Asia Pacific: Strong Opportunities, But Not Without Challenges
BMI View: Revenue earning opportunities for pharmaceutical and healt hcare companies operating in the Asia Pacific region are largely driven by spending growth in developing countries . G overnments in the majority of developed countries are cutting expenditure due to economic pressures . Despite strong growth opportunities in Asia Pacific we highlight that , given the fragmented nature of the region , pharmaceutical firms will have to use innovative strategies to gain market access.
The updated World Health Organization (WHO) global health expenditure database shows that w orldwide healthcare spending reached US$6,970bn in 2011, an 8.5% increase on 2010. US healthcare expenditure increased to US$2,695bn, accounting for nearly 40% of global healthcare spending. Western Europe spent US$1,557bn in 2011, followed by Asia Pacific (US$1,388bn), the non-US Americas (US$591bn), Central and Eastern Europe (US$314bn) and the Middle East and Africa (US$135bn). The average healthcare spending per capita for the 106 major countries BMI covers reached US$1,000 in 2011 . N early half of these countries spent more than 8% of their GDPs on healthcare.
Highlights Of Asia Pacific Data:
Japan , at US$544bn , spent the most on healthcare among the key regional markets in the Asia Pacific in 2011 , followed by China (US$377bn) and Australia (US$134bn). Cambodia spent the least.
Average growth in US$ terms reached 13.0% in 2011 , which was a decline from the 17% growth rate experienced in 2010.
|Overall Healthcare Expenditure In 2010 & 2011 (US$bn)|
Developing > Developed Countries
Data released from the WHO align with our views for the Asia Pacific region :
Governments of developed countries will increasing ly use cost - containment policies to lower the financial burden of providing healthcare services .
Health expenditure in developing countries will accelerate due to governments' increased commitment to the sector .
In 2011, developed Asia Pacific countries (Japan, Singapore, New Zealand, South Korea and Australia) saw a slowdown in overall health expenditure growth from 19.3% in 2010 to 12.9% in 2011 in US dollar terms. Meanwhile , the figure s for develop ing countries we re 15.5% in 2010 and 13.0% in 2011. BMI highlights that this wa s due to a decline in Malaysian health expenditure in 2011. If we exclude Malaysia, average growth in health expenditure reached 15.2% in 2011.
We observe that countries with the highest growth rates in 2011 include d China, Vietnam and Cambodia . Mean while Malaysia, Australia, South Korea and New Zealand were among those with the greatest decline in growth rate .
The decline in health expenditure for Malaysia from MYR33.6bn (US$10.5bn) in 2010 to MYR30.6bn (US$10bn) was attributed to a drop in g overnment expenditure from MYR18.7bn (US$5.8 b n) in 2010 to MYR14.0bn (US$4.6bn) in 2011. We note that the WHO figure s contradict Malaysian government statistics. According to Ministry of Finance, the Ministry of Health was allocated MYR14.8bn (SU$4.6bn) in 2010 and MYR15.3bn (US$5.0bn) in 2011.
|Developing > Developed Countries|
|Health Expenditure % Change y-o-y In Developed Countries In US$ Terms (top left), Local Currency (top right) & Developing Countries (US$ terms (bottom left), Local Currency (bottom right).|
Health Expenditure Outlook
Asia Pacific will remain a highly attractive prospect for pharmaceutical and healthcare providers. As the region is highly fragmented, however, BMI believes that different strategies are required to gain market access. Crucially, we highlight that revenue earning opportunities will be driven by developing countries as governments seek to provide better health provision for their populations. Over the short- to- medium term, BMI believes that pharmaceutical firms will have to target private spending, given that private health expenditure represents more than 50% in the majority of these countries (Cambodia, Vietnam, Philippines, Indonesia and India).
At the same time, we stress that risks are present. For example, despite strong growth opportunities in the Indian pharmaceutical market, multinational pharmaceutical firms need to closely assess the market, given the country's poor intellectual property regime. Meanwhile, countries that wish to implement universal healthcare may potentially list generic drugs in order to lower healthcare expenditure, benefitting local or Indian generic drugmakers but not multinational pharmaceutical firms.
In comparison, we note that developed markets represent relatively good opportunities for risk-averse market players. Despite the fall in government health expenditure, we have not identified a significant slowdown in private health expenditure (in local currency terms) in countries such as Singapore (8.9% in 2010 to 7.9% in 2011), South Korea (12.3% in 2010 to 9.9% in 2011) and New Zealand (4.9% in 2010 to 3.1% in 2011). The ageing populations in these countries, this will provide niche markets for medical devices providers, health-IT companies, home-care assistance firms and pharmaceutical firms with portfolios that cater for chronic diseases.
A downside risk remains potential cuts to government spending. With the exception of Singapore, government health expenditure represents more than 50% of the total health expenditure used to subsidise various health infrastructure and insurance schemes. In light of rising demand for healthcare, governments may continue to cut drug subsidises or introduce public-private partnership to lower their financial commitments to public healthcare. The former will pose a challenge to pharmaceutical firms, while the latter will bring opportunities for private healthcare providers.