Cost containment inevitableOn the other hand, cost containment due to increasing healthcare costs as well as insurance and reimbursement are issues that are being scrutinized in every country. Total healthcare expenditure in Asia stood at $463 billion in 2001, with a per capita healthcare expenditure of $162. This is strongly influenced by Australia, Japan and New Zealand, all of which had per capita expenditures of more than $1,000 in 2001, followed by Singapore at $857.
Countries with increasing healthcare expenditure are China, India and Korea. Japan already has very high healthcare expenditure and has strong pricing reforms in place. Australia, Thailand and Taiwan also have strict reimbursement systems and control prices of products. With skyrocketing healthcare costs, it is expected that health authorities in most Asian countries will implement some form of pricing control while simultaneously boosting the local manufacturing industry.
Market Drivers & Restraints
Drivers are factors that contribute to market growth while restraints do the exact opposite and contribute to market decline. Multiple drivers and restraints act at the same time in any given market and have a differing impact over time.
1. Asia's aging population and longer life expectancies promote larger markets for lifestyle diseases, maintenance drugs and drugs for old age diseases, which are generally high value drugs and increase the revenues of the market.
2. Direct to consumer marketing through electronic media increases reach, contact and relationship with patients providing the opportunity for companies to gain brand recognition.
3. The setting up of local clinical trial bases strengthens drug efficacy data towards Asian patients thereby gaining end-user confidence and providing the opportunity to enlarge the user base. Singapore has internationally recognized clinical trial centers. Multi national companies have been attracted to conduct local clinical trials in China due to its huge population base. It is estimated that over 40 clinical trials for Class I new drugs sponsored by around 30 multinational pharmaceutical companies are currently being conducted throughout China. Clearly international pharmaceutical companies are driving China from simply a drug selling market into a clinical trial base. This will boost growth opportunities.
4. Maturing national health insurance systems and increasing coverage of populations by medical insurance increases medical reimbursement coverage. Singapore has one of the best health insurance schemes in the region, but other countries are relooking at this aspect of healthcare. Due to proposed reforms in the Indian insurance industry, quite a few global insurance majors are streaming into the country. A burgeoning middle class, high per capita savings, and low penetration of insurance are some of the key factors responsible for the tremendous interest foreign insurance companies are showing in the Indian insurance industry. A doubling of the turnover of the insurance sector by 2005 is expected. Representatives of foreign insurers view this as a landmark in the insurance history of India. Health insurance is viewed as one of the more lucrative areas, and the implications of corporatization of the insurance sector is that in the future; emphasis is expected to be placed on record maintenance, prevention, and early disease detection.
In China, the government will strive to implement the basic medical insurance scheme for employees in over 90% of cities and towns throughout China. The program will include 80 million employees, representing 50% of the population in those areas to be covered. The Ministry of Labor and Social Security disclosed that up to now, the new medical insurance scheme has commenced operation in 284 cities and regions, covering 43 million employees. The number of people who can enjoy basic medical insurance is estimated at 300 million by 2001.
5. Government support and sponsorship of biotechnology R&D spur growth of biopharmaceutical research centers increasing the possibility of 'Asian'/tropical diseases being research and therapeutic options being discovered for this. Some of the key proposals in the Union budget for 2001-2002 in India are a weighted deduction of 150 percent on research expenses in biotechnology, clinical trials and patenting research efforts for the purposes of income tax.
6. Increasing affluent life style of people creates healthcare awareness, and quality consciousness and brand name loyalty provides opportunities for MNCs
7. Protection of patented products after entry into the WTO should boost the pharmaceutical industry in large potential markets like China and India. With these countries signing the WTO agreement, which recognizes product patents instead of process patents, intellectual property protection should be strengthened in Asia. With the legal system in place, imitation of patent drug would not be allowed and MNCs may introduce more patented drugs in the market. With an increase in the sales of patented products, the total market revenues are expected to increase. Indian companies also have raised their R&D budget from 1 percent to almost 5 percent of their turnover in an attempt to gear themselves after 2005 e.g. Cipla (4%), Cadila (4.45%) and Wockhardt (8%).
8. Government initiatives to positively shape the healthcare industry have the potential to drive market revenues. In India, the DPCO is proposing a reduction of the list of drugs controlled by the government from 75 to 40. However, the actual impact of this proposal will be only when the DPCO policy is released. The policy, which was supposed to be declared in May 2001, has not been released and its arrival is awaited with interest. In Korea, ethical drugs, which are primarily supplied by multinational drug developers, should benefit form several health care policy reforms. In general, Korean health care policy is becoming more transparent and is creating a somewhat more level playing field for foreign pharmaceutical firms. Among the several positive policy developments in Korea are the separation of the responsibility for prescribing and dispensing medication.
The Slowdown - Restraining factors
1. Government imposed price controls on drugs decrease potential margins, and affect placing in government formulary listings. This is already existent in Japan and Australia for example and is coming into place in more Asian countries like Thailand and the Philippines.
2. Intellectual property protection/management: Lack of patent protection in some countries like India spurs growth of generic manufacturers and places downward pressure on prices. In China, generic drugs have been a major part of the total pharmaceutical market. Although the generic market is mature, there are still many innovations and changes occurring in it. In addition, over 150 branded products will face patent or exclusivity expirations by 2006, paving the way for generic companies. Most of these are in the three therapeutic classes: anti-infectives, cardiovascular, and anti-ulcerants. This will increase generic domination in the market and patent manufacturers are anticipated to face greater squeezes on profit margins.
3. Limited purchasing power restrains people from seeking medical attention, and dependence on traditional medications or alternative medication affects revenues of pharmaceutical manufacturers. In India, only about thirty percent of the Indian population has access to pharmaceutical drugs. The remaining depends on traditional home remedies or on herbal medicines. This trend is due to the belief of the people in traditional medicine, high costs of allopathic medicines and unavailability of products in rural markets. Traditional medicine is also very widely used in China, Taiwan and now Singapore and Malaysia are putting money into researching the medicinal value of these products.
4. The awareness amongst the masses regarding various diseases is very low resulting in low detection rates or little initial screening for the diseases, which affects market penetration for most drugs. For instance, the majority of Asians are unaware of Juvenile Diabetes, thereby hampering the penetration of anti-diabetic products. Similar is the case of osteoporosis. Post-menopausal women are prone to Osteoporosis. However, women in this age group feel that it is a part of aging and does not require treatment. Therefore, the myths associated with the diseases; result in low awareness thus affecting market penetration.
What's in store: Looking into the crystal ball?
Genetics research has the potential to dramatically change the way we treat disease, and the deciphering of the human genome will drive the drug discovery process, which will ultimately result in targeted therapeutics. It is expected that the drug discovery time period could shrink from the current decade to five to seven years, but this again depend on the ability of researchers to apply proteomics in targeting the compounds. Difficult to treat diseases like cancer are expected to witness an explosive influx of new products and technologies. The efforts put into genetic and biotechnology research in Asian countries like Japan, Korea, Singapore and Taiwan could potentially mean that new agents be discovered in this part of the world rather than as it has been traditionally in the West.
The Internet has created a paradigm shift in marketing pharmaceuticals, and direct to consumer advertising has underscored patients' increasingly active role in shaping their healthcare. Patients are more educated in terms of diseases and medications and this is contributing to the evolvement of the doctor-patient relationship. Traditionally in Asia, doctor's decisions are unchallenged, but patients are increasingly demanding to be part of the decision-making process and are involved in personal well-being.
The US is expected to continue domination of the global pharmaceutical market with 35 potential blockbusters lined up in the next five years, Japan will continue to be the largest market in Asia, but the challenge will come from China. With the medical and healthcare industry expected to be fastest growing industry in China in 2001, China will remain largest pharmaceutical market in Asia after Japan over the forecast period. Consumer confidence is on the rise with China's entry into WTO, as well as reform of both financing and delivery of the healthcare system (New Pharmaceutical Law). Continued price declines are expected but outweighed by strong volume growth. China is ahead of the curve of major countries with the establishment of Gene Valley in Shanghai, which is targeted at being the second Silicon Valley in biotechnology research. However, the problem of counterfeit drugs in China continues at epidemic proportions.
Paving the Way for Drug Development
Asian countries are gradually shifting their priorities from being a low-cost manufacturing region to medical research, development and biotechnology research. Researchers are aware that the newest healthcare drugs will be based on genetic knowledge and Governments have taken to steps to give Asia the opportunity to be part of the genomic revolution. Government commitment and funding have prompted international companies to alliance or establish research centers in the region. Singapore has invested $600 million in 2000 to build the biotech industry. In Hong Kong, Government funding for healthcare R&D reached $516 million in 1999, while in Taiwan it reached $1 billion.
The Singapore government is taking strong initiatives to make Singapore a hub for biotechnology and research in the Asian region. In recent years, Singapore has taken various steps like providing strong infrastructure and venture capital to give it an edge over other countries in Asia. The Singapore government's International Business Hub program is aimed at establishing the country as the regional center for healthcare. In June 2000, the Singaporean government launched the Genomics Program to study the genetic make-up of diverse Asian peoples. This $34 million project aims to be the launching pad for developing new drugs and customized treatments. Singapore is also building a base for its pharmaceutical and biotechnology companies and companies like GlaxoSmithKline, Schering-Plough, Aventis Pharma and Merck Sharp & Dohme have set up plants in Singapore. Singapore aims to be home to 15 world-class biosciences companies by 2010.
The Japanese government had allocated $530 million to the Millennium Project for biotech for the period April 2000 to March 2001. This project is a joint industry-government-academia effort to promote new industries with a total allocation of almost $ 1 billion. Biotechnology accounts for more than half of the budget, and will be focusing on discovering new therapies for diseases that are characteristic of senior citizens such as dementia, cancer, diabetes and hypertension. Besides new therapies resulting from human genome research, Japanese pharmaceutical companies such as Daiichi Pharmaceuticals, Fuso Pharmaceutical Industries and Tanabe Seiyaku have begun to focus on regenerative therapies. 20 to 30 large Japanese pharmaceutical companies will jointly invest around $4.1 billion and work together in an effort to speed up the development of gene therapy in Japan.
India's Department of Biotechnology plans to spend $65 million on genomic research over the next five years, bringing five-year forecasts for the country's spending to $85 million. The funds will be distributed among 15 to 20 research teams in government centers and universities across the country. Major research areas under this project will include pharmacogenomics, structural genomics and proteomics. Since the mid-1980s, India has invested over $300 million in biotechnology, creating a good research infrastructure.
The Korean government is also strongly encouraging drug development, and is encouraging local authorities to establish science parks. The Korea Biotechnology Industrialization Center is scheduled to be completed in 2002 in Inchon Songdo TechnoPark. It is approved by US FDA to support adoption of Good Manufacturing Practices (GMP) and will help meet the need for a pilot plant facility. There are currently 300 new drugs under development in Korea, with 23 in progress or completion of clinical tests. Korea expects to reap revenues of US$10 billion in 2010 from biotechnology products in various sectors.
The Figure shows the investment that has been made by governments in biotechnology since 1996, as well as forecasted investment in 2004.