Winning in Nigeria: Pharma’s next frontier
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.
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.
Improve ability to handle sales-and-distribution networks
One of the difficulties multinationals face in penetrating Nigeria’s retail pharmacy and hospital networks is their limited influence over sales and distribution. Products are imported and distributed through two main distributors, which are licensed to sell only to registered pharmacies, hospitals, and other institutions. However, just 4,500 out of 80,000 retailers are registered pharmacies, and more than 70 percent of revenue potential lies in unregistered and informal outlets served by some 200 wholesalers. Nimble companies could try to capture a first-mover opportunity by identifying the wholesalers with the largest distribution shares in target territories, partnering with them, and establishing clear trade terms. These should include stringent metrics for compliance and performance; well-defined priorities for markets, TAs, channels, and customers; attractive financial and nonfinancial incentives; and adequate marketing resources. Such steps could help companies extend their reach in underserved cities, TAs, and customer segments.
Build a strong local leadership team
To succeed in Nigeria, companies need a committed leadership team with a country head who has deep knowledge of both industry and local context. Novartis, and Sanofi have hired seasoned African country leads to run their Nigeria operations. Once leaders are in place, they need dedicated investment budgets, autonomy to make routine day-to-day decisions, and local support for critical functions such as marketing and finance. Local talent is available, but in high demand. For broad middle-management skills, companies will find themselves competing for talent against other rising sectors such as telecommunications, so a creative approach and a compelling people proposition will be essential. Specialist regulatory, pharmacy, medical, and commercial skills will be harder to come by, so companies should research global and local talent markets and consider less obvious candidates who cost less to hire but need extensive training and development. Leading multinationals attract local talent by promoting a meritocratic culture with global career tracks, investing in diversity, building trusting local relationships, and offering globally competitive financial packages. Nigeria’s top executives come from the world’s leading universities and expect their compensation to match their experience and aspirations.
What to do next: Developing a successful commercial model
As pharma leaders revisit their commercial models and devise innovative entry strategies for Nigeria, they can ensure they cover all the bases by addressing ten questions:
- Aspiration setting. What is our ambition, given our global priorities and the conditions in Nigeria?
- Geographic focus. Which cities and districts should we prioritize?
- Health providers. Who are the key buyers, and how much value do they drive?
- Product portfolio. Which TAs are the most attractive to target, given our products and pipeline?
- Patient journey. How can we address the pain points that limit patient access to healthcare and medicines in each disease area?
- Route to market. What sales-and-distribution model would best open up our path to the patient?
- Innovative partnerships. What are the big ideas and stakeholder partnerships that will drive step-change growth?
- Business case. What sales growth and returns can we expect from our investment?
- Organization and talent. What organization and skill gaps exist, and how can we fill them rapidly?
- Road map. What tactical levers can we pull to capture quick wins, and what key performance indicators, targets, and milestones should we use to measure success?
Nigeria still offers exciting growth opportunities for multinational pharma companies, but short-term success is by no means assured. Gaining market share requires a clear grasp of city potential, government context, distributor landscape, and healthcare providers. Those companies that master local dynamics and devise bespoke solutions will be best placed to develop winning strategies.
By Tania Holt, Laura Millroy, and Matthews Mmopi