The following information is extracted from the Independent Market Research Report titled “Health Supplement Market, Health Supplement Manufacturing Industry and Retail Market” prepared by Smith Zander International Sdn. Bhd. for inclusion in the Prospectus of Bioalpha Holdings Berhad dated 26 March 2015.

THE PHARMACEUTICAL INDUSTRY

The pharmaceutical industry refers to the research, development, manufacturing and commercialisation of drugs and health supplement products. The pharmaceutical industry can be broadly segmented into four (4) categories, based on its product classification:

  • Health supplements
    Health supplements consist of two (2) broad categories of products, i.e. herbal and non-herbal supplements, as well as functional foods. Herbal and non-herbal supplements refer to dietary and nutritional supplements which are used to boost an individual’s nutritional intake and/or offer the potential of improved health and/or reduced risk of disease.

    Meanwhile, functional foods can be broadly defined as food which is intended to be consumed as part of a normal diet and contains biologically active components which offer the potential of improved health and/or reduced risk of disease.

  • Botanical drugs
    Botanical drugs refer to drugs derived from herbal materials which are used to treat diseases. Typically, botanical drugs can both be dispensed over-the-counter in retail pharmacy stores and food and health retail stores, when they have been approved by the relevant authorities for self-diagnosis and self-medication, as well as through a registered medical practitioner’s prescription. Botanical drugs would have undergone extensive research and development, as well as pre-clinical and clinical trials prior to being approved with a country’s Food and Drug Administration (“FDA”) agency, or equivalent organisation.

  • Chemically-synthesised prescription drugs
    Chemically-synthesised prescription drugs are drugs which have undergone pre-clinical and clinical trials prior to being approved and are regulated by the respective country’s regulators, and are to be obtained only with a prescription from a registered medical practitioner or a registered pharmacist. Chemically-synthesised prescription drugs comprise both original and generic drugs.

  • Over-the-counter (“OTC”) products
    OTC products are drugs or medicines which are sold directly over the counter to consumers and can be sold without a prescription by a healthcare professional. OTC products are drugs which have also undergone pre-clinical and clinical trials prior to being approved and are regulated by the respective country’s regulators but these products are considered to be safe for self-diagnosis and self-medication.

Segmentation of Pharmaceutical Industry

Source: Extracted from the Independent Market Research Report by SMITH ZANDER

The segment within the pharmaceutical industry that are of interest in the report is the health supplement industry as it is the segment in which Bioalpha Holdings Berhad is principally involved in.

THE HEALTH SUPPLEMENT INDUSTRY

Health supplement intakes are viewed as a way to maintain general wellness without having to make drastic lifestyle changes. Health supplements consist of two (2) broad categories of products, i.e. herbal and non-herbal supplements, as well as functional foods. These products are generally manufactured using herbal and non-herbal materials, and are generally consumed for the purpose of maintaining and improving health conditions.

Health supplements are sold in two forms, i.e. semi-finished health products and finished health supplement products. Semi-finished health products refer to herbal and non-herbal products either in its dried form or extract form. Dried semi-finished health products have undergone primary processing which include cleaning, drying, cutting and / or grinding. Semi-finished products in an extract form are typically formulated ingredients which have undergone a process to extract its active compounds. These semi-finished products are used as raw materials in the manufacturing of finished health supplement products. On the other hand, finished health supplement products refer to packed and processed health supplements, and these products have taken a dosage form (i.e. tablet and capsule) or a functional food form.

 

Value Chain of the Health Supplement Industry

There are generally five (5) segments in the health supplement industry value chain – namely raw material supply, research and development, manufacturing, distribution and retail.

As these health supplements are sourced from herbal and non-herbal materials, the first segment of the health supplement industry consist of the raw material suppliers. Suppliers of herbal materials either cultivate their own herbal plants or source these herbal plants from nature (e.g. wild herbs).

The research and development segment consists of companies and organisations which focus on the research of raw material extracts, product formulations and other related areas. These research and development companies and organisations have the technical expertise and equipment required to perform research and development studies such as plant genetics, phytochemistry and process improvement studies.

In the manufacturing stage, there are two (2) types of manufacturing processes involved, i.e. semi-finished product manufacturing and finished product manufacturing. Semi-finished products are usually sold to other manufacturers and used as raw materials for further manufacturing into finished products. Health supplement products are manufactured based on product formulations which are either developed in-house by the manufacturers, or outsourced to a research and development organisation typically also known as a contract research organisation or a clinical research organisation.

Distributors comprise the fourth segment within the health supplement industry, and are intermediaries between manufacturers and retailers, and are responsible for distributing the finished products to retailers for onward sales to retail customers.

The retail segment of the health supplement industry consists of enterprises or companies involved in the marketing and sale of products to consumers and end-user customers. These enterprises or companies consist of retail pharmacy outlets, food and health stores, as well as consumer product retailers.

 

Industry Value Chain of the Health Supplement Industry

Source: Extracted from the Independent Market Research Report by SMITH ZANDER

Bioalpha Holdings Berhad is principally involved in the manufacturing of both semi-finished and finished health supplements in Malaysia, while it also has its own herb farm for internal supply of certain herbal raw materials and research and development functions to support its operations.

OVERVIEW OF THE HEALTH SUPPLEMENT MARKET

The Health Supplement Market in Malaysia

Healthcare expenditure refers to the provision of both preventive and curative health products and services, including nutrition activities, family planning activities, and emergency aid. Malaysia’s total healthcare expenditure illustrated a CAGR of 9.09% between 2008 and 2012, from RM26.25 billion in 2008 to RM37.13 billion in 2012. The strong growth in healthcare expenditure, specifically private expenditure, is reflective of the country’s demand for healthcare products, including health supplements as these products form a part of total healthcare expenditure.

 

Healthcare Expenditure (Malaysia), 2008-12

 

Note: Latest publicly available information is 2012

Source: Extracted from the Independent Market Research Report by SMITH ZANDER

The health supplement market size in Malaysia is defined as the sum of domestic manufacturing by local industry players and imports, net of any exports by local industry players, and denotes consumption of health supplement products in the country. The consumption of health supplements in Malaysia has demonstrated positive growth over the last five (5) years, from RM2.60 billion in 2009 to RM3.15 billion in 2013, representing a CAGR of 4.91% or an overall growth of 21.15% in five (5) years.

 

Health Supplement Market Size (Malaysia), 2009-13

 

Note: Latest publicly available data is 2013 as at 9 February 2015

Source: Extracted from the Independent Market Research Report by SMITH ZANDER

ANALYSIS OF THE HEALTH SUPPLEMENT MANUFACTURING INDUSTRY IN MALAYSIA

Introduction

The health supplement manufacturing industry in Malaysia is in its growth stage. In 2012, there were about 170 licensed health supplement manufacturers registered with the NPCB, MOH Malaysia.1 Many of these manufacturers are able to fully undertake the manufacturing process from processing of raw materials to the packaging of finished products.

Over the years, the health supplement manufacturing industry in Malaysia has developed in terms of its manufacturing and product formulation processes. In addition, through extensive research and studies on herbal and non-herbal active ingredients, health supplement manufacturers are also able to combine these active ingredients to provide end-user customers or consumers with various health benefits. This has resulted in the increase in efficacy of these herbal and non-herbal active ingredients.

 

Demand Conditions: Key Demand Drivers

  • Increasing income of the population signifies growth potential for health supplements
  • Increasing rates of chronic diseases and infections raising health awareness and thus, driving demand for health supplement products
  • Rapid urbanisation and an ageing society is expected to continue to drive the increase in health awareness and subsequently the market acceptance of health supplements
  • Health-oriented campaigns and events which promote health awareness leading to an increase in health supplement consumption
  • Government incentives in light of promoting the health supplement manufacturing industry

 

Industry Size, Outlook and Prospects

The health supplement industry has been identified by the Government of Malaysia to be a new emerging sector for development, as it is classified as EPP 1 under the ETP. The health supplement manufacturing industry is in its growth stage, and thus has potential for further growth to cater for increasing local and international demand. The industry size for the health supplement manufacturing industry in Malaysia can be measured based on revenues of identified industry players.

Based on the revenues of 131 identified industry players, the health supplement manufacturing industry size increased from approximately RM501.23 million in 2009 to approximately RM676.59 million in 2013, at a CAGR of 7.79%.

 

Health Supplement Manufacturing Industry Size (Malaysia), 2009-18(f)

 

Note: Latest available data is 2013 as at 9 February 2015

Source: Extracted from the Independent Market Research Report by SMITH ZANDER

 

Key Supply Conditions and Dependencies

  • Availability of raw materials and supplies
  • Availability of labour and equipment for the manufacturing of health supplement products

 

Product / Service Substitution

Health supplement products are products which are consumed to maintain general wellness and are typically consumed to “supplement” the intake of certain active compounds or phytochemicals. These active compounds are typically found in certain food products, or are extracted from herbal and non-herbal materials to manufacture health supplement products. As such, other than the food products, there is no direct substitute for health supplement products.

 

Competitive Landscape

In 2012, there were approximately 170 health supplement manufacturers registered with the NPCB2. However, for the purpose of the report, 131 industry players were identified as health supplement manufacturers.

The health supplement manufacturing industry includes industry players which are involved in contract manufacturing and industry players which manufacture their own house brand of products, as well as industry players which are involved in both of these activities.

 

Market Share

In 2013, which is the latest available as the FYE 2013 is the latest year where financial information of the identified industry players are available, the health supplement manufacturing industry size in Malaysia was approximately RM676.59 million. Bioalpha Holdings Berhad had a market share of 3.63% in 2013, based on its revenue of RM24.57 million in FYE 31 December 2013.

 

Health Supplement Manufacturing Industry – Market Share (Malaysia), 2012 and 2013

 

Source: Extracted from the Independent Market Research Report by SMITH ZANDER

OVERVIEW OF THE RETAIL MARKET IN MALAYSIA

Definition and Segmentation

The retail sector in Malaysia is an integral component of the nation’s economy and the fourth largest contributor to GDP after oil and gas, agriculture and manufacturing.

The retail sector in Malaysia is led by large chains of hypermarkets and supermarkets, who are typically grocery retailers, which collectively contribute to approximately 15% of total retail earnings. The grocery retail segment also include traditional retailers such as independent small grocers, and food, beverage and tobacco specialists. Major non-grocery retailers include mixed retailers and specialists providing apparel, health and beauty, home and garden, electronics and appliances, and leisure and personal goods.

Internet retailing is appearing as a significant retail channel for non-grocery products and there are a large number of internet retailers that carry out business transactions via social media channels such as Facebook.

Retail Market in Malaysia – Market Segmentation

Source: Extracted from the Independent Market Research Report by SMITH ZANDER

With its house brand products, Bioalpha Holdings Berhad operates within the health and beauty specialist category in the retail market in Malaysia.

 

Market Size and Growth Prospects

The retail market in Malaysia, measured by the value of retail sales, grew from RM108.0 billion in 2004 to RM168.7 billion in 2013 at a CAGR of 5.08%. Store-based retailers comprised 94.69% of total retail sales in 2013, having recorded a growth from RM102.7 billion to RM159.7 billion between 2004 and 2013 at a CAGR of 5.03%. Retail sales in Malaysia is expected to grow from RM168.7 billion in 2013 to RM190.5 billion in 2016 at a CAGR of 4.13% with store-based retailing continuing to remain a key component of retail sales.

 

Retail Market in Malaysia – Growth in Retail Sales

 

Source: Extracted from the Independent Market Research Report by SMITH ZANDER

 

Key Demand Drivers

  • Increasing disposable income of the population signifies growth potential for retail sales
  • Greater Government-driven initiatives to propel the retail market in Malaysia and boost retail expenditure

PROSPECTS AND OUTLOOK FOR BIOALPHA HOLDINGS BERHAD

Bioalpha Holdings Berhad, as one of the industry players in the health supplement manufacturing industry in Malaysia, shows potential to gain from the growing industry. In 2012, Bioalpha Holdings Berhad’s market share in Malaysia was 3.03% based on its revenue of RM19.12 million in the FYE 31 December 2012. The Company's market share increased to 3.63% in 2013, based on its revenue of RM24.57 million in FYE 31 December 2013. The company’s future growth is expected to be supported by opportunities arising from the growing health supplement market in Malaysia as well as globally, as it is well-positioned in the market with its wide range of health supplement products, as well as being one of the selected health supplement manufacturing industry players in Malaysia to be appointed as an Anchor company to undertake pre-clinical and clinical research studies for health supplements with functional or medium claims and botanical drugs under EPP1. These factors are expected to drive the future growth of the company.

 

Notes:-

1 Latest publicly available information is 2012 as at 3 March 2015
2 Extracted from the Independent Market Research Report by SMITH ZANDER

 

* Please read this section in conjunction with Section 7 from page 105 to page 137 of Bioalpha Holdings Berhad’s Prospectus dated 26 March 2015.