KUCHING: The steady growth trend of pharmaceutical sales, which covers prescription and over the counter (OTC) drugs in Malaysia, has been projected by analysts to continue rising.
Affin Hwang Investment Bank Bhd (AffinHwang Capital) estimated that the pharmaceutical sales in Malaysia have grown steadily at a 10-year compound annual growth rate (CAGR) of 10 per cent to circa RM9.4 billion in 2017.
“Note that the sales in prescription drugs are growing faster than OTC drugs,” the research firm said.
AffinHwang Capital expected this trend to continue rising, driven by rising income, ageing demographics and improving healthcare spending per capita.
“To cope with rising cost of pharmaceutical products, generic drugs have emerged as a solution to substitute expensive patented drugs. Generic drugs’ market share in value has grown from circa 33 per cent in 2007 to circa 56 per cent in 2017,” the research firm said.
“In terms of sales in volume, Malaysia’s generic drugs accounted for circa 70 per cent and we expect a greater use of generic drugs going forward, whereby its market share by volume should increase closer to developed countries’ 80 to 90 per cent level.”
The research firm added that the benefit should flow through directly to local pharmaceutical players such as YSP Southeast Asia Holding Bhd (YSP) and Apex Healthcare Bhd.
AffinHwang Capital highlighted that currently Malaysia’s pharmaceutical sector still relies heavily on imports of patented and generic drugs that accounted for circa 67 per cent of the total mix in 2017.
“Due to Malaysia’s position as a net importer of pharmaceutical products, we see the trade deficit gap on pharmaceutical-related products widening.
“This highlights the need to grow the local generic pharmaceutical market.”
According to AffinHwang Capital, the Malaysian government identifies healthcare as a National Key Economic Area under the Economic Transformation Programme (ETP) and pharmaceutical industry is one of the key focus areas.
The research firm pointed out that under the ETP, the Government encourages local pharmaceutical companies to leverage on patent cliffs and prioritise the generic drugs produced domestically in procurements for public hospitals.
“If a pharmaceutical company is able to develop new generic drugs that are off-patent, they are given off-take agreements to supply the Ministry of Health (MoH) for three years and get another two years’ extension upon submission of proof and sales of products abroad.
“Also, we understand that private clinics are increasing usage of generic drugs as a means to control drug costs. Hence, the contribution of domestically produced generic drugs has risen to 33 per cent of Malaysia’s pharmaceutical market in 2017.”
AffinHwang Capital noted that according to the recent data published by the Ministry of International Trade and Industry, the monthly exports of medicinal and pharmaceutical products from Malaysia continued to show robust growth until January 2018.
The research firm viewed this positively as it thought that the strong monthly growth number should be a good gauge of local pharmaceutical companies’ export sales.