Hong Kong Pharmaceuticals and Healthcare Report Q2 2012

BMI View: Despite an increasingly ageing population (consequently increasing burden of noncommunicable diseases) Hong Kong will only be moderately attractive to investors given its small market size. While the dominance of patented medicines is set to continue in the medium term, cost-containment measures will increasingly prioritise the use of generic drugs in the public sector. We also note that the anticipation of a year of the dragon baby boom can bring about short-term opportunities for pharmaceutical companies with infant care products as part of their portfolios.

Headline Expenditure Projections

Pharmaceuticals: HKD8.66bn (US$1.11bn) in 2011 to HKD9.32bn (US$1.20bn) in 2012; +7.6% in local currency terms and +7.8% in US dollar terms.

Healthcare: HKD86.24bn (US$11.08bn) in 2011 to HKD89.68bn (US$11.53bn) in 2012; +4.0% in local currency terms and +4.1% in US dollar terms.

Medical devices: HKD4.22bn (US$542mn) in 2011 to HKD4.37bn (US$562mn) in 2012; +3.5% in local currency terms and +3.6% in US dollar terms.

Risk/Reward Ratings: Hong Kong’s composite score in Q212 remains 60.2 out of 100, which again places it seventh of the 18 markets surveyed in BMI’s proprietary Risk/Reward Ratings (RRRs) matrix.

The special administrative region (SAR)’s rewards profile, dragged down by market maturity and small population numbers, remains considerably less attractive than its risk environment. We expect Hong Kong’s position in the table to be increasingly challenged by emerging markets in the Asia Pacific region.

Key Trends And Developments

In December 2011, the Department of Health (DoH) said all proprietary Chinese medicines (pCm) must be labelled in the prescribed manner and that package inserts must comply with the stipulated requirements under the Chinese Medicine Ordinance (Cap 549). According to a DoH spokesperson, sections 143 and 144 of the ordinance prohibit the sale of any pCm unless the package is labelled and complies with the prescribed requirements. A fine of HKD100,000 (US$12,865) and two years’ in prison can be imposed for violation of sections 143 and 144.

In November 2011, the Hong Kong Medical Association appealed to the Hospital Authority to abandon its overseas recruitment plan to deal with the apparent doctor shortage in public hospitals. Leung Ka-lau, a member of the legislative council, said doctor shortages at public hospitals have been attributed to poor resource management by the Hospital Authority. Leung, the first public hospital doctor to be elected, also refuted claims about the extent of the shortage of doctors, saying the overall number of doctors working in public hospitals has risen by 6.6% in the last four years. He recommended that the government ask the University of Hong Kong and the Chinese University to make adjustments to the licensing examinations for doctors to resolve any shortage of doctors in the region.

BMI Economic View: Hong Kong’s long-term outlook remains reasonably bright. While it is a developed economy, increased cooperation between Hong Kong and China offers a unique opportunity for the SAR to benefit from the mainland to further drive economic growth. We therefore expect Hong Kong to resume its strong economic expansion over the coming years and average 3.8% real GDP growth over the next decade. However, Hong Kong needs to maintain its competitive edge or risk being overshadowed by fast-rising Chinese cities.

BMI Political View: While we believe Hong Kong will remain at or near the top of our political risk ratings table over the next decade, a number of risks could lead to rising political instability. The sluggish pace of democratic reform will continue to cause anger among pro-democracy supporters and there is the potential for large protests. A lack of affordable housing and rising income inequality could also pose threats to social stability.