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As multinational pharma companies look to expand their business globally, one of the attractive markets is Southeast Asia—essentially, the region between India and China. This region is modernizing rapidly: the middle class is on track to double to nearly 400 million by 2020, from 2015’s figure. The healthcare industry growth rate in Southeast Asia is 8.3% annually through 2021, according to Roland Berger Strategy Consultants; the market for prescription drugs was $9.5 billion in 2016.
DKSH, headquartered in Zurich, Switzerland, and with a regional HQ in Bangkok, Thailand, is a leading trading company and distributor of healthcare products in Asia.* The company traces its roots back to three Swiss entrepreneurs who set up operations in the region in the mid-1800s. After having had strong business ties, the Diethelm and Keller families decided on a merger in 2000, followed by Siber Hegner. This eventually created DKSH. Roughly half of DKSH’s business is in healthcare—prescription drugs, medical devices and OTC products (2016 healthcare sales: CHF 5.5 billion (US dollars 5.7 billion), up 11.3% at constant exchange rate). By its history and through integration with business conditions in Southeast Asia, DKSH has pioneered a form of business it calls “Market Expansion Services.” Market Expansion Services include all the traditional mechanisms of drug distribution—import/export management, warehousing and logistics, order-to-cash and the like; but in its core it is assisting in regulatory approvals; market research; sales and promotion; and post-sale follow-on services. Relative to North American or European drug distribution, DKSH offers what it calls “capillary distribution”: the last-mile deliveries to its customers—hospitals, clinics, pharmacies, retail outlets and specialty channels—in major cities, as well as geographically remote locations.
Pharmaceutical Commerce sat down with Bijay Singh, newly appointed head of the Healthcare Business Unit, to talk about the Asian market and DKSH’s role in healthcare distribution. Here’s what he had to say.
1) Relative to conventional distribution of pharmaceuticals in the US—from manufacturer to wholesaler to retail pharmacy and/or hospital, with some growing impact of direct-to-consumer deliveries—how do healthcare/pharmaceutical markets function in Southeast Asia? What are the main differences, and the main points of commonality?
A key point is volume and growth: The Association of Southeast Asian Nations (ASEAN) region alone comprises 625 million inhabitants, double that of the USA. Per a 2015 report by Nielsen, the ASEAN middle class is expected to grow from 200 million to 400 million people by 2020. With higher disposable income comes an increased expectation of access to high-quality healthcare. These Southeast Asian patients and consumers place high trust in branded generics. Incidents in the past around non-branded generics and fear of counterfeits have not yet worn off.
The Southeast Asian healthcare market is characterized by its high amount of out-of-pocket expenses. Particularly in Southeast Asian markets, reimbursement is much lower than in the USA and other western markets. There are pockets of government and privately insured individuals, but many Southeast Asian markets lack universal coverage systems like those in Taiwan, South Korea or Western markets.
The high dependence on out-of-pocket expenses in Southeast Asia results in a low adoption of high-priced treatments, compared to reasonably well-financed reimbursed markets. While the middle class is growing quickly, many treatments are simply not yet affordable for many patients.
With an annual growth rate of 9.1% between 2016 and 2021 in Asian markets, pharmaceutical companies in Southeast Asia still enjoy high growth in the region and probably some of the highest worldwide.
Meanwhile, governments in several Southeast Asian countries are faced with a challenge: how to contain the increasing healthcare costs. In markets such as Vietnam, we see a trend towards reference pricing and generic substitution for large therapeutic categories. This, in turn, leads to price pressure and the need for pharma companies in Asia to prioritize; in terms of markets, channels and products.
Commercial outsourcing to companies like DKSH is a proven way for companies to expand market or channel coverage, and drive sales growth of products. This can range from product registration and launch to renewing growth of mature products.
2) The natural reflex of most multinational pharma companies is to open a marketing and distribution operation in each of the countries they want to do business in, and undoubtedly, many companies have already done so. Is there an inherent advantage to the outsourced services DKSH offers, relative to these internal efforts?
There are several benefits to outsourcing (part of) the product portfolio to DKSH. First and foremost, commercial outsourcing allows pharma companies to focus on their core competencies, such as research and development. Based on their core competencies, companies can strategically choose what they do themselves and what they outsource, depending on their strategy. If the strategy is growth, DKSH offers increased reach in a more effective manner than they could do themselves. We have built on more than 150 years of uninterrupted presence in Asia, serving a variety of companies. With 4,200 sales and marketing specialists and a tireless drive on sales and marketing excellence, we employ the largest dedicated healthcare sales force in Asia. This economy of scale is impossible for many companies to achieve.
Another often-heard advantage is that DKSH’s flexibility in deal modeling allows clients to adapt strategies to their needs while keeping costs more variable. We offer clients a business model that suits their needs, which may vary from market to market. We have the capabilities to adapt strategies or collaboration models as the market or client demands change.
We recently commissioned a research among Asian healthcare leaders around commercial outsourcing. The study found that almost twice as many companies expect to increase (36%) versus decrease (20%) the outsourcing of sales, marketing and other commercial services in Asia in the next 12 months. Geographical expansion (into new markets) is by far (68%) the main area where outsourcing partners’ support is considered; followed by expansion of pharmacy (47%) and medical channel coverage (37%).
Asked about the main drawbacks of commercial outsourcing versus executing sales, marketing and other commercial services in-house, most respondents cite the fear of reduced or no control. I see this as an opportunity to educate companies about how collaborating with DKSH works. With DKSH, clients are always in the driver’s seat. Transparent communications with clear KPIs and business reviews at local and, if needed, regional levels ensure that we remain aligned and can adapt to changing market circumstances, opportunities and threats.
And as a listed company in Switzerland, we have an unwavering commitment to transparency, quality and compliance. We provide clients with access to real-time data from DKSH’s global SAP platform, which is unsurpassed among commercial service providers to the healthcare industry in Asia. What this means for clients is transparency. Thanks to our direct capillary distribution model in most markets, clients have full visibility on sales, reducing the likelihood of overstocking and stock-outs. And since we offer commercial, as well as distribution and logistics services, data is always in one pair of hands. This gives DKSH clients a clear advantage over others, allowing them to maximize return on assets.
Beyond pharmaceuticals and into over-the-counter and consumer health, we see a convergence of channels, such as 7-Eleven integrating pharmacies into their convenience stores in Thailand. With DKSH’s broad reach into retail outlets and e-commerce, we are uniquely positioned to help OTC companies grow across channels.
3) What’s the basic sales proposition of DKSH in terms of economics and efficiency as an outsourced provider?
Companies tell us they work with us for several reasons; for example, our reach: we serve 160,000 hospitals, clinics, pharmacies and other healthcare professionals across 12 Asian markets. And—particularly important for over-the-counter and consumer health companies—into 300,000 retail outlets, as well as e-commerce channels; all from one pair of trusted hands. Our capillary distribution network of unique scope and depth means that we serve these customers directly where possible, bringing products into operating rooms if needed.
Having been ingrained in many markets for decades means that we understand which customers—pharmacists, doctors, specialists—have the highest propensity to purchase or prescribe. For example, we have been in Myanmar for 21 years, long before many companies even considered entering. This means that there, but also in other markets, we can target our efforts to the right prescribers, who place trust in DKSH thanks to our longstanding relationships.
In terms of annual sales, DKSH is ranked among the top-10 pharma companies in seven of the markets we operate in. This includes Malaysia, Thailand, Myanmar and Vietnam. We combine this economy of scale with flexibility and adaptability to our clients’ needs. While some clients require our full range of services, others are only interested in distribution and logistics or regulatory services. We often see that collaboration expands along with the clients’ growing presence in Asia and with their expansion of the product portfolio.
Sustainable and profitable growth for our client and DKSH is at the heart of our business, across every market. We thereby never compromise on quality and compliance.
4) DKSH promotes the concept of ‘market expansion services’ for healthcare products. How is this different from conventional wholesaling?
We help our business partners grow by providing a complete range of specialized services along the value chain. This starts with high-quality, reliable distribution and logistics, ensuring that our clients’ products reach the patients’ hands under the right conditions. Our 4,200 marketing and sales specialists meanwhile visit healthcare prescribers daily and ensure that products are available and visible in pharmacies. Complementary telesales and telemarketing services help our clients reach more customers and expand contact frequency.
Market Expansion Services goes deeper. For example, we know that many clients are struggling with the complicated, ever-changing regulatory framework across Asia. That is why we have a team of more than 70 dedicated regulatory experts ensuring that products are registered and licenses
While the core is stable, our offer moves with market demands. We have a mindset to proactively look for growth opportunities. For example, we are noticing an increased demand for patient services, which includes access, affordability and adherence. That is why, among other initiatives, we are signing partnership agreements with innovative healthcare companies from the USA, allowing healthcare companies to expand their patient adherence programs to Asian markets. And in Taiwan, for example, we have a program in which DKSH field nurses, equipped with modern technology, educate patients about the correct and timely intake of their medicines.
We see clients with challenges; we solve those, and replicate and localize them across markets very quickly. Having access to
all these services, across 12 Asian markets and from one trusted provider, is very different from having a different wholesaler in every market.
Important to note is that we serve clients at every stage of expansion—from market entry to renewing growth of mature products—and of any size—from small- and medium-sized companies to large multinationals.
5) A key part of DKSH’s market expansion service for pharmaceuticals involves regulatory approvals and licensing. How does this work in Southeast Asia, generally speaking? What do regulatory authorities look for in permitting the distribution of drugs from the US or elsewhere?
In general, health authorities require recognition of Western approval (reference countries), legal documents such as Certificate of Pharmaceutical Product (CPP), Good Manufacturing Practice (GMP) license, Certificate of Free Sale (CFS), pricing approval, embassy document authentication, stability data support for Zone IVb (+30°C/75% relative humidity) and clinical trial data.
This year, ASEAN celebrates its 50th anniversary. This long-term collaboration is intensified with the recent establishment of the ASEAN Economic Community (AEC). This has led to a certain level of standardization, yet at the same time, regulatory differences between countries remain. The move towards a single registration process and other efforts will harmonize the market somewhat, however, each country within the region maintains the right to retain its own regulatory system with varied requirements and registration systems. This means that, for example, medicinal products (new chemical entities and new combination of APIs that have been circulated) that have been marketed for less than five years in their country of origin (or reference country) need to undergo local clinical trials in Vietnam. This is a unique rule that does not apply to other markets in the ASEAN region where local clinical trials are not required, even if medicinal products are marketed for less than five years.
To further complicate matters, regulations in emerging markets are changing rapidly and labeling requirements vary across countries. Furthermore, health authorities often struggle with having limited resources, leading to long review timelines for product registration.
6) Likewise, pharmaceutical marketing looks to be very different in Southeast Asia relative to the US market, if only because drug advertising to consumers is not permitted. Is most DKSH marketing directed at physicians? Do you have reps that knock on physicians’ doors? What would a US marketer need to know to take advantage of DKSH’s services?
The route-to-market depends on the evolution of reimbursement and the presence of strict guidelines. In many Asian markets, the decision on which treatment to provide is still largely with the doctor, as opposed to the USA, where doctors have very strict prescription guidelines, often dictated by insurance companies and Pharmacy Benefit Managers. In addition, in many Asian markets, pharmacies act as a trusted partner of patients. In some cases, patients never even visit a doctor, relying on their pharmacist as their primary healthcare practitioner and adviser.
Different from the USA, direct-to-consumer marketing is not permitted in Asia. The direct contact between the sales force and healthcare prescribers is therefore extra important. Most of this is in person; telesales and telemarketing are relatively new and underutilized methods, which DKSH has adopted to increase reach and frequency of contact, particularly with pharmacies. Results show that pharmacies that receive a combination of direct contact by sales reps and a tele sales follow up, have a higher impact on both top and bottom line performance.
At DKSH, we are highly focused on salesforce excellence. This starts with selection. As we are often among the largest healthcare employers in many of our countries, we have access to the best talent, who we, in turn, develop through ongoing training and coaching, led by our Center of Excellence for Sales and Marketing and in-house Fantree Academy, the ‘DKSH university.’
This pays off. Take Thailand: during 2010–2016, our medical sales representative were credited at a 96% rate, on average, while the overall industry average was 67%.
We ensure that all interactions with prescribers adhere to the strictest compliance guidelines through regular training and the strict Interaction with Healthcare Professionals (IHCP) manual to which every salesperson signs.
7) Looking at drug distribution specifically, the general sense is that physical logistics—airports, highways and trucking—are very challenging in many parts of Southeast Asia. What does DKSH do to meet these challenges?
DKSH has a strong capillary distribution network in each country, reaching 150,000 hospitals, clinics, pharmacies and specialty healthcare outlets across Asia. Our network comprises of national distribution centers and regional distribution centers where needed. This allows us to manage lead times and product conditions to the highest standard.
All our facilities are ISO9001 and GDP-certified—as well as ISO14385 and GMP where applicable—and we use regionally harmonized procedures for inbound, storage, outbound, packing and monitoring. A simple yet outstanding innovation example is that we pack our cold-chain shipments inside the cold rooms. This is important in a climate where temperatures can easily reach 35—40°C. These shipments do not get opened until delivered and signed off by the customer. We also have a distinctive asset management program in place to support these standard operating procedures.
Furthermore, we have a very strong ‘fail-safe’ approach, comprising double temperature alarm systems; back-up generators; redundancy design of our cold rooms; and having critical spare parts on site, ensuring fast repairs. In all countries, we use dedicated temperature-controlled and validated facilities and fleet to support the physical distribution. We also use harmonized and validated packaging solutions.
The management of all physical flows is managed by DKSH’s own staff and is not outsourced, ensuring that we can control the quality ourselves. When it comes to cold chain, we have very short lines. The person in charge has direct access to the country head of supply chain and country quality head, ensuring that any issues are resolved quickly.
8) There are efforts in Southeast Asia—especially Thailand, Singapore and South Korea—to grow a domestic pharmaceutical industry. Does DKSH participate in these efforts? Will there come a time when DKSH is delivering products made in these countries to the developed world?
DKSH is open to helping healthcare companies of any size and at any stage of Asian expansion. An increasing amount of these companies are Asian companies looking to expand in other Asian markets; mostly Japanese and Korean companies. We thereby further drive intra-Asian growth. 30% of DKSH’s clients are from Asia nowadays; roughly the same fraction as those from the US.
The commonality between those companies is that—as opposed to low value ‘me too products’—they all deliver added value compared to what’s already on the market; whether it’s an innovative treatment or improved delivery system, including extended release formats or other patient-friendly delivery options.
At DKSH, we do what we do best: driving growth for companies in Asia based on our unique capillary distribution network and sales force on the ground. At present,
we do not have plans to expand this to other continents.
9) Bijay, for your peers in the US or elsewhere, what would you tell them about working in Southeast Asia? For example, would you advise US execs to live/work abroad as you have? What’s your feeling about addressing healthcare needs in Asia as compared to those in the developed world?
I have 24 years of experience in the healthcare sector, working across four continents. I started my career in the USA, spent a few years in Europe and Africa, but have worked in Asia for 15 years.
The USA is a fluid market, but healthcare costs are putting high pressure on government budgets. There is a major discussion on the value of healthcare. Asia, on the other hand, is a continent with a fast-growing population with an increased willingness to pay for quality. This brings plenty of opportunities for healthcare companies and creates a vibrant business environment.
Unlike highly developed markets, where plenty of data insights are available, healthcare leaders in Asia need to rely more on intuition and experience. They must be clever and agile in understanding patients’ motivation to buy out-of-pocket. Often this requires making decisions without having all data at hand. This is challenging but also an opportunity for leaders to make an impact. You can find yourself with much more responsibility and accountability in your hands than in a western environment, where there are many more specialized roles.
Recently, we have asked our specialists one simple question: what gets you up every morning? We want to truly understand what drives them, what their purpose is. Personally, I get energy from making an impact on the people inside and outside of the company. I am passionate about building winning teams and solving client problems by listening well.
In addition, I believe that in terms of healthcare access, Asia has been relatively underserved. Many Asians still don’t have access to the most innovative products. My mission is to bring these products to Asia, always in a compliant and ethical way.
Giving people access to high-quality healthcare is close to my heart. With my Asian roots, I am proud to lead a company in Asia for the benefit of Asians, together with a team of committed people. My experience working in different cultures and ability to build bridges between people helps me achieve that mission and continue our strategy for sustainable, profitable growth.