Report Summary

Poorer economies in the region grapple with dire shortages of drugs and doctors, and the inadequacies of healthcare systems that cannot reach patients in remote locations. Richer countries face policy quandaries over resource allocation, and achieving the right balance between public and private provision.

Meanwhile, Asia’s healthcare environment is changing dramatically, with rising incidence of developed-world non-communicable diseases such as hypertension, cancer and diabetes, even as the region struggles to stamp out infectious diseases such as malaria, AIDS and polio. This confluence of persistent basic health problems and the onset of rich world diseases is creating unprecedented challenges for Asian societies and health systems.

Yet as much as there is risk, there is opportunity. Governments in Asia have been striving to improve healthcare provision, but the task is far too onerous to tackle with public resources alone. Private sector healthcare firms have been drawn to Asia, given the region’s tremendous growth potential.

This paper, published by UPS and written by the Economist Intelligence Unit (EIU), focuses on how healthcare firms at each point of the supply chain in Asia are innovating, or should innovate, in order to meet the task of healthcare provision, and benefit from the sector’s rapid growth in Asia. Among the report’s key findings are the following:

• Asia’s healthcare sector has been growing rapidly, creating numerous growth opportunities for firms right across the healthcare supply chain. Several broad trends, including rising household incomes, increased government expenditure on healthcare, higher life expectancies, consumer health awareness, and the growing incidence of chronic developed-world diseases associated with changing lifestyles have all boosted demand for healthcare products and services in the region. The annual average per capita healthcare spending in Asia and Australasia has more than doubled between 2001 and 2011, from US$150 to US$362, according to the Economist Intelligence Unit (EIU).[1] The EIU expects this spending to reach US$546 by 2016.
• Partnerships between large Western companies and Asian institutions and firms are driving R&D innovation in the region. The West’s “Big Pharma” has invested heavily in innovation in China, India and elsewhere—tailoring clinical trials to local populations and seeking government buy-in and collaboration with local private sector, academic and medical institutions. Generic drug firms in Asia, particularly those from India, are energising the region’s pharmaceutical industry and have lately begun to invest in researching novel drugs. Despite their growing research capabilities, however, Asian firms are unlikely to challenge Big Pharma in the near future: they currently lack the resources and expertise to develop, launch and market innovative products globally.
• Drug development, not discovery, is the focus of research and development (R&D) in Asia at the moment. Pharmaceutical innovation in Asia is accelerating, but R&D efforts are focused more on cost-efficient “D” than pure “R”. This has led to an increase in the number of clinical trials—a vital phase in drug development—being conducted in low-cost Asia with its easy access to a high volume of patients, as pharmaceutical companies not only trim their R&D expenses but also localise their research into diseases, such as cancer and diabetes, which are becoming more prevalent in Asia.
• The challenges for R&D in Asia include uncertain returns on investment and weak patent protection. Given that the region’s R&D facilities are relatively new and the lead time from drug discovery to global marketing relatively long, novel drug discovery from these centres may not materialise soon. Investors will have to contend with this uncertainty. This is compounded by governments’ prioritising broad-based healthcare at low cost, and worries over intellectual property protection and enforcement in key emerging markets. Although Western pharmaceutical firms have invested heavily in manufacturing and outsourcing of clinical trials in Asia, their core R&D activities still come under the purview of corporate headquarters.
• Innovations in technology and business models are enabling a deeper, wider reach for healthcare delivery in Asia, with the use of fewer resources. Healthcare professionals in brick-and-mortar facilities located in urban areas are the typical providers of healthcare services in Asia. But the innovative use of technology like mobile communications devices, or the creative adaptation of hospital business models, equipment or operation procedures, can help to deliver healthcare to the masses cheaply and efficiently. However, these innovations face resistance from doctors and institutions with entrenched interests who are unable to move away from traditional models of health services delivery.
• Low-cost healthcare innovations are helping to create a new class of competitors for traditional healthcare institutions. The innovative application of technology and business models is enabling the emergence of medical-delivery outfits that are smaller, nimbler and cheaper, and that pose a threat to existing hospitals with high overhead costs. Third-party payers, such as insurance companies or employers, will likely drive the shift to lower-cost health-services provision, enabling smaller facilities to survive and succeed. These third-party payers have a huge incentive to send premium-holders or employees to smaller, faster, cheaper medical outfits.
• Adapting to innovations requires both basic and fundamental changes in institutions, and an integrated approach. On one level, healthcare providers can continually add on new layers of technologies and systems, such as digitised health records or new surgery equipment, with few changes to their operations. However, the rising incidence of non-communicable diseases is going to require a fundamental remodelling of the whole healthcare system. Traditional institutions and professionals have to be part of a multiple-level, integrated solution that extends well beyond the healthcare system, to enable care from “prevention to palliation”. This approach requires cooperation between multiple stakeholders, from schools and community care centres to family clinics and public communication channels.

[1] This is the sum of public and private health expenditure on a per capita basis