Business Accent

Dynamism in SE Asia

The emerging OTC markets, including those of South East Asia, are performing well above par, writes Nicholas Hall.

Earlier this year we completed the analysis of mid-year figures for our global OTC database DB6 2006. Value sales were ahead 4.3 percent, marginally exceeding the 4.2 percent of the same period last year. Despite weak results in the main developed markets, there was the usual strong performance by the emerging markets, including South East Asia, with the BRICITs group (Brazil, Russia, India, Indonesia and Turkey) well ahead. On a regional basis, Latin America outshone other emerging markets with growth averaging more than 11 percent across the region, with Central and Eastern Europe and East and South East Asia both coming in at just under 10 percent (an improvement on the previous year).

Market Trends

Analysis of the general picture across SE Asia suggests that the least inspiring category is vitamins, minerals and supplements. This was the slowest-moving OTC market, perhaps because it is the most sensitive to fluctuations in economic conditions and consumer spending. The exception was Vietnam where the entire OTC market is very buoyant and in line with this trend the VMS category grew by double digits.

Local highlights in 2006 include the cough, cold and allergy market in the Philippines, which thanks to a particularly harsh and lengthy winter in 2005/2006 grew convincingly. Extensive government-led health and hygiene promotion in Malaysia meant the country's OTC skin care market in particular antiseptics and disinfectants fared extremely well.

Some consider the OTC markets of the SE Asian region to be underdeveloped. But, despite this they appear to lack nothing in diversity and interest. For example, SE Asia has taken a resounding lead in the Rx-OTC switch of weightloss treatment Xenical (orlistat). In January 2005 Singapore became only the second country in the world to approve OTC Xenical and it has since been rolled out in other SE Asian countries including Malaysia, the Philippines and Thailand.

A future growth factor in the SE Asian OTC market may be the widening of access to NRTs. Many nations are already stepping up their anti-smoking stance. A factor in this is the WHO Framework Convention on Tobacco Control which Malaysia has already joined. As part of the increasing no smoking stance by SE Asian governments, public access to OTC NRTs may begin to widen. This is particularly relevant in Indonesia (70 percent of the population smoke but NRTs remain Rx) where there is potential for a strong OTC smoking control market.

The climate for multinational players

Local players dominate in the developing economies of Indonesia and the Philippines. MNCs can perform well in the region, as they do in Malaysia, Singapore and to a lesser extent Vietnam, but there are often some regulatory hurdles to navigate.

For example in Vietnam, foreign companies must have a local manufacturing facility or carry a local trading licence. Licences can take months to be granted and are implemented on a case-by-case basis. In January 2005, in response to price hikes driven by the import of expensive foreign products (which are often three times more expensive than locally manufactured products), the Vietnamese MOH published new pricing regulations. The regulations force all companies to provide pricing scenarios. In Vietnam, much like other SE Asian nations, a multinational fares better when in association with a locally registered distribution company.

Regulatory developments

Safety concerns are high on the agenda, as the region has a history of trouble with counterfeiting. Certain countries are beginning to take action against these problems. In 2005, the Malaysian Government declared that all medicines must carry a security hologram. In Thailand, the government introduced controls to restrict "B Class" pharmacies, purveyors of non-dangerous drugs.

There is also a trend for SE Asian governments to implement practices aimed at increasing provision of and access to healthcare and medicines, be they OTC or Rx. In Thailand, the government is planning to mirror the South Korean action and separate prescribing and dispensing. This may serve to reduce healthcare costs by encouraging self-medication. Meanwhile, in the Philippines, the government has set up a fund for parallel drug import to provide quality medicines to the poor at low cost.

Snapshot Singapore

Although Singapore's developed drug classification system and strong economy provide a good environment for OTC expansion, sales growth was only marginally better than flat in 2005. Most categories posted uninspiring performances and low single-digit growth was the defining characteristic across most of the market with the exception of gastrointestinals, which declined slightly. In this static environment, any marketers looking for better returns may have to open up unexploited avenues of OTC growth, such as probiotic gastrointestinals and weight loss products, in order to ensure continued growth.

Singapore's free market economy and corruption-free business environment makes the island state attractive to MNCs and as such MNCs dominate the OTC market. Local sources suggest the (possible) separation of prescribing and dis-pensing could boost OTC competition-suburban pharmacies would probably stock a larger inventory of products, including more local brands and generics, but there are no indications when this might happen.

Conservative estimates predict Singapore's economy should rise by a further three to five percent in 2006, hopefully increasing Singapore's OTC spend. The retail market also looks promising, as it is well developed and many large chain drugstores offer a range of price promotions and sale incentives. The stores are well stocked, sell both medicated and non-medicated products and provide a well-organised advertising field for OTC marketers.

Snapshot Malaysia

The Malaysian Government considers healthcare to be a priority and has introduced a number of schemes in the past 18 months to help boost the sector. The most notable, and beneficial to OTC, of these has been the Meditag holographic authentication sticker. The main OTC growth drivers over the past few years have been those segments of the market less strictly regulated. In 2005 growth was attributed to herbal and natural supplements, sore throat remedies and medicated confectionery and antiseptics and disinfectants, all of which posted double-digit growth. The rest of the market continued to under-perform despite a growing consumer awareness of self-medication.

Market round-up

Distribution: Foreign players feature heavily in Malaysia's OTC market. However, many rely upon local alliances owing to the complex drug registration process, which states that only local distributors can apply for official drug registration.

Drug classification: Medicines are classified as poisons (P), non-poisons (NP) or traditional remedies. NPs are then sub-divided into Class A, B, C or Part II poisons depending on their ingredients. All medicines, except NP Part II or traditional remedies, have restrictions.

Healthcare is a priority for the government and prospects for the pharmaceutical industry look favourable. However, many of the efforts to improve healthcare standards, so far, had a detrimental effect on OTC with regulations in particular limiting its growth.

Malaysia's OTC market is uninspiring, with low single-digit growth year after year and little in the way of innovation or new product development. That said, there are some encouraging signs. Leading Japanese marketer Taisho is currently launching an allergy treatment and a GI remedy in Malaysia as part of its Asian expansion. Should these succeed, Taisho has a wide range of other OTCs that it will no doubt launch, and this may encourage other Japanese marketers to enter Malaysia. Furthermore, holograms seem to be bringing an end to the counterfeiting that had plagued this market, and this should go some way to building consumer confidence in branded OTCs. However, the key factor that will determine future OTC growth is the government's attitude to drug classification. At present potentially lucrative OTCs are held back by prohibitive scheduling and it is unlikely that foreign marketers will risk launching newer OTCs, such as H2 antagonists, proton pump inhibitors or fast-acting antifungals, unless they are permitted to advertise and distribute widely. A more liberal attitude from the regulator could kickstart the OTC market until then, the status quo looks, set to continue.