Market Watch 2011 The Healthcare Sector in Malaysia

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1 Market Watch 2011 The Healthcare Sector in Malaysia General information about Malaysia Malaysia is centrally located within the ASEAN and consists of the Malaysian Peninsula and the States of Sabah and Sarawak on the island of Borneo. The former British colony gained its independence in 1957 and is a Parliamentary democracy with a constitutional monarch since. Malaysia has a tropical climate and with a total area of km 2 is slightly smaller than Germany. Due to its bio-diverse range of flora and fauna, Malaysia is one of the 17 megadiverse countries. Malaysia is a multi-ethnic, multicultural and multilingual society with million members. Malays make up the majority of the population at 50.4% followed by Chinese at 23.7%, Indian at 7.1% and other local ethnicities at 11%. The Malaysian constitution guarantees freedom of religion, although Islam is the largest and official religion. Approximately 60.4% of the population practice Islam, 19.2% Buddhism, 9.1% Christianity, 6.3% Hinduism, and 2.6% practice Confucianism and other traditional Chinese religions. The official language of Malaysia is Bahasa Malaysia, but English as well as Chinese are the business languages. Economical Overview Malaysia is a dynamic country which is constantly evolving. From a country dependent on agriculture and primary commodities decades ago, Malaysia has transformed into an export-driven economy spurred on by high technology, knowledge-based and capitalintensive industries. Malaysia is one of the 20 largest trading nations worldwide and is ranked 30 th out of 125 countries in the Global Enabling Trade Report 2010, published by the World Economic Forum. Moreover, the country is the 21 th largest exporter among all trading nations worldwide. The country is strategically located in the heart of South East Asia and offers a cost-competitive location for investors intending to set up offshore operations manufacturing advanced technological products for both regional and international markets. In addition, Malaysia has a market-oriented economy which is supported by pro-business government policies. The new Economic Transformation

2 Programme (ETP) by the PEMANDU, the Performance Management & Delivery Unit of the Government from Malaysia, has been presented to the public. The ETP is anchored on 12 National Key Economic Areas (NKEAs), which are drivers of economic activities that have the potential to materially contribute to the growth of Malaysia. ETP is developed under the patronage of the Prime Minister, and its objective also known as Vision 2020 is to transform Malaysia into a high income country until the year Therefore, it is planned to increase the Gross National Income (GNI) per capita to US$ 15, or RM 48, To reach this, an annual growth of GNI of 6 % is necessary. Under the programme, there are plans to grow the service sector from 58 to 65 % and to create 3.3 million new jobs. Economical Key facts Malaysia 1 Currency: 1 Ringgit (RM) = 100 Sen Exchange rates: 1 EURO = 4.3 RM; 1 US$ = 3.0 RM ( ) GDP (billion RM): 2008; ; 2009: ; 2010: GDP - real growth rate: 2009: -1.6%; 2010: 7.2%; 2011: 5.5% (est.) Inflation rate : 3.2 % (est. 2011) Exports: RM billion (2010) Exports - commodities: electronics 36.5%, petroleum and products 8.3%,Chemical products 6.6%, natural gas 6.4%, fats & oils 6.4%, electrical engineering 4.6%, machinery 3.5% Exports partners: Singapore 14.0%, China 12.2%, US 11.0%, Japan 9.8%, Thailand 5.4%, Hong Kong 5.2%, Germany: 2.7% Imports: RM billion (2010) Imports - commodities: electronics 29.4%, chemical products 9.1%, machinery 8.9%, electrical engineering: 7.2%, petroleum and products 7.0%, food and living animals: 6.2%, iron and steel 3.6%, raw 1 Source: Germany Trade & Invest

3 materials: 3.4% Imports - partners: China 14.0%, Japan 12.5%, USA 11.2%, Singapore 11.0%, Thailand 6.1%, Germany: 4.2% Unemployment rate: 3.4% (2010) Average wage 2008: Middle management: 6.805RM, senior clerk: Population below poverty line: 5.1% 2.650RM, skilled worker: 1.845RM, consultant: 1.450RM, unskilled workers: 910RM Bilateral Trade The trade with medical equipment/ products between Malaysia and Germany is already well developed. Germany holds an important in some sectors leading position in the export of medical technology into Malaysia; in particular in the field of medical equipment and electronic diagnosis. In the long term suppliers of medical equipment are facing one of the most rapidly developing markets of the world. Suppliers are enjoying the advantage of being located at the doorstep of the ASEAN nations with an overall population of 567 million. Table 1: Selected exports from Germany to Malaysia, [Thousand RM] Electrocardiographs UV- und IR-equipment Ophthalmic instruments & appliances , , , Nil 16, Data not available Source: MATRADE Malaysia External Trade Development Cooperation Table 2: Selected imports to Malaysia, [Thousand RM] Electrocardiographs UV- und IR-equipment Ophthalmic instruments & appliances ,572 7,165 49, ,926 3,087 58, ,137 3,546 68, ,882 3,529 Data not available Source: MATRADE Malaysia External Trade Development Cooperation

4 Table 3: Selected exports from Malaysia to Germany, [Thousands RM] Electrocardiographs UV- und IR-equipment Ophthalmic instruments & appliances ,381,993 Nil (market share:1.99%) (market share:11.83%) ,305 Nil (market share: 2.77%) (market share 2.45%) 2008 Nil Nil Nil Nil Data not available Source: MATRADE Malaysia External Trade Development Cooperation Table 4: Selected exports from Malaysia, [Thousand RM] Electrocardiographs UV- und IR-equipment Ophthalmic instruments & appliances ,856 18,549 18,746 (export share: 0.43%) (export share 1.37%) (export share 1.39%) ,868 0,483 21,692 (export share: 1.75%) (export share 0.03%) (export share 1.45%) ,866 2,808 12,161 (export share: 2.9%) (export share 0.17%) (export share 0.75%) ,521 4,739 Data not available Overview of the Healthcare sector The private healthcare sector in Malaysia has experienced continuous growth since the beginning of the 90s. The Malaysian health care system is, similarly to the German system, divided into two sectors: the public and the private health care sector. Both health care sectors are still expanding. The public health care program, accessible for everyone as subsidized by the government, is used heavily by the majority of the Malaysian population. The private, commercial health care sector however is only targeting the affluent members of the population. For the past decade health tourism has been promoted and currently 35 private hospitals are engaged in promoting their services. Malaysia now receives % of its patients from ASEAN countries and the rest of % from Japan, Australia, UK, Middle East and European countries. There is also increasing interest from US and Canada. In 2007, 341,288 health tourists generated revenue of RM million and the arrival in 2008 hit 374,063 generating revenue of RM million. It is expected that health tourism would generate revenue of RM million by 2012, growing at a CAGR of 20% during

5 Malaysia s healthcare industry is estimated at a value of USD 8.4 billion in In the same year approximately 4.3% of GDP is dedicated to the health care sector. Individuals and households are contributing 40% of these spendings and the remaining 60% is contributed by the government. For the 2011 budget, the government has announced plans to allocate a sum of RM 15.2 billion to the construction of new hospitals, increasing the number of doctors and nurses as well as to obtaining supplies of medicine and equipment. The government will intensify efforts to provide hospitals and rural health facilities for the two states in East Malaysia, Sabah and Sarawak. Table 5: Important information 2009 statistics Population 28.3 Mio. Life expectancy (male), (female) Infant mortality / 1,000 births 6.4 Number of doctors 30,536 Inhabitants/doctor 1:927 Number of hospitals (public) 136 (incl. MOH special medical Institutions) Number of hospitals beds (public) 38,057 (incl. MOH special medical institutions) Public healthcare expenditure RM16 bil. (2008 figure) Source: Ministry of Health, Malaysia Table 6: Healthcare expenditure of the government Year Budget of the Ministry of Change Inhabitants Expenditure per capita Health in RM b. in % in m. in RM ,32 9,34 23, ,01 19,07 25, ,43-12,6 26, ,20 0, , ,86 64,14 27, ,04 6,31 28, Source: Ministry of Health, Malaysia

6 The healthcare system is faced with challenges and opportunities from a rapidly changing operating environment, including increasing expectations on the quality of healthcare. Trends show that with increasing wealth, people spend more on healthcare, demanding higher quality and utilizing more services. Furthermore, there is increasing pressure on the public healthcare system, as Malaysia practices a dual healthcare system where public healthcare is heavily subsidized while the private healthcare system is thriving but concentrated mainly in urban areas. Public hospitals are thus dealing with increasing workload and the public sector resources are already stretched to capacity compared to the private sector. Another challenge is the changing demography and lifestyles. Malaysia faces increasing incidences of lifestyle-related diseases and by 2020 will have reached the status of an ageing nation with 10% of the total population above the age of 60. The advancements in technology create opportunities for significant improvements in the coverage and quality of healthcare, such as the use of tele-primary care services to reach communities in rural areas. In light of the challenges and opportunities, the Government will transform healthcare with the following focus: 1. Health Ministry will enforce quality care in both public and private sectors 2. Identify gaps to streamline health service delivery 3. Reviewing of financing options to manage rising cost and ensure healthcare remains accessible and affordable new clinics costing RM637 million will be completed in the first half of 10 th Malaysia Plan 5. Additional clinics will be set up in urban poor and underserved areas 6. Four new hospitals (including two hospitals in Sarawak i.e.petrajaya in Kuching and Limbang) and four replacement hospitals costing RM600 million will be completed in first two years of the 10 th Malaysia Plan. This includes the two hospitals in Sarawak i.e. Petrajaya in Kuching and Limbang, National Cancer Institute at Hospital Putrajaya and the Cheras Rehabilitation Centre. 7. Mobile clinics and flying doctor services will be expanded to remote areas

7 Private Healthcare In comparison to the public sector, the private commercial healthcare sector is at a similar level as in most Western European countries. Many of the registered doctors in Malaysia are trained and educated abroad. The equipment of private hospitals and clinics is often luxurious and is matching Western standards. The following table illustrates clearly the increase of private hospitals and beds over the last few years. Table 7: Hospitals and number of beds in Malaysia * 33, ,192 11, * 34, ,547 17, * 34, ,542 20, * 34, ,794 22, * 35, ,637 24, * 38, ,689 28, * 38, ,216 34,103 Source: Ministry of Health, Malaysia (MOH) Note: * number of public hospitals includes MOH Special Institutions The regional private healthcare provider Columbia Asia plans to invest RM 365 million (US$ 151 million) in six new mid-sized community hospitals in Malaysia. According to the chairman of Columbia Asia, Malaysia represents an attractive destination for the construction of hospitals due to the rule of law, its wide use of the English language and reasonable land costs. 2 In addition, Pantai Holdings Bhd, the second-largest hospital chain in Malaysia, is negotiating with several parties to expand its portfolio of hospitals by the end of the year Strong demand is expected in the region of Sabah and Sarawak. 3 Besides these plans, the healthcare group is studying the possibility of opening polyclinics and diagnostic centers in Malaysia. 4 Polyclinics are distinguished from Diagnostic centers in terms of 2 Business Times, Wed. 22/04/ Malaysia Gesundheit, Mon. 23/03/ ibid

8 doctors, size and services. They will have several doctors and visitations from specialist doctors and have more diagnostic instruments and screening facilities at their disposal. It is said that Malaysia s stable political climate, comparable quality of medical services at private medical centers and price advantage over other regional players puts the country in a good competitive position to make a mark in the medical tourism sector. 5 The 10 th Malaysian Plan Under the 10th Malaysia Plan ( ), healthcare is identified by the government as one of the 12 National Key Economic Areas (NKEA). Contributions and investments in this area are expected to help the country become a high income nation by the year This sector is to generate RM35.5 billion incremental gross national income (GNI) contribution and reach RM506 billion by the target year. Within the healthcare sector, 6 entry-point projects (EPPs) have been identified that is private health insurance for foreign workers, supportive ecosystem to grow clinical research, generics export, reinvigorating health tourism, creating a diagnostic service nexus for telemedicine and developing a world-class campus for healthcare and bioscience. From Government estimation, these programmes will cost US$6.3 billion with the creation of over 23,000 jobs. Imports Malaysia's medical devices and supplies are mainly imported, especially the more technologically advanced items. It is estimated that current growth in the market will be a strong 9.5% per year, reaching US$1.7 billion, or US$56 per capita, by In the five years from 2004 to 2008, imports have nearly doubled, growing at an attractive Compound Annual Growth Rate (CAGR) of 14.6%. Imports are expected to continue growing at a strong rate, in line with rising health expenditure, and the country's heavy reliance on imports to meet its healthcare needs. Demand for medical devices is increasing due to population growth, rising standard of living, longer life expectancy, growing affluence and increased consumer awareness. Major products imported were medical/surgical or 5 Malaysia Gesundheit, Mon. 02/02/2009

9 laboratory sterilizers, instruments and appliances used in medical/veterinary sciences, orthopedic products, hearing aids, pacemakers and other implanted products. The plan to match the standards of both private and public hospitals and clinics includes also the investment into modern high-quality equipment. Moreover Malaysia has positioned itself as a health tourism destination and for this its facilities are of international standard % of all medical products, including pharmaceutical products, are produced domestically to cut cost and save foreign currencies. However 90% of the highquality, expensive equipment is still imported from abroad. The main exporters to Malaysia are the U.S. and Japan, followed by Germany. As for pharmaceuticals, estimated demand is at US$1.2 billion in Imports in 2008 amounted to RM3.1 billion which accounted for 60% of the domestic market. The main exporters to Malaysia were Australia with a 10% import market share and Germany followed by France. Major types of drugs imported were lifestyle drugs like cardiovascular drugs, cholesterol lowering and hypertension drugs, antibiotics, and oncology drugs. Exports The medical device industry has remained a vibrant one with increasing exports in 2008 valued at RM8 billion and it is expected to continue to register an average annual growth of 8% over the next few years. Major exports include surgical and examination gloves, dental and ophthalmic instruments and appliances. For the pharmaceutical sector, total exports registered at RM567 million for Asian countries amounted to 60% of total exports. Other major destinations were Hong Kong, Nigeria and Germany. Opportunities in the Healthcare Sector Export of Medical Machinery & Equipment High tech medical machinery and equipment are still imported. Germany is the 3rd largest exporter of medical machinery and equipment to Malaysia.

10 Manufacturing of Medical Devices Malaysia, the 20 th largest export nation of the world, is a very interesting location for production sites. The main reason for this are the low operational costs, including land, electricity, water, telephone, and wages/ salaries. Those factors have attracted a number of small and medium sized, as well as larger corporations, to come to Malaysia. B-Braun Melsungen AG for example manufactures medical instruments with more than 4000 employees in Penang. Moreover B-Braun is also investing about RM500 million to expand its research and development and manufacturing facilities at its plant in Beyan Lepas, engaging in nano-technology, information technology and digitalization to improve its medical products. Due to its vast rubber resources, Malaysia and Thailand have developed into some of the largest manufacturers of condoms. Malaysia also has a leading position in the production of medical gloves (for doctors, surgeons) and rubber catheters. However, more companies are moving into the manufacture of products made from plastics, silicone and metal alloys. There is tremendous scope for investors to move into the manufacture and R&D of other medical devices such as cardiovascular, wound care, orthopaedic, transplant and medical imaging equipment, patient monitoring systems, electrocardiography equipment, blood flow measurement equipment and dialysis equipment. The government encourages manufacturers to produce medical equipment locally. Incentives are also given to foreign companies to invest in the medical sector. There are also opportunities for foreign companies to go into joint ventures. Pharmaceuticals Manufacturing Opportunities are also present in the pharmaceuticals sector. Aside from looking at opportunities for import substitution, investors can also take advantage of the country s potential for the development of generic, oncology, niche pharmaceutical products, sterile products and biopharmaceutical products. Malaysia s membership in the Pharmaceutical Inspection Convention and the Pharmaceutical Inspection Cooperation Scheme gives locally manufactured products world-wide acceptance concerning quality. In addition, the Malaysian industry is moving into adopting current Good Manufacturing Practice (cgmp). This adoption offers potential for increased exports to the more developed countries

11 Health Biotechnology The Government has launched the National Biotechnology Policy in April 2005 to outline strategy and initiative to develop biotechnology in Malaysia. One of the strategic fields includes health biotechnology. Various fiscal incentives will be provided for the participation of the private sector. To spearhead this sector, the government will set up a special fund amounting USD28.1 million (RM100 million) called Malaysian Life Sciences Capital Fund under the management of Malaysian Technology Development Corporation for investment in biotechnology. In addition, the Malaysian Biotechnology Corporation will collaborate with other agencies and ministries to attract more investment and joint ventures among local and foreign biotechnology companies. In healthcare biotechnology, traditional/complementary medicine is looked into for developing leads for the pharmaceutical and nutraceutical industries. Other niches to be developed are contract research and development of biogenerics, diagnostics and vaccines. The result should enhance the position of Malaysia in the bio-generics market. Halal vaccines are also an area of interest in the Malaysian healthcare sector. To ensure quality assurance to this new sector, a Bioproducts Validation Centre will be established to validate herbal, nutraceutical and phytopharmaceutical products. ICT in Health Sector A nation-wide information system will be introduced to link public and private health facilities for timely, quality and reliable information. A National Health Informatics Centre will be established for health and health-related information to be processed centrally. Priority will be given to the implementation of telehealth services that will enable the interoperability and sharing of information through Lifetime Health Record and Lifetime Health Plan services. Teleconsultation services will be further expanded to enable the provision of specialist services for the rural population. ICT will also be used in the delivery of primary care services and this will be expanded to cover more districts. Hospital Information System (HIS) will continue to be implemented in new and existing hospitals and clinics. There will be improvements and upgrading of existing information systems used in population health surveillance for various programmes such as food and water quality control, disease control such as HIV/AIDS, diabetes and mental illnesses.

12 Malaysian-German Chamber of Commerce & Industry, Market Watch 2011 The Healthcare Sector Leading Healthcare Fairs in Malaysia Asia + Medical 2011 Date: 5-7 October 2011 Place: Putra World Trade Centre, Kuala Lumpur, Malaysia APHM International Healthcare Conference & Exhibition 2010 Date: 6-8July 2011 Place: KLCC Convention Center, Kuala Lumpur, Malaysia 14th South-East Asia Healthcare and Pharma Show 2011 Date: 6-8 April 2011 Place: Kuala Lumpur Convention Centre, Malaysia Contact: Mr. Thomas Brandt: thomas.brandt@malaysia.ahk.de Mrs. Michelle Lim: michelle.lim@malaysia.ahk.de We hope the market brief serves you with actual information on the Malaysian market. Our core business is to establish contacts, finding distribution partners, project acquisitions, etc. our Firmenpool Malaysia or the Office-in-Office concept will give you a permanent address to develop the market. 11/17/2011/3:26 /ML/Healthcare E 2011.doc