Non-European pharmaceutical companies that choose to enter European markets plead different reasons to do so: access to a developed market, supposedly large, high prices, advantages provided to manufacturers offering low prices compared to local competitors, etc. However, the main reason in almost all cases is "prestige". For many manufacturers from developing countries, being able to add on their website that they are selling in Europe means improving their reputation, overseas but also in their internal markets. However, getting in is not as easy as it might seem: the real market, the accessible market, is usually much more limited than expected, the price competition is fierce, the entry barriers much higher and hidden than foreseen and, depending on the circumstances, final effect on brand image may be very diluted. To avoid failure, it is necessary to perform a rigorous and objective analysis of company capabilities in order to establish realistic objectives. Otherwise, outcomes are usually costly and worthless.
The process to expand to European markets will last at best between 4 and 8 years, time while the company will consume resources from departments that may not be fully prepared for the new task. Like all things that represent a new way of working, it also sets a precedent that will be printed in the company's memory. If the first experience fails, it is very likely that this route will remain blind for a long time, since participants in the process will prefer to attribute the results to the project's infeasibility rather than poor design or implementation. Below, we expose some of the main mistakes detected over more than ten years advising companies on these issues.
1. Incorrect assessment of portfolio’s potential in the European market
On one occasion, we were commissioned to evaluate a product portfolio for an Asian client with a supposed to be strong portfolio of hospital injectables. After an analysis that took just one week, we found that these were old, low-priced products whose demand, stagnant, was more than covered by suppliers, all of them with low production costs. These were standard generics that did not added any value to the market. We transmitted our opinion to the general management in a meeting with the business development team, and their faces upon hearing our report were quite eloquent. There we learned that they had been registering the products for several years and had already signed some agreements subcontracting services for the release, analysis, serialization, distribution, etc. Although being a very competitive manufacturer in origin, the market price that could be reached did not cover in 90% of the cases the costs of services already outsourced, and it was nearly impossible to find an interested local distributor. Unfortunately, and not because of us, our advice came three years late.
2. Taking total market as showed in the figures as "accessible market"
When assessments are carried out very far from the targeted market, there is sometimes a risk of not evaluating "accessibility" or, in other words, the total market rarely coincides with the achievable one. For example, if the company have only some strengths of a molecule, but not all that are available in the market, could be not allowed to participate in hospital tenders with a restrictive policy or be strongly punished in the final score. If the previous forecast was only based on IMS data, calculations will be wrong, and the company will not be able to reach the expected market share.
3. Unrealistic expectations about time and resources needed in key areas In more than 20 years of professional career, only once did the scheduled registration times have been fulfilled. It was in 1999, for the approval of the first protease inhibitors. Public opinion pressed hard and European authorities accelerated the process because patients were dying. It was an exceptional situation. In the rest of the cases, timelines use to be far longer than planned. There are multiple causes of these delays, some unpredictable, others not so much. For example, many companies do not realize that, in order to carry out audits in manufacturing sites particularly for non-European companies, European regulatory agencies have limited slots and that time between them can last from 4 to 6 months. Losing one of those slots would represent a delay in products launch of at least half year and it is not unusual that it can be more than one loss. In other cases, some companies don’t incorporate in the analysis that tenders in European markets guarantee the winner an exclusive supply period usually exceeding one year and therefore is not possible to enter until the new tender has been awarded. Such “unexpected” delays over the designed calendar can represent a significant increase in costs as keeping inactive resources, but also generate demotivation and talent drain, or missing competitive commercial advantages such as, for example, to be the first generic in market after patent expiration.
4. Consider Europe as a single homogeneous market The European Union is still a body under construction, particularly in the pharmaceutical field. We must talk about different markets that are trying to converge, but there is still a long way to go. Each market has its own structure and peculiarities: Germany is a very open space, where small and very specialized companies coexist with large manufacturers and the importance of parallel import is increasing. France maintains a more protectionist model, establishing entry barriers that push the limits of European Union legislation to the limit. Italy and Spain have a decentralized system in which each region / community sets its own standards within a common framework, generating significant differences in market access. Outside of the big markets, the local specificities are even more relevant when deciding to enter, since the sales potentials are smaller. Using general criteria to decide which markets to be in, instead of specifically analyzing which ones have the greatest potential according to the company's product portfolio is one of the biggest mistakes that can be made.
5. Lack of trained managerial capital that understands the market / Not respecting the "etiquette" codes that applies to business in Europe Indian generic manufacturers have taken decades to understand that offering lower costs is not a sufficient motivation to convince all the stakeholders involved in the European pharmaceutical business. Along the way, young Indian professionals with MBAs from the best UK or US universities were put in charge of projects for which they were not prepared and failed. Their models, excessively rigid, collided with a complex reality even for actors with long field expertise. Now, almost all these companies have incorporated managers with strong experience in the local markets and this time have been able to capture a significant market share. Companies from other emerging markets, such as China, Malaysia or Korea, are still looking for their way of access. Practices that are common in their respective domestic markets are not appropriate for Europe, particularly some behaviors linked to negotiating agreements during and after signature. In many occasions what can be considered in the Asian mentality as caution or cunning, in Europe can be seen unacceptable practices, creating a loop fed by prejudices that ballast subsequent attempts of collaboration.
6. Not understanding how distribution channels work As we have reiterated many times in previous articles, in addition to the registration pathway, one of the key aspects in the success of an internationalization plan is to understand how distribution channels work. In extreme cases, distribution can be monopolized by a small number of actors that can apply a "one in one out" policy, or it can be different depending on the type of product. For example, injectable cytostatics are marketed in Germany primarily by the hospital channel through direct negotiations with hospital purchase groups. However, oral cancer products are usually purchased at auctions managed by Sick Fund Insurances. They are different channels, with different profiles and different ways of working. Choosing the wrong distributor or not raising negotiating strategies on time can represent the loss of one or two crucial years.
7. Not fully consider local conditioning costs (distribution, batch sizes, release and analysis, serialization) in financial calculations Many manufacturers of generic products are used to very high sales volumes in their domestic markets and satellites. When arriving in Europe they meet more heterogeneous needs (each country must have its own packaging and specifications) and smaller batch sizes. This issue is particularly relevant in narrow margin markets, since the cost of release and analysis is usually by batch, so if the number of units decreases significantly, the unitary costs can reach more than 20% of the total, causing the company to incur losses despite having low manufacturing costs. Similarly, the serialization imposed by European regulations, mandatory since February 2019, represents an additional issue that many companies had not fully discounted.
8. Inexistence of contingency plans & lack of patience
Non-compliance with the financial expectations (ROI, profit) can generate distrust towards regional project managers, leading in many cases to excessive rotation of talented professionals in the commercial structure with the consequent operations disruption and know-how loss. In extreme cases, management can decide to take drastic decisions, including withdraw of all commercial operations in Europe or out licensing all products keeping the company role just as CMO or API provider. A little bit patience to progress in the learning curve uses to be our advice, although it is not always followed.
There are many other mistakes that companies make when they try to enter European markets. The best solution to avoid them is to ensure a proper assessment of own capabilities and objectives, a realistic and non-theoretical analysis of the market and the competitive position that can reasonably be achieved with the available resources, getting local / regional expertise with real hands-on professionals and empower multicultural and multidisciplinary work teams to monitor and lead the project.