The document discusses the impact of the global economic slowdown on the healthcare sector in Asia. It states that while healthcare in Asia will be affected, the impact may not be as severe as in developed countries. The economic crisis has put pressure on healthcare companies in the US and EU to cut costs, which could lead them to expand into developing markets like Asia. The slowdown is expected to have varying effects on different parts of the healthcare industry in Asia in 2009.

1. Healthcare Outlook
Asia Pacific Economic Community
We Accelerate Growth.
1

2. Introduction
www.frost.com
The credit crisis has contributed to a significant shift in the 2009 regional
•
outlook
Frost and Sullivan anticipates that global economy will continue to deteriorate
•
in the first half of 2009
This will be followed by a slow recovery in 2H 2009
•
Healthcare in Asia will be affected by the global slowdown although we
•
forecast this will not hit the region as severely as in developed countries
In the midst of the crisis we forecast Asia will also benefit as healthcare
•
companies in the US and EU come under significant cost pressures
This presentation will review the current crisis, its impact on the healthcare
•
sector and the opportunities that will be created in 2009
2

3. Overview of the Global
Economy
3

4. Factors Contributing to the Financial Meltdown
www.frost.com
Falling Asset
Values
12 Month Change in LIBOR
RATES
4.0%
Asset prices and
12 month LIBOR Rate
valuations fall 3.0%
sharply:
2.0%
Total Write Downs
by Banks to Date: 1.0%
$1 trillion 0.0%
Jan Mar May Jul Sep Nov
US CDO Market
600
US CDO Market (US$, B)
Banks Unwilling to
400
Lend Due to Fear of
Further Losses
200
0
2004 2005 2006 2007
Growing Use of Complex
Debt Instruments
Disperse Risk
4

5. The Growing Global Slow Down
www.frost.com
The credit crisis which started in the US housing and financial sector has
•
spread to the broader global economy
The slowdown can be seen by the sharp falls in global demand and by the
•
increase in unemployment rates in most major economies
Global Purchase Managing Index (PMI) US Employment and Payrolls Rate
Global Purchase Managing Index (PMI) US Employment and Payrolls Rate
Source: Reuters, BNP Paribas
5

6. Global Response: Massive Government Stimulus
www.frost.com
Japan:
Interest rate cuts; $51
China: Interest rate cuts; $586 billion stimulus package
billion stimulus (infrastructure,
rural) South Korea:
India: Interest rate cuts; $4 billion Interest rate cuts and
stimulus package (infrastructure, efforts to keep currency
exports, textiles) stable; $11 billion
stimulus package
Taiwan: $31 billion stimulus
package (subsidies, tax cuts)
Malaysia: $2 billion stimulus
package
Global Response
• Governments infusing capital into financial institutions
• Globally coordinated interest rate cuts
• IMF offers bridge loan to meet foreign exchange requirements
• Discussions, coordinated efforts (G20 summit)
6

7. Impact on Sectors of the Economy
www.frost.com
The effects of the downturn has disproportionately affected different segments of the economy
•
The healthcare sector has outperformed the broader market
•
US Market Indices
16,000
14,000
Indices value (units)
12,000
10,000
8,000 Healthcare
Indices, while
declining,
6,000
have still
outperformed
4,000
the broader
Dec-07 Feb-08 Mar-08 May-08 Jul-08 Aug-08 Oct-08 Nov-08
market
Dow Jones Industrial Average NasDaq Biotech
NasDaq Financials NASDAQ Transportation
S&P HEALTHCARE INDEX PHLX SEMICONDUCTOR SECTOR INDEX
This implies that investors expect that, while the healthcare sector will be
•
affected by the downturn, it will still out-perform the general economy
7

8. Factors Impacting Healthcare
Companies
8

9. Overview: Impact on the Healthcare Sector
www.frost.com
Symptoms of the Downturn
Increased cost and
Downturn in Decrease in govt Sharp fall in
reduced availability of
capital markets revenues and sharp discretionary
debt rise in expenditure spending
Impact on Healthcare Companies in 2009
Pharmaceutical Medical Healthcare
Development Stage
and Biotechnology Technology Services
Pharma/Biotech
Companies Companies Providers
Companies
Common Factor: Reduced Access to Capital and Higher Interest Costs
Operational decline Reduced corporate Reduced corporate Working capital
• • • •
deals deals constraints
Reimbursement Reimbursement Reimbursement
• • •
pressures pressures pressures
Decline in consumer Decline in consumer Decline in consumer
• • •
spending spending spending
The economic downturn will impact the various segments of the healthcare sector
•
differently in 2009
9

10. Decline in Corporate Debt Markets and
Increasing Cost of Debt www.frost.com
Change in Financing Costs: Ramsey Healthcare
Group
$60
Financing Costs (A$, M)
The current financial crisis has
•
increased the cost of, and
$45
reduced the availability, of
debt
$30
This will have a limited impact
$15 •
on the operations of most
$0 Pharmaceutical and Medtech
Nov-06 May-07 Nov-07 May-08 companies
Change in Interest Expense: Raffles Medical Group
Financing Costs (Sgd,000)
$200 Hospitals and healthcare
•
providers with weaker free
$160
cash flows and a greater
$120
reliance on debt will be more
$80 affected
$40
$0
Sep-07 Dec-07 Mar-08 Jun-08 Sep-08
Source: Company Reports
Hospital and healthcare service providers will be more affected by changes in
•
the availability and cost of debt in 2009
10

11. Government Expenditure and Healthcare
www.frost.com
Over the past decade US healthcare spending has grown 2.5 points faster than GDP. If
•
this trend continues US healthcare spending will account for 30% of GDP by 2030
Other countries are grappling with similar problems, particularly those with rapidly aging
•
populations such as Japan
Source: Frost and Sullivan
The current economic crisis and blow out in government debt will put renewed cost
•
pressures on governments to reduce healthcare spending in 2009
11

12. Falling Asset Prices Creates Cost Pressures for
Healthcare Insurers www.frost.com
The crisis has created a series of factors that are adversely affecting insurer profit margins
•
including:
1. Decline in investment incomes: caused by a decline in asset prices
2. Decline in new polices: caused by weak consumer demand
3. Increased cost of debt
Change in Written Premiums* Insurer Net Realized Capital Gains**
$20
15.3% 18.0
$ Billions
$18 16.2
$16
13.0
$14
10.0%
8.4% $12 10.8
9.9 9.8 9.7
9.2 9.0
9.1
$10
5.0% $8 6.6
4.2% 6.6
3.9% 6.0
$6 4.8
3.5
$4 2.9
0.5% 1.7
$2
$0
-0.6% -0.7%
-0.5
-$2 -1.2
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08:Q1
00
01
02
03
04
05
06
07
08
20
20
20
20
20
20
20
20
20
1:
Q
* Source: A.M. Best; ISO., **Sources: A.M. Best, ISO, Insurance Information Institute
Weak healthcare insurer profitability will pressure them into reducing their healthcare
•
reimbursement payments
12

13. Declining Discretionary Spending: Is there an
Impact? www.frost.com
Healthcare is typically seen as defensive - products are viewed as non-discretionary goods that should be
•
less affected by cyclical economic events. However not all healthcare products are non-discretionary
In addition patients are required to pay at least some of the expense of non-discretionary items which will
•
impact on demand for these services
Consumption
Employment
Private
Both employment
and private
consumption have
fallen sharply
Sharp falls in discretionary spending plus moderate falls in non-discretionary
•
spending will reduce healthcare company revenues in 2009
13

14. Impact on Healthcare
Companies in Asia
14

15. Development Stage Life Sciences Companies
and the Capital Markets www.frost.com
• •Inability to raise
Inability to raise
Increased bankruptcies ––In
development capital in the Increased bankruptcies In
development capital in the
2008 several biotech
current market 2008 several biotech
current market
companies collapsed, we
companies collapsed, we
anticipate this trend to continue
anticipate this trend to continue
in 2009
in 2009
• •Venture capital company
Venture capital company
activity has dropped due Development Job Losses ––Staff are cut
activity has dropped due Job Losses Staff are cut
to the inability to exit Stage Life Sciences to reduce costs, which will
to the inability to exit to reduce costs, which will
current investments and Companies continue into 2009
current investments and continue into 2009
raise new capital
raise new capital
Operational Decline ––Cut
Operational Decline Cut
costs to conserve cash by
costs to conserve cash by
• •Risk averse investors halting the development of less
Risk averse investors halting the development of less
are selling risky life promising projects
are selling risky life promising projects
sciences stocks
sciences stocks
2009 will continue to be challenging for development stage life sciences
•
companies in the region due to the limited availability of capital
15

16. Capital Constraints: Larger Healthcare Companies
www.frost.com
••Pharmaceutical companies have strong free cash flows and low debt
Pharmaceutical companies have strong free cash flows and low debt
levels
levels
Pharmaceutical ••Thus the current crisis will have aaminimal impact on their continued
Thus the current crisis will have minimal impact on their continued
operations
Companies operations
••It will make ititmore difficult to raise capital for larger M&A deals but
It will make more difficult to raise capital for larger M&A deals but
strong opportunity to conduct smaller M&A deals
strong opportunity to conduct smaller M&A deals
••Strong on-going M&A opportunities as many of the major players in
Strong on-going M&A opportunities as many of the major players in
Medical the sector have strong balance sheets and cash flows
the sector have strong balance sheets and cash flows
Technology • In 2009 the limited available capital will make it challenging to fund
• In 2009 the limited available capital will make it challenging to fund
larger deals but strong opportunity to conduct smaller M&A deals
larger deals but strong opportunity to conduct smaller M&A deals
• Are facing more difficulty caused by limited access to debt and
• Are facing more difficulty caused by limited access to debt and
reductions in government reimbursement payments
Healthcare reductions in government reimbursement payments
••Impact on ability to maintain current operations and make ititdifficult to
Service Impact on ability to maintain current operations and make difficult to
fund operational expansions
fund operational expansions
Providers
••Opportunities in REIT market depending on the availability of credit
Opportunities in REIT market depending on the availability of credit
We anticipate it will be challenging to raise capital in 2009 and this will more
•
strongly impact hospital and healthcare providers
16

17. Discretionary vs Non-Discretionary Healthcare
Spending www.frost.com
As noted earlier in developed economies discretionary consumer spending has declined
•
sharply in 2008
Trade is a significant driver of income in Asia and there is likely to be a flow effect on
•
consumer demand in Asia in 2009
This slow down will affect
•
% of Country Trade with the US: 2006
healthcare companies that:
Malaysia 19%
1. Sell discretionary goods and
services (elective surgery and
17%
India cosmetic treatments)
2. Screening services as these can be
Hong Kong 15%
deferred
China 21% 3. Goods and services that have
cheaper substitutes
0% 5% 10% 15% 20% 25%
We note that this forecast decline will not be as sharp as in the developed world
•
and the major Asian economies of China and India are forecast to experience
positive growth
17

18. US and EU Healthcare Companies: Dealing with
Cost Pressures www.frost.com
••Staff Reductions: particularly sales and R&D staff
Staff Reductions: particularly sales and R&D staff
••Expand revenue growth in developing world jurisdictions
Expand revenue growth in developing world jurisdictions
Pharmaceutical ••Halt the development of less promising therapies
Halt the development of less promising therapies
Companies
••Reduce debt levels
Reduce debt levels
••Shift manufacturing and research facilities
Shift manufacturing and research facilities
••Staff Reductions: particularly sales and R&D staff
Staff Reductions: particularly sales and R&D staff
••Expand revenue growth in developing world jurisdictions
Expand revenue growth in developing world jurisdictions
Medical
••Halt the development of less promising projects
Technology Halt the development of less promising projects
••Reduce debt levels
Reduce debt levels
••Shift manufacturing and research facilities
Shift manufacturing and research facilities
••Cut staff, particularly in operations that are unprofitable to run
Cut staff, particularly in operations that are unprofitable to run
Healthcare ••Reduce new capital spending
Reduce new capital spending
Service
••Increased out-sourcing of back office jobs
Increased out-sourcing of back office jobs
Providers
••Reduce services and focus on more profitable operations
Reduce services and focus on more profitable operations
There are significant opportunities for Asian countries to benefit as EU and US
•
healthcare companies adjust to cost pressures in 2009
18

19. Opportunities in Asia Pacific
in the Current Global Climate
19

20. The Asian Healthcare Sector
www.frost.com
Healthcare Market Revenue (Asia Pacific), 2008
Total: US$ 239.9 billion
Medical Imaging
HIT
1.5%
2.1%
Medical Devices
21.2%
Biotechnology
6.7%
Clinical
Diagnostics
2.1%
Pharmaceuticals
66.2%
• In 2009 we anticipate the healthcare sector in Asia will grow by 5-10%
20

21. Opportunities in the Asia Pacific Region
www.frost.com
• The global healthcare industry is experiencing challenging circumstances in 2009 – We
anticipate there will be a number of select opportunities in the APAC region
•Increased smaller (sub $1B) corporate transactions
Increased corporate •Increased smaller (sub $1B) corporate transactions
activity in the Life •Cash rich pharmaceutical companies will use the current crisis to
•Cash rich pharmaceutical companies will use the current crisis to
Sciences Sector acquire assets cheaply
acquire assets cheaply
• Increased use of diagnostic tools delivering personalized treatments
Focus on • Increased use of diagnostic tools delivering personalized treatments
personalized ••Supported by governments trying to optimize the use of costly
Supported by governments trying to optimize the use of costly
healthcare medications and achieve higher healthcare cost benefits
medications and achieve higher healthcare cost benefits
• Drugs will be scrutinized more for their relevant cost benefits – use of
Greater stress on • Drugs will be scrutinized more for their relevant cost benefits – use of
generic drugs will expand
products with high generic drugs will expand
cost benefits ••Preference for treatments that effectively reduce overall treatment cost
Preference for treatments that effectively reduce overall treatment cost
• Driven by cost pressures faced by healthcare companies in developed
Increased • Driven by cost pressures faced by healthcare companies in developed
countries
outsourcing countries
opportunities ••The areas of focus will be R&D, clinical research and manufacturing
The areas of focus will be R&D, clinical research and manufacturing
• Pharmaceutical and medical technology companies will focus on
• Pharmaceutical and medical technology companies will focus on
Asian growth expanding their sales in the region
expanding their sales in the region
opportunities ••Regional markets will grow quicker than developed world markets
Regional markets will grow quicker than developed world markets
21

22. Opportunity 1: Corporate Activity and Life Sciences
Companies www.frost.com
• In 2009 we believe there will be an increase in M&A activity between pharmaceutical
and Medical Technology companies
• Biotechnology vs Pharmaceutical • Company Cash Position is Critical
Opportunities in the
Life Sciences Sector
• Biologic assets will continue to attract • Companies with low cash positions should
high valuations be avoided
• This is due to limited generic competition • Companies with low cash reserves are likely
and high product margins to become insolvent in 6-12 months
• Focus on Late Stage Companies • Potential Product Cost Benefit
• Focus on life sciences companies with • Strong pressures in 2009 to restrain the
late stage assets (late phase II / phase growth of healthcare expenses
III)
• In this environment products that provide
• Pharmaceutical companies will need superior cost benefits will be preferred
access to assets that can provide value in
the medium term
Early stage life sciences companies in Asia will benefit from this trend
•
Strong opportunities for companies targeting growth diseases in the emerging
•
markets – Oncology, Cardiovascular Disease and Diabetes
22

23. Opportunity 2: Personalized Healthcare
www.frost.com
• We believe the crisis will accelerate the use of personalized healthcare – driven by the
ability to generate significant healthcare cost savings
• It is unlikely that full genomic mapping will become commonplace in the near future
• However it is becoming increasingly common to see therapies incorporating some level of
genomic testing to optimize their use
• These cost savings are derived from the ability of personalised medicines to address:
A. Appropriateness: Pre-determining efficacy
B. Patient safety: Assess patient responses and avoid costly adverse drug reactions
C. Optimize: Determine optimal dosing
D. Over Utilization: Determine when treatment should be stopped and a new
treatment regime adopted
In 2009 we anticipate products and systems that can deliver cost efficient
•
personalized healthcare tools will become increasingly utilized
23

24. Opportunity 2: Personalized Healthcare
www.frost.com
••Testing used to optimize drug therapy
Testing used to optimize drug therapy
••Tests involve sequencing specific parts of the viral genome to identify
Viral Drug Tests involve sequencing specific parts of the viral genome to identify
drug resistance
drug resistance
Resistance Testing
••Particular focus in Asia on diseases prevalent in the region such as
Particular focus in Asia on diseases prevalent in the region such as
Hepatitis
Hepatitis
••Gene specific sequencing can be used to understand the performance
Gene specific sequencing can be used to understand the performance
of aadrug in aapatient
of drug in patient
Gene specific
••Closely linked to IT systems that can analyze and provide aadata
Closely linked to IT systems that can analyze and provide data
sequencing tests interpretation
interpretation
• Strong cost benefit when linked to widely used or expensive drugs
• Strong cost benefit when linked to widely used or expensive drugs
••Growth of management of patients at home due to cost savings
Growth of management of patients at home due to cost savings
• Strong opportunity for the development of IT systems that can support
• Strong opportunity for the development of IT systems that can support
Home Care Model the cost effective management of patients at home
the cost effective management of patients at home
••We anticipate strong growth in Japan due to strength of IT
We anticipate strong growth in Japan due to strength of IT
infrastructure and rapidly aging population
infrastructure and rapidly aging population
••Drive to implement patient management systems, can achieve
Patient Record Drive to implement patient management systems, can achieve
significant cost savings
Management significant cost savings
• Initiatives launched by Japan (U-Japan), China (11thth5 Year Plan) & UAE
Systems • Initiatives launched by Japan (U-Japan), China (11 5 Year Plan) & UAE
• In 2009 we believe these areas will experience strong growth due to their ability
to deliver cost savings in a cost constrained environment
24

25. Opportunity 3: Drugs with strong cost benefits
www.frost.com
• The cost constrained environment will promote the use of therapies with strong cost benefits
• Governments use different measures to promote the use of generic compounds and we
anticipate these efforts will be intensified in 2009
Supply Side Demand Side
Induce Incentives to
Prescribing
Reference Pricing price Substitution Co-payment
Co- Pharmacists &
Guidelines
competition Physicians
Forecast Growth of the Generic Drug Market in Japan
Source: Frost and Sullivan
• Due to their superior cost benefit balance we anticipate the generic drug market
will be a growth market in Asia in 2009
25

26. Opportunity 4: Outsourcing and Asian opportunities
www.frost.com
• The financial crisis has created profitability pressures that will drive companies to find ways
to reduce costs. The outsourcing of operations to low cost centres in Asia is one way to
achieve these cost savings
• We anticipate this drive will utilize Asia as a potential source of:
1. Research and Development: by 2009 R&D outsourcing is anticipated to be worth
$7.2 billion (Source: Biospectrum). Services utilized include drug discovery,
screening and lead product optimization
2. Clinical Trials: Use of CROs with an Asian presence to reduce clinical trial costs and
to ensure APAC populations are included in clinical studies
3. Manufacturing: Outsourcing of manufacturing to Asia is still focused on the
production of APIs. However Asian centers are developing expertise in biologics
manufacturing (e.g. Singapore, India, S.Korea, etc). Additionally, Taiwan, Malaysia,
China and Singapore will play an increasing role in medical device manufacturing
26

27. Opportunity 4: Outsourcing and Asian opportunities
www.frost.com
• Of the two big regional players, India continues to grow due to the country’s pool of well
educated low cost talent. China’s growth as an out-sourcing destination has been
hampered by its weak IP laws though it is being targeted by companies attracted to its
ability to conduct low cost clinical trials and R&D
• In particular India and China are the preferred CRO destinations in Asia and are likely to
witness substantial growth in this area due to their large populations and growing
importance of their local markets
••Strong interest in using China as aasite for clinical trials due to the
Strong interest in using China as site for clinical trials due to the
availability of aalarge patient population and in order to access the
availability of large patient population and in order to access the
China domestic Chinese market. The China clinical research market was
domestic Chinese market. The China clinical research market was
worth US 238 M with a CAGR of 18.6% in 2008
worth US 238 M with a CAGR of 18.6% in 2008
••Several pharmaceutical companies are establishing fully owned
Several pharmaceutical companies are establishing fully owned
R&D operations in China including Novartis, Roche, Astra-Zeneca
R&D operations in China including Novartis, Roche, Astra-Zeneca
and J&J in order to reduce their early stage R&D costs
and J&J in order to reduce their early stage R&D costs
••India has attracted significant interest as an outsourcing
India has attracted significant interest as an outsourcing
destination. Pharmaceutical companies are attracted to the country’s
destination. Pharmaceutical companies are attracted to the country’s
India established IP regulations, well trained population, growing patient
established IP regulations, well trained population, growing patient
market and established expertise in pharmaceutical manufacturing
market and established expertise in pharmaceutical manufacturing
••The contract research & manufacturing market in India was worth
The contract research & manufacturing market in India was worth
about US $ 900 M in 2008
about US $ 900 M in 2008
27

28. Opportunity 5: Focus on Asian growth opportunities
www.frost.com
• The geographic balance of the pharmaceutical market will continue to shift away from the
US and toward the world's emerging markets – the credit crisis will accelerate this trend by
further reducing growth in the US and EU:
1. In 2007 emerging markets represent 17% of the global market growth, but will
contribute to 30% of this growth in 2008
2. The US accounted for about 36% of the total growth in 2007, significantly less than
the 54% it contributed five years earlier
• Growth in the Asia Pacific region will be driven by the increased availability of healthcare
and the emergence of lifestyle chronic diseases (such as diabetes & cardiovascular
diseases), more typically found in developed countries
• Global pharmaceutical markets will grow by 4.5 - 5.5% in 2009 as double-digit growth in
emerging markets offsets modest growth in major developed markets
28

29. Opportunity 5: Pharmaceutical Markets in 2009
www.frost.com
Global Pharmaceutical Sales Global Pharmaceutical: 2009 Market
850
Sizes*
Growth Rate
Emerging,
820 4.5-5.5%
Sales (US$)
115
US, 302
790
760
Japan, 88
730
700 * All values
2008 2009 are in US$,
EU, 172 Billions
MSOffice44
Global Pharmaceutical: 2009 Growth Rates
15%
13%
Sales (US$)
10% • Growth in emerging country
markets will far outstrip
8%
growth in the US and EU
5%
3%
0%
US EU Japan Emerging Source: IMS
29

30. Slide 29
MSOffice44 Chart title : Growth Rates of Global Pharmaceutical Markets , 2009.
this is more in line with F & S standards
, 1/8/2009

31. Specific Growth Opportunities: Oncology and
Chronic Diseases www.frost.com
Aging of the Population in APAC Growth of Chronic Diseases in Asia
Philippines
Malaysia
India
Indonesia
Thailand
Singapore 2010
2003
China
South Korea
Taiw an
Hong Kong
Australia
Japan
0 10 20 30 40 50
% of population over 60 % of population with 1 or more chronic diseases
Source: Frost and Sullivan
• Specific disease markets will offer strong growth opportunities in 2009. In
particular we believe healthcare expenditure on chronic disease and oncology will
continue to grow
• This trend will be driven by lifestyle changes and aging populations in Asia
30

32. Summary: Accelerating Change
www.frost.com
Opportunities
Changing Technology Use
in the Asian
Changing Business Models
Healthcare • Accelerate use of
• Accelerate US / EU realigning
Market
of business models 1. Patient management
systems
1. Sales in Asia
2. IT in personalized
2. Adopt outsourcing
healthcare
models
3. Acquire innovation
Changing Disease Management Changing Regulations
• Accelerate use of • Accelerate use of
1. Home monitoring 1. Pricing controls
2. Generic drugs 2. Cost benefit analysis
3. Other cost saving 3. Stricter regulatory
therapies guidelines
• The challenges facing the global healthcare sector in 2009 will accelerate trend
changes that will benefit Asia
31