Life science researcher in laboratory

Key steps for improving biopharma expansion into new markets

As biopharma companies look to new markets for growth, leaders need to tailor the expansion approach to the nuances of each market.


In brief
  • The pharma patent cliff and the desire to expand treatments to more patients are leading biopharma companies to look to expand into new markets.
  • Markets outside the US accounted for less than half of biopharma revenue in 2023, presenting ample opportunity for expansion.
  • Varied regulatory, reimbursement and operational demands require that biopharma leaders adopt a tailored approach when entering new markets.

Biopharma companies are looking outside the US to find new growth opportunities and sources of revenue, and to try to maximize reach for delivering treatments to as many patients as possible. The opportunity is big:  US$120B in revenue outside the US through 2028, according to a report by IQVIA. However, country specific nuances such as the regulatory regime, reimbursement schemes and tax considerations can make it risky to expand into new markets if executives do not plan appropriately.

Within the broader biopharma industry, for firms to improve their chances of successfully expanding into new geographic markets, it is imperative that leaders select and prioritize specific countries, devise tailored entry models and strategies for each market, establish a launch sequence and develop cross-functional capabilities. Piloting these tactics with test case can help verify what works best in each market.

The biopharma expansion frontier outside the US

According to data from S&P Global, the global biopharma market was estimated at US$1.4 trillion in revenue in 2023. Of this total, markets outside the United States had approximate 56% share, up from 52% in 2020 indicating their growing importance. Still, launching solely within the US market limits the revenue potential of products, a factor further underlined by the $200 billion in annual product sales that are expected to lose patent protection by 2030, according to Evaluate Pharma. Companies would do well to focus on international diversification of their assets, programs, and areas of focus, underpinned by strong commercial and development execution to capture intended value at launch.

However, there are no “one size fits all” strategies to establish a robust presence, geopolitical risk and address the ongoing modifications in the regulatory and reimbursement landscapes across countries.  Moreover, the operational demands of entering or launching in multiple markets within a narrow timeline can be difficult. By adhering to specific principles of strategy, planning, and execution, potential risks can be mitigated.

Select a winning country-entry model

Selecting the right country-entry model is as important as aligning the right therapy or device with a specific market. A rough entry can quickly lead to a failed launch for even the best product. Factors such as company size, country-specific potential, cultural complexities should be considered. Additionally, understanding country-specific nuance and entry or regulatory constraints is essential for organizations to prioritize how to expand globally.

Typically, when a pharmaceutical company expands globally, there are two primary entry models: direct presence or indirect presence, each with its own pros and cons and each more likely to be adopted by a certain type of company. (see figure 1). Factors such as company size, its headquarters location and the target region can inform what type of model to consider first. For example, a large biopharma (companies with at least US$20 billion in annual revenue) tends to establish a direct presence model (going alone or with an alliance/partner) in large markets. Conversely, a smaller biopharma (revenue under US$5 billion) looking to enter a highly complex market would generally opt for a licensing distributor (promotional or non-promotional) to commercialize.

A direct-presence model includes establishing an in-country footprint with company employees, where all functions are either owned by the company or split with a co-commercialization partner. Direct market entry can leverage a variety of techniques for initial deployment, including launching a subsidiary, appointing local sales agents, creating a joint venture, or licensing one’s technology.

Pros:

Cons:

Higher profit potential

Higher upfront investment and a longer set-up timeline

More visibility and greater control of marketing, distribution channels and relationship management

Cross-functional planning and execution needed

Increased control over reimbursement and pricing models/schemes

Organization-wide cultural shift to that of the global company

Increasingly complex tax considerations for areas such as which jurisdiction to put the costs, where to recognize the revenue and where to allocate the IP

This model is often leveraged by large companies that can afford heavy investments because it provides strategic control and a basis to either establish or grow their international presence, for current and future products in their target markets.

However, this approach is not without its drawbacks: greater investment is required alongside a deeper commitment and adaptability to the local market conditions. Organizations may encounter barriers in legal, cultural, or political dimensions, heightened competition, and increased operational costs. It can increase the need for cross-functional planning.

The indirect commercialization model, conversely, involves reliance on an out-licensing distributor. This method helps to ensure that operational activities necessary for commercialization can happen quickly while yielding some control. Companies can choose a non-promotional distributor or select one that provides sales and medical promotional support, leaning on its expertise and existing local relationships.

Pros:

Cons:

Quicker to set up local market operations/revenue stream through distributors

Lower potential profit

Less cross-functional execution needed; lower upfront investment

Largely dependent on the availability of a strong local distributor

Less visibility and control to manage potential risks

Small and midsize (revenue between US$5 - US$20 billion in annual revenue) companies more readily use this model as they can leverage a distributor’s established product placement networks, defined sales processes, and knowledge of the local regulations and rules governing pharmaceuticals.

Regardless of the country operating model selected – direct presence or indirect presence– a holistic view of the operational framework is needed, including the design of a tax efficient operating model. As part of the broader decision process for entry into new markets, tax should be evaluated as it relates to available tax incentives, income tax treaty positions, permanent establishment risk, optimization of indirect taxes, as well as implications to transfer pricing policies and benchmarks.

While each model has its place, large biopharma companies tend to enter directly because of the long-term benefits: control over marketing and messaging, product positioning and established presence in target market. Even in that model there are opportunities to work with local partners to improve outcomes.

Figure 1: Entry models for biopharma geographic expansion


Regulatory risks and pricing considerations for biopharma companies

Regulatory pressure on pharmaceuticals has increased over the years.  There are more complex therapeutics being introduced, technological changes and demand for more patient-centric development.  Governments are getting stricter about enforcing anti-bribery and corruption regulations, with significant penalties. As partnerships with third parties are commonplace for entering new markets, companies must assess and invest in necessary infrastructure and controls and conduct due diligence to combat corruption outside their own ecosystem.

Traditionally the pharmaceutical industry has not been a direct target of sanctions.  Recently, though, sanctions have significantly affected infrastructure relating to supply and transportation, as well as industrial sectors related to the packaging of materials and devices used to deliver treatments. These shocks, along with inflation, affect purchasing power, accessibility, import and production of medicines.

Beyond standard market access processes, companies should be familiar with different expedited approval options. Generally, these include shortened registration and review pathways, limited clinal data exceptions, and increased planned interactions with regulators.  Additionally, pricing and reimbursement processes are unique in each market.  Assessing nuances in regulatory and reimbursement landscapes is critical to determining capability and launch timelines.

EY-Parthenon teams can help Life sciences executives create a strategy that determines and tailors an expansion approach for your growth plan.

Conclusion

Having a clear plan when launching internationally can support the likelihood that this endeavor will result in a greater reach to populations who would benefit from the therapy and increased revenue opportunity. It is essential for biopharma leaders to plan accordingly and understand that each journey will be unique and will require a tailored approach, including evaluating the tax implications of each model.

Thanks to Addler Pluviose, Zile Zeller, Erika L Deppenschmidt, Tulasidhar Kaveri, for their contributions to this article.

Summary

The biopharma industry faces a "patent cliff" and targets new global markets for revenue growth. Successful entry into these markets requires tailored strategies due to diverse regulatory and operational challenges. Biopharma companies must prioritize countries, create market-specific entry plans, and develop cross-functional skills to mitigate risks. With $200 billion in sales at patent-expiry risk by 2030, companies are revising their international strategies to maintain competitiveness. Reach out to find out how we can help.

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