PHARMACEUTICAL FACTORY (Investment in)

Mr S. Vasoo asked the Minister for Finance and Minister for Health (a) what is the rationale of developing a pharmaceutical factory costing S$20 million and whether such a move contradicts the Government's policy of moving away from commercial activities; (b) whether the investment in the pharmaceutical factory is cost effective; (c) whether other multinational research-based pharmaceutical companies have committed themselves to invest in Singapore; and (d) whether the Government's plan to build the pharmaceutical factory will discourage other more substantial research-based pharmaceutical investments in Singapore.

The Minister of State for Health and Foreign Affairs (Mr Yeo Cheow Tong) (for the Minister for Finance and Minister for Health): Mr Deputy Speaker, Sir, I will answer on behalf of my Minister.

The proposed pharmaceutical factory is intended to replace an old Government facility at Jalan Bukit Merah.

Since 1950, the Ministry of Health has operated a pharmaceutical factory in an old converted warehouse at Jalan Bukit Merah. The factory is not engaged in the primary manufacture of active pharmaceutical ingredients but carries out the secondary pharmaceutical process of formulating, compounding and packaging of a wide range of generic or non-proprietary drugs into tablets, capsules, mixtures and injections, etc, for use within the Ministry's hospitals and outpatient dispensaries.

This factory has provided our hospitals and dispensaries with a wide range of essential drugs at very economic prices. Without this facility, the Ministry would be obliged to purchase all its drug requirements in the form of proprietary drugs from commercial sources at substantially higher prices. The Ministry's actual drug bill was $15.5 million in 1984 and would have been well over $20 million if patented proprietary drugs had been used.

The demand for drugs and pharmaceutical products by Government hospitals and OPDs has increased at the rate of 5-7% a year for the past 10 years. This demand has outgrown the production capacity of the existing factory. This factory is severely short of space for production and storage, is poorly laid out and uses antiquated, labour-intensive techniques. The Ministry has plans to construct a new, modern, automated factory in its place.

The proposed new factory will not in any way contradict Government's policy to move away from private sector commercial activities. It replaces an existing facility and its products will be used mainly in Government hospitals and clinics.

(b) The new factory, which is estimated to cost approximately $26.5 million will employ the latest techniques of drug manufacturing including automated systems of production. It will be less labour-intensive. This will reduce the cost of the product as manpower costs account for a significant portion of production cost.

The factory will concentrate mainly on the production of high consumption items to achieve economies of scale to be cost effective.

It is estimated that the factory will result in a saving in the drug bill of approximately $4.5 million annually.

(c) During the period 1980-84, the total investment in Singapore by the pharmaceutical industry amounted to approximately $194 million. The Economic Development Board does not foresee any major pharmaceutical investments in Singapore in the near future.

(d) There are two stages in the production process for pharmaceuticals. The first is the primary manufacture of the active ingredients, and the second is the processing of the active ingredients into the finished form such as tablets, capsules, mixtures, injections and ointments, etc. Primary manufacturing of active ingredients is both capital and technology intensive, and has a high value-added per worker. It requires a large investment capital to set up and for research and development. To be successful, a factory for the primary manufacture of active ingredients must have a market that is larger than what the Ministry of Health or Singapore can provide. On the other hand, secondary processing involves the formulation, compounding and packaging of generic productions into tablets, etc. It is less capital intensive and tends to be a local market orientated operation.

The proposed manufacturing plant for the Ministry of Health is of the latter type and is meant to meet its own needs. It will therefore not in any way discourage research-oriented pharmaceutical companies from setting up manufacturing plants in Singapore.