ANYONE holding their breath for the long-awaited rebound in the important but highly volatile pharmaceutical industry could be disappointed.
The indications are that the sector - a star performer in recent years - may not provide the much-needed shot in the arm to local manufacturing any time soon.
Expiring drug patents, delayed approvals for new treatments and the rise of generic drugs are clouding the industry's immediate outlook, says the Government.
The industry is the single biggest contributor to manufacturing, making up about 22 per cent of total output, having overtaken semiconductors.
It had been expected to revive the factory sector, after sending it into a coma in the second quarter. But comments yesterday from the Government suggest that the outlook is more Valium than Viagra.
'The early expectation was that there was going to be a rebound in pharmaceuticals. But we are seeing some signs of weaknesses,' said Mr Ravi Menon, Second Permanent Secretary at the Ministry of Trade and Industry (MTI) yesterday.
'Some of these could be short-term. But as to when a more decisive rebound will take place, we're not sure,' he told reporters at a press briefing on Singapore's second-quarter economic results. 'So we've been a little conservative, shading down the magnitude of that rebound.'
An MTI statement said the short-term outlook for biomedical output will be weighed down by strong competition from generic drugs and delays in approvals for new pharmaceuticals.
The 11 companies that operate plants here are global companies like GlaxoSmithKline and Schering-Plough, which invent and make their own drugs. But as patents for popular products run out, companies making copycats have been giving the big boys a run for their money.
The weaker drug outlook is one of the key reasons that local manufacturing exports are now expected to shrink this year - between 2 and 4 per cent.
It is also contributing to the bearish expectation that overall economic growth will clock in at the lower half of the official revised 4 to 5 per cent range.
Still, the MTI reckons that the long-term health of the industry is intact, especially as a string of new plants, making even more complex drugs, are scheduled to open over the next two years.
Barclays economist Leong Wai Ho added that turning to generic drugs may also be inappropriate given Singapore's high-cost structure. 'The tendency is towards higher value-added products.'
The high-value pharmaceutical industry has been both boon and bane for the economy. Wild variations in drug values and the highly variable nature of production cycles have made for spectacular surges that have at times masked weaknesses in the wider economy.
But the extended periods of plant shutdowns required for cleaning and maintenance, as factories switch between product lines, have also single-handedly sent the economy into seeming tailspins as it did in the April to June quarter.
Second-quarter economic growth shrank to a weak 2.1 per cent, from a hale and hearty 6.9 per cent in the previous quarter. The culprit? Two straight months of drastic drug decline. May output dived 58 per cent to the industry's lowest level in more than three years.
The volatility has made economic forecasting in Singapore more art than science. It has led economists, including DBS Bank's Mr Irvin Seah, to call for economic numbers excluding the industry to be published. Such data used to be released but the practice was stopped, without explanation, last February.
The petition is all the more valid after a Business Times report last Monday revealed that dips may well be an accounting phenomenon whereby intermediate chemicals are not counted as output even though the plant is at full steam.
As well, analysts noted that with the small number of players here, of which one is said to account for 40 per cent of the industry's output, company-level issues can have vast effects on industry figures - or even those of the economy.
bryanlee@sph.com.sg
fiochan@sph.com.sg
This article is first published in The Straits Times on August 12, 2008.
