Emerging Markets Drive Europe’s OTC Growth Despite Global Economic Slump

The developing world is playing a leading role in the global growth of OTC drug sales surpassing Rx growth for the first time. In Europe, emerging markets in the East are attractive expansion targets for drug firms in large part because they are key OTC growth drivers.

Eastern Europe's less mature markets remain the "best bets" for geographic expansion in the short-to-medium term, according to analysis presented at the annual meeting of the Association of the European Self- Medication Industry in early June in Vienna, Austria.

"We're starting to see over the past two or three years real consistent growth in the OTC marketplace to the point where it's overtaken the pharma market in terms of growth rates," Andy Tisman, senior principal in consumer health for London-based IMS Consulting, said at the meeting.

The close to 7 percent OTC growth globally in 2008 stands in comparison to 5 percent growth over same period for prescription products. "It's the first time in living memory, maybe the first time ever, that we've seen OTC growing significantly stronger than the pharmaceutical market," said Tisman.

He expects the trend to continue as generic drugs increase their grip on large therapy areas, research and development productivity continues to decline and payers for pharmaceutical drugs increase their influence and restrict market access.

Meanwhile, Tisman added, as the U.S. continues to dominate the global pharma market, the developing world dominates the OTC marketplace, with about 45 percent share of sales. Latin America and Southeast Asia (including China) are driving at least 60 percent of the growth in the OTC market.

Growth in both the developed and developing worlds is mostly from new products and line extensions.

European OTC sales growth can be divided into three groups, with one - the de-reimbursed markets of France and Germany - lagging significantly behind the rest of Western Europe, said Tisman. Conversely, the third market - Central and Eastern Europe - accounts for only 20 percent of the continent's total drug sales, but 80 percent of OTC growth.

Within CEE, Russia remains the largest growth driver, alongside Ukraine and the Slovak Republic, according to IMS data. With per capita spending on OTCs in Russia and Ukraine still the lowest in Europe at 17 euros and 10 euros, respectively - compared to a Western European average of 64 euros and CEE average of 22 euros - IMS expects these markets to continue to drive overall European growth. (Under June 19 exchange rates, 1 euro equals $1.39.)

"If that spending doubles or even triples" to fall in line with other markets, with such a large population in CEE "that's a huge amount of extra business to come into the European OTC marketplace," said Tisman.

Other countries such as Poland, Hungary and the Czech Republic "are starting to behave like Western European markets," with similar growth and per capita expenditures on OTCs, he said.

Economy Hits CEE Hardest

However, CEE countries also are likely to suffer the most from ongoing global economic difficulties. Despite the low per capita spend of many CEE markets, those countries are experiencing the largest slowdown in growth, noted Tisman. The decline has manifested itself in value rather than volume. In other words, said Tisman, people are still treating their headaches, hemorrhoids and heartburn, but perhaps trading down to less costly alternatives.

Those observations were consistent with results of a survey the Nielsen Co.'s Robert Buckeldee presented at AESGP. Indications are that developing countries will experience more change in consumer behavior than "Western" countries, he said.

In Europe, those behavior changes include using cheaper products and switching to natural and traditional remedies, as well as increased use of preventive medicines, the Nielsen survey indicated.

Tisman pointed out the economic impact may have been worse if not for a "good" cough and cold season in Europe. Cough and cold was essentially the only category to show continued growth in the 2009 first quarter; with the exception of flat sales for circulatory products, all other OTC categories shrank.

Despite the short-term challenges presented by a difficult global economy, said Tisman, the "blip" in growth is not a major issue in the CEE. "The developing world is still the best bet for growth," he said.

- Chris Morrison (c.morrison@elsevier.com)

This article first appeared in The Tan Sheet on June 22, 2009.