With the global pharmaceutical market forecast to grow to $897bn in 2011 at a compound annual growth rate of 6.9%, according to consultancy firm Frost & Sullivan, countries all over the world are looking to capture their share of the pie. While the multinational giants from the likes of the US, Japan and Germany have a stronghold in the over-the-counter branded products, as global trends shit towards generic and biotech consumption in the form of herbal and traditional medicines, Malaysia hopes to capture a significant share of these fields.
While having a population of just 27m, the country is becoming a large market for drug sales as Malaysians are growing in affluence and are becoming increasingly health conscious. Malaysia’s spending in domestic healthcare grew 8%, the sixth highest growth in Asia, ranking behind the Philippines, Indonesia, India, South Korea and China. Frost & Sullivan estimated that by 2013, the Malaysian market would be worth $1.80bn with a compound annual growth rate of 10.5%.
Though imports account for 60% of the domestic market, the country is becoming an increasingly popular destination for production. Most of the major global manufacturers already have a strong presence in the country, with Johnson & Johnson, GSK and Ranbaxy among others having established their own production facilities. It is estimated that 60% to 70% of the market is private sector led, and as of December 31, 2006, 246 pharmaceutical companies had been registered by the regulating body, the Drug Control Authority.
According to the Malaysian Organisation of Pharmaceutical Industries, exports of Malaysian-made pharmaceuticals are estimated to be at around $130mn ,with vitamins leading the pack.
One of the main issues looming over the sector is the pending Free Trade Agreement (FTA) with the US. The two countries failed to reach a formal agreement over a proposed FTA in April 2007, with government procurement the highest profile issue of contention. Another cause for concern lies over the US demand that Malaysia extend the patent period for new drugs. While the length of the extension is still up for debate, an extension would make Malaysia a far more attractive market for US companies to enter, but would come at the detriment of the local industry, especially for manufacturers of generics. South Korea’s ministry of health and welfare, for instance, has estimated that a proposed FTA with the US could cost the South Korean pharmaceutical industry up to $1.05bn in accumulated damage.
In light of the pending FTA, which some believe could come into effect within the next year, there has been increased focus from both the private and public sector to look at niche activities where Malaysia can most strongly compete. In this regard, the “biogeneric” market has been identified as the major driver for Malaysia’s pharmaceutical market. Although relatively new, Frost & Sullivan expects the biogeneric market to grow globally at annual average of more than $16bn by 2011 as herbal medicines and vitamins supplements gain in popularity.
With naturally diverse flora and fauna and a desire to move away from low-cost industries, biotechnology has been targeted by the government as a key segment that can accelerate Malaysia’s transformation into an industrialised nation by 2020. Accordingly, the sector, which includes bio-pharmacy, receives strong government commitment in the forms of grants and investor-friendly legislation.
In 2005, the government established the Malaysian Biotechnology Corporation as the lead agency to facilitate the industry’s development. Companies can apply for “Bionexus” status, which allows 100% tax exemption for the first 10 years of operation, the freedom to source funds globally and the ability to bring in unlimited knowledge workers. The country also benefits from a strong and dedicated intellectual property regime. Moreover, to encourage research and development in the area, the government aims to set up three “centres of excellence” for the study and advancement of locally registered patents.