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Scrip Asia 100 - Attracting brains and the big bucks

This article was originally published in Scrip

Executive Summary

Singapore is kicking off free trade discussions with the EU that promise a fillip to ASEAN business. Phil Greenfield assesses the climate for foreign direct investment in the city-state and another of the bloc's most promising pharma markets, Malaysia.

When reviewing the potential for pharmaceutical and biotech companies in Asia, the region's largest economies – Japan, China, South Korea and Taiwan – are often mentioned due to the billions of dollars being poured into biotech development. However, two countries punching above their weight are Singapore and Malaysia.

According to the 2010 edition of the IMD World Competitiveness Scoreboard, Singapore now stands at number one (having risen from third place in 2009) and Malaysia at number 10 (up from number 18). In the first quarter of 2010 Singapore's economy grew a staggering 13% as it took advantage of the Asian economic recovery.

Incentives such as low corporate tax rates and strong intellectual property (IP) laws have enabled Singapore to secure funding to invest in the biomedical manufacturing industry. Singapore acts as a key trading hub to connect southeast Asia and the west and is a major re-exporter of pharmaceuticals.

In Malaysia, government investment in the country's nascent biotech sector, and the country's potential as a major Asian centre for clinical trials, due in part to its ethnic diversity, position it well. The country seems keen to move on from the ill-fated 2001 BioValley project, which fell far short of its goal of attracting $10 billion in life science investment, and has joined the growing ranks of Asian countries offering new incentives to attract investment, infrastructure and expertise in the biotechnology sector, the development of which it considers key to mid-term economic growth. While the main thrust is in agriculture, the country's latest economic plan sets aside more than $500 million for life science and biotech R&D, with an emphasis on technology with commercial potential.

Singapore and Malaysia are both set to benefit from a free trade agreement (FTA) with China, which came into effect in January 2010. This will slash the average tariff on Chinese goods from 12.8% to 0.6% and cut the average tariff on goods moving from these ASEAN bloc countries to China from 9.8% to 0.1%.

In a move that will encourage European pharmaceutical companies, Singapore is also kicking off negotiations with the EU as part of the latter's plans to seek free trade talks with the ASEAN bloc's 10 members. FTA negotiations usually include the discussion of IP provisions of importance to the research-based pharmaceutical industry, through which the EU can seek to bring partner country regulations more into line with its own norms. Exclusivity periods, patent restoration and the protection of confidential data are usually the main topics of focus, while tariff and other regulatory and technical barriers to trade and investment are also likely to be addressed.

And the possibility of an FTA with the US would make ASEAN a more attractive prospect for US pharmaceutical companies as well.

Singapore – size isn't everything

Despite Singapore's small size, the city-state offers good opportunities for branded pharma to grow sales. Singapore's government has attracted investment by offering incentives such as low corporation tax and easy entry for foreign employees, as well as a programme to encourage working relationships between state agencies and universities. This has led to an influx of foreign pharmaceutical companies, which has boosted the sector and increased employment. Generous government funding for research and relatively permissive regulations covering human embryonic stem cell research have attracted high-calibre scientists. And while the effects of the global economic downturn will be felt in biomedical manufacturing, the longer term potential seems set.

According to Kian-Teik Beh, director of biomedical sciences at the Singapore Economic Development Board (EDB), the city-state has established its position as a trusted and competitive site for pharmaceutical and biotechnology manufacturing in Asia. Pharma and biotech companies produce about S$17 billion ($12.3 billion) worth of medicines in Singapore and these are largely exported to regional and global markets, he says.

As global companies seek to manage their risks by diversifying the geography of their production plants, Singapore presents a reliable manufacturing location where they can effectively transfer technology, efficiently scale up manufacturing and ensure quality control of their products. Pharma and biotech companies have invested in 30 commercial-scale facilities. More than 20 of these are in commercial production and have received no major GMP observations from either the European Medicines Agency (EMA) or the US FDA, according to Mr Beh.

Singapore also presents a strategic base for companies to drive their business expansion in Asia. Eight of the top 10 pharmaceutical companies have set up regional headquarters in Singapore (see Box 1).

Box 1 - Pharma in Singapore

Major players and their operations in Singapore include:

Baxter: first-in-Asia Advate manufacturing plant; regional HQ

GlaxoSmithKline: API plant; biologics vaccine plant; Asia-Pacific HQ; R&D centre for cognitive and neurodegenerative diseases

Merck & Co: process R&D; primary API manufacturing; secondary biologics manufacturing; tableting; Asia-Pacific HQ; Translational Medicine Research Centre

Novartis: API plant; regional HQ; Novartis Institute for Tropical Diseases

Pfizer: API plant; nutritional manufacturing plant; clinical research unit

Roche: biologics plants that manufacture Avastin (bevacizumab) and Lucentis (ranibizumab); regional headquarters for diagnostics; translational medical research hub

Singapore presents a number of key advantages for global pharmaceutical and biotechnology companies, according to Mr Beh. These include:

  • Rapid set-up and export – Companies setting up in Singapore can construct and validate a manufacturing plant within 24-36 months. With its excellent logistics connectivity, companies can quickly export and distribute their products to global markets.
  • Pro-business climate – Singapore is well-known for its business-friendly environment, with good corporate governance, clear and consistent government guidelines and strong IP protection. Singapore also offers a politically stable and favourable tax environment.
  • High-quality manpower – Singapore offers a skilled workforce that is well-trained in science and mathematics. Since the 1970s, the city-state has had zero man-days lost on strikes, due to its tripartite system that brings together the government, employers and unions to address manpower issues. Staff costs remain competitive with entry salaries for bachelor of engineering graduates pegged at $1,500 each month for about 50 working hours each week.
  • Partnering in process development – Companies (including GlaxoSmithKline and Merck & Co) are extending beyond commercial manufacturing into process development. In addition to setting up their own process development units, companies can also partner with research institutes (eg, the Institute of Chemical Engineering and Sciences, Bioprocessing Technology Institute) to optimise manufacturing processes and the formulation of new products. The Singapore Institute of Manufacturing Technology has partnered companies to develop automation solutions to streamline operations.

In addition to its strong track record in biomedical manufacturing, Singapore has established scientific and clinical excellence. More than 50 companies use Singapore's network of 30 research institutes, academic medical centres, hospitals and medical institutes. Singapore has also recently launched a new national cancer centre which it expects to play a key role in the advancement of novel therapies for malignancies prevalent in the Asia-Pacific region. The National University Cancer Institute, Singapore, was formally inaugurated in February 2010 at the National University Hospital (NUH), and will work closely with the Cancer Science Institute of Singapore, the Agency for Science, Technology and Research and the Cancer Therapeutics Research Group (CTRG), a regional consortium of research facilities.

However, despite offering great opportunities for investment, there are still some challenges to entering the Singapore market. Low-income and retired citizens often cannot afford medications, driving patients who need regular medication to travel across the causeway to Malaysia to buy drugs at a fraction of the Singaporean price. In the long run, this may translate into lost sales for pharma. Singapore also faces significant competition from neighbouring countries that offer lower operating costs. This can lead companies or investors to shy away from the Singapore pharmaceutical market, opting instead for India or China.

Malaysia – refocusing on biotech ambitions

The Malaysian pharmaceutical market is relatively underdeveloped by international standards, although it does hold longer-term potential. According to a report from Business Monitor International (Malaysia Pharmaceuticals and Healthcare Report Q1 2010), the country's pharmaceutical market at consumer prices was valued at around MYR4.12 billion ($1.22 billion) in 2008, with per-capita spending hovering at around $45. The report predicts the market will post a compound annual growth rate (CAGR) of 7.09% in local currency terms between 2009-14, when it should top MYR6.04 billion ($2.05 billion).

Malaysia's pharmaceutical sector faces some short to medium-term challenges. For example, low levels of per capita pharmaceutical consumption are especially vulnerable to economic downturn, due to the fact that out-of-pocket payments are high, which also makes the market receptive to counterfeit medicines.

To secure long-term success in the pharma and biotech sector, the Malaysian government is encouraging local pharmaceutical production, particularly in the fields of biotechnology and the manufacture of off-patent drugs. Malaysia's biotechnology initiative has begun to attract a growing number of multinational companies investing in the country, in terms of manufacturing and research projects. Local manufacturers almost exclusively produce generics and other off-patent medicines, both ethical and OTC products, but medical products imported by multinational manufacturers still command the lion's share of the market, at over 70% in value terms.

Currently the biotechnology industry contributes 2.2% to Malaysia's GDP; the target is to achieve 2.5% by 2011. Tasked with providing a one-stop shop for potential investors and alliance partners is the government-owned Malaysian Biotechnology Corp (MBC), which was set up in 2005 as the implementing agency for a national biotech strategy under the ministry of science, technology and innovation. The aim is to provide a well-structured and consistent set of policies and programmes.

According to MBC's 2009/10 Malaysian Biotechnology report, "healthcare biotechnology is relatively young in Malaysia and has been earmarked for development under the second phase of the country's National Biotechnology Policy (2011-2015). Given Malaysia's comparative advantage in manufacturing and outsourcing capabilities and availability of cost-effective resources, Malaysia is well positioned to be a strategic outsourcing hub for healthcare biotechnology R&D and manufacturing, namely CMOs and CROs."

Moving forward, says the MBC report, the development of CMOs and CROs will provide the foundation for Malaysia to build capacity and capability in drug discovery and development. In addition, Malaysia's tropical biodiversity will provide opportunities for potential nutraceuticals and ultimately botanical drug discovery and development that caters to the needs of tropical countries, especially in the areas of neglected diseases (eg, malaria, dengue and tuberculosis). Development of natural products is expected to generate greater economic value by progressing through the extraction of novel bioactive compounds to the development of products with pharmaceutical and health applications.

As an example of MBC's work, it has recently entered an agreement with Biocon, India's largest biotechnology company by revenues, to manufacture biopharmaceutical products and formulations within the Bio-XCell Ecosystem project in the Iskandar development region in Johor.

Drug delivery technology, tropical diseases, clinical trials, diagnostics and vaccines are of particular interest to MBC at present, with less emphasis on small-molecule drugs. The contract manufacturing of biologics is also emerging as an important area for Malaysia, with several firms setting up joint ventures and other production facilities.

A key tool in gaining access to the range of incentives and support provided through the MBC is so-called BioNexus status. The conditions for this are flexible, allowing operations to be wholly foreign-owned, for example. The status opens the door to a "bill of guarantees" which includes tax breaks, administrative support and access to various grant schemes, seed funding (up to Rg2.5 million ($781,000)) and R&D matching funding. BioNexus firms can also enjoy access to academic networks and shared research facilities to keep costs down.

As of September 2009, there were 51 BioNexus companies and 83 non-BioNexus companies involved in healthcare biotechnology with total approved investment of $235 million. Of 134 companies, 46 were either fully or partially foreign-owned. Areas of interest of the BioNexus status companies are shown in Table 1.

Table 1: How BioNexus status is benefiting Malaysian bio-business

Company type

Number of BioNexus companies (example foreign companies)

CMO

3 (including CEVEC Pharmaceuticals, Germany)

CRO

10 (including Nimura Genetics Solutions, Actis Biologics and Vivo Biotech)

medical device/IVD

17 (including GeneNews Canada and ReaMetrix India)

biopharma

12 (including Novartis and MIT)

therapeutic/stem cell

6 (including Institute for Medical Research, KPJ Group)

bioinformatics

3 (examples not disclosed)

Source: MBC

Examples of local and foreign strategic partnerships in healthcare biotechnology are shown in Table 2.

Table 2: Strength through partnerships

Strategic partnership

Focus area

Venture Technologies and ReaMetrix India

Flavivirus diagnostics for a global market

Melaka Biotech Holdings, Vanguard Creative Technologies and Vivo Biotech, India

integrated biotechnology facility in Melaka for production of biotherapeutics for diseases such as diabetes and cancer

Sarawak Biodiversity Centre and Novartis Institutes for BioMedical Research Basel (NIBR Basel) of Novartis Pharma

exploration of novel bioactive compounds with medicinal potential

GeneNews (Malaysia) and Ministry of Health Malaysia

diagnostic tests for liver cancer, hepatitis B and nasopharyngeal cancer

Source: MBC

Malaysia is also positioning itself as a one-stop centre for clinical trials, due largely to its multi-ethnic population. Foreign CROs are expanding their presence in Malaysia. US-based CRO Kendle created three new Asian units in 2009 in Malaysia, Thailand and the Philippines as its commitment to the region grows. The Melaka State Development Corporation, partnering Vivo Bio Tech, is to invest MYR150 million ($42.5 million) in the creation of a monkey laboratory at the Beribi Industrial Park, which will facilitate preclinical trials.

Australia-based international CRO Novotech is in the process of setting up a new management hub in the country's capital, which will supervise operations in Malaysia, Singapore, Thailand and the Philippines and serve as the base for expansion in the Asia-Pacific contract research sector.

However, Malaysia also faces some considerable challenges to becoming an Asian force in biotechnology, not least of which is the lack of a suitably qualified workforce to support the sector. While the country's workforce is well educated, it is estimated that an additional 280,000 workers are needed to support the biotech sector by 2020. The country's "Brain Gain" programme is aimed at keeping the best talent in its biotech sector, although there is no clear indication yet that this has been a success.

Phil Greenfield is a principal analyst for Scrip. Email: phil.greenfield@informa.com.

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