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Policy, regulations rev up ASEAN expansion
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Nitesh Bhele
April 01 , 2015
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South East Asia represents sovereign states and dependent territories, especially the members of the Association of South East Asian Nations (ASEAN: Brunei, Myanmar, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, and Vietnam).
These ASEAN countries have taken initial steps towards seeking more harmonised regulation of pharmaceutical and medical-device industries. There are still significant differences, however, in how these markets are regulated, and these countries vary widely in their stages of development.
Interestingly, healthcare has been designated a priority sector for the ASEAN countries for several years. With a population of more than 600 million, this market represents another rapidly growing emerging market. In general, the market has become more attractive in recent years as wages have risen and country governments have made healthcare sector growth a priority. Country governments are actively courting investments in the sector, and opportunities for contract manufacturing abound.
Proportionate to GDP
The industry trend in these countries is proportional to growth rate of gross domestic product (GDP) for respective countries. Singapore, Brunei, Malaysia, and Thailand, for example, all have greater GDP per capita than Indonesia or the Philippines. Eventhough these countries contain fewer people than some of the others in the region, their demographics (e.g., higher incomes and increased life expectancy) may still make them attractive markets. In addition, characteristics like Singapore promotes itself as a centre for medical tourism can impact the market and has better chances to grow as healthcare hub.
The Asia-Pacific region is emerging as the fastest growing pharmaceutical industry in the global pharmaceutical arena. In the recent years, the demand for healthcare services has risen among the region’s populations. According to our new research report, the low operating costs and skilled manpower continue to attract pharmaceutical companies towards Asia-Pacific, which is now emerging as a powerhouse of pharmaceutical research & development. The future of the industry in the region remains bright, and is projected to grow at a compound annual rate of around 10% during 2015-2016, while with its fast-growing, young population and projected pharmaceutical sales in excess of $25 billion in 2016.
Asia-Pacific region is emerging as a new destination for the generic drugs industry. The Western countries face the issue of poorly defined regulatory pathways, and a few Asian countries are well positioned to benefit from these changes, attracting huge investments by generic companies. Although the generics market is currently quite small, improved access to medicines in the region means that it is growing rapidly and is expected to reach US$3.9 billion by 2016. This fact is expected to both intensify competition and attract pharma MNCs to the area. Bigger markets in the region with low access to medicines, such as Indonesia, will drive the need for operational efficiency due to the increasing number of players, which is expected to drive down prices. In fact, Indonesia already introduced compulsory prescribing of generics in 2010 and plans to implement universal healthcare coverage by 2014.
Increased use of generics
Increasing use of generics in the region is expected due to both healthcare reforms making drugs available to more of the population and governmental cost-containment strategies. The expanding middle-class is also expected to drive demand for medicines, and especially generics, in the region. The development of better infrastructure will facilitate multinational companies being able to set up facilities in South East Asia. The growth in generics, coupled with the fact that many governments in the region support local business, puts local generics manufacturers in a strong position. This means that most foreign companies will need to set up local partnerships, giving a welcome boost to local generics companies.
Patent cliff is another factor which has impact on generic drugs industries in these countries. The end of drug exclusivity is reaching the emerging markets and putting a significant share of sales at risk. Although this challenge is often mentioned in discussions on the prospects of mature markets, it will also hit the emerging markets. For example, between 2012 and 2016, the patent cliff will put sales worth a total of $21.4 billion in Asia-Pacific at risk. As a result, governments and payers are expected to extend the general use of generics and biosimilars across emerging markets to newer treatments, thereby increasing competition and price pressure on ethical companies with a mature portfolio.
OTC sector on rise
The OTC sector in the region has also been expanding rapidly. The study of other emerging trends revealed that the growing market for vaccines and medical tourism is giving new dimension to the region’s pharmaceutical industry. Though Asia-Pacific is emerging as a right place for the drug-related research, the region lacks IPR regime.
A survey was conducted by “Strategy &” (Formerly Booz & Company), Participating in the survey were 12 of the top 15 global pharmaceutical players, accounting for some 50 per cent of total global pharmaceutical revenues in pharma emerging countries. According to that survey, as a consequence of growing prosperity and better nutrition, disease patterns in emerging markets are rapidly changing and shifting toward “lifestyle” diseases that are more common in mature markets. This trend opens up new markets for existing products. Almost half of the respondents estimate that the number of cases of diabetes will increase by more than 20% over the next five years, while cardiovascular and oncological diseases are expected to follow a broadly similar trend. In line with the changing therapeutic areas, the relative importance of stakeholders is also changing: 78% of the respondents agree that the significance of payers will increase, while 58% expect the same for hospitals. Across all emerging markets, access is seen as a highly significant challenge. A lack of reimbursement and public funding is considered the key problem, closely followed by the lack of healthcare infrastructure and the issue of affordability.
One of our biggest mistakes of pharma MNCs is to treat emerging markets like mature markets. Pharmaceutical strategies have to fit a country’s individual needs and its development. Strategies should be made by considering disease pattern, income of payers and of course government’s current and future plans. New business strategies and product development paradigms are being unleashed to cash in on the growth opportunities. With MNCs coming in such South East Asian countries, the generics manufacturers also stand to benefit from such strategic acquisitions or partnerships. For instance, Asian generics manufacturers have often had a tough time selling their products in Western markets. They are faced with a variety of obstacles such as legal challenges from patent owners, difficulties in meeting international regulatory and quality standards and fierce competition. Partnerships with global pharmaceutical companies can help them overcome these challenges. In addition, through partnerships with big pharmaceutical firms with cutting-edge technologies, generics manufacturers can move up the value chain and become more innovative.
Consumption patterns
If we see the market overview of South East Asian pharmaceuticals industry it has different trends in different countries. There are changes in consumption patterns; however, the focus on primary care persists and slowly gaining more attention from both patients and governments. Outsourcing of manufacturing and internal functions is the current trend. In most emerging markets in South East Asia, there are changes in consumption patterns; however, the focus on primary care persists. In this Malaysian drug market is the largest, comprising 47.8 per cent of the total pharmaceutical market. Strong governmental support, stable economy, and booming population are other factors fuelling market momentum. The government is committed to universal coverage and public medical services are heavily subsidised. For the poor, healthcare is free. A majority of Malaysians have private insurance policies or pay out-of-pocket for private healthcare expenses.
Though the pharmaceuticals industry in the Philippines is large, the generic drug market is small, accounting for only 19.6 per cent. Moreover, the lackluster macroeconomic environment in the country reduces the attraction quotient for the market.
In Singapore, the efficient regulatory setup and the stable macroeconomic environment have enabled a high level of interest in the generic drug market in the country. Singapore operates a universal healthcare system through compulsory insurance, subsidies and price limitations. No medical service is free, despite public insurance schemes and subsides. This is designed to ration the use of services. Around 70-80% of Singaporeans obtain their medical care within the public health system via the three major public healthcare finance schemes; Medisave, Medishield and Medifund. Private healthcare demand is still high however, via private insurance schemes. On the flip side, the small size of the market and the low population limit the possibilities of market growth.
Entry point to remote countries
Thailand has one of the best outlooks because it has positioned itself as an entry point to the more remote countries of South East Asia. Japan-based drug makers such as Eisai already are establishing footholds in the country, which is ranked No. 12 of 19 key Asia- Pacific markets. Although the generic drug market in Thailand is large, the weak macroeconomic environment detracts from its potential. Competition in the Thai generic drug market is not intense, as it is dominated by local participants.
Vietnam’s population crossed 90 million in 2014, making it the third most populous country in South East Asia and a sizeable market for foreign drug manufacturers to consider for investment. An estimated market growth rate of 20 per cent through 2017 should signal Vietnam’s importance in any company’s strategic planning when exploring opportunities in developing markets, Vietnam's pharma market also is expected to grow because of its expanding and ageing population, but its healthcare infrastructure is strained at the moment, an FMR analyst reported.
Brunei has a very good public health care system, in which all citizens are entitled to free medical care; this is paid for by the state’s rich oil and gas resources. Brunei is also a very small country at the tip of Malaysia, with a population of around 408,000; this makes the system more manageable. A handful of hospitals are supported by health clinics around the country. These facilities are of a high level and provide good treatment for all standard medical needs. Health facilities are very good and a large number of health professionals and doctors receive their training in the UK, North America, New Zealand and Australia; until recently all medical training took place overseas as there were no medical training establishments in the country.
Indonesia’s healthcare system is also decentralised (since 2001), which has led to varying degrees of quality and provision from region to region – Java has relatively good access to healthcare, but across the 17,000 islands, availability is patchy. ‘Puskesmas’ public health centres are the only available health services available in rural areas (if at all). Healthcare spending is set to rise, due to an increase in state spending, and by encouraging the private sector to boost investments in health infrastructure via PPPs (Public-Private Partnerships). There has been a recent law change, increasing the allowed foreign ownership percentage of hospitals from 65% to 67%, also from Tier 1 major cities to across the country.
Underfunded healthcare
Myanmar’s recent political and economic opening has revealed an extremely impoverished and underfunded healthcare system, which will require substantial investment and time to build up; international donor agencies have recently started working on Myanmar’s numerous public policy predicaments.
Cambodia and Laos are increasingly being left behind by their South East Asian peers. Rural agriculturally based economies characterise the current landscape. Government care is therefore very basic, although better in urban areas. For the private healthcare sector, there is little demand due to small income levels. Cambodia's market will continue to be constrained, but improve gradually as it builds its programme of universal healthcare through 2025.
Although South East Asian market holds opportunities, there are some challenges restraining the pace of growth. Growing acceptance of generic drugs has led to pricing pressure. The Thai government is initiating policies to restrain rising healthcare cost while other countries are also creating pricing pressure on pharma MNCs. An increase in the availability of herbal products and high level of awareness regarding the holistic approach to healthcare are also clouding market prospects. Companies must roll out strong marketing strategies and offer products with superior quality to ensure productive business outcomes.
(The author is product specialist, UCB INDIA Pvt. Ltd)
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