A seismic shift to Asia Pacific

Asia Pacific is taking the lead in the race to win the largest share of the global pharmaceutical industry, led by growth in China, India and Singapore, the group says.

By Editor on Sep 4, 2007

Asia Pacific is taking the lead in the race to win the largest share of the global pharmaceutical industry, led by growth in China, India and Singapore, the group says. The region is seeing an influx of multinational companies and its own pharmaceutical companies are bulking up by acquiring international market share, PwC reports.

Growth spurt

Among all executives surveyed from multinational pharmaceutical companies, 58% agree the center of gravity for the global pharmaceutical market is shifting to Asia Pacific. An even greater number (62%) of Asia's domestic company executives are convinced a shift is occurring.

The report is based on in-depth interviews with 185 senior pharmaceutical executives, including and 92 Asian-based domestic companies and 93 multinational companies with operations across nine different territories in the region: China, India, Malaysia, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.

Growth is at the top of the agenda for many domestic companies seeking to go global and multinational companies extending their presence in the region, PwC says. Sixty-five percent (65%) of Asia's domestic companies say increased global market share is important for their companies. A third of multinational companies have immediate 12-month plans to further expand within the region through acquisitions or developing their own newly built sites.

More than one-third (34%) of Asian-based domestic companies are seeking to acquire pharmaceutical companies, and 52% are seeking to acquire international market share, according to the report. Fewer than half (45%) of the domestic companies surveyed have an international presence, but report international growth is high on their agenda.

"Looking ahead, the pharmaceutical landscape for both multinational companies and Asian-based domestic companies in Asia will look radically different," says Dan Bartholomew, senior managing director, PricewaterhouseCoopers Pharmaceutical and Life Sciences Practice. "The Big Pharma business model is in transition. Right now, a lot of these companies are still focused on sales and marketing while they outsource other activities. However, there is a dearth of innovation that plagues the pharmaceutical industry, and R&D must become a greater focus. Not surprisingly, as the industry moves to this future model, strategic partnerships or long-term partnerships are a preferred route, favored by 82% of the multinational pharmaceutical companies we surveyed who outsource."

Barriers to growth?

In "Gearing up for a Global Gravity Shift: Growth, Risk and Learning in the Asia Pharmaceutical Market," PwC says competition to attract international pharmaceutical players is intensifying as Asian entities offer grants, incentives and infrastructure support. However, the group reports that operational risks, including concerns about intellectual property rights, corruption and pricing, continue to temper the industry's outlook.

Three-quarters of executives surveyed from multinational companies worry about intellectual property rights and legal risks. Concern about intellectual property protections is cited as the biggest reason to consider leaving Asia Pacific.

But nearly 74% of multinational companies and 79% of Asia's domestic companies report an improvement in intellectual property right protections during the past five years, primarily as a result of the introduction of new IP laws, underpinned by a stronger government emphasis on IP protection and more rigorous application of existing laws.

Asia by the numbers

Capital constraints, PwC says, can be a significant hindrance to growth for many Asia-based pharmaceutical companies. Given the risks, it has been very difficult to obtain funding, even if there is an abundance of it, the group reports. Nearly half of all Asia-based domestic pharmaceutical companies surveyed in the region say they might seek deals if funding obstacles can be overcome.

While domestic pharmaceutical companies in the region are hungry for investment, particularly in R&D, 36% say they would consider selling all or part of their company to foreign investors to raise funds. Many are also looking at going public as a fundraising route; with 36% reporting plans to raise capital from foreign capital markets.

For multinational companies, competition from generics and pricing pressures in the healthcare market continue to create pressures for reduction in costs in all parts of the pharmaceutical value chain. Outsourcing to lower cost but highly effective companies in Asia has become a common response to these pressures.

The main focus for investment by domestic pharmaceutical companies is R&D, PwC reports. Fifty five percent (55%) of companies seeking to attract investment from selling stakes in their companies are looking to strengthen their R&D activities compared to 45% looking to invest in sales and marketing and 24% in manufacturing.

A bright future

A majority of both the Asian-based domestic and multinational companies interviewed (56%) thought that most of the industry still does not see outsourcing in a sufficiently dynamic way and is missing opportunities for shared development, learning and improvement. So far much of the focus has been on outsourcing drug manufacturing but increasingly, companies are turning their attention to R&D and clinical trials.

Looking ahead, companies see a lot of room for continued outsourcing growth in the Asian pharmaceutical sector, according to PwC. Many multinational pharmas are moving toward a future where a new business model will be more common, the group says. In such a model, the focus of the company will be on sales and marketing with other activities outsourced.

The demand for drugs in the developing world is continuously growing and, as territories in the region grow wealthier, Asia will become the biggest pharmaceutical market in the world, PwC predicts. A presence in these markets today will give companies market knowledge and the opportunity to adjust to the environment, the group urges.