Perfecting Market Access: Maintaining Momentum in the APAC RegionAmit Backliwal, Principal, IMS Management Consulting, Asia Pacific

The early giants of the pharmaceutical industry rose to prominence in the west and in Japan, in countries where patients and their physicians demanded and by and large could afford premium pharmaceuti-cal products. Blockbuster products netting US $1 billion in sales weren’t all that rare; in fact, many stakeholders came to expect them.

But with blockbuster drugs now eclipsed by me-too products and generics, bio-tech innovations forestalled by scarce in-vestment dollars, and patients and insur-ers growing increasingly ill-equipped to keep pace with rising healthcare costs, MNCs have found themselves assailed by a number of factors.

The long-term economic decline has, among other things, complicated attempts to put strategic healthcare initiatives into place. Declining consumer spending has triggered changes in the ways patients go about taking care of themselves—filling fewer prescriptions, for example, and seek-ing less-costly medical alternatives. Finally, lower GDP and escalating budget deficits are impeding long-term planning that might safely position healthcare as an af-fordable option not just for some, but for many. MNCs hoping to grow and survive have been forced to look elsewhere.

Emerging markets have captured the eye and imagination of MNCs in recent years. Indeed, IMS Health is now projecting that the APAC region, led by China and in-cluding ASEAN, Australia, and India, will grow to US $66 billion by 2013. Oppor-tunity, it seems, really does lie east.

This isn’t new news. The top ten MNCs might have dominated the scene between 2005 and 2009, but they have lately lost traction to small- and mid-sized players and locals.

But even these organisations have felt increasing pressure as the APAC region grows steadily more competitive, and as local generics players take a larger piece of the pie. In September 2006, 24% of the region’s growth was fueled by the top ten MNCs. Last year, that percentage stood at 18%.

KEEPING PACE WITH A DYNAMIC REGIONNevertheless, emerging markets—and the opportunities they continue to repre-sent—are here to stay, and they are chang-ing daily. China, for its part, has taken an aggressive lead—signaling a new era with sweeping healthcare reforms that stand on four well-defined pillars:

• Healthcare financing, with the cor-responding increase in the breadth and depth of coverage; • Care delivery, which is focused on strengthening primary care services, estab-

lishing a three-tier system for healthcare delivery in rural areas, and fortifying urban hospitals and community health centers with a dual referral system;• Drug supply, which is framed around the Essential Drug List (EDL) and features open tender purchases and retail prices set by central and regional governments, and which values innovation by giving price benefits to first-to-market products; and• Hospital reforms, which emphasize the separation of ownership from manage-ment and which seek the gradual elimina-tion of drug margins.

TRADITIONALLY, TOP 10 MNCs HAVE SEEN STRONG GROWTH RATES IN APAC.

Top 10 MNCs in APAC*

APAC marketgrowth ratesAnnual Growth

Source: IMS Health MIDAS MAT Sep 2009; APAC* here does not include Vietnam, Brunei and Sri Lanka

4-ye

ar C

AGR

(MAT

Q3

2005

- M

AT Q

3 20

09)

BAYER, US$ 1.3b18%

18%

14%

12%

10%

8%

6%

4%

2%

0%0% 5% 10% 15% 20%

WYETH, US$ 0.9b

AZ, US$ 2b

MERCK & CO, US$ 1.1b

S~A, US$ 2.3b

J&J, US$ 1.2b

GSK, US$ 2.4b

ROCHE, US$ 1.4b

PFIZER, US$ 2.8b

NOVARTIS, US$ 1.9b

APAC MAT/Q/’09Size: US$66.2 billionAnnual Growth: 15.8%4-yr CAGR: 14%

HOWEVER, MOST ARE STARTING TO SEE THEIR CONTRIBUTION TO REGIONAL GROWTH FALL.Growth is increasingly contributed by local generic players

Contribution to Regional Growth

TOP 10 TOP 11-20 OTHERS (7329)

MAT/9/09MAT/9/08MAT/9/07MAT/9/06

Source: IMS Health MIDAS MAT Sep 2009; APAC* here does not include Vietnam, Brunei and Sri Lanka

CONT

RIBU

TION

TO

GROW

TH (

%)

-5%

15%

35%

55%

75%

95%

24%

7% 8%9%

7%

25% 21% 18%

75%71%67%69%

In the Philippines and Thailand, mean-while, cost cutting has emerged as the top priority. In the former, the effort has in-cluded maximum retail price and volun-tary price reductions: Under the Cheaper Medicines Law, five molecules were put under a maximum retail price, while lead-ing brands from sixteen other molecules voluntarily reduced prices. A secondary price cut, also focused on voluntary reduc-tion, was recently announced.

In Thailand, the government has been primarily focused on the governmental hospital/Civil Servants Medical Benefits Schemes front—putting pressure on hos-pitals to adopt generic substitutions where such products are readily available. Again, the initiatives have resulted in decreased sales of original and expensive treatments and a growing focus on the cheaper alter-natives and generics that are in keeping with constricted budgets.

REMAINING OPPORTUNISTICDespite cost containment pressures and a rising emphasis on generics, the dynamic nature of the APAC region affords contin-uing opportunities. Consider the evolving patient profile. At IMS, we’re seeing a def-inite shift from acute, communicable dis-eases to chronic ailments—a result of the aging population and improved access to diagnostic testing in the region. The use of antineoplastics, for example, key in cancer therapy along with cholesterol lowering, hypertension, depression and other simi-lar lifestyle and chronic drugs has jumped multi-fold in the last 5 years.

In Thailand, an aging population and changing lifestyles are likewise driving in-creasing pressure on chronic care—in car-diology, nervous system, oncology, respira-tory, GU system and sex hormones—over acute care. While the growth of anti-in-fectives is slowing, this does remain a sig-nificant area in value terms in this popula-tion of 65.42 million.

Beyond the evolving patient profile is the evolving nature of the APAC consumer, which grows ever-more affluent—more capable of affording luxury products, ex-pensive one-off items, and expensive spe-cialist care.

AFFLUENCE CONTINUES TO INCREASE IN APAC.% of population that can afford expensive specialist care treatment is set to increase.

% of total disposable income accounted for by Decile 10

China India

1990 2000 2007

Indonesia Malaysia Philippines Singapore Taiwan Thailand Vietnam

Source: World Income Distribution Report (Euromonitor)

* Decile 10: (Surrogate marker) Percentage of households that can afford luxury products and expensive one-off purchase

27% 31% 31%24% 27% 27%28% 21%

21%33% 33%

33%38% 39%

39%31% 30%

30%23% 23%

23%34% 34%34%

26% 32%32%

Spec

ialt

y Ca

re C

AGR

(MAT

/9/0

4 -

MAT

/9/0

9)

NOT SURPRISINGLY, THE SPECIALIST CARE SECTOR IN THE REGION IS OUTPERFORMING PRIMARY CARE IN GROWTH.

Primary Care CAGR vs. Specialty Care CAGR

Primary Care CAGR (MAT/9/04 - MAT/9/09)0

0

5

5

New Zealand

Taiwan

Australia

Australia Bangladesh China Hong Kong India

SingaporeMalaysia

Philippines

Philippines Singapore Taiwan Thailand

Korea

Indonesia

Indonesia Korea Malaysia New Zealand Pakistan

Hong Kong

PakistanIndia

Thailand

Bangladesh

China

10 15 20 25

10

15

20

25

Source: IMS Health MIDAS Sep 2009. APAC data excludes Vietnam, Bangladesh, Brunei and Sri Lanka. IMS Market Insights definitions used for ‘Primary care’ and ‘Specialty care’

This has precipitated the rise of the spe-cialist care sector, which is now outperform-ing primary care across the board. Finally, there are opportunities emerging from the evolving reimbursement landscape of the APAC region, though not all changes will be easy to navigate. The reimbursement story is best told by focusing on clusters.

Australia, South Korea and Taiwan represent the reimbursed markets, where both private and public sector services and drug costs are reimbursed by the country’s national health insurance scheme and where decision-mak-ing responsibility is shifting to generics and third-party payers (via employer insurance packages).

Thailand, China, Malaysia and Singapore represent the semi-reimbursed markets, where services, especially those relating to certain public sector treatments and certain drugs in the Essential Drug List, are covered by public expenses. Here, the protectionist stance of the government often enables local companies to flout patent protection laws.

Finally, there are India, Indonesia and the Philippines—the self-pay markets—where patients predominately pay for medical services and drugs out-of-pocket, although some segments of the population (includ-ing government employees) do attain reim-bursement. In these self-pay markets, phy-sicians remain highly share-of-voice driven and price sensitive. Patients, for their part, remain brand conscious, choosing from pharmaceutical alternatives based on their understanding of brand quality and trusting a “good” brand to deliver good results. This consciousness drives uptake.

Throughout the region, a pro-generics stance is being adopted by numerous in-dividual governments, with all the obvious implications for MNCs.

In Australia, for example, we are seeing re-peated e�orts to curb spending on the Phar-maceutical Benefits Scheme, a widespread preference for generics on the part of phar-macists, generics serving as first-line treat-ment in a number of therapeutic areas, and a consequent surge in unbranded generics.

In Thailand, government e�orts to control costs have resulted in a hospital market with

a rising predilection for generic substitu-tion, while in the Philippines, attempts to contain costs in both the public and private sectors—through MRP and voluntary price reductions—have already resulted in a surge of generics growth at the expense of origi-nal products. The first such implementation of price reductions a�ected 12% of market sales.

And yet, despite all the emerging reimburse-ment policies and actions, market access re-mains a key issue for patients throughout the APAC region. While disposable income has, as we have noted, risen overall, in some selected Asian markets less than 40% have disposable income above US $2,000, creat-ing a large unmet demand for cheaper al-ternatives.

At IMS, we have seen just how critical an af-fordable “threshold” price can be to MNCs seeking to market their products. In the Philippines, for example, the launch of low-priced generics led the omeprazole market to a five-fold growth in just three years.

But lower price is not the only strategy that can play a role in building market access for MNCs. Authorized generics have also proven to be an e�ective growth factor in countries like Indonesia, where MNCs are e�ectively leveraging partnerships to build awareness for and adoption of authorized generics.

LOOKING PAST 2010We’ve entered a new decade, and things aren’t about to get easier. We project in-creased pressure on costs and pricing as the years unfold, and a world increasingly dominated by generics.

At the same time, we believe that gov-ernments, physicians, and patients will increasingly demand proof of a product’s value, increasingly look to the benefits of personalized healthcare, and expect more

.sledom noitubirtsid tcudorp wen morfSpecialty products are here to stay. So are emerging markets. And MNCs can expect to be challenged by a rising corps of local generics companies who are positioning themselves to have a measurable impact on high-growth therapy areas.

Going forward, innovator companies seek-ing to drive access in reimbursed markets will be forced to focus on the value of medicine—and to demonstrate such value conclusively. They will need to follow in the footsteps of their peers, who have faced challenges head on.

Bayer’s approach to growing Nexavar, its oral multiple kinase inhibitor for the treat-ment of patients with unresectable hepa-

.tniop ni esac a si ,amonicrac ralullecotThere, Bayer faced Italian authorities who were refusing to reimburse the product for

?esnopser s’reyaB .stneitap fo egnar daorb aTo enter into performance risk-sharing agreements that yielded a 50% discount

LARGE UNMET DEMAND EXISTS FOR CHEAPER ALTERNATIVES.

Omeprazole Price- Volume Interplay: Philippines

In Phillipines, patient a�ordability reaches new levels when the “threshold” price is met

• Launch of low priced generics have led to the Omeprazole market having a five fold growth in three years.• The threshold price for explosive volume growth is between 50% to 60% below the price of originator

Source: IMS Health Mar 2009

Vol. in SU(‘000)

% Lossof ValueofOriginalProduct

Omeprazole Volume Price Drop

Sudden increase in a�ordability triggersvolume expansion

Q109Q108Q107Q106Q105Q104Q1030

500

1000

1500

2000

2500

3000

3500

-80%

-60%

-40%

-20%

0%

to hospitals for the first two months of therapy. Those patients who positively and demonstrably responded to the treatment after two months received reimbursement by the AIFA (Agenzia Italiana del Farmaco / Italian Medicines Agency), and Bayer was no longer required to grant the 50% dis-count.

In much the same vein, Janssen-Cilag found its multiple myeloma product, Vel-cade, blocked by reimbursement authori-ties in the United Kingdom. To drive market access, Janssen-Cilag pursued its own version of a performance risk-sharing agreement, in which patients showing a full or partial response to the drug after a maximum of four treatment cycles would be kept on the drug, with the treatment

.ecivreS htlaeH lanoitaN eht yb dednufThose patients who showed minimal or no response to the product would be removed from therapy, with all Janssen-Cilag footing the treatment bills.

Sanofi-Aventis faced similar trials in Canada with its oncology product Taxo-tere, when provincial formulary authori-ties expressed concern over the product’s efficacy and cost. But Sanofi-Aventis be-lieved in its product and pro�ered an ef-ficacy guarantee during which patients were tested following six months of treat-ment for agreed-upon responder levels. If the hoped-for level of progression was not reached, Sanofi-Aventis would reimburse regional players for the cost of the drug. If, however, progression levels were achieved, Taxotere would be admitted onto the re-imbursed formulary.

The coming decade will also be defined by the outcome of e�orts to reform health-care in the United States. The goals, of course, are straightforward: to expand cov-erage and access, to improve quality and efficiency, and to increase a�ordability via cost reductions. The conflicts and chal-lenges are, on the other hand, nearly im-measurable, requiring legislators to enact a terrific balance among issues spanning from Medicare price reform, health infor-mation technologies, and comparative ef-fectiveness studies to consumer promotion restrictions, biosimilar encroachments, re-importation, and uninsured coverage. Beyond all of this, MNCs will be shaped by both new and existing stakeholders and

economic pressures—everything from the relevance of patients as key stakeholders to the relevance of economics on market ac-cess. No single strategy will ensure growth in the years to come.

The desire to grow and to survive will re-quire MNCs to be structured in a way that enables them to act quickly on meaningful information and to take an integrated ap-proach to the three Cs: consumers, custom-ers, and channels. It will mean that MNCs will have to recognize, once and for all, that the traditional business model—so reliant on increasing the field cost and on layering on promotional investments—is no longer working, no longer relevant. The critical juncture has been reached. The game has changed. New capabilities—multichannel marketing, mega brand excellence, and ac-count management—are essential.

Our purpose at IMS Health is to help MNCs navigate this new environment—to bring our expertise to companies that recognize that the time is now to set fresh

.noitom otni sevitaitini wen dna gniknihtWe are the only major professional consul-tancy exclusively focused on the pharma-ceutical and healthcare industry. The core of our business lies in commercial strategy. We have leading-edge methodologies and approaches to solve the most complex business issues and o�er our clients proven value through four distinct practice areas:

Product & Portfolio Strategy, Commercial E�ectiveness, Pricing and Market Access and Primary Market Research.

We can help you gain and sustain your competitive edge by choosing the right in-vestment strategies, strengthening portfo-lios, optimizing product launches, and sales force structure and deployment.

For more information, please contact Amit Backliwal (abackliwal@sg.imshealth.com) or write us at info.sg@sg.imshealth.com

STRATEGIES LIKE AUTHORISED GENERICS HAVE ALSO BEENUSED BY COMPANIES TO DRIVE MARKET ACCESS

2nd Brand Strategy: Indonesia

Using the channels e�ectively through partnerships in Indonesia

Source: IMS Health Consulting

MAT 1Q05 MAT 1Q06 MAT 1Q07 MAT 1Q08 MAT 1Q09

Valu

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Rp

Mill

ions

20,000

40,000

60,000

80,000

100,000

120,000

140,000

“X” MOLECULE MARKET - MARKET TREND IN VALUE OF TOP 5 PRODUCTS160,000

0

ORIGINAL

AUTHORISED GENERIC

OTHER GENERIC

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Operating in more than 100 countries, IMS Health isthe world’s leading provider of market intelligence tothe pharmaceutical and healthcare industries.With$2.3 billion in 2008 revenue and more than 50 yearsof industry experience, IMS offers leading-edgemarket intelligence products and services that areintegral to clients’ day-to-day operations, includingproduct and portfolio management capabilities;commercial effectiveness innovations; managed careand consumer health offerings; and consulting andservices solutions that improve productivity and thedelivery of quality healthcare worldwide.Additional information is available at:http://www.imshealth.com