By Keren Priyadarshini, Director, GfK HealthCare Asia
This article will give a snapshot of the pharmaceutical growth opportunities in Asia. In particular, it will highlight the growth markets (China, India and Singapore), the mature market (Japan) and other potential Asian markets (South Korea, Taiwan, Malaysia, Thailand, Indonesia and the Philippines).
Asia accounts for more than 60 percent of the world’s population and offers both a large, relatively low-cost workforce in some countries and a potentially huge pharmaceutical market. Around a third of the world’s population lives in China and India alone. This region could be central to the future of the global pharmaceutical economy. Like other industries, the pharmaceutical industry faces a new array of Asia-specific opportunities and challenges. Success in meeting these challenges will go to those pharmaceutical companies that best understand the unique strengths and constraints of Asia's diverse cultures, talents and markets. The Asia-Pacific pharmaceutical sector is forecasted to grow by an estimated 9 percent to 12 percent from 2006 through 2010, compared with North America and Europe's estimated 5 percent to 8 percent.
On a pharmaceutical market annual growth assumption of 10 percent to 15 percent in Asia compared with 5 percent to 7 percent a year in G7 territories, China would be the second- or third-biggest pharmaceutical market in the world by 2020, and India might well be in the top 10.
China
Growing at a rate of around 8.5 percent per year, China undoubtedly has one of the fastest expanding pharmaceutical markets in the world. The country has the largest population, officially estimated at more than 1.3 billion in 2005, and one of the world’s biggest economies, with GDP estimated at U.S. $4.1 trillion in 2008. That said, China is by no means an easy market to penetrate. Its sheer size means per capita incomes are very low. Domestic pharmaceutical companies play a major role in what is a highly fragmented market where foreign invested companies account for only 20 percent to 30 percent of total drug sales. Until recently, China’s pharmaceutical industry was largely focused on generic manufacturing of branded drugs and researching traditional Chinese medicine (TCM). The Chinese government intends to give a boost to indigenous pharmaceutical companies through various measures such as setting up technology centers for boosting drug innovation.
Imports of pharmaceuticals, particularly retail medicines, have been growing strongly in recently years, nearly doubling in the period 2002 to 2006, and this trend looks set to continue in the near future with strong fundamentals in place.
Big pharmaceutical companies now rank China as the best location for outsourcing in Asia, followed by India, Korea and Taiwan, respectively, according to a newly released PricewaterhouseCoopers index. The index evaluates Asian countries according to cost, risk and market opportunity for the pharmaceutical industry.
India
The annual growth rate of the Indian private pharmaceutical market has been pegged at 16 percent, closely followed by China, Vietnam and Australia. In value terms, the private health care market in India is estimated to reach a staggering U.S. $34 billion by 2010 and U.S. $40 billion by 2012. Being TRIPS compliant, the Indian clinical trials market is expected to reach U.S. $1 billion by 2010. India has 85 U.S. Food and Drug Administration-approved API and formulation plants, the highest number outside the United States.
The major factors in this growth are attributed to higher demand for quality services, acceptance of intellectual property rights, increased spending capacity of consumers, better health care awareness, closer linkage of health care with quality of life, availability of advanced medical treatments and diagnostic methods and greater availability and access to health care insurance for consumers.
With nearly 60 percent of the current Indian population in the age group 15 to 59 and expected to grow to 64 percent by 2025, coupled with a steadily increasing trend in per capita income, an immense potential for the health care sector exists, which in turn will benefit the information technology and peripheral industry.
The middle-income group in India is projected to grow from 50 million people to a staggering 583 million people by 2025 as citizens pull themselves out of poverty, according to BusinessWeek. This will fuel massive demand for health care, especially as the rate of lifestyle diseases common to the middle- and upper-income groups, such as obesity and diabetes, also rises.
Indian companies such as DRL and Ranbaxy are going global. With eight acquisitions under its belt, Ranbaxy is planning to be a U.S. $3 billion company by 2010. The Indian pharmaceutical industry has risen above the generics label and is now undertaking serious drug discovery contract research for big pharmaceutical companies such as GSK, Eli Lilly, Merck, etc.
Singapore
Singapore has the highest GDP per capita of all the Asian Tigers and vital health indicators are akin to many in the developed Western world. This, combined with its small population and geographic area, has made health care provision easier than in larger countries with a less impressive record of economic growth. The country acts as a key trading hub to connect Southeast Asia and the West and exports more pharmaceuticals than any other of the Tiger economies by a significant distance, although the majority of this is from re-exported goods.
Japan
Japan ranks second in terms of its pharmaceutical market size after the United States. Per capita health care spending is among the highest in the world. Skills and technology available in Japan are easily comparable to Western standards. Japan is recognized worldwide for its innovation and advanced technological standards. In turn, the very stringent standards expected by both regulators and end customers mean that the role of Japanese contract manufacturers is very important to international pharmaceutical companies seeking to capitalize on the market. Labor in Japan is skilled but at a cost comparable to Western territories.
South Korea
With a rapidly growing pharmaceutical industry comprising more than 2,000 companies operating in the manufacture of drugs, quasi-drugs and cosmetics, South Korea has experienced double-digit pharmaceutical market growth and is second only to Japan in terms of market potential in Asia. Annual pharmaceutical market growth is around 10 percent and the market is expected to reach almost US$15 billion by 2010, reflecting a wealth of opportunities in market and R&D cooperation for foreign investors and future R&D partners. Korea offers a large patient population and highly qualified pools of medical facilities and practitioners. Nearly 225 well-equipped hospitals are accredited as clinical institutes with a pool of 83,000 nurses and 75,000 physicians. Demand for the latest available treatments will be high and can be expected to remain fundamentally strong. Fierce domestic competition, poor IP protection and an opaque regulatory/reimbursement system do however still make South Korea a difficult market to penetrate. The 2006 announcement that the Korean Ministry of Health and Welfare is to allow only cost-effective drugs to be covered by national health insurance and that it cut the prices of drugs made by foreign companies has been met with dismay by multinational manufacturers.
Taiwan
The Taiwanese pharmaceutical market continues to be one of the most developed in Asia and offers good prospects for overseas investment. The country has a standard of living more comparable to much of Southern Europe rather than its Southeast Asian neighbors, and medical provision is also of an impressive standard. Imports dominate the market and there is also a heavy multinational presence that is consistently responsible for almost three-quarters of the total market.
Malaysia
Around 60 percent to 70 percent of the Malaysian market is in the private sector. Much of this is informal, with prescription drugs often available over the counter. As in many Asian countries, physicians often sell the drugs they prescribe; around 45 percent of non-OTC drugs are sold by dispensing medical practitioners, with 30 percent more being sold through public/private health care institutions. Dispensing pharmacies account for the remaining 10 percent. A small proportion of drugs are reckoned to be counterfeit.
Thailand
The Thailand pharmaceutical market is expected to increase to US$3.4 billion by 2010. Thailand has emerged as a strong pharmaceutical growth market in Asia, with a CAGR of 17.2 percent during 2002 to 2006. The Thai market is dominated by generic drugs. The GPO, which manufactures generics, is the principal supplier to the public hospital sector, and public hospitals are legally obliged to buy 80 percent of their drugs from it. The OTC sector has profited in a similar fashion. The government's relationship with the international pharmaceutical industry continues to be uneasy, largely due to the country's lax patent laws and preferential treatment of domestic producers.
Indonesia
The Indonesian pharmaceutical market was estimated at U.S. $2.7 billion in 2007 and is expected to increase to U.S. $4.2 billion by 2012. Per capita health care spending is still as low as U.S. $12. The retail sector received a major boost in 2007 when the government launched a program to increase the availability of cheap, locally made versions of patented pharmaceuticals. Foreign direct investment has continued growing because of Indonesia’s economic development. Domestic manufacturing continues to grow, and the possibilities of mergers between some of the nation's leading companies should serve to boost the sector. Some leading firms are beginning to undertake their own R&D, although this is in its infancy. It is hoped that investment from abroad may increase, thus strengthening the industry and prospects for the market, which seem to be good in the short term.
Philippines
The Philippines is one of the poorer countries in the ASEAN region, with GDP per capita estimated at U.S. $1,250 in 2006. Health expenditure is also low, both in absolute terms and as a percentage of GDP. The country attracts a degree of overseas aid, although it is reportedly a difficult place in which to conduct health care projects. With the generic market negligible, drug prices are among the highest in Asia.
Although Asian markets proffer access to sizeable patient populations, significant barriers to entry continue to exist. For Western players, successful entry is contingent upon a comprehensive understanding of market dynamics, including differentiated growth prospects, sociopolitical structures and local market environments. Sustainable success can be derived from maintaining an acute awareness and timely exploitation of opportunities and threats that arise from health care financing systems, epidemiology and therapeutic forecasts, pricing and reimbursement policies, licensing sales trends, IP protection and leading-player dynamics.
Looking ahead, China and India will spearhead growth in the Asian pharmaceutical sector. Foreign direct investment, contract research and contract manufacturing will continue to grow in both territories. Alongside China and India, Singapore will maintain its position as a center for research and innovation. While the trio of China, India and Singapore will maintain their position as the hotspots of the Asian pharmaceutical sector, other territories, notably Korea and Taiwan, will also be increasingly significant.
