US and European-owned multinationals dominate the combined audited market sectors of the ten Asian countries covered in PPA (China, India, South Korea, Taiwan, Indonesia, Philippines, Thailand, Hong Kong, Malaysia and Singapore), with the newly-merged GlaxoSmithKline (GSK), holding an unsurpassed 4.6% of the market in 2000. Pfizer''s recent acquisition of Warner-Lambert has contributed to its elevation in the ranks and it holds the second largest share at 2.6%, well below GSK, and followed closely by Novartis and Aventis. Japanese companies are notable by their absence. Together the leading ten companies held just 22% of the total audited market in 2000. This indicates the fragmentary nature of the Asian pharmaceutical market - in Europe for instance, the top ten companies accounted for 45% of the market in 2000, with the leading company, also GSK, holding 7.2%, according to IMS Health''s World Review 2001.
The fragmentation of the Asian market is even more evident when looking at the individual country markets, where local companies have a prominent presence. According to PPA, this is particularly true of India, South Korea and Indonesia. Although GSK held the largest share of the Indian market in 2000, only one other multinational featured in the top ten companies (Aventis), with Indian companies dominating this intensely competitive and over-crowded market.
In South Korea, the dominance of the local industry has been fostered by the requirement for foreign companies to set up joint ventures with a local partner. Three such joint ventures ranked among the ten leading companies in 2000. According to PPA, however, the relaxation of this requirement, together with an increase in original brand sales, is expected to increase the multinationals'' market penetration from the 30% level achieved in 2000.
Meanwhile, Indonesia''s domestic industry has benefited from the shift from multinational brands to cheaper copies and generics as a result of the economic environment. PPA predicts that the multinationals will find it difficult to recover market share, as consumers continue to prefer cheaper products.
In China, the leading market in the region and, given its huge population, the one with the greatest potential, the pharmaceutical industry would appear to be ripe for consolidation. In the Chinese hospital sector, for instance, the leading player holds less than 2% of the market. The Chinese government favours the creation of local pharmaceutical ''giants'' and, in fact, some local M&A activity has occurred. Nonetheless, PPA believes that such an elite group of local companies is unlikely to emerge within the next five years. This is due mainly to the burden of bureaucracy and a high level of provincial protectionism. As one multinational company executive interviewed for PPA commented, "There is zero synergy to be had for a merger in China. If you buy a company in another province, you cannot move production from one company to another. You''re not allowed to...the only thing you can do is to close that company down completely and move everything over to yours." Despite such difficulties, PPA predicts that, over time, China''s biggest local manufacturers will increasingly feature at the top end of the country''s sales rankings, and local producer numbers will decline significantly.
According to PPA, many local companies, in China and elsewhere in the region, will be forced out of business due to the imposition of Good Manufacturing Practice (GMP) requirements to meet World Trade Organisation (WTO) and Association of South East Asian Nations (ASEAN) trade and harmonisation criteria. To participate in export trade, local companies will be required to invest in upgrading their manufacturing facilities to comply with international GMPs. PPA comments that membership of the WTO will enhance China''s international standing, and its connections with Hong Kong and Taiwan will assist in the country''s gradual economic transformation into a competitive market economy. This is likely to encourage further consolidation of the local industry in the longer term.
In the ten Asian markets as a whole in 2000, pharmaceutical sales growth slowed to 6.2%, after the strong rebound in 1999 that followed the 1998 economic crisis. According to PPA, the impact of the slowdown in the US on the economies of the Asia region will further decelerate growth in 2001 but, thereafter, stable growth is projected to 2005. This will be helped by currency exchange rate developments, but growth levels will be lower than pre-crisis levels, in single-digit figures.
In Hong Kong, although growth is projected to see an upturn from the low compound annual growth rate (CAGR) in 1995-2000, much of this will stem from demand for lifestyle products and underlying growth will remain subdued. In contrast, Indonesia''s continued gradual recovery from the recession, which has been the slowest in the region so far, will contribute to a relatively high growth in the forecast period, if the political environment stabilises. PPA believes that increased consumption levels will drive sales in Malaysia and, to a lesser extent, Thailand. In fact, PPA predicts that the key factor for growth in all of the Asian pharmaceutical markets during the next five years will be sales volume, as prices come under increasing pressure from government controls and market factors. Even in markets that enjoy higher than average prices in the region, such as Singapore and Hong Kong, price growth will slow during the prognosis period compared with the previous five years.
By 2005, PPA predicts that China will have increased its share of the Asian pharmaceutical market and will account for around 34% of the combined PPA region''s pharmaceutical market. India, with 16% of the market, is expected to push South Korea (15%) into third place, despite India''s share actually declining, because of exchange rate pressures, from almost 18% in 2000. The forecast slowdown in South Korea''s growth is due to expected policy changes and pricing pressures.
Favourable exchange rates, on the other hand, will contribute to Taiwan''s market growth, which is forecast to see the largest increase in its share of total sales by 2005, strengthening its position as the fourth largest market in the region, with a 14% share. No other market will account for more than 10% of the overall PPA market.
(Source: IMS Health)