Industry Trend Analysis - Regional Trends To Dictate Drugmaker Growth Opportunities - NOV 2017

BMI View: Patented drugmakers will continue to favour the developed Asia Pacific (APAC) markets on account of the more advanced regulatory environment coupled with a higher demand for and a greater ability to afford high-value medicines. However, the increased focus on cost-efficiency in these markets will manifest itself through greater pricing pressures on drugmakers, generic substitution policies and rational prescribing initiatives. With regards to the emerging markets, ri sing pharmaceutical spending in the emerging APAC markets and a lower per-capita spending on medicines will facilitate the uptake of affordable generic medicines over high-value patented medicines.

The Asia Pacific (APAC) region, characterised by a mix of emerging and developing economies, will continue to present a diverse range of opportunities for multinational pharmaceutical firms. Innovative drugmakers will continue to favour well-developed APAC markets on account of their ability to afford higher-value medicines, access to healthcare services and robust regulatory systems. Due to the highly developed nature of these markets, expenditure on pharmaceuticals on a per capita and absolute basis is high, however year-on-year growth rates are low. For example, while, on a per-capita basis, drug spending in Japan was the highest in the APAC region, having amounted to USD844 in 2016, the medicine sales are forecasted to expand at a slow rate over our five-year forecast period, at -0.56% in US dollar terms.

As such, the growth opportunities are in the emerging APAC markets, where demand for medicines is anticipated to accelerate as governments focus heavily on the reduction of healthcare inequality and implement systems to enable greater proportion of populations to access treatment. The rise of public healthcare funding schemes underlines this. Indonesia introduced its Universal Healthcare Program in 2014, aiming to provide comprehensive health care for the entire population by 2019, with government subsidised coverage for low income groups. Myanmar is set to achieve its universal health coverage status by 2030, providing a comprehensive national health insurance scheme to improve access to healthcare facilities. The greater availability and affordability of treatments will boost the demand for medicines and as such, these markets will be among the growth outperformers for medicine sales in the coming years. Medicine sales are forecasted to expand at a moderately fast rate over our five-year forecast period for Indonesia and Myanmar, at 9.0% and 8.7% in US dollar terms respectively.

High Growth Prospects In Emerging Asia
LHS: Pharmaceutical Expenditure Per Capita (USD); RHS: 5 Year Pharmaceutical Expenditure, USD, CAGR (%)
Source: BMI

However, creating challenges for drugmakers, the emerging countries are characterised by nascent regulatory environments, low levels of intellectual property enforcement and weak purchasing power. In these lower-income markets, the growth opportunities for patented drugs is therefore minimal as generic drugs and over-the-counter medicines are considerably more affordable. In addition, low levels of access to healthcare services is particularly pertinent in these markets as a significant proportion of the population lives in rural areas.

A broad trend that can be gathered from the analysis of the region's generic drug market (see below) is that in the developed APAC markets, the demand for and purchasing power of high-quality therapeutics is significant than in the emerging markets. Therefore, generic drugmakers will find the emerging APAC markets such as India more receptive to their products, as highlighted by the 75.5% share of generic medicine sales as a proportion of total market size in the country, as compared to the developed market of Japan, with a 12.8% market share of generic drug sales.

A High Demand For Generic Medicines In Emerging Asia
Generic Medicine Sales Market Share, 2016 (%)
Note: Light Blue = Emerging APAC Markets, Source: BMI

We note that the emerging APAC markets will continue to be a highly unattractive market for patented drugmakers due to aforementioned reasons, irrespective of the opportunities presented by its large population. As a result, investment into these emerging pharmaceutical markets by patented drugmakers will remain restrained and as such generic medicines will be favoured.

Rising Regional Health Spend: An Impetus For Cost Containment

Across APAC, multinational pharmaceutical firms will face challenges due to increasingly aggressive cost-containment measures from healthcare payers. Rising pharmaceutical expenditure in both developed and less-developed markets, attributable to ageing populations and the growing prevalence of chronic diseases, will continue to create financial pressures for cash-strapped governments in the APAC region. In a bid to create cost savings while maintaining continued access to therapeutics, a growing number of emerging and developed countries in the region are pushing for the consumption of lower value generic medicines in place of high-value patented drugs.

For example, in its budget for FY2017/18, the Australian government stated that it will continue to enforce drug price controls and promote the consumption of lower-value generic medicines in place of patented medicines as a means to reduce pharmaceutical expenditure. Similarly, the Japanese government, in May 2017, stated its plans of boosting the use of generic drugs from 56% to more than 80% by September 2020. The proactive role taken by the Indian government to encourage physicians to prescribe drugs using their international non-proprietary names will also create commercial opportunities that will encourage drugmakers to invest aggressively into the generic drug market. The generic substitution rhetoric within the region will enable healthcare payers to supply the increasing demand for medicines while also maintaining a sustainable level of expenditure, thus, benefitting the generic medicine players over the patented drugmakers and weighing on the innovative firm's potential gains over the long-term.