Frost & Sullivan Asia Pacific

By Sabrina Cheah, Sharon Tan & Susan Chin- Frost & Sullivan

The global prescription drug industry has indeed had a tough spell this year after the revelations over its price-gouging and profiteering tactics. The Aids controversy in South Africa and the pharma companies’ over-zealousness in scrambling for any loophole in patent laws in the face of the looming generic competition, had only garnered them public hostility and political pressure. The loss of patent protection will generally result in a 50 percent drop in sales over a period of two years. Thus, pharma companies embark on various strategies, limited though they may be, to meet with these challenges that may encompass aggressive marketing and promotions, partnerships and mergers and diversity in product development.

Fortunately, there is a resolute upbeat about the OTC industry. Consumers today are much more inclined to self-diagnosis and self-medication as they prefer to have a greater role in their health affairs. One of the possible strategic avenues being considered by the Big Pharma is through brand extension i.e. by creating over-the-counter (OTC) version of a prescription medication. Economic forces too are a catalyst in the burgeoning industry, in particular, the fact that the governments are spearheading all efforts in a bid to cap healthcare spending whilst insurance giants are pushing for the declassification of certain prescriptions.

Hence, its no surprise that the OTC industry looks poised for a major take-off in the Asia Pacific region. The retail global market value for OTC medication totaled an impressive $47 billion worldwide in 2001. Across Asia Pacific, the OTC market has been growing considerably over the years as governments seek to contain rising healthcare costs by undertaking reforms in the healthcare system.

Asia Pacific also offers attractive opportunities for OTC products. In this article, we look at the developments and dynamics of the OTC market in three particular countries in the region; namely Singapore, Australia and China. We assess Singapore, Asia’s biomedical hub of the future, and how its OTC product market can potentially enhance the total pharmaceutical market in the country with emphasis on the country’s biomedical sciences industry. A purview is also offered on the Australian OTC market, which is expected to boost an overall strong growth. China provides an interesting insight with the recent government policies fueling the further growth of the OTC market.

Singapore’s OTC Market to Expand over the Next Five Years

Overview

According to the Health Sciences Authority (HSA), approximately 370 drugs have been declassified in Singapore since 1995. At present, 18 percent of the 7600 medicines registered for sale in Singapore can be sold under pharmacist supervision while another 15 percent can be sold at retail outlets without professional supervision. Recently, Singapore has been making proactive efforts in improving consumer access to medicines by encouraging the public to self medicate, as healthcare costs in the country continue to rise. The HSA, for example, has revised the frequency of reviewing the status of safer and commonly used medicines for possible declassification from once in two years to twice a year in light of the rising costs of drugs, as manufacturers strive to keep pace with advances in medical technology.

Market Size and Forecasts

At present, the OTC market in Singapore is estimated at $39.5 million (S$70.7 million), representing a modest 1 percent growth rate over 2001. A major factor contributing to the conservative forecast is the uncertain economic environment following a lower than anticipated 3rd Quarter GDP growth as compared to the positive outlook projected throughout the first half of the year. The Singapore Government recently reported a 10.3 percent annualized quarter-on-quarter decline in gross domestic product. As purchase trends of consumer healthcare products are generally correlated with the availability of higher disposable incomes in a booming economic environment in the country, tighter and more cautious spending amidst the current economic blues is expected to leave some negative repercussions in the OTC market.

Nonetheless, with Singapore’s aging baby boomers and the government’s aggressive promotions on self-medication, more prescribed drugs are expected to be declassified and approved for OTC status, thereby enhancing market size potential for the pharmaceutical companies. The market is projected to gradually expand between 3 and 5 percent in the next three years. Frost & Sullivan predicts the market to achieve $54.4 million (S$97.4 million) in sales revenues by 2008 at a compound annual growth rate (CAGR) of 7 percent over the forecast period. The above market size encompasses primarily the cough and cold preparations, allergy medicines, vitamin and mineral supplements, analgesics, gastrointestinal, and dermatological products.

Market Outlook

The declassification of products is predicted to give rise to a bigger proportion of analgesics in the OTC market as non-steroidal anti-inflammatory drugs (NSAIDS) become de-listed from the prescription-only list by the end of 2002. Cough, cold, and anti-allergy products are also projected to enjoy an expanded market as more products within these categories are speculated to be approved for OTC status in Singapore. The U.S. Government recently approved the Rx-to-OTC status of Schering-Plough’s non-sedating antihistamine-Claritin making the popular allergy-drug now available without prescription. This could also significantly affect the Singapore market in terms of generic OTC competition with Claritin heading towards its patent expiry. Market players in Singapore generally do not foresee generic products to impact much of the retail market except in the hospital institution segments.

Market Drivers

OTC Products Can Help Bolster Total Pharmaceutical Market Growth

Pharmaceutical companies in the country are already seizing opportunities by forwarding their requests to the Center for Pharmaceutical Administration under the purview of the HSA for review of some of their prescription products. As the Singapore market is highly competitive with nearly 290 pharmaceutical companies operating in the market restricted by a population size of 4.3 million people, the OTC market is likely to help spur new competition especially in the face of looming patent loss or expiry.

Mergers to Augment OTC Product Pipeline, Boost, and Alter Market Dynamics

The trend toward mergers and acquisitions within the pharmaceutical industry is expected to continue into the near future. Such unions are likely to spark the growth of the consumer healthcare division, thus, strengthening the pipeline of OTC products and at the same time changing the dynamics, and boosting the market. The merger between Pfizer and Pharmacia for example could boost the OTC sales of the combined companies in Singapore as the merged entity reported a very positive global sales worth of $4.5 billion in 2001. The tie-up will take Pfizer into areas such as hair loss treatment and smoking cessation aids. Such developments could elevate Pfizer’s overall position in the total Singapore pharmaceutical market as three of its prescription products; Lipitor, Norvasc and Viagra are already ranked among the top five best selling drugs in the country.

A Larger Pool of Self Medicators: Pharmacists to Play a Bigger Role in Patient Consulting

As healthcare costs continue to spiral each year, the government is relentless in advocating preventive healthcare among Singaporeans. Encouragingly, more and more Singaporeans are becoming health savvy and looking to self-medication, at least in the case of minor ailments. One of the main drivers of the industry cited by market participants is for pharmacists in Singapore to better position themselves as healthcare professionals whereby they can educate patients and provide consultations or recommendations for minor ailments. Pharmaceutical companies should also collaborate with the pharmacists here in promoting products through health awareness and product knowledge development programs.

Opportunities and Threats

In the pursuit of clinical quality, the HSA will be reviewing the Medicines Act, Poisons Act, Sales of Drugs Act, and Medicines (Advertisements and Sales) Act. On the one hand, pharmaceutical companies can expect greater leeway in advertising their products with substantiated therapeutic claims. On the other, these development efforts by the HSA could result in stricter regulation of health supplements forcing the lower quality health supplements out of the market and creating a level playing field among the ‘best’ players in the market. The realization of this regulatory framework for health supplements would see requirement of more documentation on stability protocol. It is expected to be carried out in phases from 2003 onwards.

Conclusion

Although the OTC market in Singapore is characterized to be a highly competitive one, the growth of the market is currently stagnant. Expectations are that the growth will eventually materialize as more products become declassified with a simultaneous improvement in the economy. The promotion of self-medication is likely to continue and more Singaporeans will be taking a proactive effort in managing their own health. This will be a crucial factor in determining market growth potential in the long run. Mergers will enhance OTC product pipelines and further increase competitiveness. It is a challenging environment for the market players as they compete in the grueling game of the survival of the best strategists.

The OTC Market to Boost Strong Pharmaceutical Growth Down Under

The pharmaceutical industry in Australia is one of the country’s most dynamic and growing industries. The Australian healthcare system is very unique compared to other countries, as it is one of the most broadly funded systems in the world. Through the Australian Healthcare Agreement, the Australian Government has allocated $18.9 billion to the public hospitals for the period from 1998 to 2003. The Australian Government funds the nations’ medical services, hospitals, nursing services as well as pharmaceutical product purchases. The following paragraphs, however, gives a sneak preview of the developments in the OTC product market in the country and its future outlook.

Market Developments

Based on a study by Pharma Prognosis International, of the 10 developed pharmaceutical markets; the Australian market is predicted to experience the highest growth within the period 1999–2004. The OTC market is one of the fastest growing segments of the pharmaceutical industry in Australia. It is expected to boost an overall pharmaceutical growth over the years 2000–2005. This is strongly supported by the relaxation on the restriction of OTC advertising and deregulation in the market that has allowed manufacturers to enhance their market reach, in addition to the increase in the number of Rx-to-OTC switches. The Australian OTC market has experienced a strong growth, in sales for 2001 reaching as high as $875.8 million (A$1,569 million).

The largest product category in the OTC market in Australia is the vitamins and dietary supplements which saw an impressive growth towards 2002. Smoking cessation aids, also available in the OTC market was also one of the most vibrant sectors in 1998.

Other major OTC product categories in Australia include the analgesics; cough, cold and allergy remedies, digestive remedies, medicated skin care, eye care, ear care, oral care, wound treatments, calming and sleeping-aid medications. The analgesics market in Australia was worth $117.5 million in 2001. It charted a market size growth of 4.5 percent from 2000. The analgesics market is dominated by international companies that are working toward increasing their turnover and market shares through merger and acquisition strategies.

Prominent players in the analgesics market include Pfizer Inc. which had an increase of 18.8 percent in turnover for 2001. GlaxoSmithkline had an increase of 13.3 percent in turnover within the same period. Apart from these two companies, Boots Co Plc chartered an increase of 3.1 percent whereas Roach Holding had an increase of 1.4 percent for 2001. The analgesics market has a relatively high penetration rate with average household spending of more than 20 percent of the total healthcare expense on analgesics. Being relatively mature, the analgesics market is forecasted to grow by approximately 16 percent by 2006. It is projected to increase between 2 and 4 percent on a yearly basis.

New product development is a major driver of business growth in the OTC market. More de-regulation would enhance the availability OTC products thereby stimulating a steady growth in the OTC market as these drugs and medications present cost-effective healthcare to the citizens given the savings that can be realized from consulting a doctor and obtaining a prescription.

Conclusion

While it is essential that consumers take active responsibility of their health, greater accessibility of OTC products is crucial to generate a more extensive practice of self-medication. This will not only give realization to increased growth potential in the market, but the government could also benefit from considerable cost savings. The only downside is not all consumers can afford to pay for self-care. Therefore, consideration toward this aspect of affordability is equally important in ensuring good growth potential of the market in the long run.

China’s OTC Market - Huge Opportunities Await

For the year 2002, China’s OTC market is forecast to attain a 20 percent growth from its value of $2.4 billion in 2001. Frost & Sullivan estimates that the OTC market would reach up to $5 billion in 2005 at an average growth rate of 20.3 percent, accounting for 29.1 percent of the total pharmaceutical market in the country. Currently, China’s OTC market is ranked the fifth largest in the world.

Figure 1 shows the Chinese OTC market trend from 1998 to 2005.

The Major Driving Forces

Healthcare System Reform

The robust growth in China’s OTC market is fueled by recent government policies favoring the OTC drugs. Some of the significant healthcare reforms taking place is the implementation of the national basic healthcare system, new drug registration policies, upgrading of the Good Manufacturing Practices (GMP), hospital reforms, and strengthening of drug safety and intellectual property protection. These reforms have inadvertently benefited the OTC market.

In July 1999, the Chinese Government passed the Act on Prescribed Medicine and OTC Management through the State Medicine Supervision Bureau. Since 2000, the Chinese government has begun to take proactive approaches to formally delineate OTC and prescription drugs. To date, there is an estimated 2,000 OTC drugs available in the Chinese market, comprising almost half of the total 5,000 types of drugs listed. Following a regulatory reform in the upper limit of medicine prices, in June 2001 and January 2002, the central government also lowered the price of medicines. This has encouraged the consumption of OTC drugs. Such initiatives serve to continue to increase the base of consumers in the OTC market.

The changes in the healthcare system have driven patients away from hospitals to buying OTC drugs. A change in the medical system which has been implemented in some big cities like Beijing stipulates that patients pay a percentage of the medical expenses as compared to the prior system where employers subsidize almost the entire medical expense of their employee This has resulted in consumers opting to buy OTC products rather than pay high hospital consultation fees and prescriptions.

New OTC product lists, changes in the reimbursement scheme, and the Chinese Government’s own commitment towards the OTC market promise a very steady continuous growth in this industrial landscape of OTC drug sales.

Strong Consumer Market

One of the reasons for such phenomenal growth is high drug consumption among the people. This is reflected by the high growth rate in the pharmaceutical industry. In the past ten years, the pharmaceutical market grew almost 20 percent annually and now has expanded to a $20 billion market. It is expected that the overall market demand for drugs is likely to continue to grow by 10 percent annually. The Chinese consumer segments are quite different today due to various factors. China’s gradual transition into a free market economy has enhanced the living standard of the population. Increasing wealth and healthcare awareness is prompting consumers to self-medicate for common ailments. The trend in demand for vitamins and diet supplements is likely to continue to increase in the future with increased disposable incomes especially among health conscious consumers. With its population base of 1.3 billion, China is definitely a huge consumer market.

What Does the Future Hold for the OTC Market?

How long would the Chinese OTC market be able to sustain such robust growth? In the near future, OTC market players, both local and foreign will continue to face stiff competition with China as a member of the WTO. Currently, only licensed domestic wholesalers are allowed to distribute drugs in the country. However, foreign companies are likely to be permitted to deliver their own products after January 2003 according to the China-WTO agreement.

It is anticipated that the OTC market will be a more crowded playground as foreign manufacturers are lining up to seek entry into the Chinese market. Although companies have listed their products with the State Drug Administration (SDA) OTC catalog, it does not guarantee success in the Chinese market. Efficacious products along with good marketing skills are required in order to succeed in the market. Competition in the OTC market is expected to intensify as chain drugstores, which are the main distribution channel for OTC products, adopt discount strategies and improved services to gain competitive advantage.

As a final analysis, to capture a profitable share in this emerging market, it is crucial for local and foreign market players to increase brand building, marketing, and packaging to establish their products in the OTC market.

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