Thanks to a large population, rising middle class, and increasing healthcare spending, the 10 countries that make up the Association of Southeast Asian Nations are gaining attention from medical device makers.
By Ames Gross, Pacific Bridge Medical
For some time now, medical device manufacturers have been looking beyond their traditional markets in the United States and EU, focusing instead on emerging economies such as Brazil, Russia, India, and China—collectively known as the BRIC nations— for growth. But as companies flock to the BRICs and the medtech markets in these countries mature, forward-thinking device makers are searching for the next group of emerging medtech markets. Among those that show promise are the 10 countries that comprise the Association of Southeast Asian Nations (ASEAN)—Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Myanmar, Cambodia, Laos, and Vietnam.
The ASEAN countries have a combined population of more than 620 million, nearly double that of the United States and more than 100 million higher than that of the EU. Topping $2.3 trillion, their combined GDP is equal to around one-quarter that of China, and the region saw GDP growth of about 6% last year, compared with negative growth in the EU and approximately 2% growth in the United States.
Increasing per capita incomes in the ASEAN countries are also leading to an expanding middle class. The middle class accounted for about 22% of the total ASEAN regional population in 2010 and is forecast to increase to more than 62% by 2030. Growing prosperity means more healthcare spending, which is leading to growth in the region’s medical device market. Valued at more than $4.5 billion in 2013, the region’s medical device market is projected to reach $8 billion by 2017, led by Thailand, Indonesia, and Malaysia, which currently account for approximately two-thirds of the ASEAN device market.
But while the ASEAN medical device market is growing, it is also underpenetrated. Opportunities abound for foreign companies that can successfully manage the region’s differing regulatory environments, languages, cultures, and local competitors.
Western- type diseases have become increasingly prevalent in Asia. Increased lifespans and growing incomes have led many to adopt Western habits—such as overeating, consuming fast food, smoking, and engaging in little exercise—putting Asians at an increasingly higher risk for lifestyle diseases. In particular, the growth rates of diabetes, orthopedic problems, cardiovascular disease, and cancer are rising quickly. Western device manufacturers already make products to diagnose and treat these diseases. Hence, the ASEAN nations are attractive markets for Western device firms.
Almost 200 million of the world’s 370 million people diagnosed with diabetes live in Asia. Indonesia is among the top 10 nations with the most diabetics. In addition, Vietnam, Malaysia, and the Philippines are forecast to have increasingly high levels of new diabetes diagnoses over the next two decades. While one in five Malaysians 30 years of age and older have diabetes, less than half have been diagnosed.
Recent research suggests Southeast Asians are more genetically predisposed to type II diabetes. In addition, the disease affects younger and less-obese people in ASEAN countries than in Western countries. Many Western companies already sell a variety of diabetes diagnostic and treatment products in the United States and Europe, and an increasing number—including Medtronic, Roche, and Bayer—are also growing their businesses in ASEAN countries.
Half of the global elderly population lives in Asia, and that share will rise to more than 60% by 2050. In Southeast Asia, the percentage of people over age 65 will more than quadruple by 2050. As people age they have significantly more orthopedic problems. A December 2013 report by the International Osteoporosis Foundation indicated that the number of people at high risk for osteoporosis in the Philippines will reach four million by 2020 and reach 10.2 million by 2050. Also by 2050, more than seven million Vietnamese women will be at risk of developing osteoporosis.
Sourcing from ASEAN Countries
Besides selling their device products in ASEAN countries, an increasing number of Western medical device companies are also manufacturing or sourcing their products there.
They are doing so for a variety of reasons, including Asia’s low overhead costs, low labor costs, and improving technical capabilities. While labor costs have increased significantly in China, they remain low in some of the ASEAN countries, including Vietnam.
For medical device sourcing and manufacturing, Vietnam has long been considered a poor second choice to China because of the country’s complicated government oversight and inadequate infrastructure. However, there have been significant advances in Vietnam since the mid-2000s. Improving technical capabilities and a large, hard-working labor force are making it easier for Western companies to collaborate with Vietnamese device manufacturers.
Although ASEAN countries have traditionally been known for low-end medical device product manufacturing, such as simple catheters and drainage bags, this is no longer the case. Some manufacturers in ASEAN countries are now able to produce more sophisticated Class II and, in some cases, Class III medical devices.
To increase market share, several Western orthopedic device companies have set up local production facilities to make lower cost, more basic versions of their high-end orthopedic devices. Alternatively, other Western firms have acquired local orthopedic device companies with broad portfolios and good market shares, increasing their competitiveness in mid-range products.
Cardiovascular disease is the leading cause of death in several Asian countries. Almost 60% of the 17 million annual cardiovascular-disease-related deaths occur in Asia. An increasing focus on preventing, diagnosing, and treating cardiovascular issues has resulted in an increased demand for cardiac devices. An estimated 25–30% of deaths in Southeast Asia are caused by cardiovascular disease. In Malaysia, approximately half of those over the age of 30 have hypertension.
Some foreign cardiovascular firms are also developing cardiac technology centers, manufacturing sites, and R&D facilities. For instance, several years ago, Medtronic set up a new facility to manufacture cardiac devices in Singapore, taking advantage of large government tax breaks.
Every year, more than six million Asians are diagnosed with cancer, and four million die from the disease. Among new cases of cancer globally, half are in Asia. The ASEAN nations are also experiencing increasingly high cancer rates. The most common cancers in Southeast Asia are lung, breast, liver, and colorectal cancers. The causes include high rates of Hepatitis B, smoking, alcohol use, red meat consumption, air pollution, and genetic factors. Nasopharyngeal (nose) cancer, relatively rare in the West, is increasingly common in Asia.
Many Western device firms are expected to increase their sales of cancer diagnostic and treatment products in ASEAN nations.
The unpredictable regulatory situation has been one of the biggest hurdles for foreign medical device companies doing business in the ASEAN countries. Issues such as product registration, quality control and postmarket surveillance are often different in each country or simply do not exist.
To address this variation in regulations, the ASEAN Consultative Committee on Standards and Quality (ACCSQ) created the Medical Device Product Working Group (MDPWG) in 2004. The MDPWG’s most recent draft regulations, called the ASEAN Medical Device Directive (AMDD), were released in 2012 and are expected to be implemented by the end of 2014.
The AMDD provides a harmonized regulatory model for member countries, outlining the basic requirements for medical device performance and safety, conformity assessments, a risk-based classification system and the Common Submission Dossier Template (CSDT). The classification system, based on Global Harmonization Task Force (GHTF) guidelines, consists of four medical device categories:
This classification system also applies to in-vitro diagnostics (IVDs). Government fees, clinical requirements, and processing approval timeframes vary in ASEAN countries, depending on the classification. Furthermore, each country can develop its own expedited registration process under the AMDD. Many ASEAN nations are likely to follow Singapore’s lead in implementing the AMDD directives.
Until the AMDD framework is implemented, however, each nation retains its own regulatory system.
Thailand. With a population of 67 million Thailand shares borders with Malaysia, Burma, Laos, and Cambodia. Per-capita healthcare spending in Thailand increased from $73 in 2002 to approximately $220 in 2013. The government sponsored healthcare scheme, although limited in coverage, has expanded to include 99% of Thailand’s population, up from 75% coverage in 2002. The country also has more than 850 public hospitals and almost 600 private hospitals.
The Thai medical device market is worth approximately $1 billion and is growing 15% annually. Nearly all of the top U.S. medical device manufacturers market their products in Thailand. Because the domestic device industry primarily produces basic products such as gloves and syringes, the country depends on imports for higher-end devices— diagnostic imaging equipment in particular.
Thailand’s most recent medical device regulations were passed in 2008, and the Medical Device Control Division, part of the Thai Food and Drug Administration, is in charge of administering the regulations. Foreign companies must register their devices according to risk. The Thai classification system divides devices into Class III (low-risk), Class II (medium-risk) and Class I (high-risk)—the exact opposite of the United States and EU classification frameworks.
Indonesia. Indonesia is the world’s fourth largest country by population. It is estimated that the country’s per-capita healthcare spending will reach almost $150 by 2015, up from $36 in 2005. The Indonesian medical device market is worth almost $1 billion and growing at 15% annually. Almost 95% of the market’s total value comes from imports, with 90% of all 2013 device registrations belonging to foreign manufacturers.
The Indonesian government has also mandated increased public spending on health, establishing a universal healthcare system and upgrading hundreds of public hospitals. These plans are expected to grow Indonesia’s healthcare industry from $25 billion to $50 billion by 2020. The national healthcare scheme is scheduled to be set up by the end of 2014 and will cover all Indonesians by 2019—though, similar to Thailand, the coverage will be very limited. Less than two-thirds of the country’s total population of 250 million currently has health insurance.
Unlike in other ASEAN and Asian markets, an independent third-party in Indonesia is not allowed to hold a license on behalf of a foreign device manufacturer. Hence, nearly all medical device licenses are held and in the name of the Indonesian distributor, making it difficult and expensive for foreign device companies to leave bad Indonesian distributors. Another recent reform was a new online medical device registration system.
Malaysia. Malaysia has only 30 million people, or 12% the population of Indonesia, yet Malaysians spend more than $360 annually per person on healthcare, more than twice their per-capita spending a decade ago. The country’s total healthcare expenditure reached more than $12 billion in 2013 and is forecast to climb to almost $17 billion by 2015. Although Malaysia has significantly fewer people than Thailand and Indonesia, its medical device market, worth at $1 billion, is equal in value to the markets in these more populous countries. The device market in Malaysia is expected to nearly triple in value, to $2.7 billion, by 2018.
Malaysia has designated medical devices as a key sector for increased development and promotion. The government also identified healthcare as one of its national key economic areas in 2010. Malaysia is now investing hundreds of millions of dollars in healthcare infrastructure and clinical research. The country has more than 350 hospitals, including approximately 150 public hospitals. Domestic Malaysian medical manufacturers currently supply 80% of the world’s catheters and 60% of the world’s rubber gloves.
Until recently, Malaysia had no medical device regulations. However, in 2012 Malaysia introduced several different acts and regulations for medical devices. A new Medical Device Authority is now responsible for regulation enforcement. Following creation of Malaysia’s first comprehensive medical device registration system all imported devices must be registered and approved through the Medical Device Centralized Application System (MEDCAST) by July 2014. The online system is relatively cost-effective and efficient. Any companies that have not registered by July 2014 could see their devices taken off the market and/or face jail time and fines. Foreign device companies are now nervously scrambling to meet this deadline.
The Philippines. With a population of 106 million, the Philippines is made up of more than 7,000 islands. The average Filipino spent more than $100 on healthcare last year, up from $33 annually a decade earlier. The country’s medical device market is valued at more than $300 million and is growing at 10% annually thanks to a growing private sector and rising healthcare spending. The market is almost entirely composed of imports, with locally-made devices accounting for less than 3%.
Approximately 80% of all Filipinos are currently enrolled in the country’s national health insurance system, which is primarily based on public hospitals, mostly under the administration of the Ministry of Health. These facilities have significant autonomy in procurement but are hampered by a severe lack of funds. Conversely, private hospitals are much better funded, enabling them to buy high-end devices. Heart disease is among the top causes of death in the Philippines, as are cerebrovascular diseases and cancer.
All foreign medical devices in the Philippines must be registered. The Bureau of Food and Drug Administration (BFAD) is the primary body governing medical devices. Part of the Department of Health, the BFAD was created to oversee the efficacy, quality, safety, and purity of health products. The Food, Drug, and Cosmetic Act regulates medical devices, cosmetics, diagnostic reagents, drugs, household hazardous substances, and food.
Singapore. Singapore is a highly developed country with a sophisticated healthcare system. Despite having only about 5.5 million people, Singapore’s healthcare expenditure reached nearly $13 billion in 2012, similar to total healthcare spending in much more populous countries such as Malaysia (with 30 million people) and Thailand (with 67 million people). Per-capita healthcare spending totaled more than $2,400 in 2013, a nearly four-fold increase over the past decade. The country’s total medical device market was valued at $600 million in 2013.
In Singapore, 80% of primary healthcare services are covered by approximately 1900 private clinics, with 18 public polyclinics providing the remaining coverage. The country also has seven public hospitals and six national specialty centers. There are four tiers of reimbursement, with the government providing large subsidies and specialized programs.
For device registration, Singapore’s Health Sciences Authority (HSA) has developed a risk-based classification system: Class A (low risk), Class B (low-to-moderate risk), Class C (moderate-to-high risk), and Class D (high risk). In general, devices that have already been registered with certain international regulatory agencies, such as the EU, Japanese PMDA, or U.S. FDA, could qualify for an abridged, expedited, or immediate registration in Singapore. Registration is achieved electronically, via the Medical Devices Information and Communication System (MEDICS). Submissions must be in English, according to the ASEAN CSDT format referenced previously.
Vietnam. Vietnam, a communist country that is bcoming increasing capitalist, is home to 93 million people. The country’s per-capita healthcare expenditure grew from $25 in 2003 to more than $100 in 2013, and mandatory healthcare coverage was enacted in 2009. Nearly two-thirds of Vietnamese citizens are covered by the national healthcare system; the Ministry of Health hopes to cover three-quarters of the poulation by 2015 and 90% by 2020. The government is also investing heavily in healthcare infrastructure, while a growing middle class is leading to expanded demand for medical devices. The Vietnamese medical device market was worth $630 million in 2013 and is forecast to grow about 17% annually through 2017.
Since a ban on private healthcare practice was lifted in 1989, Vietnam’s private healthcare sector has expanded rapidly. State healthcare quality is relatively poor, so those who can afford to use private facilities. More than 60% of healthcare spending is made in the private healthcare sector.
In Vietnam, the Department of Medical Equipment and Health Works (DMEHW), part of the Ministry of Health, is the main body in charge of regulating medical devices. Domestically manufactured devices must be registered with the DMEHW, but imported devices do not need product registration. Instead, imported devices must have an import license.
As the medical device markets in the BRICs become increasingly saturated, OEMs should be focusing on the next crop of emerging medtech markets. The ASEAN countries are an attractive option thanks to their relatively high population, growing middle class, more frequent incidence of Western-type diseases, and increasing healthcare spend.
Still, challenges remain. While progress is being made to harmonize regulations, each country in the ASEAN currently retains its own regulatory system. Requirements, registration systems, and fees can vary widely from country to country, making it difficult to establish a regulatory strategy for the region.
But hasn’t stopped many of the top medical device companies from establishing a presence in ASEAN countries. As the region’s medtech market continues to grow, others are likely to follow suit.
Ames Gross is president and founder of Pacific Bridge Medical, a Bethesda, MD-based consulting firm that helps medical companies doing business in the Asia market. A recognized national and international leader in the Asian medical markets, he founded Pacific Bridge Medical in 1988, which has helped hundreds of medical companies with business development and regulatory issues in Asia. For more information, visit www.pacificbridgemedical.com.
[image courtesy of SUJIN JETKASETTAKORN/FREEDIGITALPHOTOS.NET]