navigating the new thailand interview

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Navigating the New ThailandAn audio interview with Amit Backliwal, GM, Thailand, IMS Health

AUDIO INTERVIEW!

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Navigating the New Thailand

IMS Expert: Amit BackliwalLength: ~17:30 minutes

Amit Backliwal

To download an MP3 of this interview, click here.

To download the PDF transcript, click here.

Questions? Comments? Fill out the form at the end of this presentation.

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http://www.imshealth.com/deployedfiles/imshealth/Global/Asia%20Pacific/Content/Static%20Files/Navigating%20the%20New%20Thailand%20Transcript%20FINAL.pdf

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Today, we are going to be talking about the challenges that face pharmaceutical companies in Thailand, given the recent cutbacks the government has made on healthcare spending and restrictions imposed by the National List of Essential Drugs or NLED. We will explore with Amit the strategies Multinational Companies can employ in light of these changes in order to maintain and indeed increase revenues in this challenging market.

Hello, Amit.

Amit Backliwal (AB): Hello Andrew.


To download the PDF transcript, click here.

Questions? Comments? Fill out the form at the end of this presentation.

http://goo.gl/mOkCs


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Now this is quite an interesting topic, isn’t it?

AB: Yes, it is indeed, and with the environment becoming so dynamic it’s quite a challenge for MNCs to keep up with the changes and react in a timely manner.

Is reacting to market forces the root of the problem for MNCs in Thailand?

AB: Oh, absolutely. Being able to understand and adapt effectively to changing regulations in the healthcare market is becoming more crucial than ever.


To download the PDF transcript, click here.Questions? Comments? Fill out the form at the end of this presentation.Know more on IMS Health, click here

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So what are the challenges they face?

AB: Well, I think first we need to understand and explain the government system here. So we’ve got the three government reimbursement schemes which are operating in Thailand. And the impact and the changes these schemes will have on the sales revenue or for MNCs. So you can get an understanding of the opportunities that are not being addressed at the moment by most of these companies.



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Ok, so you are talking here about theCivil Servant Reimbursement Scheme, known as CSMBS, the Social Security Scheme, or SSS for short, and the Universal Healthcare Scheme or UHC, which between them provide healthcare coverage to 98% of the Thai population.

AB: Yes, that’s right. So obviously, given the extent of population coverage, it is pretty much the majority of population here. Changes to these systems will have a great impact in the market not only now but also in the future.



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Being 98% of the market, I’m sure that’s true. So what are these schemes and how do they work?

AB: Well, basically, you need to understand the CSMBS. As you said, it covers civil servants and their dependents, roughly about 5-6 million citizens, or about 10% of the population. And at that, on a fee-for-service reimbursement basis and it’s currently limited not to the current listing. They actually get everything for free.



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Sorry to clarify. This listing, that’s the NLED, the National List of Essential Drugs?

AB: Yes, that’s right.

OK. And how about the SSS and UHC?

AB: Yes, SSS covers about 7 or 8 million private sector employees, while the third scheme, which is the Universal Health Coverage, covers roughly 47 million citizens who are not covered by either of the CSMBS or the SSS scheme. So that is a large population. And both these schemes, which is the SSS and UHC, work on a capitation reimbursement basis. But importantly, both are currently limited to or excessively use the NLED list.



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So I can logically summarise that CSMBS is where most MNCs will derive their Thai incomes as this is not restricted to the cheaper and often generic drugs on NLED. Am I right?

AB: Yes, we see that for most of the companies anywhere between 60 to 80% of their revenues actually come out of the CSMBS to date.



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So the problem facing MNCs today is how the changes in the CSMBS scheme will affect that income stream as the government tries to cut CSMBS spending.

AB: In a nutshell, yes. Basically, the cuts are in response to the slowdown that was seen in the Thai economy. Between 2000 and 2008, in a period of about 7 or 8 years, the budget especially for the outpatient grew significantly, more than300 per cent or a CAGR of about 15 per cent plus or so. And then, following the political crisis, the Universal Health Coverage was near to completely free instead of the30 Baht scheme that used to exist forthe47 million users. So that put a lot of strain constantly of the government.



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Inevitably it would put a strain on the government healthcare budget.

AB: Of course, and on top of that, the crisis hit in 2009.The economy had slowed significantly because Thailand is an economy which is driven a lot by export. So global crises had a big impact. And that forced the government to start really taking steps to curb the spending on CSMBS through a massive drive almost to regulate prescriptions, through audit of hospitals and a lot of different measures.



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So what you are saying is that original drug use is being hit.

AB: Yes, and generic drug substitution has been encouraged. And what we started seeing in the market is that generics have started growing quite well. The cost containment measures were expanded and formalised last year, with a focus on limiting original drug use across areas of high expenditure.



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Areas of high expenditure? What types of drugs are being affected here?

AB: What the government did was they did an audit of about top 30 or 34 hospitals in the public system. And they realised there were nine therapy areas and primarily these are primary care, for example, PPI, which is anti-ulcerants, cholesterol-reducing agents and oncology products where they realised that a lot of original prescription usage was overused or there was excessive usage of some of these things. So in some hospitals, if doctors now don’t specify the brand preferred on the prescription, the generic version is starting to be dispensed.



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It sounds like the overall process for prescribing original drugs at a hospital level is far more stringent today.

AB: Absolutely. And it’s going to get more and more stringent going forward, with the market becoming more sophisticated.



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It’s obvious where that will affect revenues quite significantly. So I am sure MNCs are taking action.

AB: I’d like to say so, but not to the extent you would imagine. By far, most MNCs were caught a bit unaware and have shown surprising shortsightedness, at least till last year, especially with their reluctance to reduce their dependence on the CSMBS scheme. This whole emphasis on one small but previously very, very profitable area has always been, in my view, a very high-risk strategy. It’s basically putting all the eggs in one basket. It has typically ignored the trends and opportunities at play related to the vast majority of the population and lots of other interesting opportunities that we start seeing, which are not covered by CSMBS anymore.



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Yes, but I can understand that to some extent, as CSMBS is not restricted to NLED and the other schemes are.

AB: Yes, but to survive and grow, MNCs have to respond to the realities of current times and they can’t ignore the role the national essential drug list now plays in the healthcare industry throughout Thailand. The public sector that dispenses drugs solely listed on the NLED makes up quite a substantial amount of the market.



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So it seems logical for MNCs to create new strategies around the NLED.

AB: Exactly. They have to get their products on that list. That’s it. It is that simple.



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That’s an interesting point. We’ve been mentioning the NLED quite a bit. Can I just turn the focus to that for a moment so we can better understand its pivotal role and what MNCs need to be understanding and doing.

AB: Well, first of all, the national essential drug list was originally based on the WHO’s recommendation of what the essential list of drugs should be. But since then, it has significantly expanded, saying that, it is still highly genericised but it’s expanding every few years and the new list is supposed to come out in the next year or so.



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So it’s a list of a mix of patented and generic drugs?

AB: Not as today. It’s still predominantly generics and more of the off-patent drugs. But there are some high-cost innovative products, typically oncology cancer drugs, which turn out to be easy to substitute or have a generic. However, in the list, which is due in next year or so, I know for a fact that a lot of MNCs have provided dossiers and asked for a listing of innovative products as well to expand the list further.



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How do drugs get on the list?

AB: Basically, the manufacturers, associations and healthcare professionals can all propose drugs for inclusion and MNCs need to be aware of the factors that influence the decision to either include or exclude. Basically without inclusion, MNCs find it very difficult to reach out to the public sector, which as I said, you know, we’ve got pretty much the whole population sitting there. But to get on the list, basically what you need to do is, MNCs need to provide a localised dossier, they need to look at the product effectiveness and safety profile, and they need to provide a lot of data that supports why that drug is beneficial to the bigger population. At the same time, the government then negotiates with them around pricing because they are looking at a huge volume but potentially can be made available to them.



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Now that you put it that way, I can accept your comment about MNCs being shortsighted. It does seem incredible that they have focused on one small sector for so long and ignored a huge potential revenue stream in the non-government sectors.

AB: Yes, but, to be fair, it was a different market up till about a few years ago. But the point is, things have changed. The baseline has moved. With that, they have to adapt to the changing circumstances and now make use of whatever is available in the present market to their advantage.



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So how do MNCs address this now? What factors should they be aware of when launching products in today’s market?

AB: Well, as I mentioned, awareness of how to get on this list is crucial. Obviously looking at product safety profile, the efficacy are a given. And that’s almost like hygiene factors. The major deciding factor after that is pricing because the government, with all these cost-containing measures, is very cost conscious for now. So the subcommittees on the essential drug list make the decision. However, the Thailand FDA reviewers are empowered to actually make comments on cost of products, which can actually slow down the approval process and even result in sometimes the product being rejected as a first-line therapy.



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I hear also that a new bill is being proposed that requires manufacturers to submit additional details concerning all costs. What is the implication there?

AB: The Ministry of Health is looking at what they call a median price, which is effectively a ceiling price for individual active ingredients. Theoretically, that applies to the sale to all public hospitals. The implication, however, is that public hospitals will not be able to purchase a drug whose active ingredient is priced above the ceiling price. But the enforcement of that is still being worked upon.



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But cost alone isn’t the only strategy MNCs can use. I am thinking back to a previous IMS Insight discussion I had about MNCs moving into the generic space as well.

AB: Yes that’s a good point. When you start looking at, based on all this chaos and CSMBS issues, what does this mean? We know for a fact that a lot of MNCs have already started looking at generics, for example, looking at out-of-pocket markets, which is in the drugstore dispensing, over-the-counter consumer care, especially for maintenance therapy for chronic care ailments like diabetes and hypertension. What we also started to see in the private sector is the increase in terms of the brands spent because, for the affordability areas, it’s something which they can work around, compared to that what they can do potentially in the hospital sector. It’s another interesting area for MNCs can diversify into.



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You mention this need to diversify. Does this apply to MNCs’ portfolio of drugs as well, to increase the chances of getting on the NLED?

AB: Yes, it’s a valid strategy to look at portfolio diversification, not just for the reason of listing it, but a diversified portfolio for any company, for example, it allows them to cater to a shifting demographic and align specialist care products to future needs. But for, example, branded generics can play a big part here, too.



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The cuts in the public sector will also have an impact on growth in the private sector I would imagine.

AB: Yes, absolutely. We have seen this already. The way it happens is, once, sorry, expansion of primary care is still continuing. We are seeing, for example, the number of private clinics has more than doubled in the last 3 to 5 years or so. This growth will certainly have a positive impact on MNCs because it gives you more opportunities to play with the patient population in the private sector.



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I’d imagine though that with a curb on branded drugs, restrictions on sales and marketing of such drugs would go hand in hand?

AB: Absolutely. That’s a good observation. What we are seeing is that restrictions are being put in place in this regard, particularly in relation to the marketing activities for doctors as well as some of the reps, and becoming more and more stringent around some of these areas. So yes, these are a barrier MNCs will have to keep in mind because they need to obviously comply with certain ethical practices.



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OK, to summarise, despite the cutbacks on spending and restrictions on marketing, there are quite a number of strategies MNCs can adopt to grow revenue. We’ve talked about what they need to do. Now how do they go about doing it?

AB: First of all, what needs to be set right is, from an analyst’s point of view, we are highly optimistic about the markets going forward purely from an overall demographics perspective of affordability and the economic situation here. The second thing to look at is that we’ve helped MNCs navigate similar changes in landscape across many more countries before, so we have a broad range of solutions and we understand what MNCs would require to adapt to some of these rapid changes we are seeing even in a market like Thailand.



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Such as?

AB: Well, firstly we have done and can help companies prepare for just the listing on the essential drug listing, including helping them localise, for example, their cost effectiveness study or even build budget impact models for dossier submission. We are also starting to work increasingly, for example, to set up a health institute in China. And we started to work with policy makers around the world to really shape the pharmaceutical environment for the future, so that the insights we have gained are highly valuable for both the government and our clients.



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Other than on listing and pricing issues, how do you help such companies better adapt to the changing Thai environment? We covered quite a few strategies in our discussion. I imagine you must be able to help in those areas, too.

AB: Yes, absolutely. For example, we are also doing a lot of work now helping companies localise their portfolios through the launch of generics or focus on non-traditional areas like consumer care and OTC. We are also walking them through almost a stepwise process on how to engage with stakeholders because as the market is becoming more complex, the number of stakeholders and the complexities are also going up. So how they deploy the new strategies to launch new products actually make their current sales force more effective. There is a lot that can be done. It’s a question of really being able to identify for each of their current service clients what is it they want to achieve in the market and the opportunities that they can actually leverage upon early on and take the right action.



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Well, thank you very much Amit for talking to us today on how MNCs can apply new approaches and strategies to expand revenues, given Thailand’s rapidly changing economic and healthcare landscape.

AB: You’re welcome. Thank you very much.



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Thank you for listening!

• To download an MP3 of this interview, click here.

• To download the PDF transcript, click here.

• Questions? Comments?

− Fill out the form at the bottom of this slide, or

− Visit www.imshealth.com or email [email protected].

navigating the new thailand interview

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