Navigating the New Thailand Interview

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Navigating the New Thailand
An audio interview with Amit Backliwal, GM, Thailand, IMS Health
AUDIO INTERVIEW!
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Navigating the New Thailand
IMS Expert: Amit Backliwal
Length: ~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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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.

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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.
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 info.sg@sg.imshealth.com.

Navigating the New Thailand Interview

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