Industry Trend Analysis - Trump's Policies To Affect The Development Of Region's Pharmaceutical Sectors - APR 2017

BMI View : Acts undertaken by US President Donald Trump will shape the Asia Pacific ' s pharmace utical sectors. The withdrawal of the US from the Trans-Pacific Partnership is particularly significant, passing up an opportunity to introduce strong intellectual property protections which would have had ramifications beyond the original seven Asia Pacific member states. Trump's push to encourage the domestic manufacture of drugs will also affect pharmaceutical exporters in the region , with India being the most exposed - 38% of its total medicine exports went to the US in 2015.

The Asia Pacific (APAC)'s pharmaceutical sectors will be affected by US President Donald Trump's policies. This is despite his largely domestic focus with regards to healthcare - reducing drug prices and creating jobs locally - and thus reflects the significant clout of the US. Many factors underpin its dominance, ranging from the large number of US-based multinational pharmaceutical firms to the strength of US medical research - and underlined by the country's large medicine market, at USD370bn in 2016 or 33% of global sales.

US Is Decidely The Most Important Market
Pharmaceutical Sales (USDbn)
Source: National Statistical Agencies

Withdrawal From The TPP Is A Lost Opportunity For Innovative Firms

Trump's decision to disengage the US from the Trans-Pacific Partnership (TPP) will be the single most important move affecting the trajectory of APAC's medicine markets. Formally acted upon in January 2017 with the signing of an executive order, it marked the end of the TPP in its current form, as the US' participation was necessary for the trade deal to come into effect. This passes up on a potential altering of the pharmaceutical landscape in many of the seven APAC market members (Singapore, Japan, Brunei, Malaysia, New Zealand and Australia), in which stronger intellectual property standards that would have been favourable to multinational drugmakers could have been introduced. Implications extend beyond the original member countries, as other Asian governments such as Thailand and South Korea had signalled their interest to participate.

US Withdrawal From The TPP A Negative For Multinational Drugmakers
TPP Participating Countries
Source: d -maps, BMI

Without the TPP, we expect intellectual property-related challenges facing innovative firms to remain entrenched. Of the seven APAC members in the TPP, two were designated as 'Watch List' countries by the Pharmaceutical Research and Manufacturers of America (PhRMA) in their 301 submission for 2017 - a document outlining the industry's concerns about countries' intellectual property protection as well as general market access barriers - and the governments of two countries designated as a 'Priority Watch List' had signalled interest in participating in the TPP. Notably, concerns raised in these markets - such as requests for stronger regulatory data protection in Australia and Vietnam - would have been addressed under the trade deal.

Issues Raised In PhRMA's 301 Submission For 2017 That Would Have Been Addressed By The TPP
Issues Addressed By The TPP Priority Watch List Countries* Watch List Countries
* Governments of Indonesia and Thailand had noted their interest in participating in the TPP in the future. Source: PhRMA, BMI.
Regulatory data protection Thailand, Indonesia Australia, Vietnam
Restrictive patentability criteria Indonesia Vietnam
Weak or a lack of patent linkage Thailand Australia, Vietnam

Medicine Export Trajectory To Be Affected

A secondary effect of Trump's administration will be on Asia's pharmaceutical trade. As the world's largest medicine market by a large margin - with a high per-capita spending of USD1,142 in 2016, and more than triple the size of China's pharmaceutical sales in 2016 - the US is a key export destination for several Asia countries. This makes comments made by Trump in January 2017 that 'they (referring to drugmakers) supply our drugs but they don't make them here, to a large extent' particularly pertinent, as the corresponding policies to address this could push more Asia-based firms to manufacture in the US.

We believe that India is the most vulnerable, with 38% of its pharmaceutical exports going to the US in 2015, ahead of Japan (34%) and Singapore (22%), according to data from the UN Comtrade. The effects of this dependence on the US market are further exacerbated by persistent concerns over drugs manufactured in India even as Trump seeks to reform US Food and Drug Administration (FDA) regulations. In January 2017, the US FDA sent a notice to Hetero Labs about possible manufacturing deficiencies at a unit in Telangana, while Sun Pharmaceutical has yet to fully address issues at its Halol plant. There is also the potential introduction of tax on imports - a factor that Nilesh Gupta, Managing Director at Lupin, noted will prompt the company to revisit their plans to scale up manufacturing in the US.

Trump's Policies To Impact Pharmaceutical Asia Pacific Exports
Selected Asia Pacific countries: Pharmaceutical Exports To The US (LHS, USDmn) And Proportion Of Their Total Exports (RHS, 2015, %)
Source: United Nations Comtrade Database DESA/UNSD, BMI

We believe that the risk of multinational pharmaceutical companies shifting their existing manufacturing facilities away from Asia to the US to be low. For companies such as Amgen, operations are already heavily centred in the US, with 60% of the firm's approximately 20,000 staff members based in the US as of January 2017; while other multinational drugmakers such as Novartis have facilities in APAC primarily to serve the region's markets. Nonetheless, this is a factor that we will be monitoring closely as Trump pressures pharmaceutical companies to create more jobs in the US.