Malaysia: The Overlooked Emerging Market
Without a doubt, Malaysia shares all the major attributes of an emerging market, from the potential to expand market penetration to the increasing purchasing power of the population. So the question is: Why have only two multinationals established manufacturing facilities in the country? Why was Malaysia not added to IMS Health’s 17 “pharmerging markets” last year? Essentially, why has Malaysia thus far not been a priority for global pharma companies?
The orangutan in the room is that with a population of just 28 million, Malaysia has simply been easy to overlook. Malaysia is no China (1.3 billion), India (1.2 billion), Indonesia (243 million) or even Thailand (67 million). According to figures from the Pharmaceutical Association of Malaysia (PHAMA), the overall size of the market for prescription and OTC drugs is currently just US$ 1.63 billion.
However, despite its size, Malaysia presents strong growth opportunities. Factors such as rising income per capita, better medical diagnosis, increasing longevity, the growing preponderance of chronic diseases, and emerging consumer health consciousness are fueling a compound annual growth rate of 9.5% from 2009 to 2014.
Christopher Rimolt, country manager of Eli Lilly says: “The government is targeting accelerated economic performance on the way to developed-nation status and wants to raise the average income per capita substantially through GDP growth … To me this represents a country where not just Eli Lilly, but the majority of pharmaceutical companies, will want to be present.” Pang Tse-Ming, managing director of Emerging Pharma (EP+), also sees great potential in this market, arguing, “Malaysia has a population of 28 million compared to Taiwan‘s 24 million, yet the Taiwanese pharmaceutical market is six times the size of the Malaysian market. This serves as evidence for the significant growth potential of Malaysia.”
Hitherto low market penetration has partly resulted from certain cultural obstacles such as faith in spiritual healers, or Bomohs, according to Wong Kin San, CEO of Lundbeck. Angel Choi, country manager of Pfizer, also highlighted that conservative social taboos concerning sex had inhibited the development of the market for drugs treating sexual dysfunction. The presence of a strong traditional medicine industry, including traditional Chinese medicine and Ayurveda, is a third barrier. Therefore through CSR and education programs there is significant scope for market development.
Furthermore, economic growth is changing the lifestyle habits and epidemiological profile of the nation. Dr. David Quek, president of the Malaysian Medical Association, explains: “The big challenge now facing Malaysia is from non-communicable diseases. With increasing development, Malaysia has perhaps imported some bad habits and lifestyle changes from the West.” Thirty percent of Malaysians are technically obese, while another 30% are overweight and 14.9% of the population has diabetes. Chronic diseases are therefore the new healthcare challenge for the country.
With such pressing health needs, there is a necessity to overcome Malaysia’s geographical and infrastructural challenges to provide sufficient access to medicines. Rimolt praises the government for widening access to diabetes treatment, stating that “there are numerous initiatives to push treatments further down the healthcare system, all the way to the family physician in the kampongs (villages) of Sabah and Sarawak.” With 1.85 million diabetes sufferers in Malaysia, companies with a strong diabetes focus such as Novo Nordisk and Eli Lilly are posting double-digit growth. The worrying expansion of Malaysia’s waistline is therefore presenting opportunities for innovator companies.
Finally, the proposed “1Care” Malaysia reforms are due to transform the healthcare system, creating a unified NHS-style, single-payer-system instead of the current dual system. According to Professor Kenneth Lee, head of pharmacy at Monash University and specialist in pharmacoeconomics, the proposed reforms will change the dynamic from a system focused solely on price to one making the value of treatment paramount. These reforms, which the Minister of Health, Dato’ Sri Liow Tiong Lai says will occur over the next five years, should allow multinationals to revert to their standard business model, relying on innovative products rather than seeking other avenues of growth.
Accompanying the growth opportunities of the market is a concerted drive by the Malaysian government to promote the healthcare industry as an economic driver. Gone are the days when healthcare was considered purely in terms of service provision; the key performance indicators for the Ministry of Health (MOH) are now seen in an economic light. Minister Liow explains: “There has been a paradigm shift in the ministry’s focus. The government is now examining how to make Malaysia’s economy more competitive, and this carries significant implications for the health sector in Malaysia.”
The Economic Transformation Program (ETP) launched in October 2010 placed healthcare and pharmaceuticals as one of the 12 National Key Economic Areas designed to ignite the fires in Malaysia’s economic engine.
The MOH has established six “Entry Point Projects” (EPP): health tourism, insurance services, clinical trials, generics manufacturing, diagnostics services, and the creation of health metropolises. Taken together, these projects are designed to contribute US$ 11 billion to the national economy by 2020.
Just in terms of clinical trials, the government is targeting a ten-fold increase by 2020, to 1,000 trials per year—something Lee Toong Chow, managing director of CRO, Info Kinetics, feels is well within the country’s capabilities. Malaysia’s low-cost facilities; English-speaking staff; and the National Medical Register, giving sponsors a detailed picture of the experience of principal investigators, provide good advantages. Most importantly, however, Malaysia provides excellent ethnic diversity for patient recruitment (50% Malay, 25% Chinese, 10% Indian, and 15% other). Indeed, Lee says his company’s main selling point was “to connect research with people in Asia.” The MOH is further complementing these pre-existing attributes with the expansion of its 17 Clinical Research Centers. Secondly, the Malaysian Health Tourism Council was founded in June 2009, and although witnessing a temporary fall in the number of medical tourists to Malaysia until mid-2010 due to the global recession, overall the industry grew 25% in 2010. Minister Liow projects that the industry will grow 30% in 2011, eventually attracting 1.9 million medical tourists by 2020 and contributing US$ 1.342 to the GNI.
Ultimately, the largest GDP contributor will derive from the domestic generics industry fueled by the patent loss of at least 15 blockbuster drugs over the next two to three years. Generics currently account for 33% of the domestic market in value terms and 60% to 70% in volume—and this share could grow. However, the main growth will come from exports, and the Malaysian trade promotion agency, MATRADE, is now aggressively promoting Malaysian pharmaceutical products in the ASEAN Economic Community and in Middle Eastern and North African countries. The key differentiators for Malaysian generics in the international markets will be their branded nature and Halal certification. In fact, with the global Muslim population approaching 1.57 billion, providing a US$2.3 trillion market (excluding Islamic banking), there is great potential in providing pharmaceuticals which conform to Halal food regulations. Overall, the government is targeting 22% year-on-year growth in the Malaysian pharma industry to contribute US$ 5.4 billion to GDP by 2020.
The generics space is a growing area of convergence between multinationals and local companies. Rather than accruing assets in a relatively small market, several multinationals are now opting to contract out manufacturing to local companies, and such opportunities abound thanks to Malaysia’s strong GMP regulations based on their PIC/S membership. Malaysia’s geographical position at the heart of Asia’s emerging markets, as well as cheap labor and land costs, make the country a good prospect for outsourcing. Notable partnerships last year include: Sanofi-Aventis and Hovid Bhd; Biocon Ltd contracting to Malaysia’s biotechnology park BioXcell; and Malaysian company Inno Bio Ventures contract manufacturing clinical-grade material for Indian company Avesthagen—Malaysia’s first biotech manufacturing contract.
Within this picture, Pharmaniaga is one of the heavyweights of the local generics industry, producing 200 products for international companies seeking entry into the Malaysian market. Pharmaniaga has a 15-year relationship with Pfizer, and Roshidah Abdullah, CFO of Pharmaniaga, recognizes that “collaboration with multinationals helped to catapult the company into a different league compared to the other domestic players and was a key factor in our [Pharmaniaga’s] differentiation.”
Pharmaniaga is now looking to expand its generics arm to become a major focus for the company’s long-term growth strategy. Malaysian companies have been a little sluggish in internationalizing their operations, but Pharmaniaga is at the forefront of a new wave seeking export-driven growth. Pharmaniaga’s dossier exchange with multinationals and rebranding as a supergenerics company are essential to its expansion within the region. Roshidah explains that in Myanmar the company initially pursued the wrong strategy when it engaged in a price war with companies from Bangladesh and India. The company has changed tack and now intends to play on the brand consciousness of Southeast Asian nations to differentiate themselves. Its confident assurance is that “in the next five years you will see Pharmaniaga not just as a leader in Malaysia but assuming leadership positions in Thailand, Myanmar, and Vietnam,” she says.
The Elusive Single Point-of-Entry
With Malaysia’s local manufacturers and Big Pharma increasingly looking to trade in the ASEAN Economic
Community, the success of regional regulatory harmonization is not insignificant. Disparities in regulatory frameworks continue to create obstacles for both international and regional companies entering the region’s markets. Cheah Chor Eng, country manager of Invida Malaysia, says that “while there are multilateral steps being taken by the ASEAN leaders towards regional harmonization … this desired state is still a number of years off.” However, with Asia leading the global economic growth, the time to invest is now.
Local Malaysian manufacturers pay a penalty when entering the more capricious regulatory environments of their neighbors. the Malaysian Organisation of Pharmaceutical Industries (MOPI) confirmed that that the “protectionist standpoint of other ASEAN members” dramatically reduced the size of this export market to the AEC. Multinationals have also faced a number of sales compliance issues when navigating these diverse regulatory systems. Within ASEAN, only Singapore and Malaysia seem fully engaged in the harmonization process, having signed a Mutual Recognition Agreement (MRA) for their GMP production facilities. The MOH is energetically collaborating with the Pharmaceutical Products Working Group of the AEC to improve trade conditions and harmonize procedures. In the meantime, marketing and distribution companies such as Invida will continue to be seen as what Cheah calls a “gateway to Asia Pacific for companies looking to grow their footprint in the region.”
AN 18TH HOLE VICTORY OR LOST IN THE FOREST?
It is all well and good that the government is using healthcare as a mechanism helping to catapult the nation out of the “middle-income trap” towards becoming a high-income society. However, for the upgrading of the value-offering from its generics industry and the expansion of clinical trials, Malaysia needs the presence of innovator multinationals.
Unfortunately, the government’s promotion of the generics industry has raised eyebrows among the CEOs of innovator companies. Leonard Shatar of the Malaysian Organization of Pharmaceutical Industries (MOPI), confirms, “The Ministry of Health has an active generics policy driven primarily by the rising cost of healthcare.” Cost-containment measures invariably impact most heavily on the pharmaceutical industry and to limit Malaysia’s US$ 1.3 billion public drugs bill. The government procures drugs on an open-tender basis, favoring cheaper generics. Unlike its neighbor, Singapore, Malaysia is a substantial reimbursement market, with government purchases accounting for 35% of the overall market.
There is also the perception of a generics first, intellectual property second attitude in Malaysia’s regulatory system among some of the multinationals. Eu Keng Huat, president of PHAMA, says that at times his company, Merck, was even fighting for government tenders with companies possessing invalid patents. However, Fui K. Soong, executive director of the American-Malaysian Chamber of Commerce, says that the current government is increasingly responsive to the concerns of multinationals and a far cry from the intransigence of previous administrations.
An alternative market entry strategy for small- and medium-sized pharma companies would be to entrust sales to a marketing company like EP+, which is pioneering an innovative new category of medical marketing, fashioning itself as the “leading medical edutaintment specialist.” Its philosophy is to make marketing events more fun by offering interesting activities such as gallery walks, cooking classes, and wine tastings following medical lectures. Pang argues, “Now is the time for them [pharma companies] to enter this market because product registration is becoming increasingly stringent,” particularly considering the eventual health reforms.
THE LOGICAL NEXT STEP
Malaysia has taken a long time to find its feet in the pharmaceutical and healthcare industry, but has now chosen six sectors to contribute to the country’s development. Despite the small size of the market and question marks over patent protection, Malaysia’s profile as an emerging market should mark it out as a strong prospect for innovator multinationals. Sustained growth in the 17 pharmerging markets is not guaranteed, and Malaysia is therefore a logical next step—the 18th pharmerging market. According to Minister Liow, the healthcare sector will require US$ 9.3 billion from 2011 to 2020 to fund growth, with the majority of investment sought in the private sector. Much still depends on foreign investment, and the next few years should prove just how clear-sighted Malaysia’s 20/20 vision truly is.
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