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Published on August 13, 2007

Asia is geared up to be the centre of the global pharmaceutical market, and most companies expect this shift to happen fast.

Fifty-eight per cent of companies believe the market's centre of gravity will be in Asia rather than North America and Europe in the near future.

This confidence is expressed by domestic companies and multinationals alike in a new report from PricewaterhouseCoopers.

The report, "Gearing up for a Global Gravity Shift", is based on in-depth interviews with 185 senior pharmaceutical executives in China, India, Malaysia, the Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.

Growth is top of the agenda, with domestic companies seeking to go global and multinationals looking to extend their presence in the region. Sixty five per cent of domestic companies report that increased global market share is important. A third of multinationals have immediate 12-month plans to expand within the region through acquisitions or developing their own "greenfield" sites.

"Not surprisingly, China and India head the list of target countries for expansion, with Singapore and South Korea next in the sights of multinationals," said Matthew Wyborn, Asia-Pacific advisory leader of PricewaterhouseCoopers.

"Multinationals are increasingly interested in setting up more research and development [R&D] facilities and conducting more clinical trials in certain Asian territories. At the same time, region-based pharmaceutical companies are seeking to expand their geographical footprint and become pan-regional or global players."

Over a third (34 per cent) of domestic companies are looking to acquire pharmaceutical companies. More than half (52 per cent) of these companies are seeking to acquire international market share. Some 45 per cent of domestic companies surveyed had an international presence, but international growth was high on their agenda.

"Thailand's pharmaceutical market is one of the most attractive in Southeast Asia," said Zoya Vassilieva, a director of PricewaterhouseCoopers Thailand.

"It is the second largest market after Indonesia as well as the fastest growing. Thai manufacturers are among the leanest and most cost-competitive in the region. However, they are behind multinationals in terms of marketing and brand management and, as a result, gradually lose domestic market share to the multinationals.

"One of the best opportunities for domestic companies would be a strategic partnership with a multinational player, which could bring in the 'best-in-class' marketing expertise and capital required to expand their markets domestically and regionally."

Thailand's pharmaceutical market grew 18 per cent last year, compared with 5.5 per cent in the Philippines and 10 per cent in Indonesia.

Capital constraints can be a significant brake on growth for domestic pharmaceutical companies. Around half of those surveyed might be looking for deals if funding obstacles could be overcome. There are few specialised venture-capital funds to support start-up biopharmaceutical companies in Asia. These companies do not have access to a supportive stock market such as the Alternative Investment Market in London.

While domestic drugs companies are hungry for investment, particularly for R&D, just over a third (36 per cent) would consider selling all or part of their company to foreign investors to raise funds. Many are also looking towards IPOs as a fundraising route, while 36 per cent have plans to raise capital from foreign capital markets.

Three-quarters (74 per cent) of multinationals and 79 per cent of domestic companies say they have seen improvement in protection of intellectual property rights in the past five years, primarily as a result of the introduction of new laws underpinned by a stronger government emphasis on rights protection and more rigorous application of existing laws.

Competition from generic drugs and pricing pressures in the healthcare market continue to create pressure for reducing costs in all parts of the pharmaceutical chain. Outsourcing to lower-cost but highly effective companies in Asia has become a common response to these pressures.

A majority of companies (56 per cent) believed most of the industry still did not see outsourcing in a sufficiently dynamic way and was missing opportunities for shared development, learning and improvement. Much of the focus has been on outsourcing drug-manufacturing, but companies are increasingly turning their attention to R&D and clinical trials.

Beatrijs van Liedekerke, an associate director of advisory services at PricewaterhouseCoopers, said a new business model of the multinationals focused on sales and marketing, with other activities outsourced.

"Not surprisingly, as the industry moves to this future model, strategic partnerships or long-term partnerships are the preferred route, favoured by 82 per cent of the multinational companies we surveyed who outsource," she added.

Looking ahead, the pharmaceutical landscape for both multinationals and domestic companies alike in Asia will look radically different in the medium term, the report said. Companies that are outsourcing in the right way, at the right pace, look set to get ahead of the game.