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 INSIGHT
September 2014 Issue 100

Asia Pacific
Pharma & Healthcare
BMIs monthly market intelligence, trend analysis and forecasts for the pharmaceuticals & healthcare industry across Asia Pacific
ISSN: 1750-7588

Australia Contents

Price Disclosures Limit Market Australia

Price Disclosures Limit Market Growth..................................................................... 1

Growth
BMI View: Governments will increasingly impose price controls on
pharmaceuticals. Previously, drugmakers charged what the market
would bear in both developed and emerging markets. High prices were
accepted by patients and national health services because it was hard
to equate monetary cost with clinical benefit. With the advent of health
economics, coupled with increasing budget deficits, there will be more
caps on medicine expenditure, especially on essential drugs.
Negative Growth
Australia Total PBS Expenditure,AUDbn
Global
AbbVie Deal For Shire Faces Little Interference........................................................ 2
Consolidation In Pharma Distribution To Continue.................................................... 3
Lucentis In The Spotlight Again.............................................................................. 4
AbbVie Acquires Shire............................................................................................ 5
Asia
AEC Offers Opportunities But Full Integration Unlikely.............................................. 6
India
Pharma Growth Potential Limited By Pricing Controls............................................... 7
China
Growth Endangered By Anti-Corruption Campaign................................................... 8
Pakistan
Healthcare Sector Plagued By Inefficiencies............................................................ 9
Vietnam
Medicine Price Rises Return To Normal...................................................................10
Access To Healthcare Improves Under New Insurance Law......................................11

Source: PBS

Over 300 drug formulations listed on the Pharmaceutical Benefits

Scheme (PBS) will be subject to price reduction from October 1 2014,
following the first simplified price disclosure (SPD) cycle in Australia.
As a result, the prices of the affected drugs will decline by an average
of 20% from those in April 2014.
Price disclosure was officially initiated in Australia in April 2012[1,2].
It requires drug manufacturers to provide pricing details to the govern-
ment within a stipulated time frame (initially 18 months but reduced
to 12 months). The government then calculates a weighted average
disclosed price, including the originator's drug, and reduces prices
accordingly. As a result of price disclosure, total PBS spending fell
by 1.2% year-on-year in FY2012/13, from AUD10.5bn (USD10.9bn)
to AUD10.4bn (USD10.0bn).
Given the government's aim to contain overall healthcare costs[3], BMI
forecasts that the pharmaceutical and healthcare sector will grow at a low
single-digit rate. Between 2013 and 2018, Australia's pharmaceutical sec-
tor will grow at a local compound annual growth rate (CAGR) of 3.9%
(-1.2% in US dollar terms), reaching a value of AUD15.7bn (USD11.8bn)
by the end of the forecast period. Meanwhile, healthcare expenditure will

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Global Asia Pharma & Healthcare

grow at a local CAGR of 4.5% (-0.6% in US dollar terms) in the

same period to reach a value of AUD177.3bn (USD133bn) by 2018.
Global
Low Growth Potential
Australia Pharmaceutical Sales* (top) & Overall Health Expenditure
(bottom), AUDbn
AbbVie Deal For Shire Faces
Little Interference
BMI View: We believe AbbVie will be forced to raise their bid for
Shire. We have previously highlighted Shire as an attractive M&A
target for US-based pharmaceutical companies owing to its low tax
base and innovative drug portfolio. We see few hurdles for this deal
to clear, unlike the Pfizer-AstraZeneca megamerger.

With AbbVie's CEO flying in to the UK to meet major Shire

*Refers to fiscal year. f = BMI forecast. Source: PBS Information Management Section
(Department of Health and Ageing), Australia Self-Medication Industry, the Association of
the European Self Medication Society (AESGP), World Health Organization (WHO), BMI
[1] Business Monitor International Industry Trend Analysis BMI
Downgrades Pharmaceutical Sales Forecast After Generic Drug
Price Cuts December 21 2011
[2] Business Monitor International Industry Trend Analysis
Quicker Adoption Of Generic Drugs Proves To Be A Double-Edged
Sword March 28 2012
[3] Business Monitor International Industry Trend Analysis
Healthcare Expenditure Forecast Downgraded- June 2
shareholders, we believe that AbbVie will up their bid on Shire to
firmly convince a majority of shareholders to enact the deal. Shire
represents an attractive target for AbbVie owing to its tax base, rare
disease and neurological portfolio and strong, organic growth. We
see little political interference within the scope of this deal, unlike
the proposed AstraZeneca-Pfizer merger.
Where the Pfizer-AstraZeneca deal came under the media spot-
light and parliamentary inquiry, we see a deal between AbbVie
and Shire shareholders attracting much less scrutiny from both UK
politicians and the general public. Shire's links to the UK are not
as rooted as AstraZeneca; just 10% of Shire's workforce is located
in the UK and more than 60% of its headcount is located in the
US. The company has offshored its R&D and moved its corporate
headquarters to Ireland. Shire has also actively pursued acquisition
as part of its growth strategy.
Indeed, the company has acquired its best-selling product lines
Vyvanse (lisdexamfetamine) and Cinryze (C1 Inhibitor) by buying
out New River Pharmaceuticals and ViroPharma. Shire was on
the verge of acquiring US-based NPS Pharma for USD5bn before
AbbVie's proposal went public. Under UK Takeover Code rules, a
target company is not allowed to pursue acquisitions of its own to
bolster its defence or, in its own words, 'frustrate acquirers'. Shire's
CEO Flemming rnskov has stated that were an offer to be made that
reflected Shire's inherent value, he would not impede the acquisition.
Thus, we believe AbbVie's bid is unlikely to encounter the hurdles that
were placed before Pfizer's proposed megamerger with AstraZeneca.
Acquiring Shire: Push Factors For AbbVie
We have highlighted UK equities as M&A targets, with Shire
amongst the standout candidates, owing to the following factors:

AUSTRALIA Selected Drugs Undergoing SPD (AUD)

Drug Potential Drug Price In October 2014 Drug Price In April 2014 Price Difference (%)
Aciclovir (200mg) 10.38 11.97 13.28
Alendronic acid (40mg) 21.81 27.65 21.12
Atorvastatin (10mg) 5.03 9.30 45.91
Bisoprolol (10mg) 25.87 32.87 21.30
Carboplatin (150mg) 13.43 15.48 13.24
Famciclovir (125mg) 55.09 65.13 15.42
Irbesartan (150mg) 4.75 7.80 39.10
Irinotecan (100mg) 13.57 22.00 38.32
Montelukast (4mg) 20.43 28.91 29.33
Venlafaxine (150mg) 10.27 15.26 32.70
Source: PBS

2 www.pharmaceuticalsinsight.com
Global
Attractive pipelines: UK & Irish equities have a number
of promising drug candidates in late-stage clinical trials;
late-stage pipelines are attractive to acquirers as these drug
candidates have better risk-reward profiles versus carrying
out internal drug development. Shire has pursued a lot of
low-cost, low-risk R&D by expanding indications for its
existing drugs and acquiring promising drug candidates.
Benign domestic tax policies; this factor is a big motivator
for US companies as US tax rates are among the highest
globally (27-30%) and apply to global profits. Companies
domiciled in lower-tax countries such as the UK (23%), Can-
ada (26%), Ireland (12.5%) or Switzerland (18%) therefore
have an innate benefit in delivering returns to shareholders.
The reverse merger of a UK or Irish domiciled company
is therefore very attractive from a taxation point of view.
Large Cash Positions: AbbVie holds a considerable amount
of earnings outside of the US as repatriating cash would
subject it to US tax rates (33%). Utilising that cash in an
acquisition would unlock value for shareholders. However,
this deal will be mostly stock-driven, given AbbVie's gear-
ing and large debts.
Potential Hard Sell To Shire Shareholders
The majority component of AbbVie's deal for Shire will be in shares
(56% in the latest offer), and therefore AbbVie must convince Shire
shareholders that there is value to be unlocked from the combined
entity. AbbVie's CEO declared that the US drugmaker could offer
Shire greater scale to unlock value in their rare disease and neuro-
logical product portfolio, expanding Shire's range beyond the US
where most of the UK drugmaker's sales are derived from.
However, there are reasons to be wary of the deal for Shire
shareholders; AbbVie as a company has taken on considerable levels
of leverage since being spun off from Abbott Laboratories. We
believe there is a lot of optimism baked into AbbVie's share price
despite the company being reliant on one drug Humira (adalimumab)
for almost 60% of its revenues. Humira enjoys patent protection until
2016, and its position as the best selling drug in 2013 (USD12bn in
revenues) makes it the target of many biosimilars from competitors.
Therefore, the threat of revenue risk is very significant over the long
term, even in light of AbbVie's potential for success in the hepatitis
C space. On its balance sheet, its debt burden is significant, with
debts valued at three times the value of shareholder's equity. Shire,
on the other hand, has no debts, a large cash position for further
M&A deals, a potential blockbuster in lifitegrast and a portfolio of
rare disease drugs.
Shire's management will undoubtedly point to the risky position
of AbbVie as a reason to reject the offer, taking cues from the manner
in which Allergan has thwarted Valeant's efforts to date. Shire has
also adopted a similar defence strategy to AstraZeneca; management
have presented a long-term investment story to shareholders, stating
that they expect to double revenue to USD10bn through organic sales
alone. Shire management have proven their prudency in acquiring
value-for-money companies and therefore will pitch their track
record against the management. However, for some shareholders,
the prospect of an offer valuing the company at more than GBP50
per share is more tempting than a long-term story.
www.pharmaceuticalsinsight.com
Asia Pharma & Healthcare
Consolidation In Pharma
Distribution To Continue
BMI View: Consolidation in the pharmaceutical industry and
the collaboration between wholesalers and retailers will work to
streamline the distribution of pharmaceuticals and increase supply
chain efficiencies. While this will ultimately bring cost benefits to
healthcare systems, generic drugmakers will be faced with a chal-
lenging business environment characterised by intense competition
and falling prices.
Rising Revenues: Boosted By
Distribution Solutions
McKesson Revenues, USDbn
Source: McKesson
Consolidation within the pharmaceutical sector will increase over
the coming year. We have seen attempts of this with drugmakers
AbbVie's interest in Shire and Pfizer's interest in AstraZeneca.
Further down the chain, in late June 2014, US pharmacy chain Wal-
green, which bought a 45% of Alliance Boots in 2012, said it would
update investors about the proposed purchase of the rest of Europe's
largest pharmacy chain owner by late July or early August 2014. Ad-
ditionally in January 2014, McKesson, a US-based pharmaceutical
distributor, secured ownership of close to 75% of Germany-based
Celesio's shares, thus enabling McKesson to enter into a domination
and profit and loss transfer agreement with Celesio, allowing it to
wrest control of Celesio and gain access to its cash flows.
McKesson: Opportunities
Access To European Markets: McKesson, the largest drugs
wholesaler in the US which employs more than 37,000 people and
generated reported revenues of USD138bn in 2013, has been ac-
tively pursuing deals and acquisitions to drive growth. The Celesio
acquisition will allow McKesson to gain a strong foothold in Europe,
thereby geographically expanding its core operations (distribution
solutions) and reducing its reliance on sales in its home market.
Additionally, the company will gain access to Celesio's established
chain of pharmacies and its operational know-how in Europe and
Brazil, which are new to McKesson. Indeed, many of the larger
US-based drug distributors and retailers are looking to Europe for
potential growth.
Celesio is a wholesale and retail company and provider of logis-
tics and services to the pharmaceutical and healthcare sectors. With
39,000 employees, Celesio operates in 14 countries around the world
including Austria, Belgium, Brazil, Denmark, France, Germany,
3
Global
Ireland, Italy, Netherlands, Norway, Portugal, Slovenia, Sweden
and the UK. The company has a portfolio of 2,200 pharmacies of
its own and 4,100 participants in brand partnership schemes. With
around 130 wholesale branches, Celesio supplies 65,000 pharmacies
and hospitals every day with up to 130,000 pharmaceutical products.
The services benefit a patient pool of about 15mn per day.
Bargaining Power: McKesson's acquisition of Celesio will result
in purchasing efficiencies and will boost its bargaining power
with drugmakers such as Novartis and Teva. The deal catapults
McKesson's generic sourcing ability to align with that of the CVS
Caremark and Cardinal Health joint venture, and before that the
Walgreens/Alliance Boots/AmerisourceBergen strategic partner-
ships. Generic drugs are comparatively lower priced but offer higher
gross margins than branded drugs, for both wholesalers and retailers.
With leading players collaborating with each other, the lower num-
ber of buyers in the industry can put pressure on gross margins of
generic manufacturers, forcing them to lower the prices even further.
McKesson: Challenges
Europe: The deal will expose McKesson to Europe and the region's
economic crisis. European governments have implemented measures
to reduce healthcare spending and constrain overall government
expenditure putting enormous pressure on drug prices and reim-
bursement levels on medicines across the region.
Germany: In recent years Celesio has come under increasing pres-
sure in its native European market in 2013, sustained and intense
competition over rebates in Germany overshadowed the ongoing
optimisation measures across the group. In 2013, Celesio revenues
fell to EUR21.41bn (USD29.31bn), a 3.9% decline over 2012 rev-
enues of EUR22.27bn (USD30.48bn), with profit falling 7.5% to
EUR186.4mn (USD254.6mn). Since 2007, Celesio's EBITDA has
fallen by around a third valued at EUR548.6mn (USD750.1mn)
in 2013, down 5.4% from EUR579.6mn (USD793.4mn) in 2012.
Germany's pharmaceutical wholesale market has been impacted
by government measures, as a part of the Arzneimittelmarkt-Neu-
ordnungsgesetz (AMNOG) law, to reduce expenditure on pharma-
ceuticals. These measures, which became fully effective in January
2012, included an interim reduction in wholesaler margin that was
effective from January 2011. Instead of receiving a percentage-based
mark-up, as was previously the case, wholesalers receive a fixed
amount of 70 cents plus a variable percentage-based mark-up of up
to 3.15% on the manufacturer sales price.
Lucentis In The Spotlight Again
BMI View: Governments in developed states, especially those
in Western Europe, have ramped up their focus on medicine cost
containment. The consequent scrutiny on individual drug prices and
pharmaceutical consumption will put pressure on companies and
their business activities.
Italy & France
In May 2014, the Italian government announced that it was seeking
USD1.6bn in damages from Novartis and Roche for losses incurred
by the National Health Service (NHS) from the companies' efforts
to keep doctors from prescribing Roche's cancer drug Avastin
(bevacizumab) over the company's far more expensive eye drug
Lucentis (ranibizumab). Following this, in June 2014, the Italian
government said it would pay for Avastin in place of Lucentis as a
4 www.pharmaceuticalsinsight.com
Asia Pharma & Healthcare
treatment for age-related macular degeneration (AMD), a leading
cause of blindness among the elderly.
France is following Italy's lead and in early July 2014 the govern-
ment announced that it had introduced an amendment to its social
security budget bill that would allow doctors to prescribe Avastin
over Lucentis. According to lawmakers, this could generate savings
of at least EUR200mn (USD273mn) as Avastin (EUR30 (USD40)
per dose) costs 30 times less than Lucentis (EUR900 (USD1,228)
per dose). French lawmakers are due to vote on the social security
budget in mid-July 2014.
Avastin Sales > Lucentis Sales
Avastin & Lucentis Sales, USDbn (2013)
Source: Roche, Novartis, BMI
Novartis said it 'strongly rejects' the health ministry's plans which
it said puts patients at risk since Avastin is not safely formulated to be
injected in the eye. Roche said in statement that financial considera-
tions by national healthcare bodies should not compromise patient
safety and EU law. Lucentis is marketed by Novartis outside the US
and is the company's third-biggest seller with sales of US2.38bn in
2013. Sales of Lucentis for Roche, which markets the treatment in
the US, were US1.68bn in 2013.
BMI notes this is not the first time that Lucentis (and its price)
has been in the spotlight.
The US
A study carried out by University of Michigan's Health Manage-
ment and Policy and Ophthalmology and Visual Sciences depart-
ments shows that Avastin and Lucentis are comparable for treating
AMD. Furthermore, the study showed that if doctors prescribed
Avastin (USD55 per dose) over Lucentis (USD2,023 per dose), the
Centers for Medicare & Medicaid Services could generate savings
of USD18bn over a period of 10 years and could save patients an
aggregate of USD5bn during this same period.
The UK
In early October 2012, Novartis said it was dropping its case against
the NHS in England and was withdrawing its court request for a
judicial review of a primary care trust (PCT) cluster's decision to
use Roche's drug Avastin to treat the eye disease wet AMD, despite
the fact that it is not licensed for this condition.
According to the SHIP Cluster (Southampton, Hampshire, Isle
of Wight and Portsmouth) of PCTs, the significant price difference
between Avastin and Lucentis meant choosing Roche's therapy
created significant savings to the GBP7.5mn bill allocated for the
treatment of wet AMD. In response to this, in July 2012 Novartis
lowered the UK price of Lucentis (the price remains confidential),
Global Asia Pharma & Healthcare

which in turn prompted the PCTs to reverse their policy and recom- is developing treatments for symptomatic conditions treated by
mend only Lucentis for wet AMD, avoiding Avastin. specialist physicians in other targeted therapeutic areas. Shire has
Deal Welcomed By Investors
Outlook Relative Share Performance Of AbbVie, Shire And The S&P Index
France, Italy, the US and the UK's focus on the price of therapeutics
that treat a specific disease highlights the price pressure faced by
dugmakers operating in Europe and the US. While we do not see
developed state governments widely clamping down on the use of
existing therapies (it would prove difficult to switch patients from
one drug to another), we note that increasingly companies will have
to provide more evidence that their new drug provides added value
compared to those already on the market and will have to negotiate
the prices of drugs based on strict cost-effectiveness criteria.

AbbVie Acquires Shire

BMI View: The acquisition of Shire will offer AbbVie greater stra-
tegic and financial flexibility to enhance its business development
objectives and improve shareholder returns. With a lower tax rate and
an expanded product portfolio, AbbVie is set to become more com-
petitive among the major multinational pharmaceutical companies.
UK-based pharmaceutical company Shire has accepted a GBP31bn
(USD53bn) takeover offer from US drugmaker AbbVie. AbbVie
increased its offer to GBP53.2 (USD91.1) per share, after Shire re-
jected four bids previously. The new bid is comprised of GBP24.44
(USD41.85) in cash and 0.8960 new AbbVie shares for each Shire
share. This has given Shire investors around 25% ownership of the
combined entity, which allows AbbVie to change its tax residence to
the UK. 'It will be domiciled in the UK for tax purposes,' AbbVie's
Chief Executive Richard A. Gonzalez said. 'This structure provides
AbbVie with flexible access to its global cash flows.' AbbVie expects
the effective tax rates for the new AbbVie to be approximately 13%
by 2016, which is much lower than the US tax rate (27-30%).
Increasing Diversification
Shire & AbbVie Total Revenue & Humira As Percentage Of Total
Revenue Before & After Shire Acquisition
Source: Bloomberg
been expanding its rare disease portfolio, announcing in May the
acquisition of Lumena Pharmaceuticals, a biopharmaceutical
company with rare disease pipeline assets. This followed Shire's
purchase of ViroPharma.
The new entity will also leverage AbbVie's broader geographic
penetration and scale to provide Shire with the desired infrastruc-
ture to establish leadership positions in targeted therapeutic areas.
AbbVie's research and development (R&D) platform, which is
highly experienced in developing and commercialising speciality
pharmaceuticals globally, will also improve Shire's Rare Diseases
R&D investments. The larger and more diversified biopharma-
ceutical company, with a more competitive tax structure, has
generated significant interest among investors. On July 18 2014,
when the acquisition was announced, AbbVie's share price was
increased by 2.6%, Shire's price was up by 1.4%, while the S&P
Index was up by 1.0%.

Source: Bloomberg, BMI

The acquisition of Shire will also expand AbbVie's product

portfolio and reduce its dependence on the blockbuster drug
Humira (adalimumab), which is set to lose patent protection in
December 2016 and April 2018 in the US and EU respectively. In
Q114, AbbVie reported that worldwide sales were USD4.56bn, up
5.4%. Meanwhile, Humira delivered global sales of USD2.64bn,
up 18.4%.Shire holds a leading position within treatments of rare
diseases, neuroscience, gastrointestinal and internal medicine, and

www.pharmaceuticalsinsight.com 5
Asia Asia Pharma & Healthcare

terms of healthcare spending. Globally, the region ranks 12th and

15th respectively. Between 2013 and 2018, ASEAN pharmaceuti-
Asia
cal sales will grow at a compound annual growth rate (CAGR) of

AEC Offers Opportunities But 9.5%, higher than the CAGR for the Asia Pacific pharmaceutical
market (7.0%). Similarly, ASEAN healthcare expenditure will grow

Full Integration Unlikely at a higher CAGR of 10.9%, while the CAGR for the Asia Pacific
healthcare market is forecast to be 8.1%.
BMI View: We maintain that full integration under the ASEAN
conomic Community will not happen in 2015 given the disparities Higher Growth
ASEAN Pharmaceutical (top) &
in resources across the region. Political uncertainty due to up- Healthcare Expenditure (bottom), USDbn
coming elections in the Philippines, Indonesia, and Myanmar will
also hinder the AEC's realisation. Nevertheless, ongoing progress
towards integration will provide strong growth opportunities for
pharmaceutical and healthcare firms.

The Association of Southeast Asian Nations (ASEAN) Economic

Community (AEC) is edging closer to realisation, with the target of zero
import duties scheduled for 2015. A number of pharmaceutical com-
panies in the region, such as Kalbe Farma, Sido Muncul and Mega
Lifesciences, have expressed optimism towards the AEC's launch, as
they expect integration to result in better commercial opportunities.

ASEAN Economic Community (AEC)

In 2007, the AEC blueprint was adopted to guide the region towards
establishing an economic community by 2015. The key goal of the
AEC is to achieve regional economic integration through:
A single market and production base.
A highly competitive economic region.
Equitable economic development in the region.
Full integration into the global economy.

ASEAN countries' desire for an integrated market is unsurpris-

ing given the fragmented nature of the region. On an individual
basis, only Indonesia is one of the top 20 global economies in
terms of nominal GDP. However, when considered collectively
the ASEAN-10 economy ranks seventh globally just behind the
large developed markets of the UK, France, Germany and Japan.
Investing in the integrated region is therefore much more attractive f = BMI forecast. Source: BMI

than investing in countries individually.

For the pharmaceutical and healthcare sector, an integrated While there are benefits to the creation of an integrated economy,
ASEAN will mean that in Asia Pacific, the ASEAN region will we stress that the region is unlikely to achieve full integration by
rank third behind Japan and China in terms of pharmaceutical 2015, due to disparities in per-capita income, political uncertainties
sales, and fifth behind China, Japan, Australia and South Korea in from upcoming elections and the lack of resources in some countries

2013 Nominal GDP (USDbn) Generated By ASEAN

2013 Nominal GDP Ranking out of 198 countries
ASEAN-10 2,406.0 7
Indonesia 869.3 17
Thailand 387.3 31
Malaysia 312.5 26
Singapore 293.0 37
Philippines 267.3 41
Vietnam 170.6 58
Myanmar 62.7 72
Brunei 17.8 115
Cambodia 15.0 123
Laos 10.5 137
Source: BMI

6 www.pharmaceuticalsinsight.com
India Asia Pharma & Healthcare

to fully implement the various harmonisation guidelines[1]. significantly lower than average growth of 15.7% in 2012. Firms
With regards to the pharmaceutical sector, the issue of harmo- such as GlaxoSmithKline and Novartis have consistently attributed
nisation is particularly important. In 1999, ASEAN established poor sales performance in India to the DPCO[1,2].
the Pharmaceutical Product Working Group to develop harmo-
nised pharmaceutical regulations and a common technical dossier DPCO Limiting Growth
India Pharmaceutical Market, INR crore
(CTD) and ASEAN Common Technical Requirements (ACTR) for
member states. Countries that have implemented these regulations
either in full or partially include Singapore, Malaysia, Thailand,
Philippines and Indonesia. Full implementation of these require-
ments across the region will enable multinational pharmaceutical
firms to access the markets more quickly and at a lower cost due
to reduced technical barriers.
However, in reality, full implementation of these regulations
will be challenging especially in the less developed Myanmar,
Cambodia and Laos due to the lack of experienced personnel
and other resources. Moreover, while technical barriers are being
lifted, other impediments still exist. The swift approval of a drug
does not necessarily mean that the product will reach the market in
a timely manner. Firms that wish to operate in Thailand, Indonesia
and Malaysia will still have to compete with the local pharmaceuti- Source: AIOCD Pharmasofttech AWACS

cal industries, as governments have enacted various protectionist

policies to ensure the survival of domestic pharmaceutical sectors.
Finally, to turn to the effect of integration on the healthcare sector,
we anticipate the promise of a free movement of labour will pose an
even bigger problem across many countries considering the cur-
rent deficit in the number of medical professionals. Lower-income
countries may experience a brain drain as medical professionals
move to higher-income countries such as Singapore and Malaysia,
attracted by the prospect of better wages.
[1] Business Monitor International Industry Trend Analysis
ASEAN Integration: What To Expect March 27 2013
India
While the consistent supply of essential drugs is necessary to
ensure patient access to fundamental medicines, BMI believes that
the government's method of pressurising companies to continue
to produce unprofitable products will negatively impact their rev-
enues and the growth potential of the wider Indian pharmaceutical
market. The situation is worsened by the government's intention to
reduce more drug prices. In May 2014 Ananth Kumar, Minister of
Fertiliser and Chemicals, stated that he will try to negotiate with
pharmaceutical firms and bring down essential drug prices by 25-
40%. Subsequently, in June 2014, The Economics Times stated that
a panel formed by the health ministry is considering increasing the
number of essential drugs and extending the government's ability
to control drug prices.

Pharma Growth Potential Lower Growth Projected

India Pharmaceutical Market Forecast, INRbn

Limited By Pricing Controls

BMI View: The government of India's insistence on the low pricing
of essential drugs will reduce the country's attractiveness to phar-
maceutical firms, as it limits the overall market's growth potential.
BMI maintains that the government needs to increase spending on
healthcare in order to improve patient access to medical services,
which will in turn drive demand for healthcare products.

Since the implementation of the Drug Price Control Order (DPCO)

2013, the National Pharmaceutical Pricing Authority (NPPA) has
denied requests from pharmaceutical firms to stop producing es-
sential drugs. According to an unnamed official from the NPPA, the
authority set a 1% market share mark internally. Companies whose
market share of a particular drug exceeds 1% will not be allowed
to stop manufacturing essential drugs unless the NPPA is assured
that there will not be a supply shortage.
The Indian pharmaceutical industry has been negatively affected
by the DPCO. Following the implementation of the order in July
2013, the pharmaceutical market contracted, which is highly unu-
sual for an emerging market. According to primary market research
provider AIOCD Pharmasofttech AWACS, pharmaceutical sales
growth went into negative territory between August and October
2013. On average, pharmaceutical sales growth in 2013 was 5.5%,
Source: AIOCD Pharmasofttech AWACS, Organisation of Pharmaceutical Producers of
India (OPPI), BMI
BMI maintains that rather than cutting drug prices, the govern-
ment needs to invest more in healthcare provision. This would
mean that the burden of providing healthcare does not rest dispro-
portionately on the pharmaceutical firms. According to the World
Health Organisation (WHO), despite a 24.8% y-o-y increase in
government health expenditure to INR1341.7bn (USD25.1bn) in
2012, government spending as a percentage of the total was just
33.1%. For a country with a low per-capita health expenditure of

www.pharmaceuticalsinsight.com 7
China Asia Pharma & Healthcare

USD61.37, limited government health expenditure severely limits a covert sex tape scandal has once more brought GlaxoSmithKline
patient access to medical services. (GSK) into the spotlight. We note that in Q114, GSK continued to
be negatively affected by the corruption scandal in China, with the
Lessons From China firm's pharmaceutical and vaccines sales in China falling by 20%.
We continue to highlight China as offering a good case study for Although the revenue decline in China is showing signs of stabilis-
India's progression towards universal healthcare. The countries share ing, the corruption case has yet to reach its conclusion for GSK, and
similar issues in terms of providing healthcare to large populations, the firm may see more losses from its Chinese business.
slowing economic growth and changing epidemiological profiles.
The affordable supply of essential drugs has also been an issue in Below Global Average Level
China Healthcare Expenditure Outlook
China. Due to strong growth opportunities in the sale of essential
drugs, many pharmaceuticals firms submitted tenders to be suppli-
ers. This led to price wars, and the supply of essential drugs is no
longer as profitable as before. In some cases, low prices have caused
companies to stop producing these drugs, leading to a supply short-
age of some essential drugs.
To address this problem, in April 2014 eight departments of
the Chinese government, namely the National Health and Family
Planning Commission (NHFPC), National Development Reform
Commission (NDRC), China Food and Drug Administration
(CFDA), Ministry of Finance (MOF), Ministry of Industry and
Information Technology (MIIT), Ministry of Human Resources
and Social Security (MHRSS), and the Ministry of Commerce and
State Administration of Traditional Chinese Medicine (SATCM),
released a statement allowing pharmaceutical firms to set their own f = BMI forecast. Source: WHO, BMI.

prices for essential drugs in short supply, so that they can profit at a
'reasonable' rate[3]. We highlight, however, that such a policy would
not be possible in India given the low government health spending.
Consequently, BMI believes that government policies will
continue to limit the growth potential of India's pharmaceutical
market. Between 2013 and 2023, pharmaceutical sales will grow at
a local compound annual growth rate of 11.0% (10.9% in US dol-
lar terms). By 2023, pharmaceutical sales will reach INR2,556.3bn
(USD43.4bn).
We note that since June 2013, when anonymous allegations
emerged that a GSK employee in China was part of widespread
bribery activities, the Chinese government has uncovered further
corruption in the pharmaceutical sector. Since then, it has investi-
gated over 60 drugmakers alongside the drug pricing investigation.
However, as of Q114, GSK was the only multinational to have
been hit hard, with other major drugmakers continuing to enjoy
double-digit growth in China.

[1] Business Monitor International Industry Trend Analysis Low Public Spending In Healthcare
BRIC Countries Healthcare Spending As % Of GDP (2012)
Domestic Pharmaceutical Firms Continue To Outperform June
17 2014.
[2] Business Monitor International Industry Trend Analysis Phar-
maceutical Industry Sees Evidence Of Recovery February 24 2014.
[3] Business Monitor International Industry Trend Analysis Free
Pricing Of Drugs To Benefit Domestic Pharmaceutical Firms April
22 2014.

China

Growth Endangered By
Anti-Corruption Campaign
BMI View: A more 'rational' use of pharmaceuticals through Source: WHO, BMI

pharmacoeconomics, and a crackdown on illegal rebates and cor-

ruption in China's pharmaceutical market could hinder the sector's
growth potential. However, over the long term, the government is
likely to improve its investment in healthcare in order to retain
public support.
President Xi Jinping's anti-corruption campaign has become a
centrepiece of his tenure. According to the Central Commission
for Discipline Inspection (CCDI), a total of 182,000 officials have
been disciplined, with courts nationwide trying 23,000 corruption
cases in 2013. Within the pharmaceutical and healthcare industry,
The key message that the Chinese government has tried to send
out through the anti-corruption campaign is that it will cut down
pharmaceutical prices, as well as discipline drugmakers, healthcare
professionals and institutions, in order to contain healthcare expendi-
ture. At the end of 2013, the National Health and Family Planning
Commission (the NHFPC) introduced 'Regulations on Establishing
a Commercial Bribery Blacklist for the Purchase and Sale of Medi-
cines' and 'Nine Prohibitions to Strengthen the Ethical Conduct in
the Healthcare Industry'. In June 2014, China's General Office of
the State Council released 'Deepening of the Medical Reform Key

8 www.pharmaceuticalsinsight.com
Pakistan Asia Pharma & Healthcare

Tasks in 2014' to give more detailed guidelines on a more 'rational'

Pakistan
use of pharmaceuticals through pharmacoeconomics and a crack-

Healthcare Sector Plagued By

down on illegal rebates and corruption in the pharmaceutical sector.
The sector reforms and anti-corruption campaign will put down-

Inefficiencies
ward pressure on China's pharmaceutical growth potential. We will
look to revise our expenditure forecasts should there be more certain
evidence indicating significant medicine price cuts in China. BMI BMI View: While Pakistan boasts a substantial population of 182mn
believes that low public healthcare expenditure and the lack of people, annual per capita expenditure on healthcare is very modest
regulatory enforcement are fundamental factors that are hindering at just USD31. Despite expected economic progress, the majority
the government in its aim to more effectively improve the nation's of the population will continue to suffer from inadequate access to
healthcare standard and widen patient access to medicines. medicines and healthcare provision. Pakistan's drug registration
We note that China's healthcare spending has historically been process has been plagued by delays, affecting the population's access
significantly below the global average level in terms of healthcare to drugs and limiting revenue-earning opportunities for drugmak-
expenditure as percentage of GDP. In contrast to other BRIC coun- ers. In addition to this and further obstructing drugmaker revenue
tries, the Chinese government has not invested sufficient funding streams, there are serious inefficiencies in the public selection,
into the healthcare sector, but instead allowed patients to shoulder procurement and distribution of medicines.
most of the burden. It is not surprising that the poorly funded public
Poor Provision & Access
healthcare system requires additional resources from bribery and Pakistan Per Capita Healthcare & Pharmaecutical Spending
illegal rebates to support its operations.
Furthermore, the prevalence of petty corruption is relatively com-
mon and tolerated in China, as what is considered corrupt intent by
Western standards is often entrenched in a culture where it is expected
that the value of a personal relationship is demonstrated through gift
giving. It will therefore be very hard for the Chinese authorities to
eradicate the practice through an anti-corruption campaign. In fact,
addressing corruption in society has been in use as a domestic policy
by the authorities since ancient times, in order to consolidate control
throughout the vast country, remove political rivals, promote allies
and restore public trust in the central government.
President Xi's anti-corruption campaign is more forceful than
those implemented by his predecessors. However, the practice is
not under legal supervision. It has no aim to establish democracy or
addressing the bureaucratic structural issues. President Xi neverthe- Source: BMI, WHO

less plans to attempt to correct the dysfunction of the communist

party and launch significant reforms to ensure the party's right to
govern China. We currently view this as an upside to our forecast,
as over the long term the government may increase its healthcare
investment in order to retain public support.
Looking to strengthen Pakistan's healthcare system, the World
Health Organization (WHO) has launched a Good Governance for
Medicines (GGM) programme in the country. The objectives of the
programme are to raise awareness on the impact of corruption in the
pharmaceutical sector and bring this to the national health policy
agenda, to increase transparency and accountability in medicine
regulatory and supply management systems, to promote individual
and institutional integrity in the pharmaceutical sector, and to insti-
tutionalise good governance in pharmaceutical systems by building
national capacity and leadership.

The Three Phases Of The WHO GGM Programme

Phase I Phase II Phase III
National Assessment >> Development of national GGM >> Implementation of national GGM programme
registration of medicines
licensingofpharmaceuticalbusiness
inspectionofestablishments
medicinepromotion
clinicaltrials
selectionofessentialmedicine
procurementofmedicines
distributionofmedicines
Assessment report >> GGM officially adopted >> GGM national strategy
Source: WHO

www.pharmaceuticalsinsight.com 9
Vietnam Asia Pharma & Healthcare

Pharmaceuticals are indispensable to health systems. By comple-
menting other types of healthcare services they can reduce morbidity
and mortality rates and enhance quality of life. Yet the ability of
pharmaceuticals to save lives, reduce suffering and improve health
depends on their being of good quality, safe, available, affordable
and properly used.
[1] Pakistan's health system: performance and prospects after the
18th Constitutional Amendment, The Lancet, Volume 381, Issue
9884, Pages 2,193-2,206, June 22 2013
[2] Rational Prescription & Use: A Snapshot Of The Evidence From
Pakistan And Emerging Concerns. Int J Pharm Pharm Sci, Vol 5,
Suppl 1, 131-135

Medicine Quality Vietnam

The main regulatory authority in Pakistan, the Ministry of Health, was
abolished on June 30 2011 and a number of federal health responsibili-
ties, including the regulation of medicines, now fall under the respon- Medicine Price Rises Return To
sibility of the Drug Regulatory Authority of Pakistan (DRAP). Prior to
devolution, provincial governments oversaw the storage, distribution Normal
and transportation of drugs, in addition to ensuring medicines met the BMI View: The attractiveness of Vietnam's pharmaceutical market
quality standards set by the federal government regulating agency. is steadily increasing. While structural challenges remain such
The regulatory authority is now also tasked with the regulation of the as undercapacity in terms of healthcare infrastructure and person-
registration of medicines, medicine prices, intellectual property (IP) nel growth in expenditure is supported by a significant disease
and the manufacturing of medicines, as well as ensuring adherence to burden, the new insurance law, introduction of new products, more
good manufacturing practices. We believe that this central agency lacks corporate investments and better regulations.
the resources to ensure the approval of quality drugs in a swift manner.
Return To Normality
Vienam Consumer Price Index, % Change Year-On-Year
Patient Safety
In early February 2012, Pakistan's Federal Investigation Agency
temporarily shut down local drugmaker Efroze after the deaths
of more than 120 patients at the state-run Punjab Institute of Car-
diology in Lahore, following their consumption of contaminated
cardiac medication Isotab (isosorbide nitrate). Tests have revealed
that a batch of the angina medication contained a heavy dose of
antimalarial pyrimethamine with each tablet containing 14 times
more than the amount required in a medicine actually prescribed
for the treatment of malaria. Patients affected by the substandard
drugs suffered a rapid depletion of white blood cells and platelets
and officials warned that the batch of contaminated drugs might have
been distributed to nearly 40,000 people since December 15 2011.

Availability & Affordability Of Medicines Source: General Statistics Office

Highlighting a burden on the population, 78% of the population pays

out of pocket in order to access healthcare services[1]. Even when
attending the government-funded system, a patient is expected to
cover costs. Households with lower incomes are increasingly at
risk of becoming poor as a result of healthcare costs even though
they spend less than rich households and generally seem to have
less access to healthcare facilities. Due to the fact that such a low
percentage of national wealth is directed towards medical services,
healthcare outcomes are very poor. The burden of both communi-
cable and non-communicable disease is high and many children
die from preventable conditions. Additionally, there is a chronic
shortage of healthcare professionals, especially nurses and doctors.
The two-year period of extraordinary medicine price rises in Vietnam
is over. Data from the General Statistics Office show that the con-
sumer price index (CPI) for 'medicines and health services' increased
by 5.65% for the 12 months to June 2014. While this figure is still
above the 4.98% for 'all goods and services', it represents a return
to equivalence that will be welcomed by manufacturers, wholesal-
ers, retailers, regulators and consumers. Between mid-2012 and
mid-2013, the prices of medicines in Vietnam experienced extreme
price rises, sometimes more than 60% higher than the same month
in the previous year.

The Proper Use Of Medicines

In Pakistan, the boundary between the prescription and non-prescrip-
tion segments is blurred by the fact that many prescription medicines
are dispensed freely over the counter. Additionally, the lack of cor-
rect protocols when prescribing drugs has made it difficult to track
the consumption and demand of prescription medicines in Pakistan.
Highlighting the difficulty in tracking the demand and consumption
of prescription medicines, although an Essential Medicines Program
was established in Pakistan in the 1970s, irrational drug use continues
to be widely prevalent[2]. Overprescribing, antibiotic overuse, un-
necessary injection use, deviated prescription practices, inadequate
consultation times and weak dispensing practices are the norm.

10 www.pharmaceuticalsinsight.com
Vietnam Asia Pharma & Healthcare

Access To Healthcare Improves

Commissioned and non-commissioned officers in armed
forces

Under New Insurance Law

BMI View: Vietnam's progressive implementation of universal
health coverage will provide commercial opportunities to pharma-
ceutical firms and healthcare providers akin to what we observed
in Indonesia as a result of the expected increase in healthcare access.
However, we highlight that the new system's sustainability will be
challenged by the country's increasingly ageing population and the
lack of health facilities and medical professionals.
Strong Growth
Vietnam Health Expenditure, VNDbn
Source: World Health Organization (WHO), BMI
Vietnam's National Assembly has passed amendments and supple-
ments to the Law on Health Insurance. Minister of Health Nguyen
Kim Tien stated that the legislation will enable the entire population
to have access to health services, as insurance is now mandatory.
The insurance will be purchased in family packages, and fees will
be lower for larger families. All families on low incomes and fami-
lies living in remote areas will be able to access healthcare services
by 2016. Tien added that through the amendments the insurance
scheme should cover up to 70% of the population by 2018 and over
80% by 2020.
Overview Of Health Insurance In Vietnam
Vietnam's Social Health Insurance programme was introduced in
1992 (under Decree No. 299/1992/HDBT), covering civil servants
and workers in the formal sector. In 1998, Decree 58/1988/ND-CP
was introduced to unify all provincial health insurance funds into a
single health insurance fund. Coverage was also extended to mem-
bers of the Congress and People Council, socially protected people,
pre-school teachers and other groups.
Subsequently, in 2002 the Vietnam Health Insurance (VHI) sys-
tem was transferred to the Vietnam Social Security (VSS) system,
which became the system that is responsible for both social and
health insurance in Vietnam. Since then, several regulatory changes
have been made. The country has two types of health insurance
coverage. Compulsory health insurance includes the following
demographic groups:
Public servants
Contract employees
Social security beneficiaries
Priority people (for example, relatives of armed force per-
sonnel and veterans)
Students
Children under six
Low-income citizens
Voluntary health insurance covers people who are not included
under the compulsory scheme. As of 2012, health insurance cover-
age reached 67% of the total population.
Under the amendments, those covered by health insurance will
be divided into five groups, covering labourers, employers, groups
subsidised by a social insurance agency, groups subsidised by the
government, and self-paying members. In addition, the premium
contribution rate is expected to increase from the current 4.4% of
the minimum wage to 6.0%. Part of the examination and treatment
fees will also be used to boost the insurance fund.
Changes to the health insurance law are part of Vietnam's aim
towards universal healthcare coverage (UHC). Under the health
insurance law, the country originally wanted to have UHC by 2014.
Subsequently, in January 2013, Vietnam's Prime Minister Nguyen
Tan Dung stated that the plan was to have the entire nation covered
by 2015. The country also signed a memorandum of understanding
with Thailand in February 2012, requesting its assistance in the
development of the UHC scheme. In addition to Vietnam, other
countries in South East Asia, such as Indonesia, the Philippines,
Laos and Myanmar, are also keen to implement UHC.
BMI highlights that a number of challenges will limit the success
of UHC implementation in the short-to-medium term in Vietnam.
Compared with certain countries in the region (Indonesia, the
Philippines and Myanmar), Vietnam has the highest proportion of
pensionable population. In 2013, the pensionable population as a
percentage of the total reached 6.6%, which was higher than Philip-
pines (3.9%), Indonesia (5.2%) and Myanmar (5.2%). This figure
for Vietnam is expected to increase to 10.4% by 2025.
Given that the healthcare demands of an increasingly ageing
population are different to those of a young population, the national
insurance fund must not only ensure sustainability, but also have
the ability to reimburse multiple old age-related health services.
Given that Vietnam has yet to reach full health insurance coverage,
assessing and implementing plans to cater for the increasingly ageing
population will be challenging.
In addition, the majority of the Vietnamese population currently
resides in rural regions. In 2013, nearly 70% of Vietnam's population
resided in rural regions. Therefore while the country has achieved
over 60% coverage in health insurance, we highlight that the lack of
healthcare facilities and medical professionals will continue to limit
access to healthcare services, particularly outside cities and towns.
Despite these limitations, the government's commitment to imple-
ment UHC coverage means that health expenditure in Vietnam will
grow at a double-digit local compound annual growth rate (CAGR)
of 13.9% between 2013 and 2018, to reach a value of VND426,029bn
(USD21.5bn) by the end of our forecast period.

Analyst: Jamie Davies
Sub-editor: Himanshu Bhandari
Subscriptions Manager: Yen Ly
Production: Umra Khan
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