Malaysia Pharmaceuticals and Healthcare Report Q2 2012

BMI View: Malaysia’s longer term potential as an attractive pharmaceutical market will remain shaped by theprevailing economic conditions and the export situation, which are crucial for the country’s overall economicdevelopment and thus also the availability of individual funding for medicines, given the high out-of-pocketcontribution to healthcare. Nevertheless, volume demand will continue to grow on the back of demographic andepidemiological changes, supported by the expansion of modernisation of healthcare provision in both public andprivate sectors.

Headline Expenditure Projections

.. Pharmaceuticals: MYR4.92bn (US$1.61bn) in 2011 to MYR5.23bn (US$1.64bn) in 2012; +5.9% in localcurrency and +2.1% in US dollars. Forecast down slightly from Q212 due to macroeconomic factors.

.. Healthcare: MYR38.93bn (US$12.73bn) in 2011 to MYR41.32bn (US$13.01bn) in 2012; +6.1% in localcurrency and +2.3% in US dollars. Forecast down slightly from Q212 due to macroeconomic factors.

.. Medical devices: MYR3.82bn (US$1.25bn) in 2011 to MYR4.00bn (US$1.26bn) in 2012; +4.9% in localcurrency and +1.1% in US dollars. Forecast broadly unchanged from Q212.

Business Environment Rating: In our latest proprietary Pharmaceutical Risk/Reward Rating (RRR) matrix for AsiaPacific, Malaysia ranks in an unchanged position 8 out of the 18 countries surveyed regionally. The country’srewards are considered modest at best, given the low per capita spending on pharmaceuticals, but its matrix positioncontinues to be supported by the strong risk scores.

Key Trends & Developments

.. In January 2012, Malaysian Minister of Health Liow Tiong Lai stated that a dengue fever vaccine will beavailable in the country by 2014 or 2015. The health ministry is set to enter the third phase of clinical trialson a vaccine by the end of 2012. Liow said the ministry achieved success during the second phase of trials,which involved monitoring about 2,000 people from Penang and Putrajaya. The ministry and Frenchdrugmaker Sanofi have been developing the vaccine to treat dengue.

BMI Economic View: Despite a better-than-expected real GDP growth reading of 5.2% year-on-year (y-o-y) inQ411, we are happy to maintain our below consensus view on the Malaysian economy in 2012. Our core view thatcooling global demand will continue to drag on production of cyclical goods – including industrial metals andelectrical and electronic components – means that we expect manufacturing sector growth to remain weak goingforward. Accordingly, we expect Malaysia's real GDP growth to come in at a subdued 3.3% in 2012, compared toconsensus forecast of 4.2%.

BMI Political View: The opposition Democratic Action Party (DAP) has proposed new measures aimed ataddressing corruption. Some of the key measures include a ban on political parties' involvement in businesses and theadoption of an open tender system for government contracts. DAP Secretary General Lim Guan Eng said thateconomic losses due to corruption are close to estimates published by Washington-based financial watchdog GlobalFinancial Integrity (GFI) at MYR1.1bn (US$0.3bn) annually. We believe that the move will put further pressure onthe ruling Barisan Nasional to speed up efforts to tackle corruption.