Winning in Nigeria: Pharma’s next frontier Pharmaceuticals & Medical Products May 2017 Tania Holt Laura Millroy Matthews Mmopi Winning in Nigeria: Pharma’s next frontier Amid the country’s downturn, should companies still be looking here for growth? Yes—and we can learn five lessons from players getting it right today. Five years ago, Nigeria’s strong economic growth Putting growth in perspective sparked a burst of enthusiasm about opportunities As Africa’s largest economy and most highly in its pharmaceutical market. Yet capturing that populated country, Nigeria has been hailed as the promise has proved harder than expected, with next frontier for pharma, in the wake of industry many multinationals struggling to find a recipe for successes in South Africa and the growth hotspots success. More recently, the economic downturn has of Northern Africa. But the country’s recent slide cast an altogether different light on the industry’s into recession is prompting some companies to prospects. Given past challenges and today’s woes, take a step back and consider whether robust companies are starting to wonder whether Nigeria growth is still attainable. is ready for pharma—and even, as they reflect on their own experiences, whether pharma is ready In July 2016, the International Monetary Fund for Nigeria. cut Nigeria’s GDP growth forecast to –1.8 percent, the lowest since 1987, and a sharp fall from the We believe leaders should not be discouraged. 6 percent growth recorded between 2000 and Short-term shocks do not alter the fact that Nigeria 2014. Among the causes of this decline were the still offers attractive opportunities for companies global economic slowdown, the drop in crude oil with realistic expectations and carefully tailored prices, the dwindling of capital inflows, and the strategies. But as leaders have learned in the past devaluation of the Nigerian naira. few years, growth must be earned, not taken for granted. To capture Nigeria’s potential, companies Yet despite the economic outlook, the prospects need to take a long view, weather near-term for the pharma market remain sound, in our view. economic headwinds, and overcome structural With a population of over 180 million people, obstacles by developing creative solutions tailored Nigeria is Africa’s largest consumer market. As to the Nigerian context and local patient journeys. more people join the ranks of the middle and upper classes, household consumption is expected to To find pockets of growth and to improve patients’ grow by $94 billion over the next ten years, rising access to medicines, successful companies will from $360 billion in 2015 to $454 billion in 2025.1 conduct a granular analysis by city, therapeutic Most healthcare expenditure in Nigeria is funded area (TA), and channel, and counter barriers out of pocket, so growth in household consumption to healthcare access by developing innovative can be expected to translate into growth in offerings that drive penetration in the growing healthcare spending. Nigerian middle class. They will get closer to healthcare providers and build capabilities for Another source of opportunity for pharma handling complex sales-and-distribution networks. companies can be found in the shift in the burden Finally, they will invest in local talent to empower of disease and the consequent growth in unmet and optimize their Nigeria operations. patient needs (Exhibit 1). Although drugs for 2 Winning in Nigeria: Pharma’s next frontier CDP 2017 Winning in Nigeria Exhibit 1 of 5 Exhibit 1 Noncommunicable diseases are rising rapidly in Nigeria. volution of disease urden % of disease-adjusted life years (DALY) Injuries Communicable Noncommunicable DALY, diseases diseases million 2015 5 70 25 107 2010 4 75 21 115 Disease burden by therapeutic area, 2015, % of DALY 18 100 2 3 3 4 5 Other 5 Diarrhea Musculoskeletal Nutritional 8 Cardiovascular 18 HIV/AIDS Blood and Psychological endocrinology Tropical 18 Women’s diseases health 16 Respiratory Total Source: Institute for Health Metrics and Evaluation, Global Burden of Disease Compare data visualization, 2017 communicable diseases continue to command Given this gap, pharma companies have a great the lion’s share of the market, the demand for opportunity to step up and become long-term medicines for noncommunicable diseases such partners to the government by providing much- as diabetes and heart disease is expected to needed access to medicines for diseases that grow significantly over the next ten years. The have not yet become a priority for the healthcare increasing prevalence of these diseases presents system. Our analysis indicates that the value of the a huge challenge for Nigeria, as its healthcare Nigerian pharma market, currently estimated at system, like many others in Africa, is not geared $1.4 billion, could rise by as much as 9 percent per toward dealing with them. In addition, most of year over the next ten years, to reach $3.6 billion the financial and technical support that Nigeria by 2026 (Exhibit 2). Such a trajectory would make receives from international development partners the Nigerian pharma market as large as those of is dedicated to communicable rather than Malaysia, Saudi Arabia, and South Africa. Over noncommunicable diseases. the same ten-year period, Nigeria is expected to Winning in Nigeria: Pharma’s next frontier 3 CDP 2017 Winning in Nigeria Exhibit 2 of 5 Exhibit 2 The top six therapeutic areas could deliver more than 80 percent of market value in 2026. Decomposition of Nigerias pharmaceuticals opportunity Market value, Prescription, Over the counter, $ billion % % 3.6 2026 45 55 2.2 2021 40 60 1.4 2016 33 67 2016 2021 2026 Share by the top 6 therapeutic areas,1 % Endocrinology Gastrointestinal Cardiovascular Blood Musculoskeletal Infections 29 28 27 21 18 19 15 14 12 10 8 9 6 6 7 7 7 7 2016 2021 2026 2016 2021 2026 2016 2021 2026 2016 2021 2026 2016 2021 2026 2016 2021 2026 1“Other” not shown. Source: Imperial Logistics; Worldwide Commercial Ventures; McKinsey analysis contribute between $1.9 billion and $2.2 billion to favorable growth in the medium to long term, and pharma sales growth, with 55 percent coming from to help patients. prescription drugs. As noncommunicable diseases become increasingly important, new opportunities Diagnosing healthcare in Nigeria: Persistent will open up for pharma companies with the symptoms to address foresight to develop “beyond the pill” solutions and Pharma companies seeking to capture introduce radically new business models. opportunities in Nigeria will need to develop locally tailored solutions to address three obstacles However, Nigeria is a complex market, and success to gaining market access for their products: will require a deep understanding of the many forces at play. Companies will need to work to Healthcare infrastructure is not fully developed address short-term economic setbacks and deep- Nigeria’s healthcare infrastructure varies rooted structural challenges to take advantage of considerably between cities and rural areas, and 4 Winning in Nigeria: Pharma’s next frontier between public and private provision. Overall, though, are competing for funding with other government the country does not have the medical facilities, priorities as well as other pharma companies and equipment, and capabilities it needs to combat the disease areas. considerable healthcare challenges it faces. The affordability of medicines is an issue for all By way of example, Nigeria has 0.9 hospital beds but the most affluent segments of the population. per 1,000 people, compared with a global average McKinsey estimates that fewer than 5 percent of of 2.3 beds. Moreover, it has only 120 intensive- households can afford to pay for ethical drugs care-unit (ICU) beds, equivalent to 0.07 ICU entirely through out-of-pocket spending or private beds per 100,000 people, compared with Kenya’s health insurance. Distribution, wholesale, and ratio of 0.3 ICU beds per 100,000 people. One of retail markups can be extremely high: a drug’s many consequences of the lack of infrastructure manufacturing price can double or triple by the is that an estimated 5,000 patients a month travel time it reaches patients. To succeed, pharma abroad to seek healthcare, 60 percent of them companies must take care to design trade terms needing treatment in cardiology, musculoskeletal, and affordability strategies that will help Nigeria hematology, or oncology. Medical tourism—much manage its healthcare spending and develop its of it to popular destinations such as India and pharma market. South Africa—incurred costs totaling more than $1 billion in 2013.2 Counterfeits and parallel imports compete with registered drugs and place patients at risk Healthcare financing is a barrier to market access In Nigeria’s predominantly informal distribution Healthcare spending in Nigeria is predominantly and retail networks, counterfeit and parallel a private affair. Out of an estimated total health medicines are often difficult to distinguish from expenditure (THE) in 2015 of $15 billion, out-of- the genuine article. Some experts believe that pocket spending accounted for approximately informal retail accounts for more than three- 70 percent, compared with just 7 percent in France quarters of the value of the pharma market, and South Africa, for example. Private health while estimates suggest that parallel imports insurance, mostly the preserve of senior staff in could account for up to half of all drugs sold in large corporations, accounted for about 5 percent priority TAs, including infectious disease and of THE, compared with 14 percent in France and cardiovascular. Several generics companies that 45 percent in South Africa. The government’s have no commercial activities registered in Nigeria contribution to healthcare expenditure is still have statin variants that are widely distributed estimated at 25 percent of THE, compared with and sold here, for instance. “The competition the Organisation for Economic Co-operation is beyond fierce and highly fragmented.