Healthcare Outlook Asia Pacific Economic Community

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This presentation discusses the global economy, factors impacting healthcare companies, the impact these factors have had on healthcare companies in Asia, the opportunities in Asia Pacific in the current global climate.

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Healthcare Outlook Asia Pacific Economic Community

  1. 1. Healthcare Outlook Asia Pacific Economic Community We Accelerate Growth. 1
  2. 2. Introduction www.frost.com • The credit crisis has contributed to a significant shift in the 2009 regional outlook • Frost and Sullivan anticipates that global economy will continue to deteriorate in the first half of 2009 • This will be followed by a slow recovery in 2H 2009 • Healthcare in Asia will be affected by the global slowdown although we forecast this will not hit the region as severely as in developed countries • In the midst of the crisis we forecast Asia will also benefit as healthcare companies in the US and EU come under significant cost pressures • This presentation will review the current crisis, its impact on the healthcare sector and the opportunities that will be created in 2009 2
  3. 3. Overview of the Global Economy 3
  4. 4. Factors Contributing to the Financial Meltdown www.frost.com Falling Asset Values 12 Month Change in LIBOR RATES 4.0% Asset prices and 12 month LIBOR Rate valuations fall 3.0% sharply: 2.0% Total Write Downs by Banks to Date: 1.0% $1 trillion 0.0% Jan Mar May Jul Sep Nov US CDO Market 600 US CDO Market (US$, B) 400 Banks Unwilling to Lend Due to Fear of 200 Further Losses 0 2004 2005 2006 2007 Growing Use of Complex Debt Instruments Disperse Risk 4
  5. 5. The Growing Global Slow Down www.frost.com • The credit crisis which started in the US housing and financial sector has spread to the broader global economy • The slowdown can be seen by the sharp falls in global demand and by the increase in unemployment rates in most major economies Global Purchase Managing Index (PMI) Global Purchase Managing Index (PMI) US Employment and Payrolls Rate US Employment and Payrolls Rate Source: Reuters, BNP Paribas 5
  6. 6. Global Response: Massive Government Stimulus www.frost.com Japan: Interest rate cuts; $51 China: Interest rate cuts; $586 billion stimulus package billion stimulus (infrastructure, rural) South Korea: India: Interest rate cuts; $4 billion Interest rate cuts and stimulus package (infrastructure, efforts to keep currency exports, textiles) stable; $11 billion stimulus package Taiwan: $31 billion stimulus package (subsidies, tax cuts) Malaysia: $2 billion stimulus package Global Response • Governments infusing capital into financial institutions • Globally coordinated interest rate cuts • IMF offers bridge loan to meet foreign exchange requirements • Discussions, coordinated efforts (G20 summit) 6
  7. 7. Impact on Sectors of the Economy www.frost.com • The effects of the downturn has disproportionately affected different segments of the economy • The healthcare sector has outperformed the broader market US Market Indices 16,000 14,000 Indices value (units) 12,000 10,000 8,000 Healthcare Indices, while 6,000 declining, have still 4,000 outperformed Dec-07 Feb-08 Mar-08 May-08 Jul-08 Aug-08 Oct-08 Nov-08 the broader Dow Jones Industrial Average NasDaq Biotech market NasDaq Financials NASDAQ Transportation S&P HEALTHCARE INDEX PHLX SEMICONDUCTOR SECTOR INDEX • This implies that investors expect that, while the healthcare sector will be affected by the downturn, it will still out-perform the general economy 7
  8. 8. Factors Impacting Healthcare Companies 8
  9. 9. Overview: Impact on the Healthcare Sector www.frost.com Symptoms of the Downturn Downturn in Increased cost and Decrease in govt Sharp fall in capital markets reduced availability of revenues and sharp discretionary debt rise in expenditure spending Impact on Healthcare Companies in 2009 Development Stage Pharmaceutical Medical Healthcare Pharma/Biotech and Biotechnology Technology Services Companies Companies Companies Providers Common Factor: Reduced Access to Capital and Higher Interest Costs • Operational decline • Reduced corporate • Reduced corporate • Working capital deals deals constraints • Reimbursement • Reimbursement • Reimbursement pressures pressures pressures • Decline in consumer • Decline in consumer • Decline in consumer spending spending spending • The economic downturn will impact the various segments of the healthcare sector differently in 2009 9
  10. 10. Decline in Corporate Debt Markets and Increasing Cost of Debt www.frost.com Change in Financing Costs: Ramsey Healthcare Group $60 Financing Costs (A$, M) • The current financial crisis has $45 increased the cost of, and reduced the availability, of $30 debt $15 • This will have a limited impact on the operations of most $0 Pharmaceutical and Medtech Nov-06 May-07 Nov-07 May-08 companies Change in Interest Expense: Raffles Medical Group Financing Costs (Sgd,000) $200 • Hospitals and healthcare $160 providers with weaker free cash flows and a greater $120 reliance on debt will be more $80 affected $40 $0 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Source: Company Reports • Hospital and healthcare service providers will be more affected by changes in the availability and cost of debt in 2009 10
  11. 11. Government Expenditure and Healthcare www.frost.com • Over the past decade US healthcare spending has grown 2.5 points faster than GDP. If this trend continues US healthcare spending will account for 30% of GDP by 2030 • Other countries are grappling with similar problems, particularly those with rapidly aging populations such as Japan Source: Frost and Sullivan • The current economic crisis and blow out in government debt will put renewed cost pressures on governments to reduce healthcare spending in 2009 11
  12. 12. Falling Asset Prices Creates Cost Pressures for Healthcare Insurers www.frost.com • The crisis has created a series of factors that are adversely affecting insurer profit margins including: 1. Decline in investment incomes: caused by a decline in asset prices 2. Decline in new polices: caused by weak consumer demand 3. Increased cost of debt Change in Written Premiums* Insurer Net Realized Capital Gains** 15.3% $20 $ Billions 18.0 $18 16.2 $16 10.0% $14 13.0 8.4% $12 10.8 9.9 9.8 9.2 9.7 $10 9.1 9.0 5.0% 4.2% $8 6.6 6.6 3.9% 6.0 $6 4.8 3.5 0.5% $4 2.9 1.7 $2 -0.6% -0.7% $0 -$2 -0.5 -1.2 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08:Q1 00 01 02 03 04 05 06 07 08 20 20 20 20 20 20 20 20 20 1: Q * Source: A.M. Best; ISO., **Sources: A.M. Best, ISO, Insurance Information Institute • Weak healthcare insurer profitability will pressure them into reducing their healthcare reimbursement payments 12
  13. 13. Declining Discretionary Spending: Is there an Impact? www.frost.com • Healthcare is typically seen as defensive - products are viewed as non-discretionary goods that should be less affected by cyclical economic events. However not all healthcare products are non-discretionary • In addition patients are required to pay at least some of the expense of non-discretionary items which will impact on demand for these services Consumption Employment Private Both employment and private consumption have fallen sharply • Sharp falls in discretionary spending plus moderate falls in non-discretionary spending will reduce healthcare company revenues in 2009 13
  14. 14. Impact on Healthcare Companies in Asia 14
  15. 15. Development Stage Life Sciences Companies and the Capital Markets www.frost.com • •Inability to raise Inability to raise development capital in the Increased bankruptcies ––In Increased bankruptcies In development capital in the current market 2008 several biotech 2008 several biotech current market companies collapsed, we companies collapsed, we anticipate this trend to continue anticipate this trend to continue in 2009 in 2009 • •Venture capital company Venture capital company activity has dropped due activity has dropped due Development Job Losses ––Staff are cut to the inability to exit Job Losses Staff are cut to the inability to exit Stage Life Sciences to reduce costs, which will current investments and to reduce costs, which will current investments and Companies continue into 2009 raise new capital continue into 2009 raise new capital Operational Decline ––Cut Operational Decline Cut costs to conserve cash by costs to conserve cash by • •Risk averse investors Risk averse investors halting the development of less are selling risky life halting the development of less are selling risky life promising projects promising projects sciences stocks sciences stocks • 2009 will continue to be challenging for development stage life sciences companies in the region due to the limited availability of capital 15
  16. 16. Capital Constraints: Larger Healthcare Companies www.frost.com ••Pharmaceutical companies have strong free cash flows and low debt Pharmaceutical companies have strong free cash flows and low debt levels levels Pharmaceutical ••Thus the current crisis will have aaminimal impact on their continued Thus the current crisis will have minimal impact on their continued Companies operations operations ••It will make ititmore difficult to raise capital for larger M&A deals but It will make more difficult to raise capital for larger M&A deals but strong opportunity to conduct smaller M&A deals strong opportunity to conduct smaller M&A deals ••Strong on-going M&A opportunities as many of the major players in Strong on-going M&A opportunities as many of the major players in Medical the sector have strong balance sheets and cash flows the sector have strong balance sheets and cash flows Technology • In 2009 the limited available capital will make it challenging to fund • In 2009 the limited available capital will make it challenging to fund larger deals but strong opportunity to conduct smaller M&A deals larger deals but strong opportunity to conduct smaller M&A deals • Are facing more difficulty caused by limited access to debt and • Are facing more difficulty caused by limited access to debt and reductions in government reimbursement payments Healthcare reductions in government reimbursement payments Service ••Impact on ability to maintain current operations and make ititdifficult to Impact on ability to maintain current operations and make difficult to fund operational expansions fund operational expansions Providers ••Opportunities in REIT market depending on the availability of credit Opportunities in REIT market depending on the availability of credit • We anticipate it will be challenging to raise capital in 2009 and this will more strongly impact hospital and healthcare providers 16
  17. 17. Discretionary vs Non-Discretionary Healthcare Spending www.frost.com • As noted earlier in developed economies discretionary consumer spending has declined sharply in 2008 • Trade is a significant driver of income in Asia and there is likely to be a flow effect on consumer demand in Asia in 2009 • This slow down will affect % of Country Trade with the US: 2006 healthcare companies that: Malaysia 19% 1. Sell discretionary goods and services (elective surgery and India 17% cosmetic treatments) Hong Kong 15% 2. Screening services as these can be deferred China 21% 3. Goods and services that have cheaper substitutes 0% 5% 10% 15% 20% 25% • We note that this forecast decline will not be as sharp as in the developed world and the major Asian economies of China and India are forecast to experience positive growth 17
  18. 18. US and EU Healthcare Companies: Dealing with Cost Pressures www.frost.com ••Staff Reductions: particularly sales and R&D staff Staff Reductions: particularly sales and R&D staff ••Expand revenue growth in developing world jurisdictions Expand revenue growth in developing world jurisdictions Pharmaceutical ••Halt the development of less promising therapies Halt the development of less promising therapies Companies ••Reduce debt levels Reduce debt levels ••Shift manufacturing and research facilities Shift manufacturing and research facilities ••Staff Reductions: particularly sales and R&D staff Staff Reductions: particularly sales and R&D staff ••Expand revenue growth in developing world jurisdictions Expand revenue growth in developing world jurisdictions Medical Technology ••Halt the development of less promising projects Halt the development of less promising projects ••Reduce debt levels Reduce debt levels ••Shift manufacturing and research facilities Shift manufacturing and research facilities ••Cut staff, particularly in operations that are unprofitable to run Cut staff, particularly in operations that are unprofitable to run Healthcare ••Reduce new capital spending Service Reduce new capital spending ••Increased out-sourcing of back office jobs Increased out-sourcing of back office jobs Providers ••Reduce services and focus on more profitable operations Reduce services and focus on more profitable operations • There are significant opportunities for Asian countries to benefit as EU and US healthcare companies adjust to cost pressures in 2009 18
  19. 19. Opportunities in Asia Pacific in the Current Global Climate 19
  20. 20. The Asian Healthcare Sector www.frost.com Healthcare Market Revenue (Asia Pacific), 2008 Total: US$ 239.9 billion Medical Imaging HIT 1.5% Medical Devices 2.1% 21.2% Biotechnology 6.7% Clinical Diagnostics 2.1% Pharmaceuticals 66.2% • In 2009 we anticipate the healthcare sector in Asia will grow by 5-10% 20
  21. 21. Opportunities in the Asia Pacific Region www.frost.com • The global healthcare industry is experiencing challenging circumstances in 2009 – We anticipate there will be a number of select opportunities in the APAC region Increased corporate •Increased smaller (sub $1B) corporate transactions •Increased smaller (sub $1B) corporate transactions activity in the Life •Cash rich pharmaceutical companies will use the current crisis to •Cash rich pharmaceutical companies will use the current crisis to Sciences Sector acquire assets cheaply acquire assets cheaply Focus on ••Increased use of diagnostic tools delivering personalized treatments Increased use of diagnostic tools delivering personalized treatments personalized ••Supported by governments trying to optimize the use of costly Supported by governments trying to optimize the use of costly healthcare medications and achieve higher healthcare cost benefits medications and achieve higher healthcare cost benefits Greater stress on • Drugs will be scrutinized more for their relevant cost benefits – use of • Drugs will be scrutinized more for their relevant cost benefits – use of products with high generic drugs will expand generic drugs will expand cost benefits ••Preference for treatments that effectively reduce overall treatment cost Preference for treatments that effectively reduce overall treatment cost Increased • Driven by cost pressures faced by healthcare companies in developed • Driven by cost pressures faced by healthcare companies in developed outsourcing countries countries opportunities ••The areas of focus will be R&D, clinical research and manufacturing The areas of focus will be R&D, clinical research and manufacturing • Pharmaceutical and medical technology companies will focus on • Pharmaceutical and medical technology companies will focus on Asian growth expanding their sales in the region expanding their sales in the region opportunities ••Regional markets will grow quicker than developed world markets Regional markets will grow quicker than developed world markets 21
  22. 22. Opportunity 1: Corporate Activity and Life Sciences Companies www.frost.com • In 2009 we believe there will be an increase in M&A activity between pharmaceutical and Medical Technology companies • Biotechnology vs Pharmaceutical • Company Cash Position is Critical Opportunities in the Life Sciences Sector • Biologic assets will continue to attract • Companies with low cash positions should high valuations be avoided • This is due to limited generic competition • Companies with low cash reserves are likely and high product margins to become insolvent in 6-12 months • Focus on Late Stage Companies • Potential Product Cost Benefit • Focus on life sciences companies with • Strong pressures in 2009 to restrain the late stage assets (late phase II / phase growth of healthcare expenses III) • In this environment products that provide • Pharmaceutical companies will need superior cost benefits will be preferred access to assets that can provide value in the medium term • Early stage life sciences companies in Asia will benefit from this trend • Strong opportunities for companies targeting growth diseases in the emerging markets – Oncology, Cardiovascular Disease and Diabetes 22
  23. 23. Opportunity 2: Personalized Healthcare www.frost.com • We believe the crisis will accelerate the use of personalized healthcare – driven by the ability to generate significant healthcare cost savings • It is unlikely that full genomic mapping will become commonplace in the near future • However it is becoming increasingly common to see therapies incorporating some level of genomic testing to optimize their use • These cost savings are derived from the ability of personalised medicines to address: A. Appropriateness: Pre-determining efficacy B. Patient safety: Assess patient responses and avoid costly adverse drug reactions C. Optimize: Determine optimal dosing D. Over Utilization: Determine when treatment should be stopped and a new treatment regime adopted • In 2009 we anticipate products and systems that can deliver cost efficient personalized healthcare tools will become increasingly utilized 23
  24. 24. Opportunity 2: Personalized Healthcare www.frost.com ••Testing used to optimize drug therapy Testing used to optimize drug therapy ••Tests involve sequencing specific parts of the viral genome to identify Viral Drug Tests involve sequencing specific parts of the viral genome to identify drug resistance Resistance Testing drug resistance ••Particular focus in Asia on diseases prevalent in the region such as Particular focus in Asia on diseases prevalent in the region such as Hepatitis Hepatitis ••Gene specific sequencing can be used to understand the performance Gene specific sequencing can be used to understand the performance of aadrug in aapatient of drug in patient Gene specific ••Closely linked to IT systems that can analyze and provide aadata Closely linked to IT systems that can analyze and provide data sequencing tests interpretation interpretation ••Strong cost benefit when linked to widely used or expensive drugs Strong cost benefit when linked to widely used or expensive drugs ••Growth of management of patients at home due to cost savings Growth of management of patients at home due to cost savings • Strong opportunity for the development of IT systems that can support • Strong opportunity for the development of IT systems that can support Home Care Model the cost effective management of patients at home the cost effective management of patients at home ••We anticipate strong growth in Japan due to strength of IT We anticipate strong growth in Japan due to strength of IT infrastructure and rapidly aging population infrastructure and rapidly aging population Patient Record ••Drive to implement patient management systems, can achieve Drive to implement patient management systems, can achieve significant cost savings Management significant cost savings • Initiatives launched by Japan (U-Japan), China (11thth5 Year Plan) & UAE Systems • Initiatives launched by Japan (U-Japan), China (11 5 Year Plan) & UAE • In 2009 we believe these areas will experience strong growth due to their ability to deliver cost savings in a cost constrained environment 24
  25. 25. Opportunity 3: Drugs with strong cost benefits www.frost.com • The cost constrained environment will promote the use of therapies with strong cost benefits • Governments use different measures to promote the use of generic compounds and we anticipate these efforts will be intensified in 2009 Supply Side Demand Side Induce Incentives to Prescribing Reference Pricing price Substitution Co-payment Co- Pharmacists & Guidelines competition Physicians Forecast Growth of the Generic Drug Market in Japan Source: Frost and Sullivan • Due to their superior cost benefit balance we anticipate the generic drug market will be a growth market in Asia in 2009 25
  26. 26. Opportunity 4: Outsourcing and Asian opportunities www.frost.com • The financial crisis has created profitability pressures that will drive companies to find ways to reduce costs. The outsourcing of operations to low cost centres in Asia is one way to achieve these cost savings • We anticipate this drive will utilize Asia as a potential source of: 1. Research and Development: by 2009 R&D outsourcing is anticipated to be worth $7.2 billion (Source: Biospectrum). Services utilized include drug discovery, screening and lead product optimization 2. Clinical Trials: Use of CROs with an Asian presence to reduce clinical trial costs and to ensure APAC populations are included in clinical studies 3. Manufacturing: Outsourcing of manufacturing to Asia is still focused on the production of APIs. However Asian centers are developing expertise in biologics manufacturing (e.g. Singapore, India, S.Korea, etc). Additionally, Taiwan, Malaysia, China and Singapore will play an increasing role in medical device manufacturing 26
  27. 27. Opportunity 4: Outsourcing and Asian opportunities www.frost.com • Of the two big regional players, India continues to grow due to the country’s pool of well educated low cost talent. China’s growth as an out-sourcing destination has been hampered by its weak IP laws though it is being targeted by companies attracted to its ability to conduct low cost clinical trials and R&D • In particular India and China are the preferred CRO destinations in Asia and are likely to witness substantial growth in this area due to their large populations and growing importance of their local markets ••Strong interest in using China as aasite for clinical trials due to the Strong interest in using China as site for clinical trials due to the availability of aalarge patient population and in order to access the availability of large patient population and in order to access the China domestic Chinese market. The China clinical research market was domestic Chinese market. The China clinical research market was worth US 238 M with a CAGR of 18.6% in 2008 worth US 238 M with a CAGR of 18.6% in 2008 ••Several pharmaceutical companies are establishing fully owned Several pharmaceutical companies are establishing fully owned R&D operations in China including Novartis, Roche, Astra-Zeneca R&D operations in China including Novartis, Roche, Astra-Zeneca and J&J in order to reduce their early stage R&D costs and J&J in order to reduce their early stage R&D costs ••India has attracted significant interest as an outsourcing India has attracted significant interest as an outsourcing destination. Pharmaceutical companies are attracted to the country’s destination. Pharmaceutical companies are attracted to the country’s India established IP regulations, well trained population, growing patient established IP regulations, well trained population, growing patient market and established expertise in pharmaceutical manufacturing market and established expertise in pharmaceutical manufacturing ••The contract research & manufacturing market in India was worth The contract research & manufacturing market in India was worth about US $ 900 M in 2008 about US $ 900 M in 2008 27
  28. 28. Opportunity 5: Focus on Asian growth opportunities www.frost.com • The geographic balance of the pharmaceutical market will continue to shift away from the US and toward the world's emerging markets – the credit crisis will accelerate this trend by further reducing growth in the US and EU: 1. In 2007 emerging markets represent 17% of the global market growth, but will contribute to 30% of this growth in 2008 2. The US accounted for about 36% of the total growth in 2007, significantly less than the 54% it contributed five years earlier • Growth in the Asia Pacific region will be driven by the increased availability of healthcare and the emergence of lifestyle chronic diseases (such as diabetes & cardiovascular diseases), more typically found in developed countries • Global pharmaceutical markets will grow by 4.5 - 5.5% in 2009 as double-digit growth in emerging markets offsets modest growth in major developed markets 28
  29. 29. Opportunity 5: Pharmaceutical Markets in 2009 www.frost.com Global Pharmaceutical Sales Global Pharmaceutical: 2009 Market 850 Sizes* Growth Rate 820 Emerging, 4.5-5.5% Sales (US$) 115 790 US, 302 760 Japan, 88 730 700 * All values 2008 2009 are in US$, EU, 172 Billions Global Pharmaceutical: 2009 Growth Rates 15% 13% Sales (US$) 10% • Growth in emerging country 8% markets will far outstrip growth in the US and EU 5% 3% 0% US EU Japan Emerging Source: IMS 29
  30. 30. Specific Growth Opportunities: Oncology and Chronic Diseases www.frost.com Aging of the Population in APAC Growth of Chronic Diseases in Asia Philippines Malaysia India Indonesia Thailand Singapore 2010 China 2003 South Korea Taiw an Hong Kong Australia Japan 0 10 20 30 40 50 % of population over 60 % of population with 1 or more chronic diseases Source: Frost and Sullivan • Specific disease markets will offer strong growth opportunities in 2009. In particular we believe healthcare expenditure on chronic disease and oncology will continue to grow • This trend will be driven by lifestyle changes and aging populations in Asia 30
  31. 31. Summary: Accelerating Change www.frost.com Opportunities Changing Business Models in the Asian Changing Technology Use Healthcare • Accelerate use of • Accelerate US / EU realigning of business models Market 1. Patient management 1. Sales in Asia systems 2. IT in personalized 2. Adopt outsourcing models healthcare 3. Acquire innovation Changing Disease Management Changing Regulations • Accelerate use of • Accelerate use of 1. Home monitoring 1. Pricing controls 2. Generic drugs 2. Cost benefit analysis 3. Other cost saving 3. Stricter regulatory therapies guidelines • The challenges facing the global healthcare sector in 2009 will accelerate trend changes that will benefit Asia 31
  32. 32. Growing with Frost and Sullivan www.frost.com • Frost and Sullivan has a team of dedicated healthcare experts with relevant experience in biotechnology, pharmaceutical, medical technology and healthcare financing • As the Growth Partnership Company, Frost & Sullivan helps organizations develop and maintain a high-performance workforce by providing them with continuous market intelligence and analysis • Contact us today to discuss how you can become a Frost & Sullivan Growth Partner Name: Dr. Louis Payet Name: Mr Simranjit Singh Title: Senior Consultant Title: Associate Director Healthcare Asia Pacific Healthcare Asia Pacific Email : louis.payet@frost.com Email : Simranjit.s@frost.com Direct: + 65 6890 0987 Direct : + 65 6890 0954 Mob: + 65 9425 2812 Mob: + 65 9147 3750 32

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