Malaysia Pharmaceuticals and Healthcare Report Q4 2012

Malaysia may have one of the regions lowest per capita spend in terms of healthcare as a percentage of GDP – 4.3% in 2011 – but it boasts a growing private healthcare sector and is experiencing increased investment in public healthcare as existing facilities are modernised. Generic drugs are one key growth area, particularly as drug patents expire, and the governments intention to create a new regulatory body and implement the Medicine Device Act in October 2012 will improve the operating environment. Risks remain, however. Counterfeit and substandard drugs are commonplace, and pharmacists requests to charge a consultation fee will only encourage low-income patients to look for cheaper remedies for their ailments. Malaysias stance on intellectual property may deter investors, with media reports claiming that the government objects to a proposed increase in patent periods for drugs by foreign firms, which forms part of the Trans-Pacific Partnership Agreement.

Headline Expenditure Projections

- Pharmaceuticals: MYR5.55bn (US$1.81bn) in 2011 to MYR6.2bn (US$1.93bn) in 2012; +10.2% in local currency and +6.2% in US dollars. Forecast down slightly from Q312 on account of new historical data.

- Healthcare: MYR36.35bn (US$11.88bn) in 2011 to MYR39.03bn (US$12.29bn) in 2012; +7.4% in local currency and +3.4% in US dollars. Forecast up slightly from Q312 on account of new historical data.

- Medical devices: MYR3.97bn (US$1.30bn) in 2011 to MYR4.30bn (US$1.36bn) in 2012; +8.5% in local currency and +4.5% in US dollars. Forecast up from Q212 on account of new historical data.

Risk/Reward Rating

In our latest proprietary Pharmaceutical Risk/Reward Ratings (RRRs) matrix for Asia Pacific, Malaysia ranks an unchanged eighth out of the 18 countries surveyed regionally. Its composite score is also unchanged at 59.3 out of 100. Malaysia is an attractive market for international investors, though its longer-term rewards are dragged down by factors such as low per capita spending on pharmaceuticals.

Key Trends And Developments

- The Malaysian Pharmaceutical Society presented a proposal to the Ministry of Health to charge customers a professional fee of MYR5. Private doctors fees are also expected to increase by 14%.

- In June 2012, Novartis signed a Memorandum of Understanding with the Ministry of Health to further enhance the countrys progress in the National Key Economic Area programme. Novartis set up a US$700mn fund to support domestic healthcare start-ups.

- Local press reports in August 2012 indicated that the Malaysian government is not in favour of the Trans-Pacific Partnership Agreement, a free trade agreement that is intended to increase the patent period of drugs by foreign countries.

BMI Economic View

The latest data from Q212 show that real GDP posted a better-than-expected 5.4% year-on year (y-o-y) growth. While BMIs analysts have raised our full-year GDP forecasts for Malaysia accordingly, we note that May is typically a peak month in terms of activity, and questions whether this healthy growth can be sustained. Factors holding back Malaysias economy include its net exports and property sector.

BMI Political View

Malaysias government is keen to boost international investment, with recent initiatives announced in July 2012 including a series of tax incentives to encourage foreign direct investment inflows. BMI welcomes the governments moves to create a new financial district in Kuala Lumpar, but in the long term, ethnic diversity continues to have a heavy influence on domestic politics, and this will affect political stability and, subsequently, investor consequence.