Malaysia has an internationally lauded healthcare system and is a medical tourism hub in Asia, attracting >1 million medical tourists annually. The Malaysian healthcare system has changed from a predominantly public healthcare system to a dual or two-tiered system where public and private healthcare expenditures are almost equal today. The pharmaceutical industry has grown at an average annual rate of 8% over the last decade. Imported and generic medicines account for 63% and 37% of the pharmaceutical market by value, respectively.
Malaysia shares all major attributes of an emerging market, such as increasing market penetration and growing per capita income. This demands scrutiny with regard to the following:
- Why is Malaysia not considered a Pharmerging market?
- Why is Malaysia not a priority for global pharmaceutical companies, with only a few multinationals owning manufacturing facilities?
The blog explores the opportunities & challenges faced by global players to leverage their capabilities & establish themselves in the high-margin innovative & branded drugs market.
Opportunities for the Pharmaceutical Market in Malaysia
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Steady Share of Patented Generics and Lack of Domestic Manufacturing Capacity
Although the share of prescription drugs by the value of patented drugs has reduced from over 67% a decade ago to 45%, the large trend is toward a steady share of patented drugs over the foreseeable future. Pharma imports grew by a CAGR of 8.2% from 2010 to 2020. Local manufacturers produce only generic medicines, and though the share of imported medicine has declined, it remains significant (63%). The presence of a strong traditional medicine is a significant barrier to prescription drugs. Malaysia is trying to become a global pioneer in the expansion of halal pharmaceutical products, a market expected to reach over $130 billion worldwide by 2030.
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Growing Partnerships and Low R&D of Domestic Firms
There is a spike in partnerships in the Malaysian pharma market. Notable partnerships include Sanofi-Aventis and Hovid Bhd; Biocon Ltd is contracting to Malaysia’s biotechnology park, BioXcell; and Malaysian company Inno Bio Ventures is contracting to manufacture clinical grade material for Avesthagen. The industry is heavily regulated, with Novartis, GlaxoSmithKline (GSK), Pfizer, Y.S.P. Southeast Asia (Y.S.P SAH), and Kotra Pharma being the major players in Malaysia. Domestic pharmaceutical companies focus on generic drugs, spending very little on R&D activities. This restricts the scope of domestic companies' ability to establish themselves within Malaysia or through exports. Currently, the five leading domestic pharmaceutical companies are Pharmaniaga Berhad, Chemical Company of Malaysia Berhad (CCM), Yung Shin Pharmaceutical, Hovid, and Kotra Pharma.
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Growing Lifestyle Diseases and Aging Population
Urbanization and globalization have resulted in a dramatic increase in non-communicable diseases, including cancer, diabetes, stroke, heart disease, and hypertension. Malaysia is considered the most obese country in Southeast Asia. 73% of deaths in Malaysia are caused by non-communicable diseases. As per the National Health and Morbidity Survey, 1 in 2 adults is overweight, with the highest prevalence among women at 54.7% and those aged 55 to 59 at 60.9%. By 2030, Malaysia is expected to reach the status of an aged nation, with people over the age of 65 making up more than 14% of the population.
Challenges in the Pharmaceutical Market for Malaysia
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Low Health Insurance, High Out-of-pocket Expenses, and Complex Supply Chain
Government, private insurance, and out-of-pocket expenses (OOP) account for 52%, 9%, and 39% of total healthcare expenditures, respectively. The market structure is characterized by a three-level complex supply chain. The supply chain starts with manufacturers and importers of medicines at the first level, wholesalers and distributors at the second level, and providers at the third level. This complex supply chain causes procurement difficulties, marks up prices at every level, and compromises the quality of medicines. The complex process is also an entry barrier for new market players owing to the anti-competitive conduct of incumbent firms.
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Absence of Appropriate Governance for Patents
In Malaysia, the Patent Act does not exclude second medical use patents for pharmaceutical products, leading to monopolies and high prices for essential medicines. Several companies patent a new formulation with slight modifications of existing drugs. This allows companies to extend their monopoly on the products and prevent generic competition.
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Biased Regulations in Favor of Domestic Companies
Biased regulations deter foreign companies from setting up manufacturing units in Malaysia instead of importing their products or using local distributors and their own sales teams. Enterprises with Malaysian operations structured in this way include Pfizer, Astra Zeneca, and Eli Lilly. The government also has indirect ownership in firms through various layers of holding and investment companies. These companies get favorable treatment from the state. For example, about 66% of the revenue of Pharmaniaga came from state contracts in 2020.
Read more: Data & AI Solutions to Improve Patient Care and Healthcare Research
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The Right Strategy
With the combination of the right strategy, manufacturing investments, and expertise, global pharmaceutical companies can garner a significant share of the lucrative innovative drugs market. Hence, we propose a few strategies that can be leveraged by global players in the Malaysian market.
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Collaboration with Local Partner
An effective approach to entering and establishing a presence in Malaysia involves partnering with a local entity that has strong connections to pharmaceutical distributors. This strategy not only helps navigate challenges related to distribution in Malaysia but also enhances brand awareness through established networks.
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Expanding Manufacturing Operations and Government Support
Benefiting from the increasing support of the Malaysian government is an attractive alternative to partnering with local firms. Foreign organizations have been expanding their in-country operations. Recently, YSP Industries, Xepa-Soul Pattinson, Novartis, and GSK have opened their manufacturing plants in the country. Many Indian companies have operations in Malaysia, with joint ventures accounting for about 60%. Indian companies that have manufacturing units in Malaysia include Cipla and Dr. Reddy’s Labs. For foreign drug companies looking to establish facilities in Malaysia, the government offers a variety of incentives, including duty exemptions, a 10-year tax holiday, and the ability to easily access other ASEAN markets through free trade agreements. The Malaysian Government has long emphasized the need to move up the value chain and set up fully integrated specialized parks with state-of-the-art infrastructure to cater to the growing requirements of specific industries that focus on technology as well as R&D.
Read more: Importance of Data Analytics in the Healthcare Industry
Conclusion - Pharmaceutical Market in Malaysia
A large gain in market share for innovative and ethical drugs is expected as Malaysia continues to align more with common practices in the developed markets regarding quality and pricing. We also expect Malaysian regulatory bodies to strengthen intellectual property rights and resolve the challenges associated with biased laws, which will encourage more FDI in pharma. Malaysia is emphasizing the foreign direct investment (FDI) growth model to grow its pharma industry. With all possibilities, we expect the Malaysian pharmaceutical industry to expand its footprint through FDI rather than domestic investment. This presents an attractive opportunity for multinational firms to increase their footprint in the Malaysian pharmaceutical industry.
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