How big is the middle class that pharma hopes will drive sales in emerging markets?

March 6th 2018

Faced with minimal sales growth in most mature markets, the life sciences industry has in recent years pinned its hopes for growth on emerging markets. However, many of these countries still offer relatively limited health benefits in general, and modest coverage of innovative prescription drugs in particular.

Note: Data exclude individuals who are wealthier than the middle class.

Source: Based on data from Global Wealth Databook 2015, Credit Suisse.

Faced with minimal sales growth in most mature markets, the life sciences industry has in recent years pinned its hopes for growth on emerging markets. However, many of these countries still offer relatively limited health benefits in general, and modest coverage of innovative prescription drugs in particular. Consequently, patients often have to pay for their medications largely out of pocket, yet only a minority of the population in many developing nations is wealthy enough to be able to purchase branded drugs. These middle-class consumers are the key target group for multinational pharmaceutical companies in emerging markets, but it can be difficult to identify and measure this socioeconomic group.

Historically, the middle class was typically defined by the occupation of the head of the household. More recent definitions were often based on a household income range that afforded a comfortable lifestyle. The Global Wealth Databook 2015, a new report from Credit Suisse, defines the middle class in terms of wealth, an approach that can make allowances for vicissitudes such as short-term unemployment. According to Credit Suisse, wealth of US$50,000-500,000 would place an adult in the United States in the middle class in 2015. By comparison, the lower threshold for inclusion in the middle class is $29,245 in China, $28,321 in Brazil, $18,737 in Russia and just $13,700 in India.

Substantial growth despite the 2008 financial crisis

Since the turn of the millennium, the number of people who are classified as middle class or wealthier has increased substantially in most countries. Many nations saw a decline in the size of the middle class as a consequence of the 2008 financial crisis, but most have subsequently rebounded. China has experienced the most dramatic fluctuations in the ranks of the middle class and wealthier residents: from 2000 to 2007, the total grew from 71.8 million to 173.8 million, an increase of 142.1%. In 2008, however, the number of middle-class and wealthier residents plummeted by 67.3 million (38.7%). In the years since then, growth has been more modest—an increase of 8.5 million (+8.1%). Only the United States now has more middle-class and wealthier residents than China.

Credit Suisse calculates that the global total of adults who are middle class or wealthier grew from 581.6 million in 2000 to 759.5 million in 2015, an increase of 30.6%. Notwithstanding the setback of the 2008 financial crisis, China experienced the fastest growth rate overall: the ranks of the middle class and above grew from 71.8 million in 2000 to 115.1 million in 2015, an increase of 60.3%. Asia Pacific as a whole saw the number of middle-class and wealthier residents increase from 140.7 million in 2000 to 191.8 million in 2015, a 36.4% increase. By comparison, in Latin America the ranks of the middle class and above grew from 31.7 million in 2000 to 45.4 million in 2015 (+43.5%), while the total in India grew from 17.8 million to 25.5 million (+43.6%). In Africa, however, the number of people who are middle class or wealthier increased by only 3.8%, from 19.1 million in 2000 to 19.9 million in 2015. Argentina, Egypt, Greece, Russia and Turkey all experienced a decline in the number of middle-class and wealthier residents from 2000 to 2015. In Russia, for example, the total decreased from 5.6 to 5 million (-10.3%), while the decline in Argentina was even more precipitous—from 3.9 million to 1.2 million (-68.8%).

Disparities in average wealth between the middle class and the rest of the population vary considerably from one country to another. In China, for instance, the middle class is three times as wealthy as the rest of the population on average, according to Credit Suisse. In Africa and India, the disparity between the middle class and the rest of the population is even greater—a tenfold difference.

The middle class remains limited in share of population and purchasing power in many countries

Despite the strong growth in the ranks of the middle class and wealthier residents in many countries in recent years, life sciences companies need to recognize that this socioeconomic group still accounts for a very small share of the total population of most emerging markets. Credit Suisse reports that the middle class and above accounts for 11.3% of the adult population in China, 8.7% in Brazil, 5% in Indonesia, 4.6% in Russia, 3.5% in Africa and 3.2% in India.

Moreover, it is by no means certain that people at the lower end of the middle-class wealth range in some emerging markets have the disposable income to afford some high-priced international branded drugs. For example, could Indian residents with wealth of $13,700 (Credit Suisse’s lower threshold for middle-class status) readily meet out-of-pocket costs of hundreds, if not thousands, of dollars per year for some specialty pharmaceuticals?   

Pharmaceutical companies may need to assist the middle class to afford their products

The ranks of the middle class and above will likely continue to expand in most countries in the coming years, with many emerging markets poised for particularly strong growth. Nevertheless, the pharmaceutical industry needs to have realistic expectations in terms of potential sales from cash purchases of their products from the middle classes in emerging markets.

Drug manufacturers can try a range of measures to improve access to their products in emerging markets. Differential pricing is a relatively common strategy. Inter-country tiered pricing sets different prices for different markets, typically on the basis of levels of affluence. Intra-country tiered pricing varies prices within a country—for example, charging government-sponsored health programmes less than private insurers or cash purchasers. However, the impact of differential pricing has been somewhat limited to date. Companies have tended to focus their strategies predominantly on least-developed nations and on a narrow range of products—primarily, vaccines and therapies for infectious diseases that are common in emerging markets. Tiered pricing initiatives that would assist middle-class consumers and patients with non-communicable diseases are comparatively rare.

Companies may be somewhat cautious about adopting a broader strategy of tiered pricing because of the risks associated with such a policy. Products might be diverted from low-priced markets to higher-priced markets, a trade that would hurt both patients in the low-priced markets and the manufacturers. Companies are also increasingly concerned about the expansion of international reference pricing, with payers benchmarking prices against a growing range of comparator countries. In recent months, politicians and payers even in some European nations have called for the price of Gilead’s hepatitis C therapy Sovaldi (sofosbuvir) in emerging markets to be used as a benchmark for pricing in their countries.

Beyond pricing strategies, manufacturers can adopt other policies to make their drugs more affordable in emerging markets. Patient assistance programmes can be used to provide access to medicines to low-income residents, but the income ceilings are generally too low for the middle classes to be eligible. An alternative approach might be to work with health insurance companies to provide access to affordable insurance: for example, a collaboration between Roche Pharmaceuticals and ten insurance companies reportedly enabled almost 20 million Chinese consumers to buy oncology insurance policies in 2013. In some countries, manufacturers may also be able to offer coupons, vouchers or loyalty programmes to reduce the cost of their medicines—Pfizer, for instance, has launched its eCard discount programme in several emerging markets.

The growth of the middle class in emerging markets is a welcome boost for the economies of those nations, and potentially good news for the life sciences industry. However, companies need to be aware that the middle class remains a small minority in many of these countries, and these consumers may still need some assistance from manufacturers to afford their medicines. 

Originally Published on 5 November 2015 by Neil Grubert

About the author

Neil Grubert

Neil Grubert

A multilingual pharmaceutical market access specialist with 27 years of experience tracking the global prescription drug and self-medication markets. Neil spearheaded the establishment and growth of Decision Resources’ international market access business. As the author of more than 150 reports covering 20 mature and emerging markets, multiple therapeutic areas and numerous industry issues, Neil has earnt a reputation for extensive knowledge of market access environments around the world. He is an effective communicator with both the written and spoken word, and an accomplished chair of international events, having delivered numerous presentations at conferences, seminars and training workshops.