The SEA Pharmaceutical Industry market is currently valued at US$ 40 Bn. It has the highest growth rate out of the major global pharma markets and comprises 10 regional markets. The regional markets are organized and moving towards one that is harmonised with ASEAN Pharma Report. A primary driver of this growth is an ageing population, which is stimulating increased Government healthcare expenditure. But there is also increasing investments in the healthcare sector by venture capitalists, as well as increasing access to funding pools. Medical tourism is also growing – particularly in Malaysia, Singapore, and Thailand – and there is the potential for increased nutraceuticals and natural/herbal products, thanks to increasing disposable incomes amongst citizens.
Aging populations are transforming pharmaceutical markets in Southeast Asia. Growing healthcare expenditures bring opportunities for pharma, as well as new complexities and challenges. Wider competition in pharma manufacturing across the region adds to the mix creating a dynamic environment to which industry players must adapt. Notable challenges include accessing imports of high-quality ingredients and growing exports to new markets while defending against imports from regional pharma giants India and China. But, with gentrification underway, a strong innovation base in Singapore and the potential of a new single market, sizable opportunities are also present. To emphasize the size of the opportunity, within the next decade over half of the world’s middle class will live within a six-hour flight of Bangkok, in addition, free trade agreements with Australia and New Zealand have further opened up the region’s potential. Such performance makes it one of the fastest growing pharmaceutical markets in the world. The region presents rich pickings for pharma manufacturers that can effectively synergize good manufacturing practices (GMP) standards, competitive pricing and an export strategy.
Demographic Environment Thailand’s expenditure on welfare for older people is projected by Krungsri Research to rise to THB464bn (circa $15bn) in 2021, up from just THB261bn (circa $8.5bn) in 2016. There is a strong correlation with the number of Thais in older demographic groups. The World Health Organization (WHO) estimate that 14% of the population – 10.3 million people – are now over 60. And, the situation is accelerating quickly. Thailand has one of the world’s fastest aging societies. By 2025, 25% of the population will be defined as “elderly”. Indonesian and Malaysian demographics are following a similar trend. Whilst Southeast Asian healthcare spends, per person, are increasingly in line with economic growth, these are mitigated by increasing overall health burdens. This means generics and pricing structures will continue to dominate consumption.
With the Thai government looking to make Thailand a leading pharma destination in the region, the Thailand 4.0 initiative is being rolled out – a sector-specific policy seeking to transform the Thai economy. In fact, according to an IQVIA report the Thai pharmaceutical market is forecast to grow at a CAGR of 3.7% (±1.5%) between 2017 and 2022, reaching Bt178.1 billion by 2022 (circa $6million). One major change predicted to accelerate the internationalization of Thai pharma is the removal of mandatory purchasing of generics through the Government Pharmaceutical Organization (GPO). This has been met by an ambivalent response from regional manufacturers, with 53% stating that the eradication of GPO requirements has either helped the market become ‘more competitive’, or ‘set the price of goods’. However, 47% believe this will have an adverse effect on domestic manufacturers. Ultimately, it will enable the market to set its own prices and does potentially open up greater opportunities for imports.
Another aspect of ‘Thailand 4.0’ is the transformation of the pharmaceutical industry into one driven by innovation. A plethora of biomedical and pharmaceutical innovation centres in Thailand – such as the Thailand Science Park and National Centre for Genetic Engineering and Biotechnology (BIOTEC) – have already been established. Looking ahead, the Eastern Economic Corridor of Innovation (ECCi) is an ambitious $45bn project launched by the Government that aims to support investment in the country. A primary objective of which is to help the scale-up of R&D through the provision of state-of-heart translational research facilities. The Government is funding the massive project through a mixture of both private and public sources and aims to attract significant foreign investment
Thailand’s Corporate Tax Exemptions are significantly increasing its appeal as an investment destination – particularly within the pharma industry – as agreed with by 80% of survey respondents. Prospective foreign investors would be able to benefit from a number of tax incentives, including exemption from or reduction of import duties on machinery or R&D, as well as exemption from import duties on raw and essential materials imported for manufacturing for export.
The overall results should be tempered by the relatively low number of respondents. However, our findings suggest that the Southeast Asian region is improving quickly, and we may be on the cusp of a new dynamic for the pharma sector. The headwinds Southeast Asian markets have faced in the last few years appear to be easing at the same time as tailwinds accelerate. Significantly, the region’s international reputation is improving quickly, and increased opportunities are opening up for bilateral trade. Generics and regional export opportunities look set for the best near term CAGRs with international companies now more likely to partner with local assets. Perhaps the most significant finding – one that could potentially lead to Southeast Asia becoming a global hub for pharmaceuticals is the creation of European-style serialization system to combat the biggest area of potential concern for both regional and international companies. This concern is the prevalence of counterfeit products. Our respondents, both regional and international, were nearly unanimous in their positivity with regards to the impact such a scheme could potentially bring. Indonesia has been amongst to the first to move with its serialisation scheme expected to be rolled out between 2020 and 2025, and Singapore is exploring GS1 2D barcodes, but we would expect more to follow quickly in the near future. Yet much more work still needs to be done to achieve true harmonization. For example, the Marketing Authorization process differs greatly across the region as does the interpretation of national GMP standards. Undoubtedly, however, there is an increasing opportunity for regional exports – particularly generics. International pharma is also looking to move quickly to get a larger foothold in the region – either through partnerships or investing directly – and is predicted to grow quickly in the short and medium-term. It also why there is such excitement around this year’s CPhI Southeast Asia, as new partnerships and regional supply chains are now forming to sustain the next stages of the region’s pharma evolution.