Friday, November 13, 2009

PBMs Go Global for Growth

Express Scripts (NASDAQ: ESRX) is featured in an unusual press release from Chinese company SeaRainbow Holding Corp., Ltd. (SZSE: 000503) announcing Express Script's entry into the fast-growing China market. See Express Scripts, SeaRainbow to Pioneer PBM Business in China.

There will be plenty of growth for Pharmacy Benefit managers (PBMs) in the good ol’ US of A, especially given current health reform proposals and prospects for PBM consolidation. But the global opportunity is even bigger because those markets are much less sophisticated in the management of pharmacy benefits, especially when it comes to generic dispensing rates. Injecting PBMs into the evolution of emerging markets will accelerate convergence with more established markets.

I’m not so sure that manufacturers of brand pharmaceuticals will be cheering the creation of a global PBM industry, although it could be a big positive for generic drug makers.


According to the SeaRainbow press release:
Under the agreement, both sides plan to respectively invest at best USD 12 million to set up a 50-50 joint venture in Hong Kong. The new company will pioneer the PBM business, which has not yet been practical in Mainland China.

In detail, the agreement was inked between a Hong Kong-based wholly-owned subsidiary under SeaRainbow and ESI Singapore II Pte Ltd., a wholly-owned subsidiary under Express Scripts. ESI Singapore was registered in Singapore. ESI Singapore will have an option to raise its stake in the venture to 51% six months after the signing of the agreement, and buy an additional 20% stake from the Chinese partner two years after the establishment of the venture.
The Express Scripts news is just one more data point that the PBM business model is going global. Recall that Medco Health Solutions (NYSE: MHS) is investing in Europe, most recently via a joint venture with Irish drug distributor United Drug. (source)


IMS projects that emerging economies will grow much faster than the mature economies of the U.S. and Europe, so pharmaceutical manufacturers are looking to these new markets for growth. Pfizer CEO Jeffrey Kindler recently said: “Right now I think we're the number one company in China and the overall opportunity is enormous.” See Drugmakers place big bets on emerging markets.

Global PBMs could put a crimp in those plans. We all know that PBMs help to accelerate generic substitution, a key reason that spending on outpatient drugs is now growing more slowly in the U.S. than other health care services.

So you will not be surprised to learn the U.S. generic dispensing rate is far above other countries. Here’s some interesting market share data about generics from How to Increase Patient Access to Generic Medicines in European Healthcare Systems, a June 2009 report published by the European Generic Medicines Association.

You go, Latvia!

You can read the whole EGMA report if you’re curious about the details, but the headline conclusion: “The main reason for such discrepancies in relation to market shares is the varying effectiveness of differing healthcare policies in enhancing generic medicines penetration.”

Translation: Incentives for generic substitution are much lower in Europe.

The Chinese market isn’t comparable to Europe since legitimate drugs share the market with unauthorized copies and outright fakes. Nonetheless, the establishment of the first Chinese PBM should help the market to mature. Greater global penetration should also be good for generic drug manufacturers.

Extra credit: Wikipedia has an astonishingly detailed article on the Pharmaceutical Industry in China. Who writes these things?

P.S. If you've read this far, then paraskevidekatriaphobia didn't prevent you from enjoying Drug Channels today!


  1. Adam, very interesting. How do you think about this considering the idea that many other countries utilize a single payer system which negotiates or establishes prices for branded drugs, decreasing the need for PBM-type services? That leads to lower levels of generic penetration, but aren't those countries already getting branded drugs at a steep discount to US prices? Would love your thoughts.

  2. Insightful as ever. Have you looked at globalization opportunity for leading drug retailers in the US? Japan, India and China apart from Europe are markets that these players could look at. Any thoughts

  3. Adam-I want to second the comment above about insight. I had not even considered the possibility of PBMs outside the US because of price controls. But now you have me rethinking the forecasts from brand companies.

    How do you think up this stuff? I'm impressed.

    And do you ever sleep?