Sillup says the governments of emerging economies are increasing investments in healthcare because of political pressure and advances in technology. "These markets know they need a sustainable healthcare system if they want to compete in the global market," he says.
It's clear that countries like China need to improve access to medicine for their populace. While China spends roughly five percent of its GDP on healthcare, in the U.S., 17 percent of the GDP is spent on healthcare.
"It's about social equality," explains Furey. "As the country becomes wealthier, the government desires improved healthcare service and better access to medicine for its citizens. It results in a greater dividend paid to the community."
The benefit from these trends to the pharmaceutical industry lies in the potential to increase market share and access. A recent report from The Global Use of Medicines: Outlook Through 2016 forecasts emerging markets will nearly double their spending on medicine over the next five years from $194 billion in 2011 to $345-375 billion in 2016. The expected rise comes from a combination of increasing income levels, the increased affordability of medicines and the rollout of government healthcare programs for poorer patients.
In Furey's role with Pfizer, he's working with China's government on programs that address diseases such as pneumonia and meningitis in children — major health concerns for the country.
"I can't just operate in a transactional revenue-generating model with our international partners," explains Furey. "It's imperative that I demonstrate how my company is bringing value in meeting their health priorities. We're equally invested in meeting their needs."
One major challenge with global expansion is that each country has its own priorities, unique infrastructure, government and common disease states. "You can't take what you've learned from China and immediately apply it to India," says Thani Jambulingam, Ph.D., associate professor of pharmaceutical and healthcare marketing. "Everything is nuanced, and it's a great threat to success if pharmaceutical companies generalize these emerging markets."
As a young pharmacist in India, Jambulingam drove into rural villages to educate families on the value of disease prevention, specifically — vaccines. He remembers when the village women would see his compact white sedan parked outside and they would herd their children inside and close the front door. "My children are not sick; go away," the women would tell him. "Come back later when my husband is home."
In India, women bring their children to the doctor when they're sick. Mothers don't have a strict vaccination schedule to follow for their children, and they fear vaccines. "This is a great hurdle," explains Jambulingam. "There's a good deal of patient education to be done."
Another major challenge to the country is a lack of infrastructure. In Jambulingam's vaccine work, he has encountered situations where doctors can't introduce a life-saving vaccine to their practice, because they don't have the resources to maintain the proper temperature controls to bring it into their offices.
The pharmaceutical industry is addressing challenges like this by heavily investing in these economies. These relationships aren't tangential. Pharmaceutical companies are setting up shop in these markets, creating jobs, educating practitioners — making the citizens local partners.
"These companies are re-imagining their products and markets, re-inventing their value chain, and strengthening local healthcare in ways that contribute both to the profitability of the business and the welfare of society," says Jambulingam.
While emerging markets still have much to do in building the infrastructure of their health systems, Jambulingam says many regions have been quick to adapt.
"In many of these markets, there is a lack of knowledge of what a healthcare delivery system should look like," he says. "In India, the people are quickly learning lessons from these pharmaceutical companies and making adaptations to their current system for the better."
India, for example, has become a hot spot for medical tourism. Patients from all over the world — including the U.S. — travel there for medical procedures and enjoy India's culture and attractions at the same time. The country has become a popular destination for patients seeking heart surgery. Jambulingam's own mother, a native of India, recently had a heart valve replaced at one of the country's top-rated hospitals for roughly $6,000. The out-of-pocket expense for the same procedure in the U.S. is closer to $44,000. Patients are also traveling to India seeking treatment for gastroenterology, orthopedic issues, oncology, ophthalmology and dental ailments.
As these countries illustrate, this market transition for pharmaceutical companies indicates significant development in emerging markets and growing economies. At this point, with two-thirds of the world's population, emerging markets consume only about a third of the world's medicine. For pharma groups, this disparity represents an opportunity for considerable growth to come.
Global Business in the Classroom
Healthcare is a global business and the pharmaceutical industry is no exception. Through a course taught by William Trombetta, J.D., professor of pharmaceutical and healthcare marketing, graduate students have the opportunity to observe key differences between the U.S. and Europe in the development of pharmaceutical strategies, the impact of regulatory restrictions and the challenges of pricing.
"Europe is a basket case right now for the pharmaceutical industry," says Trombetta. "The unemployment rate is about 25 percent and the youth population is roughly 50 percent. There's very little money to be made in the European markets."
For pharmaceutical companies, this poses a challenge. "You can't just say, 'I'm in the drug business,' 'I'm in the device business,'" he says. "You have to ask, 'What more can I do to get you to buy my drug?' 'How can I provide value beyond the drug itself?'"
During the most recent study tour, graduate pharmaceutical and healthcare marketing students visited Barcelona, where they toured Sanofi-Aventis S.A. and Boehringer Ingelheim, two branded drug firms, along with Grifols, S.A., a Spanish-based multinational pharmaceutical and chemical company. Then, the group toured an advertising agency to learn how marketing and promotions differ in European markets.
Recent graduate Maryellen Lively '12 (MBA), director of client service at OnCall-LLC at Grey Healthcare Group, says the central theme of the trip was "diversification." "Because of pricing, the pharmaceutical companies in Europe have been challenged to get creative in their offerings," she explains. "The focus for the companies now is on total disease state management: providing diagnostics, patient education, medication and therapeutic support. It's about demonstrating value-added services."
Lively says the lessons she learned during the study tour were a great asset to her professional development. In her current position with Grey Healthcare Group, she sees a similar trend emerging in the U.S.: toward pharmaceutical companies surrounding patients with total care. "Because of the globalization of healthcare, it's critical for those of us in the industry to be informed of changes in regulation, growth strategies and best practices from all corners of the world," she says. "It's the only way to remain competitive."