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Pharmaceutical Industry Maintains Strong Growth
by Cecilia Kok from The Star Online
 

THE global economic outlook appears dim, but prospects for the Malaysian pharmaceutical industry remain reasonably bright. The prevalence of various diseases, growing healthcare needs and an ageing population are factors that ensure a steady growth for the industry. So, even in a lean economy, the pharmaceutical business is expected to stay resilient.

 
Valued at RM3.5bil last year, the market in Malaysia is estimated to grow to RM3.8bil this year and RM4.2bil next year. The country’s changing demographics, with a growing young middle-class, as well as the rising healthcare expectations, will help the industry to grow at a compounded annual rate of 10%.
 
According to business research and consulting company Frost & Sullivan, the key drivers that will boost the Malaysian pharmaceutical industry are medical tourism, specialist therapy, and generic and over-the-counter (OTC) drugs and food supplements.
 
Malaysia is fast emerging as a value-for-money destination for medical tourism, thanks to its world-class health and medical facilities, says Frost & Sullivan Asia-Pacific healthcare practice consultant Tham Lin Hui.
 

She adds that the growing awareness about medical tourism in Malaysia will attract more foreign patients to seek treatment here, and this will drive demand for pharmaceutical products.

 
Jimmy Piong
 
The increased incidence of death-related illnesses, such as heart disease and cancer, in Malaysia is driving the demand of drugs for specialist treatment.
 
 
Generic Growth
Generally, Malaysians tend to place a higher trust on imported brands, which are more expensive compared to local ones. But with the growing economic uncertainties, more consumers are expected to turn to local brands as they seek to tighten their budget.
 

This bodes well for the local pharmaceutical players as they dominate both the generic and OTC segments.

Demand for generic drugs is expected to rise because they are typically much cheaper than their original and branded counterparts because the companies making them did not have to incur any research and development (R&D) costs.

 

Manufacturer Kotra Pharma (M) Sdn Bhd, a wholly owned subsidiary of Kotra Industries Bhd, told StarBizWeek that it has yet to see any sign of a slowdown in consumer demand for its products.

 
In fact, managing director Jimmy Piong says the company will continue to invest in the development of a new range of products in anticipation of the growing demand for generic drugs as well as brand-building activities to increase market share.
 
With the global trend towards patent expiry of blockbuster drugs, coupled with the rising healthcare cost, the market for generic products is expected to grow further down the road.
 
On top of that, generic drugs are also enjoying growing government support as the authorities seek to reduce the cost of healthcare financing. For example, CCM Duopharma Bhd’s (CCMD) contracts to supply drugs to the Health Ministry are worth over RM30mil per annum.
 
Its contracts with the Government offer steady income to the company, which plans to invest RM75mil in a three-year plant expansion from 2008 to 2010 as part of its growth strategy.
 
Main board listed Pharmaniaga Bhd is another local company that derives most of its revenue from government contracts. According to TA Research analyst Ikmal Hafizi, government contracts contribute about 80% to the company’s yearly revenue.
 
A particularly attractive opportunity for our talent-driven industry results from the US finding a new position in the global economy.
 
This will be free up of substantial talent and expertise to migrate to Malaysia and inter-dependent markets. Funds and innovation are also moving into “markets of opportunity”, and we’re on the lookout for partnerships.
 
 
Alternative Remedy

Meanwhile, the increasingly health-conscious Malaysians are contributing to the growth of OTC food supplements as well as herbal and traditional medicines. And this desire to be healthy is undeterred by the economic environment, says Tham.

Frost & Sullivan sees the current trend of self-managing among Malaysian consumers as a major factor that has broadened the OTC market, which is mainly driven by vitamin and dietary supplements.

It attributes this trend to consumers’ preference for self-administered healthcare, the prevalence of chronic illnesses that cannot be cured by conventional drugs, and the high pace of life which induces higher levels of stress.

The company also notes that Malaysian consumers are increasingly turning from synthetic allopathic drugs (conventional drugs) to herbal products to maintain health and prevent illnesses.

The rich biological heritage of Malaysia presents a potential for the local pharmaceutical industry to lead in the herbal market. Many local players have already ventured into this arena, especially with the encouragement from the Government through various grants and incentives for R&D on herbal products.

CCMD, for instance, has been exploring the potential for herbal products and is planning to launch a range of such products into the market soon.

Frost & Sullivan says the growing demand from local and international consumers is driving the local herbal market, which is valued in excess of RM330mil in 2006, to grow 15% to 20% annually.

 
 
Wide Market Reach

According to the Malaysian Industrial Development Authority, Malaysia’s exports of pharmaceutical products have received a boost since its admission as a member of the Pharmaceutical Inspection Convention and Pharmaceutical Inspection Cooperation/Scheme (PIC/S) in 2002.

This is especially so with regard to exports to PIC/S member countries such as the European Union, Australia and Canada. In addition, Malaysia’s position as an international halal hub will help strengthen and expand its market reach to the Muslim communities, particularly in the Middle East and Indonesia.

Pharmaniaga, for one, has a strong presence in Indonesia, with 27 distribution centres all over the country to tap its huge market.

Frost & Sullivan estimates the total export value of drugs from Malaysia to grow 5.4% between 2006 and 2102. In 2005, the total export value of drugs from Malaysia stood at RM494mil.

Tham says the export opportunity for the Malaysian pharmaceutical industry is huge because the international market recognises the high quality of the products manufactured in Malaysia as most of the producers have fulfilled the worldwide Good Manufacturing Practices (GMP) requirements.

As at Dec 31, 2007, there were a total of 235 pharmaceutical companies with GMP certification registered with the Health Ministry’s Drug Control Authority.

With China being continually challenged by quality issues of its manufactured products – the latest being melamine contamination in dairy products – the international community has somewhat lost confidence in the quality of made-in-China goods.

This provides an opportunity for the Malaysian pharmaceutical industry to make further inroads into the international market and, at the same time, boosts its contract-manufacturing businesses.

 
 
Contract Works

Frost & Sullivan has noted a growing trend among international pharmaceutical companies to contract research and the manufacture of their products to emerging countries to increase their competitiveness.

And the increasingly difficult market environment as a result of the deteriorating economies, particularly in the US and EU, are pushing more of these international players to look at low-cost producing countries to manufacture their products.

Malaysia is likely to gain most because of its reliable production quality, excellent infrastructure and facilities as well as cost-competitiveness compared with other developing nations such as China, Indonesia and Vietnam.

For instance, Pharmaniaga currently undertakes contract manufacturing of more than 200 types of products and counts US multinational companies among its customers. The range of drugs under contract manufacturing is expected to grow when the company’s new plant in Puchong, Selangor, begins commercial operations next year.

In October, US-based Trusgen LLP announced its plan to invest up to US$280mil to set up a manufacturing facility in Nusajaya, Johor, to carry out contract manufacturing works for other pharmaceutical companies.

The same month also saw India-based Malladi Drugs & Pharmaceutical Ltd announcing its plan to invest up to US$300mil over the next three to five years to establish a global hub in Malaysia, focusing on the formulation and production of a drug substance called Active Pharma Ingredient or API.

Given the Government’s emphasis on developing the biotechnology industry in Malaysia, more international companies are expected to be drawn here. Under the Ninth Malaysia Plan (2006-2010), RM2bil has been allocated for the development of the sector, which encompasses the pharmaceutical industry.

 
 
Staying Ahead

The pharmaceutical business will remain buoyant due to the inelastic demand for medicine regardless of the economic climate. But the challenge is that the players’ profit margins will be squeezed as a result of intense competition and high raw material costs.

Going forward, their profitability will also be affected by the volatile foreign exchange rates as most raw materials used in the industry are imported.

According to Frost & Sullivan, companies that can produce drugs at lower cost without compromising on quality are the ones that will be able to sustain growth in an increasingly competitive market.

Nevertheless, the Malaysian pharmaceutical industry is expected to perform better than its regional peers, including Singapore. The latter’s pharmaceutical industry is worth RM1.75bil this year, with a compounded annual growth rate of 8% over the next five years.

However, Tham says the growth rate of Singapore’s pharmaceutical industry will likely be slower due to the current economic crisis. She notes that the country’s production of pharmaceutical products has been sluggish lately.

With a population of less than five million, Singapore has a smaller domestic market compared to Malaysia, which has a population of 28 million people. On top of that, Singapore’s pharmaceutical industry is heavily reliant on the export market, hence making it more vulnerable to the global economic challenges.

 
 
 
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