5 key points to consider when entering SEA markets for medium-sized pharmaceutical companies.

With a population over 600 million people, a growing middle class mirroring EU and the US and healthcare systems approaching universal coverage for basic drugs, although still far from the developed countries in access to non essential medicines or highly priced ones, SEA has become one of the main targets for middle-size pharmaceuticals in their global expansion strategies. Although there are several opportunities, there are (at least) five key elements to consider before moving forward.

1. Entry barriers

?There are four main types of barriers that must be analyzed to make a first selection of "accessible markets".

"the fact that a product will not be accepted as FS doesn’t necessarily mean that the product can’t be registered. Checking with a local expert can give a quick evaluation at a very reasonable cost"

?? Regulatory: Not all dossiers are acceptable in all markets. In ASEAN countries, for example, it is increasingly common to require clinical trials with local populations for products that do not exist on the market. In the case of generics, it is necessary to demonstrate bioequivalence and almost always carry out a stability analysis, which may take up to 24 months. However, in many cases it is accepted to continue with the registration process with the accelerated ones as far as there is a compromise to continue with the stability test until the shelf life is completed. ?In the case of Food Supplements or Medical Devices, it has to be assessed whether the CEE or FDA approved product meets the requirements of local healthcare agencies. For example, the maximum accepted dose of vitamin C or D in Thailand or Indonesia is lower than in Europe, and some APIs not included in the local pharmacopoeia should be first approved as novel food. However, the fact that a product will not be accepted as FS doesn’t necessarily mean that the product can’t be registered. Checking with a local expert can give a quick evaluation at a very reasonable cost. ?

?? Production: SEA countries have significantly increased their manufacturing requirements, and in most cases meeting WHO GMPs may not be sufficient. The recent cases of low-quality products that have been retired from the market, (e.g. glucosamine + chondroitin food supplements in Taiwan) and the increasing incomes of a growing middle class is driving the demand to products meeting EU/ FDA GMPs, giving companies located in these markets a significant competitive advantage, as auditing facilities outside Europe or the US require meeting the available slots and can represent a considerable cost and time to market.

?Muslims represents a significant part of the population in SEA, being a majority in countries like Indonesia or Malaysia, and also considerably big and increasing in Philippines, Singapore and South of Thailand. Therefore Halal procedures for API and FDF production are mandatory in countries like Indonesia, and highly advisable in others (Malaysia, Philippines). If not compliant, the company willing to export to these markets will be at risk of not getting the approval, or allowed to be prescribed as the last option, deeply limiting the business potential. Recently Indonesian authorities are requesting the Halal certification to be verified by locally authorized agencies, which can benefit local producers and delay / increase expenses for importers, that may have to be audited by these agencies as well.

?? Distribution: Access to the channels may be limited or unfeasible for certain products due to local oligopolies, especially in the case of companies with a limited portfolio and bargaining power. Some pharmacies, for example in Thailand, have a limited space and use a policy of "one in one out", which gives a significant negotiation power to big suppliers versus companies with limited number of products, unless these have significant demand / differentiation.

"Markets like Thailand or Indonesia has a very uneven distribution of wealth, which means that there is a 10-20% of population with per capita GDP over the UE average, for example. Not surprisingly, prices of some food supplements are significantly higher than in their countries of origin".

? Price: Certain categories of products may have a price in the market that makes their importation unviable. If the product is a generic, due to budget increasing needs, the trend is to tender models, where Indian, Chinese and Bangladeshi, companies in addition to local players, may have a considerable competitive advantage. The best opportunities usually come from private hospitals, although are usually a low percentage of the market. In addition, hard to produce generics and, in some cases, shortage of production or quality issues can drive to a demand of European/US quality products. OTC business is another option. Markets like Thailand or Indonesia has a very uneven distribution of wealth, which means that there is a 10-20% of population with per capita GDP over the UE average, for example. Not surprisingly, prices of some food supplements are significantly higher than in their countries of origin. However, it is very important not overestimate the market size. As said, the percentage of population that may allow to pay OTC EU/US priced products is hardly more than 20-30%, but these that can pay, will be less sensible to the price as far as the quality is granted. Obviously brand image and marketing plays an important role in this process. ???

?2. Risk tolerance and maximum investment limit

?Like any intelligent investor, a pharmaceutical company should consider its internationalization strategy as a process based on a rational analysis assessing capabilities, objectives and strategic vision in the medium and long term. A limiting factor when it comes to emerging markets such as SEA is the level of risk tolerance. Usually, but not always, greater risk means greater opportunities. There are two possible strategies each with its pros and cons: focus on a single market, which can be less costly, but will require a very careful evaluation of the company portfolio’s potential in each market prior to choose the target, or develop a regional approach directly from HQ or by establishing a bridgehead in a country, for example Singapore, and operate from there in several market at the same time. This approach makes it possible to offset regional risks through diversification, although in return it may require local adaptations which means higher costs. (Despite progresses in ASEAN harmonization, every country still has its own rules)

?3. Level of innovation of the portfolio

?Products available and therefore the competitors to beat in Emerging Markets, SEA in particular, may be very different from those in developed countries. There are several factors that make this so. For example, the price factor usually has a greater impact, since the purchasing power is lower and much of the consumption of medicines is "out of the pocket", ie. the consumer pays directly. On the contrary, the mark "European quality" or "USA quality" add a plus of interest to products that otherwise might not be so successful. The concept of innovation may be completely different. Products launched long time ago in developed markets can be taken as innovative in SEA. There are several reasons why these products were not launched before, such as limited market size, price issues or MOQ (minimal order quantity) is too high. However, per capita GDP and medical expenses have experienced a significant increase in the last decade in some of these markets, changing the scope and bringing new opportunities. The harmonization trend in ASEAN is also playing a role by building a clearer regulatory pathway, as well as the Covid pandemic by increasing companies’ digitalization and local healthcare agencies are now offering registration on-line, and, in most cases, in English language.

?4. Critical price / mass positioning strategy

?Once discarded the markets in which the reachable price does not allow to cover the costs, the company will have to evaluate which of the selected ones have greater potential of business according to its profile and its portfolio. Certain companies will give priority to achieving a high unit price, while others will seek to reach larger orders even at the cost of sacrificing a little the unitary margin. For example, a company that sells European-quality generics and another with newly launched innovative products will not consider equally attractive primarily retail and price-controlled markets like the Philippines than other mostly hospital driven with strong pressure on prices but high volumes of purchase, such as Thailand.

?5. Trusted local partners / partners

"Some companies only seek agreements with European or North American companies to use as leverage in their own negotiations"

?Having a good local partner or a collateral consulting firm are important factors in deciding where to export. Many times, the available information is scarce, so having adequate access to reliable data is essential and selecting a good local partner will make a difference. The same can be said of the more expensive and committed part of the project: its execution. Having the right people (through training, experience and contacts) can save the company important and expensive disappointments. Finding a good local partner may be challenging for different reasons:

• Regulatory concerns. As the number of companies expanding to SEA is considerably increasing, the power of negotiations is moving towards the local companies, and if having the possibility to choose, most of them will not take regulatory risks. Some issues, such as lack of stability test zone IV B already performed can drive to a no go from the distributor, despite the fact that is quite locally acceptable to perform the test while the product is under review with the compromise to finish it later. There are, however, some strategies that can be follow to overcome this issue.
• Conflict of interest. Some companies only seek agreements with European or North American companies to use as leverage in their own negotiations. It is a way of gaining prestige, but their priority is still their manufactured products, and the objectives may not be conveniently aligned.
• Inappropriate profile for a specific market. Sometimes the chosen distributor may have a presence in several markets, but with a different performance in each of them. Too many times we have seen cases in which the local partner formulated very positive sales forecasts, but when they are not met in the second year, many of these companies literally abandon the product. It could be thought that this is solved by changing the distribution, but our experience shows that this is not always that simple.

?This list is by no means exhaustive but can serve as a first approximation to the subject.