Report from Southeast Asia

TRAVELSTOCK44 - JUERGEN HELD/GETTY IMAGESSoutheast Asia is a growing pharmaceutical market. Much like Latin America, the countries of southeast Asia, especially the members of the Association of Southeast Asian Nations (ASEAN: Brunei, Burma, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, and Vietnam), have taken initial steps towards seeking more harmonized 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 stage of development.

Southeast Asia health and pharmaceutical market overview

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. Regional sales of pharmaceuticals in Asia have more than doubled from $97 billion in 2001 to $214.2 billion in 2010. It is predicted that sales will reach $386 billion by 2016 (1).

Variation between countries within the region, however, greatly impacts the opportunities for pharmaceutical companies. The Indonesian pharmaceutical industry, for example, has experienced high growth in recent years. There are a number of reasons for this. The market has a large (and growing) population (237 million according to a 2011 census), a steadily growing economy, and rising rates of chronic diseases like diabetes, obesity, and cardiovascular disease. Increasingly, we are seeing rates of chronic diseases in developing economies that have historically plagued more developed countries. Estimates for India and China, for example, suggest that these countries have the largest diabetic populations in the world (2). In addition, the Indonesian market has grown in part through the government's efforts to provide a system of universal healthcare. In its 2010 announcement, the government said that it would allow 100% foreign ownership of pharmaceutical companies. As a result, the pharmaceutical sector sales have experienced nearly twice the growth rate of gross domestic product (GDP).

In contrast, the Philippines' pharmaceutical industry has grown more slowly in recent years. The Philippines also has a large population (92 million according to its 2010 census) and is experiencing similar trends in the rate of chronic disease as Indonesia. But since the passage of the Universally Accessible Cheaper and Quality Medicines Act of 2008, the market for pharmaceuticals has noticeably changed. The law affected the market in several key ways. First, it set a maximum drug retail price that represented a 50% decrease for more than 100 drugs. It also accelerated the process for bringing generic drugs to market and disqualified drug makers from being able to patent new uses of previously existing drugs.

Other countries in the region possess unique characteristics that pharmaceutical companies should understand as well. Singapore, Brunei, Malaysia, and Thailand, for example, all have greater GDP per capita than Indonesia or the Philippines. Even though 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 the fact the Singapore promotes itself as a center for medical tourism can impact the market as well.

Despite all the market potential, Asia remains a fiercely competitive region for pharmaceuticals. Part of the source of competition comes from the highly fragmented industry with literally thousands of smaller manufacturers. Many of the larger firms have been able to grow their market share partly through intensive competitive pricing (1).

Key regulatory considerations

In terms of regulation, the ASEAN countries are becoming more synchronized in the regulatory sphere. The ASEAN Leaders have resolved to form the ASEAN Economic Community (AEC) by 2015. The goal of the AEC is to establish ASEAN as a single market and production base. Tariffs will be eliminated and other barriers between the countries will be phased out. Work on harmonizing standards began in 1997, with pharmaceuticals, medical devices, and health supplements earmarked as priorities. Specifically, ASEAN leaders have agreed to mutual recognition of inspections of medicinal-products manufacturers, including post-market assessments. ASEAN has required the filing of an ASEAN Common Technology Dossier (ACTD) as the only regulatory filing required for pharmaceutical companies to gain approval of their drugs in the 10-member ASEAN states starting in 2012. In general, this standardization should reduce complexity for manufacturers interested in expanding into this region. Harmonization of standards will help member countries to lower costs and increase the quality and availability of medicines in the region. It also formulates rules for importing medicines to ensure quality drugs for the region. Recalls or product alerts in one country will be applicable for all the member nations.

Pharmacovigilance (PV) in Asia is evolving, as the region becomes one of the largest players in the pharmaceutical market. With increased numbers of clinical trials occurring in China, India, and the ASEAN region, the importance of managing adverse drug events/adverse drug reactions (ADEs/ADRs) is gaining recognition. There are a number of challenges that manufacturers will face with regard to developing a PV plan in ASEAN. These challenges include cultural variation in medical practice (Western vs. traditional), lack of PV expertise, lack of human and financial resources in regional regulatory agencies, few robust PV regulations, hesitation on the part of healthcare professionals to report adverse data, drug counterfeiting, and variable quality in drug manufacturing.

Some ASEAN countries have reasonably structured PV systems. In Singapore, for example, the Vigilance Branch of Health Sciences Authority employs a number of post-marketing risk assessment approaches to ensure the continued safe use of medical products. These include mandatory reporting from pharmaceutical manufacturers, spontaneous reporting from health professionals, literature reviews, and the exchange of regulatory information with other national drug regulatory bodies.

Many regulators in Southeast Asia are in the process of revising their existing regulations. There is also an ongoing collaboration across the region regarding harmonization and enhancement of drug safety as part of ASEAN.

In-region considerations

Other healthcare access considerations include country-specific items like the government's role in overall health spending. Singapore, for example, has rejected the idea of a generous welfare system, but does fund free medical care at government hospitals for the needy, and has created a universal health system characterized by medical savings accounts. While this system is supported by subsidies, no healthcare services in Singapore are provided to patients free of charge; the out-of-pocket expenses act as a deterrent from seeking out unnecessary services. Just less than half the hospitals in Singapore are government run and tend to be less expensive for patients than their private equivalents.

Other countries in the region such as Thailand have funded largely government-run programs to achieve near-universal health coverage for years, and other countries (e.g., Vietnam) are looking to employ some of the same tactics. Understanding the payer mix and the challenges facing each of these payers will be crucial to understanding the market opportunities in each of these markets.

In contrast, many of Indonesia's more than 250 million residents find even minimal healthcare inaccessible. Access to a physician or other healthcare professionals across Indonesia's 6000 inhabited islands varies greatly. While larger cities generally offer a range of medical services, in remote areas such as the province of Papua, it can take days to reach medical care.

Implications for successful market entry and in-region partnering

Under the ASEAN Economic Community (AEC), a single regional common market of countries will be created in 2015. The regional objective is to create a highly competitive market of more than 600 million people with free flow of goods, services, investment capital, and skilled labor. This shift will also include reductions in tariffs and regulatory and administrative procedures, all elements that should stimulate pharmaceutical market growth.

The eight Asian countries that are part of the ASEAN region represent a market that has historically generated relatively little industry or investor interest, but this situation is changing. Diverse influences from deregulation and better trade links to improved medical access and the rise of medical tourism are resulting in a market with an increasingly important global role to play.

As the single common market develops, specific implications for the pharmaceutical industry have emerged:

• Regulatory capacity in many ASEAN nations is constrained by human and financial resources requiring pharmaceutical companies to invest in developing in-region capabilities.

• Gaps often exist between written regulatory guidance and actual enforcement throughout the region, again reflecting the gap in human and financial investment.

• All ASEAN countries are net importers of pharmaceuticals (with the exception of Singapore) due to lack of investment in R&D capacity and capabilities (versus regulatory framework).

• New, harmonized drug regulatory frameworks reduce administrative barriers and encourage research and development of drugs and vaccines.

Additionally, as the healthcare sector has an immediate impact on the pharmaceutical sector, shifts in healthcare policy have enormous implications for the industry. Health insurance payment and infrastructure are relatively new and vary greatly among the ASEAN countries. In many countries, the majority of the population pays out-of-pocket for drugs and health services. And even in countries with health insurance infrastructure, there are limited resources available, so high drug prices are largely unsustainable.

Moving forward in Southeast Asia

There are many opportunities for pharmaceutical companies looking to expand in Southeast Asia. As regulation across the region becomes more harmonized and complexity decreases against a backdrop of largely sustained economic growth, the ASEAN region looks increasingly attractive. Understanding the unique demographic and payer mix of each country will be crucial to move forward and take advantage of the opportunities presented in this region.

—Jill E. Sackman is a senior consultant at Numerof & Associates, Inc.

References

1. "Asia Competition Barometer: Pharmaceuticals," The Economist Intelligence Unit Report (2012).

2. Shaw, et al., Diabetes Research and Clinical Practice, 87 (Jan 2010).