Winning in Nigeria: Pharma’s next frontier

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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 sparked a burst of enthusiasm about opportunities in its pharmaceutical market. Yet capturing that promise has proved harder than expected, with many multinationals struggling to find a recipe for success. More recently, the economic downturn has cast an altogether different light on the industry’s prospects. But Nigeria still offers attractive opportunities for companies with realistic expectations and the ability to tailor creative strategies to the Nigerian context and local patient journeys.

As leaders have learned in the past few years, growth must be earned, not taken for granted. To capture Nigeria’s potential, they need to take a long view, weather economic headwinds, and overcome structural obstacles. To tap into pockets of growth and to improve patients’ access to medicines, they should conduct a granular analysis by city, therapeutic area (TA), and channel, and develop innovative offerings that drive penetration in the growing middle class. They need to get closer to healthcare providers, build skills at handling complex sales-and-distribution networks, and invest in local talent.

Putting growth in perspective

As Africa’s largest economy, most highly populated country, and biggest consumer market, Nigeria has been hailed as the next frontier for pharma after South Africa and the hotspots of Northern Africa. But its recent slide into recession has made some companies wonder whether robust growth is still attainable. In July 2016, the International Monetary Fund cut Nigeria’s GDP growth forecast to –1.8 percent, the lowest since 1987. Yet despite the worsening economic outlook, we believe the prospects for pharma remain sound.

As more people join the ranks of the middle classes, household consumption is expected to grow by $94 billion over the next ten years. As out-of-pocket spending accounts for the bulk of healthcare expenditure, growth in consumption should translate into higher healthcare spending. Meanwhile, the rise in noncommunicable diseases (such as diabetes and heart disease) presents opportunities for pharma companies to position themselves as long-term partners to the government by providing access to much-needed medicines. Our analysis indicates that the value of the Nigerian pharma market could rise by as much as 9 percent a year over the next ten years to reach $3.6 billion by 2026 (exhibit), making it as large as the South African market today. Over the same period, Nigeria could contribute between $1.9 billion and $2.2 billion to pharma sales growth, 55 percent of it from prescription drugs.

Nigeria’s pharma market could reach $4 billion by 2026.

However, Nigeria is a complex market, and companies will need to address short-term economic setbacks and deep-rooted structural challenges before they can take advantage of growth in the longer term.

Diagnosing healthcare in Nigeria: Persistent symptoms to address

Pharma companies seeking to capture opportunities in Nigeria will need to develop local solutions to three obstacles to market access.

Healthcare infrastructure is not fully developed

Nigeria’s healthcare infrastructure varies considerably between cities and rural areas, and between public and private provision. Overall, the country lacks the medical facilities, equipment, and capabilities it needs to tackle the considerable healthcare challenges it faces. For example, its ratio of 0.9 hospital beds per 1,000 people is less than half the global average of 2.3, and its 0.07 intensive-care beds per 100,000 people is a fraction of Kenya’s 0.3. Because of this lack of infrastructure, an estimated 5,000 patients a month travel abroad for healthcare, with 60 percent needing treatment in cardiology, musculoskeletal, hematology, or oncology. This medical tourism—much of it to India and South Africa—cost more than $1 billion in 2013.1

Healthcare financing is a barrier to market access

Healthcare spending in Nigeria is predominantly a private affair, with out-of-pocket spending accounting for 70 percent of total health expenditure in 2015, compared with just 7 percent in South Africa, for example. Private health insurance accounts for about 5 percent of this expenditure, compared with 45 percent in South Africa, while the government’s contribution is an estimated 25 percent, little more than a third of the 72 percent average for countries in the Organisation for Economic Co-operation and Development. As a result, patients face high out-of-pocket costs, and affordability is an issue for all but the richest, with less than 5 percent of households able to cover the full cost of ethical drugs through out-of-pocket spending or private health insurance. Making matters worse, distribution, wholesale, and retail markups can be very high: a drug’s manufacturing price can double or triple by the time it reaches patients.

Counterfeits and parallel imports compete with registered drugs

In Nigeria’s predominantly informal distribution and retail networks, counterfeit and parallel medicines are often difficult to distinguish from the genuine article. Estimates suggest that informal retail accounts for more than three-quarters of the value of the pharma market, and parallel imports for up to half of drugs sold in some TAs. Several generics companies that have no commercial activities registered in Nigeria still have statin variants that are widely distributed and sold there, for instance. “The competition is beyond fierce and highly fragmented. You always have to be on your toes,” one local executive warned.

Five lessons for pharma companies pursuing opportunities in Nigeria

Drawing on our experience of supporting companies with market entry in this and other African markets, we have identified five lessons that should inform any pharma strategy in Nigeria:

Focus first on cities and then on commercially attractive districts

As their share of consumption increases, cities are becoming ever more important as sources of growth. Forty-five percent of consumption is concentrated in the top five Nigerian cities, and per capita spending in big cities can reach almost twice the national average. Cities are important for another reason too: their superior logistics, infrastructure, and healthcare capabilities make them an engine for structural changes in Nigeria’s health system. A targeted approach to major cities and urban districts will be a necessary condition for commercial success and will involve developing a grassroots view of local potential using household purchasing power as the metric. For instance, among the ten commercial centers and 20 local government areas in Lagos, attractive areas could include Eti-Osa, Ojo, and Surulere, which have the highest number of upper-class households with annual incomes above $70,000.

Create a granular view of the opportunity by TA and channel

Drilling down into opportunities at the level of TAs and sales-and-marketing channels enables a company to make smart choices about where to allocate resources. Many multinationals are realizing that their traditional model—using a clinical sales force to serve hospitals and account managers to serve government tenders and large accounts—is not well suited to overcoming barriers in patient access and infrastructure. An approach geared to specific products, channels, and healthcare providers is likely to prove more effective. Companies also need a product portfolio that meets the contrasting needs of affluent patients, who face a growing burden of noncommunicable illnesses such as heart disease, and poorer patients, who disproportionately suffer from infectious diseases such as typhoid. In addition, market-entry strategies need to be tailored to the roles played by the main healthcare providers. For instance, some multinationals have overemphasized detailing in hospitals while underserving retailers, which can represent more than 70 percent of revenues in major TAs such as cardiovascular and musculoskeletal. To strike the right balance, companies need a detailed knowledge of the stakeholders and dynamics that shape the most attractive TAs across the private, public, and donor markets.

Understand the reality of patient journeys for priority TAs

Traditional market-entry models are unlikely to prove effective against the hurdles presented by awareness, access to primary healthcare, generics substitution by retail pharmacists, and product availability and affordability in Nigeria. Multinationals should instead study local patient journeys and develop bespoke solutions. Take the patient journey for hypertension in Lagos, for example. More than four-fifths of patients are unaware of their condition, while among the one-fifth with a diagnosis, fewer than half regularly check their blood pressure. Two-thirds of patients visit a retail pharmacist rather than a medical professional as their first port of call, but three-quarters of Lagos’s retail pharmacies and proprietary and patent medicine vendors are unregistered and are often staffed by technicians lacking the knowledge, skills, and tools for effective diagnosis. Hypertension is frequently misdiagnosed as typhoid or malaria, with serious consequences for patients. Multinationals entering this TA could start by carrying out focused detailing with retail pharmacists, providing blood-pressure kits, training staff in diagnostic methods, and hosting screening sessions in priority cities.

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