Centre of attraction

January 1, 2008
Beatrij Van Liedekerke
Pharmaceutical Technology Europe
Volume 20, Issue 1

The pharmaceutical industry in Asia is gearing up to be at the centre of the global market. Most pharmaceutical companies in the region expect this shift to happen fast. Not only is Asia set to become the largest pharmaceutical market in the world, but many Asian territories will be the powerhouses of the industry. By 2020, the worldwide pharmaceuticals market could be worth around $1.3 trillion, with China being the second or third biggest market.

Fifty-eight per cent of pharmaceutical companies believe the centre of gravity of the global pharmaceutical market will be in Asia rather than North America and Europe in the near future. This confidence is expressed by both domestic and multinational companies (MNCs), based on interviews with 185 senior pharmaceutical executives across nine different territories in the region: China, India, Malaysia, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.

The rise of the Asian market

Growth is top of the agenda for many companies with domestic firms in Asia seeking to go global and MNCs extending their presence in the region. Sixty-five per cent of domestic companies report that increased global market share is important for them. A third of MNCs plan to further expand within the region through acquisitions or developing their own 'greenfield' sites within the next 12 months.

Unsurprisingly, China and India head the list of countries for expansion, with Singapore and South Korea prime targets for MNCs. They are increasingly interested in setting up more R&D facilities and conducting more clinical trials in certain Asia territories. The region is far from homogeneous and each market has its own unique challenges and opportunities. The risk landscape is complex and, while there has been significant progress on many fronts, some concerns remain.

In parallel, many Asian pharmaceutical companies are looking outward and extending their geographical footprint to become pan-regional or global players. Within the region, there is a plethora of domestic companies with the likelihood of substantial consolidation. More than a third (34%) of domestic companies are looking to acquire pharmaceutical companies. More than half (52%) of these companies are seeking to acquire international market share. At present, fewer than half (45%) of the domestic companies surveyed had an international presence, but international growth is high on their agenda.

A thirst for funding

Capital constraints can be a significant brake on growth for domestic pharmaceutical companies. About half of all the domestic pharmaceutical companies surveyed in the region might look for deals if funding obstacles could be overcome. There are few specialized venture capital funds to support start-up biopharmaceutical companies in Asia. These companies do not have access to a supportive stock market environment, such as in a junior market similar to London's Alternative Investment Market. While domestic pharmaceutical companies in the region are hungry for investment, particularly for R&D, more than a third (36%) would consider selling all or part of their company to foreign investors to raise funds. Many are also looking towards initial public offers (IPOs) as a fundraising route and 36% have plans to raise capital from foreign capital markets.

Risk reduction

There are continuing concerns regarding intellectual property rights (IPRs), corruption and pricing. However, MNCs and domestic companies report progress towards risk reduction in the region. Three quarters (74%) of MNCs and 79% of domestic companies say they have seen improvement in IPR protection during the past 5 years, primarily as a result of introducing new IP laws underpinned by a stronger government emphasis on IPR protection and more rigorous applications of existing laws. More than half of domestic companies are worried about unfair competition from generic brands. Corruption is regarded as inescapable with 67% of companies saying that it is an endemic part of the landscape and they do not expect it to be eliminated soon.

A changing business model

Competition from generics and pricing pressures in the healthcare market continue to create pressures for cost reduction in all parts of the pharmaceutical value chain. Outsourcing to lower cost, but highly effective companies in Asia has become a common response to these pressures. A majority of companies (56%) said that most of the industry still does not see outsourcing in a sufficiently dynamic way and is missing opportunities for shared development, learning and improvement. So far, much of the focus has been on outsourcing drug manufacturing, but companies are increasingly turning their attention to R&D and clinical trials.

A new business model for MNCs is to focus on sales and marketing with other activities outsourced. As the industry moves to this future model, strategic partnerships or long-term partnerships are the preferred route, favoured by 82% of the multinational pharmaceutical companies we surveyed who outsource.

Key factors for market entry

Market studies. It is essential to assess the size of the market, both now and in the future, in terms of volume, value, key product characteristics, growth rates, share of major players and product evaluation.

Understanding the regulatory framework. Understanding the regulatory framework is crucial for Asian companies looking towards the EU, North America, Australia or Japan as it is for MNCs expanding in Asia. Companies need to understand key points of influence, as well as the operational impact of regulation.

Competitor and target assessment. This involves mapping the performance of current players, profiling them, understanding their competitive strengths, interviewing their customers, and channelling partners to probe their strengths and weaknesses, assessing them as potential acquisition targets, and analysing their ownership and financial performance.

Industry competition structure. Understanding capacity issues, cost structure issues and identifying the key success factors for market entry is paramount.

Supply assessment. It is also essential to identify the availability of materials needed for supply, assess import alternatives, evaluate suppliers to understand the robustness of the future supply chain and understand the consequences of the associations being entered into.

Location studies. This involves gathering and analysing data to select the optimal location, including analysis of the macroeconomic environment, the supplier base, any tax and incentive packages offered by development zones, and developing a shortlist of preferred locations.

Conclusions

The demand for drugs in the developing world is continuously growing and, as countries in the region grow wealthier, Asia will become the biggest pharmaceuticals market in the world. A presence in these markets today gives companies market knowledge and the opportunity to adjust to the environment and the opportunity to adjust to the environment. Each market is at a different stage of development, has different needs, and requires different company approaches and tactics.

Companies that use outsourcing in the right way, and at the right pace, look set to get ahead of the game. Some are already moving towards setting up a complete virtual supply chain, making use of the low cost Asian environment while minimizing risk. Without doubt, as we look ahead, the pharmaceutical landscape for both MNCs and domestic companies alike in Asia will look radically different in the future.

Beatrijs Van Liedekerke is associate director in PricewaterhouseCoopers Pharmaceutical Advisory Services group. Beatrijs is leading the pharmaceutical performance improvement group in PricewaterhouseCoopers advisory practice in China. She provides process improvement and regulatory compliance advice. With 12 years of industry experience in both food and biotech companies, where she held positions in quality control/assurance, production, R&D and customer relations, Beatrijs has built up expertise in a wide variety of regulatory compliance issues, operational improvement and overall business optimization.