Thailand: Survival of the Fittest in the Land of Smiles
Indochina’s biggest pharmaceutical market (US$ 4 billion, 66 million population, <5 percent of GDP spent on healthcare) has quickly matured over the past years due to the implementation of heavy cost containment measures meant to make healthcare more accessible to the patient. These measures have driven the market from double-digit growth to almost flat growth within the course of two years.
While increased generics volumes have led to opportunities for local manufacturers, the high number of local competitors, facing off against an increasing number of regional enterprises and Multi-National Companies (MNCs) looking to market branded generics, meant that only the strongest were able to successfully navigate through the changes. At the same time, as the government targeted innovative drugs on the List of Essential Medicine, many MNCs had to change their focus to stay profitable in Thailand’s state-dominated market.
It is survival of the fittest in the land of smiles, but those MNCs and Thai manufacturers that find the right answer in dealing with the new conditions are blossoming and, moreover, have a bright future ahead with market growth picking up again, expectations of more proportional spending in the government healthcare budget, and the opening up of ASEAN’s 600 million consumer market by 2015 as part of the ASEAN Economic Community (AEC). During several weeks of interviews with key stakeholders, Focus Reports went to look for the winning strategy in this fast-changing environment.
HEALTH COVERAGE IN HARMONY?
The whole Thai population receives health insurance, only there are major differences between the three kinds of coverage provided. The Civil Servants Medical Benefits Scheme (CSMBS) provides uncapped healthcare but covers only a small proportion of population, providing probably double that of average spending per capita. Below the CSMBS is the Social Security Scheme (SSS), which covers a moderate percentage of the population through a capped system funded through employer contributions. At the lowest level Thailand has the universal coverage, through which the government claims 95 percent of the population is covered. This scheme is capped at a mere 60 USD per year. Patients covered under this scheme generally receive minimalist healthcare.
The hospital channel represents 80 percent of the pharmaceutical market, and the government drive toward increasing accessibility to healthcare has essentially been successful. Measures are set to continue. ‘We do not have a policy to merge the different schemes into a single one, but we do try to harmonize them to reduce inequity in service, quality, and efficiency,’ said Minister of Public Health Wittaya Buranasiri. ‘Expenditures in our system are currently very high, and although it is not our policy to just cut the budget, we try to harmonize our three healthcare schemes by changing the management between the schemes, and improving the benefit package while bringing the quality standards to the same levels.’
A more proportional structuring of the government healthcare budget is expected to lead to dramatic market growth. Increased spending of five percent within Universal Coverage would mean an additional 800 Baht (25 USD) for about 45 million people. Such a measure would improve healthcare and open up spending on pharmaceuticals as well.
THE QUEST FOR VALUE & VOLUME, AND MORE
‘The revival of the Universal Healthcare Scheme as proposed by the newly elected government will create a big opportunity for the local industry volume-wise,’ said Chernporn Tenganmuay, president of the Thai Pharmaceutical Manufacturers Association (TPMA). ‘There have been many government tenders, and over the last 5 years, local manufacturers have been growing very fast. As a result, as they can produce drugs much cheaper than competing MNCs. Thanks to the tendering system, the market can shift in favor of any company that gives the lowest price.’
Still, the fight can no longer be won just on price. ‘It is safe to say that half of the current 140 manufacturers will not be around anymore in a couple of years,’ said Wisanu Assawes, managing director of A.N.B., a manufacturer just acquired by the Bangkok Hospital Group, owner of some of Thailand’s biggest and most modern hospitals. ‘The reason is that a company that sells less than 80 million Baht (USD 2.53 million) per year cannot stay on; they do not have the cash to improve and upgrade their facilities.’
Thai manufacturers over the past years have been hesitant to make the required investments in quality, a doubt underpinned by uncertainty about whether the investment would pay off in a volume-driven market. But those that decided to invest early on are reaping the benefits today. A prime example of such a company is Biolab, currently the number three domestic producer.
‘The issue in Thailand is that 80 percent of the market is for the government hospitals, and their procurement method is solely based on price,’ owner and managing director Rachod Thakolsri explained. ‘Whether or not to pursue membership of Pharmaceutical Inspection Cooperation Scheme (PIC/S) is a tough decision, because it also means that we have to increase our cost, which influences our competitiveness.’
The decision, however, has paid off for Biolab, with the company growing its market share with its high-quality generics, while engaging in contract manufacturing for companies like Pfizer. Adhering to PIC/S is not only an advantage in the national arena, said Thakolsri.
‘This is a strategic time to invest in PIC/S, because in two or three years the picture might look very different. Japan, for instance, announced that it will increase its budget for generic products from 17 percent to 30 percent, and in Korea we see similar developments. That is why producers from these countries come to us: even if they want to produce generics, they cannot do so at low cost.’
In an environment where prices plummet while demand for quality increases, Thai manufacturers have to find a perfect balance between the two. Beyond this balance, investing in brand recognition and company image becomes increasingly important—especially in order to compete against the MNCs’ branded generics. Great Eastern Drug (GED), part of leading Filipino manufacturer Unilab, saw its business in Thailand grow 100 percent over the past 5 years.
‘We have been optimizing our portfolio and have developed new initiatives in a move away from generics, which led to annual double digit growth,’ said Prakarn Kunothai, GED country manager. The main growth driver has been our flagship brand Decolgen, a cold pill. Through rebranding and changes in marketing strategy has been performing remarkably well.’
Invida Finds the Cure
While branding led GED sales to soar in the Over the Counter (OTC) channel, the medical channel with its fixation on price asked for another approach. ‘In the medical channel we have one core research product, a calcium channel blocker. Rather than go into the areas where we would meet competition from big pharma such as Sanofi and Novartis, we have developed our calcium channel blocker in a unique niche position,’ notes Kunothai.
Even the Government Pharmaceutical Organization (GPO), which has fostered a very strong protected position in the hospital channel for decades, is changing its ways. By 2015, it will have to give up its protected position as part of the regulation that accompanies the AEC, and the company plans to expand into the ASEAN region. ‘This region is of interest to us, but it also is to India, China, and big multinationals such as Pfizer and Bayer,’ said Dr. Witit Artavatkun, managing director of the GPO. ‘We are currently in the process of developing an appropriate strategy.’
DIVERSIFICATION IS THE NAME OF THE GAME
The government’s cost-containment measures were mainly targeted at the top tier of the three national medical schemes: the Civil Servant Medical Scheme (covering 10 percent of the population), the focus area for most MNCs. As the most expensive therapeutic classes were targeted, scores of MNCs lost their place on the List of Essential Medicine. Logically, representatives of MNCs urge the government for a more positive balance between innovative & generic medicine, as, according to Dr. Kitima Yuthavong, CEO of PReMA, ‘there is a need for governmental funds to be balanced between the aim for cost containment, and the demands of patients and doctors.’
Invida Finds The Cure
So far this year, the fastest growing multinational among the Pharmaceutical Research & Manufacturers Association’s (PReMA) membership has been Invida. The company was formed through a strategic partnership of Quintiles, the world’s leading pharmaceutical services organization; Temasek Holdings, one of the world’s largest investment companies; and Zuellig Group, the largest pharmaceutical distribution and supply chain management network in Asia Pacific. With more than 3,500 employees throughout Asia Pacific, Invida operates throughout the commercial value chain, from regulatory approval and product launch to lifecycle management. After 16 percent organic growth in 2011, the company is set to grow another 20 percent in 2012, and Invida is quickly turning into the leading pharmaceutical commercialization services company in Asia Pacific.
“We are able to substantially exceed market growth, because our own brands, and the brands in the portfolios of our partners, give us a wide therapeutic coverage,” explained Mark Brown, General Manager Thailand & Vietnam, the success of his company. “This makes our risks different from most MNCs, which are often highly therapeutically focused. It can be challenging for pressure, whereas Invida is present in our times as many therapeutic classes as, for instance, Novartis.”
Invida has set a 35 percent growth target for its brands. To reach these targets in the Thai market, Invida focuses on coverage of target specialists and hospitals and on having the right quality of sales people on board to target the right customers.
Biotech – Ready for the Next Episode
Despite the efforts of the association, it seems unlikely that the government is willing to change its ways. Furthermore, although the fruits of Indochina’s biggest market might not be reaped as easily as they had been prior to 2008, this does not mean that success is impossible. ‘The last IMS analysis showed that 60 percent of government hospital sales were still originator products, but that the number is declining and growth is coming from branded generics both in the government and private segments,’ said Helen Featherstone, general manager at IMS.
Managing director Aman Bhattacharjee of Merck, one of the fastest growing MNCs in Thailand, outlined that it is the company portfolio that allows for an optimal position on the Thai market. ‘We are focused not just on the private sector, but on the government sector as well, while most MNCs focus solely on the private sector,’ he said.
However, government offers big business in terms of volume, so that base is needed to grow and sustain the business. Over the years, companies lose their value in Thailand because their commodities become cheaper, but the company has to ensure that production costs come down while volumes go up. Merck is doing this in high-growth segments, such as oncology and fertility.’
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