Beyond India and China: Examining Pharmaceutical and API Positions in Asia
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China and India lead Asia both in terms of pharmaceutical market size and number of producers of active pharmaceutical ingredients (APIs). But what about other countries in Asia? As Part II of a two-part series examining pharmaceutical markets and API manufacturing beyond BRIC (Brazil, Russia, India, and China), Thomson Reuters examines the current and potential of other Asian countries outside of India and China.

When discussing the Asian generic-drug market, the conversation often begins and ends with India and China. Asia’s two most populous nations also contain the greatest concentration of active pharmaceutical ingredient (API) suppliers, with an ever-increasing number of these companies vertically integrated and capable of supplying finished dose generic medicines to the world’s most highly regulated pharmaceutical markets (see Figure 1). Other Asian generics markets, however, particularly Taiwan and South Korea, have grown significantly over the past decade in both size and level of expertise (see Figure 2 ). Companies are frequently turning to these nations in search of API suppliers and potential partnerships.

Michael Glessner

Pharmaceutical Research
Analyst
Thomson Reuters

Charting Taiwan’s pharma and API positions
Taiwan is a growing market for pharmaceuticals, and although the market size ($5.7 billion in 2013) is significantly smaller than that of Japan, China, India and South Korea, Taiwan exceeds all of those countries in terms of per capita expenditure on medicine (1). Since 1995, Taiwan has used a compulsory social insurance plan, known as the National Health Insurance (NHI), which covers more than 99% of the country’s inhabitants. The system is financed through premiums as well as government funding; prior to its implementation, nearly 40% of Taiwanese citizens were uninsured.

The cost of this broad coverage, coupled with an increasing elderly population and rising chronic disease prevalence, has placed a financial burden on the Taiwanese government. NHI expenditures have outpaced revenue growth, and there has not been the political will to increase insurance premiums to meet the increase in expenditures. The Ministry of Health and Welfare of the Executive Yuan, the agency responsible for administrating the NHI, has treated the NHI as a work in progress since its inception, making numerous changes to address the shortcomings in the system. Most recently, in 2013, changes to the NHI require insurers to lower drug prices to meet market conditions, particularly those drugs which have been off patent for over a year.

 

 

Figure 1: Number and Percentage of Active Pharmaceutical Ingredient Production Companies in Select Asian Countries 

Source: Thomson Reuters Newport Premium

Figure 2: Active Pharmaceutical Ingredient Manufacturing by Capability Rating
  

 

Local: companies supplying only to their local and other less-regulated markets.
Potential Future: companies with interest in supplying regulated markets, but with limited or no known performance.
Less Established: companies with less of a track record in supplying to regulated markets.

 

Source: Thomson Reuters Newport Premium

 

The new NHI policy should affect the Taiwanese generic-drug market, which has become increasingly competitive in terms of price and quality, but which still only accounts for 67% of the Taiwanese pharmaceutical market by volume and only 23% by cost (2). Some estimates show as much as 25% of Taiwanese healthcare expenditures goes toward pharmaceuticals, and a greater reliance on generic medicines could produce substantial savings.

According to Thomson Reuters Newport Premium, there are currently 13 companies with corporate groups headquartered in Taiwan that commercially produce at least one API (See Figure 3). Each of these companies has at least one active drug master file (DMF) with the US Food and Drug Administration (FDA), indicating an interest in supplying to regulated foreign markets in addition to domestic finished dose drug manufacturers. One of Taiwan’s largest API producers is ScinoPharm, a company that specializes in highly potent cytotoxic APIs for cancer treatment. The company supplies product to both generic finished dose manufacturers as well as innovators through exclusive partnerships to support drug commercialization. ScinoPharm recently inked a deal with the Taiwanese drug developer TaiGen Biotechnology to supply an API for TaiGen’s new stem-cell drug Burixafor (3). Formosa, another international API supplier based in Taiwan, produces more than 50 different APIs. The company uses strong research and development to discover innovative API processes and has supported many abbreviated new drug application (ANDA) filings in the US.

Figure 3: Regulatory Filings for Active Pharmaceutical Ingredient (API) Manufacturers

DMF is  Drug master file
COS is  Certificate of suitability
JDMF is Japanese drug master file 

Source: Thomson Reuters Newport Premium

 

While Taiwanese API producers have gained recognition for high quality and international good manufacturing practices (GMP) compliance, their counterparts in formulation have only recently been pushed to supply global markets due to increasingly aggressive domestic price controls associated with the NHI. YungShin Pharm, a vertically integrated company and one of the 13 API suppliers previously discussed, is the only Taiwanese finished dose company with generic drugs on the US and Japanese markets. Currently, no Taiwanese-produced generic drugs are marketed in Europe.

In 2013, Taiwan joined the Pharmaceutical Inspection Convention and Pharmaceutical Inspection Co-operation Scheme (PIC/S) in an attempt to promote GMP and to improve the quality control of generic medicines. Taiwan’s entry into PIC/S will allow Taiwan’s pharmaceutical inspection standards to more closely align with international standards.

Taiwanese pharmaceutical companies need only look north and west to see great opportunities for future market expansion. Japan, the world’s second-largest pharmaceutical market, has long relied almost exclusively upon high-priced innovator medicines due to a cultural skepticism regarding generic drugs. With rising healthcare costs, however, the Japanese government is now allowing and encouraging the entry of generic drugs. In addition to implementing drug-price reforms, the Japanese government has altered prescription forms to make it easier for physicians to allow generic substitution and incentivized pharmacies with dispensation fees that reward generic usage. ScinoPharm was the first Taiwanese API company to pass a Japanese Pharmaceutical and Medical Devices Agency inspection; Thomson Reuters Newport Premium data currently show 13 Taiwanese API companies hold at least one Japanese DMF.

The rise of China as a global pharmaceutical player has been a boon for Taiwan as well. Taiwan and China have shared a mutual recognition of R&D data since 2010; this cooperation saves the time and cost of repeating clinical trials for Taiwanese companies hoping to launch products in mainland China. Taiwanese API manufacturers can rely on China as a source of inexpensive raw materials, and smaller Chinese operations often require assistance from GMP-compliant companies to complete late-stage projects and to bring drugs to various world markets (4).

South Korea’s pharma and API positions
The South Korean pharmaceutical market, the tenth largest in the world ($19.3 billion in 2013), shares many similarities with that of Taiwan. South Korea’s pharmaceutical needs are also growing rapidly due to an aging population and an increase in the incidence of chronic illness. The South Korean government provides universal healthcare and controls prices of medical procedures and prescription medicines. A 2011 Bureau of Health Insurance Policy Committee initiative resulted in huge price cuts for a number of innovator medicines sold in South Korea. There is hope, in South Korea as well as in many other nations, that an increased reliance on lower-cost generic medicines can help to curb the growth of national healthcare budgets.

The portion of the South Korean API landscape capable of supplying global markets is very similar in size to that of Taiwan. According to data from Thomson Reuters Newport Premium, 12 South Korean API companies have at least one US DMF and at least one API determined to be commercially available. Unlike Taiwan, South Korea has a larger and more robust generics finished dose market that supplies foreign markets, such as Poland, Russia, and Egypt. The South Korean drug market is also extremely fragmented, with hundreds of drug makers and wholesalers competing for domestic market share.

Recent government policy changes, however, are threatening the profitability of South Korea’s generic-drug manufacturers. When the Korea-US Free Trade Agreement (KORUS FTA) was signed in 2011, the patent-drug approval system was effectively adopted in South Korea. Where previously, generic drug makers could receive government marketing approval for a copycat version of a still-patented product, drug regulatory authorities are now required to delay approval for generic versions of medicines until patents of the original product expire. The South Korean government has also replaced a “step” pricing system for generics, which assigned different price caps for generic medicines based on how quickly generic-drug manufacturers registered their products, with a system where all generic prices are capped at a flat percentage of the original. The step system, in addition to rewarding speed over quality or originality, led to the practice of higher-priced generics with large rebates often provided to physicians and hospitals that prescribed these products.

Although policy changes will have an immediate negative effect on the bottom line for many South Korean pharmaceutical companies, the future is bright for companies willing to adapt. A program called Pharma 2020 Vision will see a multibillion government contribution to local pharmaceutical companies to assist with new drug development as well as expansion into the global drug market through overseas acquisitions. The increased intellectual property (IP) protection that comes with the KORUS FTA makes South Korean pharmaceutical companies increasingly attractive business partners for multinational companies (MNCs). During the past decade, several multinational pharmaceutical companies have made investments and acquisitions in South Korea. The list includes Teva’s 2012 joint venture with Handok, Alvogen’s recent acquisition of Dream Pharma, and Otsuka’s investment through the Korean Ministry for Health and Welfare to fund drug R&D in South Korea. Several South Korean companies, such as Celltrion and Samsung Bioepis, are well positioned in the biosimilars market, and government support in terms of both finance and policy will provide opportunity for these companies to remain at the industry forefront.

Evaluating Vietnam, Philippines, Indonesia, and Malaysia
Along with Taiwan and South Korea, several other East Asian countries boast growing pharmaceutical sectors. Vietnam and the Philippines have two of the region’s fastest growing markets, thanks to increasing affluence and more widespread health insurance coverage. Although the two countries have minimal domestic API production, both nations are home to a number of finished dose companies with a wide array of formulation capabilities. Indonesia is another pharmaceutical market expanding due to an increasing elderly population, broader healthcare coverage, and a growing incidence of disease. Domestic companies represent the vast majority of the national drug market although MNCs, such as Sanofi, Novartis, Merck & Co. and Fresenius Kabi, have made major investments in Indonesian facilities over the past few years. Domestically, Indonesian-based Kimia Farma makes several quinine-based APIs in addition to a broad suite of finished dose products. Finally, Malaysia is another Asian nation with a growing economy and a growing pharmaceutical market. A number of Indian generics producers, including Ranbaxy, Cipla, Dr. Reddy’s, and Biocon have recently been enticed by tax incentives to set up manufacturing operations in Malaysia as a hub from which they supply all of Southeast Asia. These foreign companies join local Malaysian corporations, such as Symbiotica Chemicals, an API company specializing in steroids, to be capable of supplying both the European and the US markets.

Looking ahead
Although India and China are poised to dominate the Asian pharmaceutical scene for years to come, smaller Asian nations suddenly find their pharmaceutical companies in a position to thrive as well. As the need for drugs has increased due to demographic shifts and increased lifestyle-disease prevalence, so too has capital from local government funding and joint ventures with MNCs. China and India will provide a challenge competition-wise, but can also serve as a source of low-cost raw materials and potential partnering opportunities as well as a blueprint for entering global markets. It seems that near-term opportunities exist for companies that can supply high-quality, low-cost generics to their expanding local markets.

Part I of this series, “Beyond Brazil: Latin America’s Pharmaceutical Manufacturing Continues to Expand,” examined pharmaceutical markets and API manufacturing in Latin America, excluding Brazil.

For other related content, see “API Supply Lines: Examining the Impact of the EU Falsified Medicines Directive and Global GMP Certifications.”

 

References
1. GlobalData, CountryFocus: Healthcare, Regulatory and Reimbursement Landscape – Republic of China (Taiwan) Report (London, June 2014). 
2. “The Generics Market in Taiwan,” Generics and Biosimilars Initiative, Feb. 5, 2014, http://www.gabionline.net/Reports/The-generics-market-in-Taiwan, accessed Aug. 4, 2014.
3. ScinoPharm, “ScinoPharm to Provide Active Pharmaceutical Ingredient to TaiGen for Novel Stem Cell Drug” Press Release, June 9, 2014.
4. “Interview: C.Y. Cheng, Chairman, Formosa Laboratories, Taiwan” (Pharmaboardroom, March 10, 2013).

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