4 frequent errors that healthcare/ pharma companies make when entering new markets

Healthcare companies, mostly small and medium-size, are making relevant errors that seriously compromise their chances of success in new markets. Below we discuss shortly four of them:

First error: not following a rigorous method of analysis

On many occasions, the first ideas about international expansion occur in a very opportunistic manner. Sometimes, the CEO receives a call from a local distributor in other markets interested in the company's products, other times it is a collaborator who is now working out, any comments read or heard in international forums, etc. Suddenly decision-makers begin to consider the advantages of selling out, as a way to add revenues to the p&l at a, supposed to be, little additional cost. However, very often “little” means huge as several departments, used to work on a traditional local-market, have to be “reshaped” to work in a different manner without a plan or transition period. In addition, is always expected that the “business as usual” will not be negatively affected by the new requirements.

"launching a product in a new market will require not less than 24 to 36 months and usually more, where the company will be consuming resources and people time"

The truth is that launching a product in a new market will require not less than 24 to 36 months and usually more, where the company will be consuming resources and people time. Like all things that represent a new way of doing things, it also establishes a precedent that will be fire-printed in the company`s memory. If the first experiment fails, it is very likely that this pathway will remain blinded a long time, as participants in the process will prefer to attribute results to the project`s infeasibility rather than poor design or implementation.

Once the company realizes that selling in other markets is a real opportunity, what is not always the case, it should undertake a rigorous project analysis to identify the best opportunities for its specific needs and objectives. It saves time and money.

Second error: not take into account the time to market factor when forecasting

Another common mistake is to confuse the current market situation with what can be expected at launch time. Many companies find a major barrier here since the information about local markets is expensive and depending on the countries, not always reliable. Even in the case of having all the information, the time gap is rarely taken into account during the forecast process. In an exponentially changing environment, it is hard to manage a one-year time frame, so what to say when the pretended scenario is, let’s say 3 or 5 years. One of the things most surprising when you attend the presentation of a business plan, marketing, sales, etc ... is the ability of some "analysts" to predict sales at three years seen with figures up to second decimal. There is nothing wrong with creating models and project sales in the mid to long periods, but it is very dangerous to believe them too much.

However, while performing a detailed analysis is highly complex at mid to long term, there are some basic rules that, if followed, can reduce although never eliminate, major expensive and painful mistakes. For instance, the hospital tenders' purchasing system in Spain or Italy may change, but the probability of a sharp modification is relatively low in the next 3 years. By watching the trend, we can say that generic prices go down and it is really difficult to find examples of price consistent increases in “old” molecules. It is also true that, below a certain bottom line, prices tend to be stable with minor changes (+/- 1-2%). Therefore, we can estimate, with some level of accuracy, our entry price for these markets just by looking at the last public data.

Another very different thing would be, for instance, to estimate, with a minimum level of accuracy the price of, let's say, bevacizumab biosimilars in 2024, as we have very little experience at the moment and the scenario is changing every month. In this case, where so many variables are involved, a wise option would be to assess the generics-like pricing scenario as a bottom, a more optimistic 60-70% discount as the opportunity and use boy scout motto: "Be always ready for the best, but prepared for the worst".

An important issue is to assess what other competitors are doing or planning to do. I am not saying that the company should bribe one of the competitor’s directors to know their strategy, sometimes it’s much simpler: check. One of our clients had decided to enter a market where its main competitor was not present and then designed the business plan based on this "rare" event. A considerable amount of resources and budget had been invested when we were hired to perform local research and realized that their competitor had started to register their products six months before and had, therefore, a great advantage.

Third error: confusing the global market with the accessible market

We have discussed this common mistake many times in previous posts. Many companies use naked IMS (IQVIA) data to bare their estimates of market potential. Sometimes they just take sales units or values (at a fixed exchange rate) without any segmentation. This will not work, particularly in emerging markets. In almost all of them, a significant percentage of sales consists of generic products with low prices and it is virtually impossible for western multinationals to compete.

"In order to prevent over-sized estimations, identification of accessible segments understood as those in which it is possible to play on price levels that the company can afford is a critical factor"

In order to prevent over-sized estimations, identification of accessible segments understood as those in which it is possible to play on price levels that the company can afford is a critical factor. Understanding the pricing margins of all distribution chain allows knowing the minimum selling price to generate break-even. This value will act as the cutoff for accessible market sizing, a critical variable to develop a reliable business plan.

Fourth error: forgetting to assess the distribution channel

Two external elements must be evaluated first when planning a global expansion in order to establish reliable access to market timelines: product registration, with all administrative process linked, and distribution strategy. Almost all companies focus on the first and often ignore the second. In many markets, almost all the distribution is carried out by a small number of pharmaceutical chains that literally monopolize the channel (Chile is a good example of it). These have an amazing power to block new products′ entry and usually follow a “one in-one out” system where for something to go in, something has to go out.

"In some markets, making company products to be selected to enter the channel may require months or even years of negotiation and should be started when the product is still in the registration phase and in many cases even earlier"

In these markets, making company products to be selected to enter the channel may require months or even years of negotiation and should be started when the product is still in the registration phase and in many cases even earlier. If big distributors are not interested, the odds of success are greatly compromised and the overall strategy in this market should be carefully reviewed. 

The four errors above discussed are responsible for many failures but there are other important issues involved, such as non-optimized global-local logistic management, poor execution, lack of enough resources compromised, insufficient commitment from general management and, of course, unexpected and unforeseeable circumstances that can change company expectations or priorities.