MARKET REVIEW ON PRIORITY SECTOR UNDER …

1 MARKET REVIEW ON PRIORITY SECTORUNDER COMPETITION ACT 2010 PHARMACEUTICAL SECTORM alaysia Competition Commission (MyCC)27 December 2017 TAbLE Of COnTEnTSExecutive Summary 2 List of Abbreviations 7 Glossary 9 Introduction 16 Methodology and Limitations 18 Policy Context for the REVIEW 24 PART ONE: OvERviEw Of MAlAysiA s PhARMAcEuTicAl sEcTORC hapter 1: Overall Growth of the Healthcare and Pharmaceutical Sectors 28 Chapter 2: MARKET Structure and Supply Chain 41 Chapter 3: MARKET Share and MARKET Concentration 69 Chapter 4: MARKET Dominance and Impact on Availability, Affordability and Accessibility of Medicines 93 PART TwO: cOMPETiTiON cONcERNs iN ThE PhARMAcEuTicAl sEcTORC hapter 5: Key Existing Laws and Regulations and An Assessment of Impacts 118 Chapter 6: Competition Concerns Among Industry Players 148 Chapter 7: Selected Case Studies on Anti-Competitive Conduct 177 PART ThREE: cONclusiON ANd REcOMMENdATiONsChapter 8.

2 Conclusion and Recommendations 208 APPENdicEsAppendix 1: Guiding Questions for Interviews with Industry Players 224 Appendix 2: Malaysian Organization of Pharmaceutical Industries (MOPI) Members 229 Appendix 3: Brief Profiles of Top 6 Malaysian Local/Joint Venture Pharmaceutical Companies 230 Appendix 4: Pharmaceutical Association of Malaysia (PhAMA) Members 232 Appendix 5: Malaysian Association of Pharmaceutical Suppliers (MAPS) Members 233 Appendix 6: Drug Registration Process 234 References 2362 MARKET REVIEW on PRIORITY SECTOR UNDER Competition Act 2010 Pharmaceutical SectorExECUTIvE SUMMARyThe aims of Malaysia s National Medicines Policy are to promote equitable access to, and rational use of, safe, effective and affordable medicines by its population.

3 In order to maximize social welfare, this policy is strengthened by Malaysia s Competition Act of 2010 and the establishment of the Malaysia Competition Commission (MyCC) to bring about allocation, production and innovation Malaysian healthcare system has changed from a predominantly public healthcare system to a dual or two-tiered system where public and private healthcare expenditure are almost equal today. The big rise in the incidence of non-communicable diseases and out-of-pocket expenses in the healthcare system has wielded significant financial impact on both the private and public pharmaceutical SECTOR has grown by an average annual rate of 8% over the last decade, reaching billion or of total healthcare expenditure (RM52 billion) in 2016.

4 Imported medicines at billion still account for the largest part (63%) of the billion pharmaceutical MARKET , while exports are only billion. Generic medicines now account for 55% of the controlled (prescription) medicines MARKET by MARKET structure of Malaysia s pharmaceutical SECTOR is characterized by a three-level supply chain, starting with manufacturers of generic medicines and importers of originator and generic medicines at the first level, wholesalers and distributors at the second level, and providers at the third level who provide medicines to patients and end scope of this pharmaceutical SECTOR MARKET REVIEW is limited to controlled medicines.

5 These are pharmaceutical products containing scheduled poisons as listed in the First Schedule UNDER the Poisons Act 1952. They are commonly known as prescription medicines. The REVIEW focuses primarily on manufacturers/importers at level 1 of the pharmaceutical supply chain, and the wholesalers/distributors at level 2. Due to time constraints, it was not possible to do a more in-depth study of the providers in level 3. A dedicated study should be carried out on the level 3 players as they represent an important link in the supply chain.

6 That study will also need to examine the interactions between level 3 and levels 1 and of 28 companies manufacturing controlled medicines in Malaysia, 23 are locally owned and 5 are foreign-owned, with none from high-income countries. The total sales revenue of this MARKET was billion in 2014/15. Though there are few players, the MARKET is competitive, with a Concentration Ratio (CR) 5 of 54% and Herfindahl-Hirschman Index (HHI) of 824, with little evidence of price fixing. The companies produce generic drugs, facing price competition from imports from India and increasingly from other Southeast Asian and Eastern European REVIEW on PRIORITY SECTOR UNDER Competition Act 2010 Pharmaceutical SectorOut of 54 importers in this study, 35 are foreign-owned, accounting for billion or 87% of MARKET share, with 19 locally owned companies taking 13% of MARKET share.

7 This MARKET s CR5 of 47% and HHI of 643 indicate a low degree of MARKET concentration. However, MARKET concentration measured in this traditional way does not capture MARKET power. Importers are dominated by subsidiaries of multinational corporations (MNCs) from high-income countries that import patented (originator) medicines from their parent companies. The importers have MARKET exclusivity over those products while pricing decisions lie with their parent the second level of the supply chain, out of 709 companies holding wholesale licences issued by the National Pharmaceutical Regulatory Agency (NPRA) to distribute controlled medicines, 72 companies were studied.

8 Four categories of wholesalers and distributors were identified: large independent distributors, Bumiputera agents, wholesalers and distributors that are subsidiaries of manufacturers, and retail pharmacies that also do wholesaling. Despite the large number of players, this MARKET is highly concentrated, with a CR5 of 83% and HHI of 2,370. Whilst high MARKET concentration should imply a high degree of MARKET power over pricing, this is not the case here as the wholesalers and distributors do not own the products they distribute and hence have no power over third level of the supply chain is made up of the providers, which consist of general practitioners and specialists clinics (individual and group clinics), private hospitals (individual and group hospitals), retail pharmacies (single outlet and chain pharmacies) and public hospitals and clinics.

9 In 2014, there were 6,978 private GP and specialist clinics, 184 private hospitals, 1,413 pharmacy companies with 2,098 outlets, 150 public hospitals and 2,871 public clinics. Owing to time limitations, no MARKET concentration study was done at this the pharmaceutical SECTOR , standard measures of MARKET concentration using CR and HHI are inadequate to measure and understand MARKET power at the companies level. There is no strong correlation between MARKET concentration (traditionally defined as sales revenue share), MARKET power and anti-competitive behaviour.

10 Other important factors such as entry barriers, supply conditions, and particularly patents may be more important factors in determining MARKET with other consumer goods, patients have little consumer choice in the frequency and type of medicines to take. This problem is compounded by information and knowledge asymmetry between patients and doctors, where those who prescribe have more power to decide than the consumers. As medicines are not easily substitutable, the definition of relevant MARKET becomes critical. Functional similarities are insufficient to establish substitutability as the efficacy and side effects of taking a product can differ from one patient to another.