In an exclusive interview, Abbas Hussain, GlaxoSmithKline's president of emerging markets, reveals his three-pronged strategy for entering high-growth economies, believing that by 2020 they could make up 20% of his company's business, discovers Elizabeth Sukkar, Scrip's world editor. I can't recollect the number of times I have driven past GlaxoSmithKline's monolithic building on the M4 to Heathrow airport, wondering what it was like inside. My eventual visit was by tube, and as I stood on the Boston Manor platform on a foggy November morning, the leviathan looked even larger, dwarfing everything around it in the London suburb of Brentford. Its insides did not disappoint either: cathedral glass ceilings, exoskeleton stairways, a trendy cafe and state-of-the-art security. And while my trip to GSK is a relatively short one from Scrip's offices in central London, it seems GSK has been waiting a long time for Abbas Hussain to make that journey. After a 20-year-plus career with Lilly – where he first started as a sales rep, straight out of university, selling Prozac (fluoxetine) to East London doctors – he is now one of the principal movers in GSK (see Table 1). Mr Hussain's post of president of emerging markets was created by Andrew Witty in April 2008, part of the new CEO's strategy to expand and improve GSK's capability in these markets, which are set to grow by 12-14% to $105-115 billion in 2010, according to IMS Health. GSK is one of the leading pharma firms operating in emerging markets, sitting around the fourth or fifth position. So how did GSK poach a Lilly career man? He was headhunted by Mr Witty himself. "I was so impressed a new CEO, with everything he's got to do, would take the time to call out on a regular basis to ease me into the company, which he did. And I have not been disappointed since," Mr Hussain says. The two had previously worked closely together on European industry association (EFPIA) matters. "[Andrew] just really sold me on his vision for GSK. What he wanted to do in emerging markets, which I thought, was very unique. He gave me a very strong commitment that he would make resources available to realise the vision, so it was not just a vision on paper, but that we could find a way of turning it into reality." There were personal reasons, too. Rising further up the Lilly ladder – Mr Hussain had reached president of European operations – would have meant a move back to its US headquarters in Indianapolis. This would not have fitted well with the education of his three children as "we wanted to put them through the British/European system" and "we did not feel just having lived in [so many different] countries of the world that we wanted to spend 15-20 years necessarily in the mid-West of the US". While Mr Witty sold a vision, Mr Hussain has executed it, looking at the multitude of acquisitions and joint venture deals signed in emerging markets since his arrival on the GSK scene in June 2008 – deals in India, China, Egypt, Pakistan, South Africa and Brazil (see Table 2). Also, the proportion of GSK's pharmaceutical sales in emerging markets has risen substantially: in 2007 these markets made up 10% of GSK pharmaceutical sales, rising to 11.3% in 2008, and jumping to 14% in third-quarter results for this year (see Table 3). "I could imagine that ...by 2020, we could be 20% of GSK's business," he says. growth meets market rates Historically, over the 2002-2007 period, GSK was growing at about half the pace of the market average in emerging markets. But that changed last year, when its emerging market pharmaceutical sales grew by 12% to £2.3 billion, just below the market growth rate. Year-to-date figures (to September 2009) are more impressive, with GSK's pharmaceutical sales in emerging markets growing by 19% (+25% in the third quarter alone). While the figures look good, Mr Hussain is also a man of conscience, stressing that it should not be just the wealthy that can afford GSK's products. He likes to talk about wealth pyramids. "You can't just take a Western European pricing strategy and throw it onto these markets, as all you'll do is access the top 3-4% of the wealthy. I also fundamentally believe that ... we should be there. And we should be getting good pharmaceutical healthcare to the masses. We should be finding ways of innovating down that pyramid." This is something he preaches to his team, who must be constantly reminded of these "masses" by the objets d'art and memorabilia from these markets around the corridors of his office. similarities and differences Most pharmaceutical companies like to lump emerging markets into one pot, as they show some similarities, such as huge populations, high GDP growth rates, and the movement of large numbers of people into the middle classes that are able to buy healthcare. They are also volatile, regularly experiencing a range of disruptive activities, from floods, earthquakes and wars, to currency devaluations. By contrast, markets in the Western world are generally showing slow expansion, little GDP growth, and are no longer brand-driven, but rather payer-driven. "While we put them all together, [they] are very, very different. If you just look at China and India, Bombay and Beijing, physically they look different, they feel different and the way the markets work are very different. You've also got a range in there. You've got Turkey, which operates more like a mature European market in that it is 100% reimbursed, however still high growth, versus India which is almost 90% out-of-pocket ...You know a billion people in India and a billion people in China. So the implication of that is there is volume. So your strategy ought to be [a] volume-strategy," he says. These markets are mainly out-of-pocket and operate a bit like consumer health rather than pharmaceuticals, meaning branded products are still key drivers of sales. For example, GSK's off-patent "classic brand" Augmentin – an antibiotic containing amoxicillin plus clavulanic acid- is the second biggest product in Mr Hussain's portfolio, and growing at around 20%. "30 years after we introduced it, and despite in many of the markets having 10 or 15 copies to it, you can see how branding [is still important]." His largest-selling product is the Seretide inhaler (salmeterol plus fluticasone) for asthma/COPD, which made up 10% of his 2008 sales. Having already worked in some key emerging markets and the mature EU/US markets has helped Mr Hussain to "cherry-pick ideas and strategies to come up with a 'more horses for courses' approach to each [emerging] market." three segments to his strategy Mr Hussain believes that to be a top player in emerging markets, companies need three elements – classic brands, vaccines and innovative products – with a portfolio to support them. In his portfolio classic brands are growing at 17% (worth about 45% of his business today), vaccines are growing at 31% and the innovative portfolio is growing at 16%. "That is our strategy: to be a scale player." To be big in emerging markets and to offer all three segments to the market, he says. "You can choose to do what other smaller players have done.'I am only going to play in the innovative segment and I am going to charge higher prices and cater to the rich and the wealthy'...or you could come up with creative pricing strategies for the masses." By 2015, the innovative product segment will make up only 10% of Indian pharmaceutical market, for instance. In India, GSK is the biggest multinational (it has a 5.5% market share), twice as big as the next multinational. All the more so to get into the "classic brands", he says, because in emerging markets you "need a very, very broad portfolio to create a business". Hence GSK's deals with Bristol-Myers Squibb, UCB, Dr Reddy's and Aspen. These deals are about gaining access to a much broader portfolio of high-quality but affordable products for emerging markets. "With Aspen and Dr Reddy's, we feel we've got two very good sources of portfolio." As a result of the Aspen deal, he is now a non-executive member of its board. China – "largest" by far The vaccine element of Mr Hussain's strategy has been successfully used in China, which is predicted to be the third-largest pharmaceutical market after the US and Japan in 2013, rising from 10th position in 2003 (it was worth some $25 billion in 2008), according to IMS Health. China's pharmaceutical market is expected to continue to grow at more than 20% annually, and contribute 21% of overall growth through to 2013. Unsurprisingly, GSK's largest emerging market by sales is China – it made up 13% of Mr Hussain's 2008 sales, and nine-month data to September 2009 showed it reached £343 million, followed by Turkey (£189 million), with both growing north of 20%. The vaccine market is growing at 25% in emerging markets. GSK has the number one vaccine share in emerging markets, holding 28% of the £1.6 billion in sales, and this grew by 32% in 2008. GSK's total vaccine sales grew by 15% to £2.5 billion in 2008, alone. GSK has signed two Chinese vaccine deals in the past 12 months – with Neptunus (on influenza) in November 2008 and with Walvax (on MMR) in October 2009. "If you could find a way of getting into China – manufactured in China – vaccines of high quality but at more affordable prices that the Chinese government could put on their mass vaccination programme, then clearly you've got a huge opportunity with vaccines." He says that the Walvax deal is more interesting as China has put MMR into its mass vaccination programme, but "locally they do not have enough supply". From this technology transfer, he believes GSK can "evolve" it to other paediatric vaccines, but he admits that technology transfers are not "easy to do". Although China is number one in Mr Hussain's portfolio, he does not focus on getting growth from a particular market. "What is more important to me is that I get a balanced growth out of the portfolio and emerging markets and almost maintain that natural hedge [from volatility]. Having said that, clearly in the short to mid-term, you can't ignore China. It is the largest, by a long way, of the emerging markets. In the longer term, I don't think you can ignore India." He refers to that "natural hedge" when talking about Turkey, for instance, where there is a major pricing reform going on and all companies are going to take a large hit. As Turkey makes up only 6-7% of his sales, Mr Hussain says he can manage it within his portfolio. Most multinationals operating in China sell their products to the hospital sector, and GSK is no different here, with about 90% of its Chinese sales to the major hospitals. But as a consequence of the country's healthcare reforms, Mr Hussain plans to go "deeper into hospitals" – into tier II/III types, compared with 18 months ago, where GSK was primarily dealing with tier I/II - and secondly, expand into "classical" retail, as China develops community health centres to move people away from hospitals. "China is changing as a consequence of the healthcare reform. What we are seeing there is more and more money coming into the system, [and] more and more of the population getting covered by basic coverage," Mr Hussain says. Another important issue in China is about improving market access, considering the high level of out-of-pocket payments. One way he will innovate down China's wealth pyramid is to provide, very shortly, a less expensive MDI device of Seretide, the number one selling product in his portfolio, as opposed to the state-of-art diskus Acuhaler. The Heptodin (lamivudine)/Hepsera (adefovir dipivoxil) franchise for hepatitis B, gives GSK its two largest selling products in China. Another strategy to tap into China is "to expand your sales force footprint". He won't say how many sales reps he has in China, as that is "competitive" information, but the number has increased by about 1,000 compared with 18 months ago. On a distribution level, China presents challenges too, as it differs greatly from Western markets, which have fewer wholesalers. There are more than 9,000 wholesalers in China, and GSK works primarily with 65 class 1 distributors. "We have to do that because there are no pan-China distributors that you can work with. You need this unique distribution system," he says. Turkey – is a barometer Turkey, the number two market in Mr Hussain's portfolio, is important because it will provide an "early sign" of how other emerging markets will evolve over time. This country had pharmaceutical sales of $11 billion in 2008, according to IMS Health. Mr Hussain has high praise for Turkey's long-serving health minister for the investment made in healthcare, so that most of the population has access to high-quality care. However, he says, the minute the government becomes the major payer, pricing pressures develop: "Everyone has to balance their budgets." Mr Hussain has personally met with the minister about the pricing reforms, and while he empathises with the ministry's challenges, he does not agree with the solutions. The pricing decree – which wants companies to sell medicines at a 40% discount, in some instances – is expected to come into force on December 4th, unless the Turkish industry averts the crisis. Mr Hussain says the industry needs to find a solution with the government that protects innovation, but on the other hand recognises there is a funding crisis: "We should help out." In time, Mr Hussain believes that Turkey will put in place health technology assessments, and he declares that he has no problem with them as long as they do not become a "hurdle" to getting a product to market. Talking about Turkey has brought us back to his personal experiences there. His time as Lilly Turkey's managing director during 1998-2000 proved to be the proudest in his working life. "First, because it was a wonderful place to live, with wonderful people. Secondly, I was there at a time when it was a hyperinflation-devaluation environment. We were hit by the major earthquake ... and I still remember doing the five-year strategy in our office in Istanbul and it was shaking with the after-shocks." Soon after that, he became head of Lilly's German division, the company's third-largest business, then promoted to a new role every 2.5 years. How did he do it? "My father used to say, there is no substitute for hard work, so I have never shied away from working hard," he answers. There was also a fair degree of luck, he adds. "Even from those early days of selling, I have always worked the external backwards... If you start with the patient first, and then work backwards through the value chain, you ultimately come up with the solution. If you go the other way, if you start with the product first out towards the market, I think you come to a different place." What next? Looking at his track record, I have a feeling that Mr Hussain, aged 44, will be promoted again in two to three years time. Is Mr Witty worried? I get a big laugh to that one. As I headed back to Boston Manor tube station, and the GSK building faded into the distance, I recollected what he said about his job, which saw him travelling for 140 days in the first 12 months. That he had plenty to do, that the job was incredibly diverse. It's like doing 15 different jobs. "The reality is you can't do the job sitting in Brentford." Abbas Hussain, GlaxoSmithKline's president of emerging markets Table 1: Abbas Hussain: CV Date of Birth: 3rd March, 1965; born in Madras, India. Married to an Australian, has three children Nationality: British (came to the UK aged 12) Education: Loughborough Institute of Technology UK – 1988 Joint Honors in Medicinal & Pharmaceutical Chemistry Diploma in Industrial Studies Duke University Fuqua Executive Business School – 1995 Work history: June 2008-present GSK, president of emerging markets (sales £2.29 billion in 2008) 2006-2008 Lilly, president of European operations (sales $4 billion-plus) 2003-2006 Lilly Europe HQ, vice-president Europe (included CEE, Africa, ME, CIS) 2003-2004 Lilly Benelux, area director Western Europe mid-size affiliates 2001-2003 Lilly Germany, general manager Lilly Pharma Holding GmbH 1998-2000 Lilly Turkey, managing director 1996-1998 Lilly Ranbaxy Ltd (India), director of sales & marketing 1994-1996 Lilly US, manager of business development Asia Pacific 1990-1994 Lilly Australia, sales manager (NSW & WA) 1988-1990 Lilly UK, sales representative GP & hospital sales, East London Table 2: GSK's deals in emerging markets since the arrival of Abbas Hussain Announcement date Deal October 2008 (Egypt); December 2008 (Pakistan) GSK acquired BMS business in Egypt, Pakistan and the near East. November 2008; completed June 2009 Joint venture with Shenzhen Neptunus in China for developing and manufacturing influenza vaccines (including seasonal, pre-pandemic and pandemic strains) for China, Hong Kong and Macau. January 2009 Acquired UCB marketed products in certain territories in Africa, the Middle East, Asia Pacific and Latin America. April 2009;completed July 2009 Acquired US firm Stiefel to create a specialist dermatology business May 2009 Extended relationship with Aspen and acquired a 16% shareholding in the South African generics firm (holds just under 20% in total). The agreement includes: ? GSK will divest eight medicines and a German plant to Aspen. ? The two will collaborate on the commercialisation of their current/future products in sub-Saharan Africa (excluding South Africa). ? In SA, GSK will transfer marketing/distribution rights to Aspen for its pharmaceutical products. June 2009 Alliance with India's Dr Reddy's to develop and market selected products across a number of emerging markets, excluding India. GSK gains exclusive access to Dr Reddy's portfolio and future pipeline of more than 100 branded pharmaceuticals in the cardiovascular, diabetes, oncology, gastroenterology and pain management segments. July 2009 Acquired the branded generics business of BMS in Lebanon, Jordan, Syria, Libya and Yemen. July 2009 Signed an in-licensing deal with Amgen for denosumab (Prolia), where GSK will commercialise the product in Europe for postmenopausal osteoporosis (PMO) and in emerging markets for PMO and oncology indications. August 2009 Launched a partnership with Brazil's Fiocruz to develop and manufacture vaccines in Brazil, and establish a new R&D programme at Fiocruz to develop a vaccine for dengue fever. GSK will also provide Fiocruz with access to the technology behind Synflorix, its vaccine for paediatric pneumococcal disease. GSK will supply Synflorix to Fiocruz until the technology transfer is completed. October 2009 A long-term joint venture with China's Jiangsu Walvax Biotech Company to develop and manufacture paediatric vaccines in China. The JV will produce vaccines for MMR (Priorix) and potentially other paediatric vaccines. GSK will also transfer the technology to enable the JV to manufacture the vaccines locally over time. The JV will build a new manufacturing facility for GSK's paediatric vaccine Priorix and once the facility is operational, the JV will supply the vaccines to China's public vaccine market. Table 3: GSK pharmaceutical turnover by region in 2008 Region % of total £mill (2008) £mill (2007) Growth1: CER% Growth1: £% US 44 8,894 9,273 (11) (4) Europe France UK Italy Germany Spain Other Europe 32 6,483 1,014 983 738 814 690 2,244 5,560 948 923 606 689 593 1,801 3 (8) 7 5 2 1 7 17 7 7 22 18 16 25 Rest of World Emerging markets2 Japan Asia Pacific3 Canada Other 245,004 2,290 1,027 891 503 293 4,330 1,895 867 834 477 257 5 12 (3) 1 (4) 4 16 21 18 7 5 14 Total 20,381 19,163 (3) 6 1 CER%=growth at constant exchange rates. £%=growth at actual exchange rates. 2 GSK's emerging markets are: Middle East and North Africa (Algeria, Egypt, Lebanon, Morocco, Pakistan, Saudi Arabia, Tunisia, Turkey, UAE, other Middle East & Africa), Latin America (including Argentina, Brazil, Central America, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, Venezuela, other Latin America), CIS (including Russia) and other emerging markets (Bangladesh, China, Hong Kong, India, Kenya, Nigeria, South Africa, Sri Lanka, other Middle East & Africa). Mr Hussain stresses that companies have their own definition for emerging markets. GSK's year-to-date (September 2009) data for its emerging markets are as follows: MENA - £710 million, Latina - £420 million, China - £343 million, South Asia - £207 million (this includes India), CIS - £155 million, Mexico - £149 million and sub-Saharan Africa - £111 million. 3 Asia Pacific includes Australia, Indonesia, Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan, other Asia Pacific. Source: GSK.
