Healthy Contrasts: A Look at Markets and Health Systems Across the ASEAN Region

Southeast Asia strikes the visitor as diverse and fascinating. In the shadows of the global giants China and India, 500 million people now thrive across a multitude of nations—ranging from very large to tiny city-states, scattered over mainland and archipelagos—impressing the first-comer with unrivaled cultural wealth and diversity.

From regional human powerhouses like Indonesia—the most populous country of Southeast Asia and the world's fourth-largest,—to the island city of Singapore, the region is a patchwork of languages, cultures, and environments.

A sweeping financial collapse across the region reshuffled the cards in 1997–1998. Moving from "the Asian Miracle" to a post-crisis situation, most of the region's countries displayed resilience and optimism and hit the growth road again. Almost 10 years later, the scars still show, but Southeast Asian nations have addressed some of the structural weaknesses that made the 1997–98 meltdown possible, and have strengthened their economies. Life science is one keystone of the recovery.

Across the region, from Indonesia to Malaysia and Singapore, and from the Philippines to Thailand, local players have expanded in their domestic markets, using state support and market protection to take full advantage of sizeable home turfs. Many have become serious regional contenders with ambitions stretching across Southeast Asia and beyond.

Sorting through inequalities

Indonesia is the region's most populous country and its economic leader, with $865.6 billion (2005 est.) GDP (Purchasing Power Parity) and 224 million people. Thailand follows with 64 million people sharing an estimated $560.7 billion (2005 PPP). These two countries lead the way despite having been very adversely affected by the financial crisis. Behind them comes the Philippines, with 89 million inhabitants and $451 billion in estimated 2005 GDP.

The development star of the region is Malaysia, which—with 24 million people and $290 billion of GDP (2005 estimate)—also benefits from a solid growth, excellent infrastructure, and a stable political life. Singapore shares these strengths, but has a much smaller population and less economic clout with 4 million Singaporeans and Singapore $124.3 billion (US $78.9 billion) at Purchasing Power Parity (2005 estimate). Yet, the city-nation is also recognized as the key financial and service center of the region and is often the destination of choice for regional headquarters of global corporations.

The region's pharmaceutical industries are equally diverse and reflect their countries' histories, development paths, and social conditions. While Indonesia, the Philippines, and Thailand have benefited from state protection and patronage when building a local industry, Singapore has striven to attract foreign players, offering investment incentives and granting market access in return for manufacturing plants, research labs and regional marketing offices. Meanwhile, Malaysia has mixed both approaches, helping to create a national champion through monopolistic positions while allowing local private players to thrive and keeping the door opened to foreign players.

Public health can also differ rather dramatically from one country to another: rural Philippines rank low in the United Nations Development Program (UNDP) Human Development index (84th out of 177); less than 30% of its population benefits from regular access to essential drugs. In Indonesia, more than 52% of the population lived on less than $2 per day for the period 1990–2002. The country spent $113 per capita on healthcare in 2003 (according UNDP/WHO figures). In the same time, Singapore has developed as a worldwide medical center of excellence and records some of the highest per-capita medical expenditures in the world at $1156 (WHO, 2003). Thailand and Malaysia take the middle ground, with healthcare spending at $260 per capita for Thailand, $374 for Malaysia. Estimated healthcare spending is expected to grow strongly in the region over the next 5 years.

The US spends 15% of its gross domestic product (GDP) on healthcare, with spending growing by about 5% per year; the EU spends 9.2% of GDP, increasing by about 4.1% annually (according to 2005 figures from The Economist Intelligence Unit), Indonesia spends just 3.1%—but is expected to grow at a steady 14.1% per year from 2005 to 2010. The picture for the Philippines is similar, with current spending of 3.2% expected to grow at 13.4% annually. Thailand devotes 3.3% of its GDP to healthcare and expects to grow by 10.8% annually. Malaysia spends 3.8% of its GDP on healthcare, and shows solid growth projections at 11.3%. Singapore leads the region, spending 4.5% of its GDP in healthcare, but it will grow at just 8% per year.

Healthy market prospects

The overall regional market size (including countries not surveyed in this review such as Vietnam, Myanmar, Cambodia, Laos, and Brunei Darussalam) totals $7 billion, with a projected compound annual growth rate (CAGR) of about 13% through 2010 (source IMS Health 2005). Again, Indonesia heads the list, with a $2.2 billion market growing 12% per year over the next 5 years. Thailand comes in second, at $1.5 billion, but its growth rate is should be just shy of 16% over the next 5 years. The Philippine market is estimated at $1.4 billion, with a CAGR of 9%. The Singaporean market is $350-400 million with a 10% CAGR. And the Malaysian market is worth more than $500 million, matching Thailand's 16% growth rate.

Despite these attractive figures, and the very large populations, the markets of the Association of Southeast Asian Nations (ASEAN, www.aseansec.org) pose certain challenges for foreign manufacturers: Not only do individual markets vary greatly in size, but they are also organized in sometimes radically different ways.

Indonesia, a shaky giant

In Indonesia, the specter of avian influenza and the strain on medical services following the devastating December 2004 tsunami and the June 2006 earthquake in central Java have underscored the limited means of the country's public hospitals and the critically under-funded health sector. The only social security scheme is open only to employees of the government or companies with more than 10 workers. Prescription drugs are distributed through either pharmacies or hospitals, while OTC products are distributed through 2.5 million outlets across Indonesia, from drugstores to supermarkets. Physicians do not dispense medications directly to the patients (unlike the practice in Malaysia and Singapore). Many players in the region describe market access as "difficult," for a number of reasons: registering drug products isn't easy, and despite recent attempts by the National Agency of Drug and Food Control (NA-DFC) to simplify its procedures, delays still run 100–150 business days for a generic product registration and 300 business days for a New Chemical Entity (NCE). According to Indonesian professionals, delays can run even longer.

Thailand, the price of populism

Following the election of Prime Minister Thaksin Shinawatra, Thailand started implementing a program of "universal coverage," allowing its citizens to obtain a medical consultation, prescription, and medicine for a mere 30 Thai baht ($0.80). The policy, besides severely straining public health and hospitals budgets, also increased the market size, albeit mainly benefiting cheap prescription drugs.

As a dispensary market, hospitals are central in the Thai system and account for over 65% of drug sales, followed by health centers, where patients can consult general practitioners and specialists and be prescribed drugs at the unit level. These centers account for 5% of pharmaceutical sales. Private pharmacies sell the remaining 30%. It is worth noting that most drugs are freely available; even many antibiotics can be purchased without a prescription.

Public hospitals (which account for 80% of the total hospital drug sales) purchase drugs by public tenders, where the main criterion is product price. Medicine purchased in these tenders must meet criteria established by the National Essential Drug List, established in 1999 by Thailand's Food and Drug Administration.

A new pharmaceutical law is in the works and should further change the shape of the Thai health sector. The law would require a qualified pharmacist in drug retail outlets and would broaden requirements for prescriptions. The new rules are expected to drive many smaller retailers out of business and rationalize the way drugs are sold in the country. In the meantime, the plan by Thai authorities to turn the country into a regional health tourism center should further strengthen sales of higher-value and life-style drugs in the country.

Malaysia: reforms at work

The Malaysian social security system has been evolving and adapting to new realities: The membership base includes 540,000 employers and over 10 million employees, with contributions of well over $300 million per year. The system is still evolving away from a collection of employer liability schemes, provident funds, and social insurance. Until the beginning of this decade, the scope of the coverage was limited to the formal sector and that too limited by wage ceilings. A large proportion of the economically active population—the self-employed farmers and fishermen—was excluded from the coverage. Protection for senior citizens was also found to be inadequate.

A wide array of reforms have therefore been discussed and their implementation is on the way: designing a social security scheme for the self-employed and projections for a social insurance-based retirement pension scheme are in the works. Legislators are also considering expanding the social security system to include pregnant women and extending coverage for illness.

The Philippines: reforming the retailer's paradise

The Philippine pharma market is something of an anomaly: while the country lags on social service and reform, retail drug prices are amongst the highest in the region. For example, GlaxoSmithKline's Ventolin sells for 331.50 Philippines Pesos (PhP)—or about $6.44—in the country; the same inhaler sells for $2.40 in India and $1.21 in Pakistan. A tablet of Novartis's Voltaren sells for PhP 18 ($0.35) in The Philippines, against $0.02 PhP in India and $0.07 in Pakistan. Therefore, the price issue is one of the elements of reform encompassed in the Medium Term Philippine Development Plan 2005–2010. The scheme would also expand a universal health insurance plan, which currently covers 44.9% of the population. The program is managed by PhilHealth, which assumed responsibility for administering the former Medicare program for government and private sector employees following the program's landmark transfers from the Government Service Insurance System (October 1997) and its Social Security System (April 1998).

Meanwhile, another initiative aims to make 44 of the most commonly used medicines available across the archipelago in retail outlets managed by PITC, the Philippine International Trading Corporation. There are already several thousand of these Botika ng Bayan (people's drugstores) selling cheap imported and locally produced generic drugs. (The program has, not surprisingly, produced clashes with innovator companies.)

Singapore: total coverage

The city-state is the region's most advanced in terms of health coverage. It is also a renowned medical center, with specialist physicians operating with state-of-the-art procedures and technologies, across a wide range of conditions. The keystone of the Singaporean health system is the Central Provident Fund, created in 1955 and funded by compulsory contributions from employers and employees. Acting both as a pension and a health-insurance fund, the program divides into three branches (the 3 Ms): Medisave, a compulsory contribution of 6–8% of the monthly salary covering hospital expenses (up to a cap); Medishield, a voluntary contribution covering extra hospital expenses; and Medifund, which covers the country's neediest citizens through case-by-case decisions. The government is also planning to introduce a fourth M before 2008: Means testing, by correlating contribution to income levels, will extend Medisave to cover to high-tech medicine and achieve economies of scale. Meanwhile, Singapore is also considering prohibiting doctors from selling medicines directly.

This report was prepared by Executive Country Reviews. Authors are Gilles Valentin gilles@ecreviews.com Emmanuelle Berthemet emma@ecreviews.com Marco Parigi marco@ecreviews.com and Amicie de Bodinat amicie@ecreviews.com