No doubt, the pharmaceutical industry in China is on a roll. In what can be considered as part of its slow but steady growth strategy, the Chinese pharmaceutical industry has over the past years seen its growth as the world's top supplier of active pharmaceutical ingredients (APIs), noted contract research player and an emerging bio-pharmaceutical contestant.
Also, the modest Chinese pharmaceutical industry is now quietly taking its awaited great leap forward as a major force in drug discovery and development. As part of this great effort, a growing number of Chinese firms have readied themselves to offer a full range of drug research and development services, including synthesis, process research and scale up and animal testing. In addition, new companies are being set up from Shanghai to Beijing with research capabilities to boost drug discovery and development activities.
In another major development, several Chinese pharmaceutical companies are expected to bag major international certifications, such as certifications from the World Health Organisation (WHO), European Union (EU) and Australia. "It is likely that 20 Chinese pharmaceutical companies would get international certifications this year," said a source close to pharma developments in China. This foretells the future of Chinese pharma firms on the global pharma market map.
But when it comes to bio-pharmaceutical segment, a close look at the performance of Chinese pharmaceutical industry between January and September 2007 would throw a clear picture on the strides that the pharma industry in this dragon land is making in this nascent but booming business segment. If the available statistics are to be believed, the Chinese pharmaceutical industry recorded an output of US $59.4 billion during the period under review (i.e. between January and September 2007), registering a 25.21 per cent increase over the figures of comparable period of the previous year.
However, the bio-preparation industry shadowed the growth of the total pharma industry during this period by registering a growth rate of 28.1 per cent to reach US $4.3 billion. Besides, in terms of sales, the bio-preparation industry grew 27.6 per cent, slightly higher than the industry average of 26.64 per cent.
The figures indicate that China's bio-preparation industry grew very faster than the whole pharmaceutical industry in the past few years, with an average annual output growth rate of 29.3 per cent between 2001 and 2006, i.e., up from US $16 billion in 2001 to US $56 billion in 2006. Apart, the industry's profit also grew from US $200 million in 2001 to US $550 million in 2006.
The success story of Chinese bio-pharmaceutical segment can also be successfully traced from the records of China's State Food and Drug Administration (SFDA). Between 2002 and May 2007, SFDA approved registration of 800 new drugs, including 129 bio-pharmaceutical drugs. Most of the bio-pharmaceutical products approved were generic drugs with high technological content. As per the information at hand, there are about 200 bio-pharmaceutical companies in China with more than 2000 bio-pharmaceutical products. Out of these 2000 products, 95 per cent of them are generic drugs, including genetic engineering drugs, vaccines, antibodies and diagnostic products, according to industry sources.
Currently there are about 12 listed companies in the area of biotechnology, animal vaccines and genetic engineering in China. They collectively achieved sales of US $730 million (11.52 per cent increase) and profit of US $77 million (66.42 per cent increase) between January and September 2007. The whole pharmaceutical sector went up 170 per cent in 2007, against the Shanghai Composite Index's 96.66 per cent increase, various reports indicated.
"The US $16 billion new market provided by Chinese government's expanded medicare coverage has created a benign environment for bio-pharmaceutical companies to secure capital. As the final version of the government's healthcare system reform is due to be announced in the current year, the Chinese pharma market situation would become more clearer, which would be helpful for positioning and development of bio-pharmaceutical companies," said the industry experts.
"The growth in pharmaceutical services in China seems to be part of a major trend. In the last century we saw the pharmaceutical industry moving from Europe to the United States. Given the current trends, now it's perhaps moving to emerging Asian markets such as China and India," pointed out a reliable source.
Soaring foreign presence
Taken up by the progress that the Chinese pharma industry is making in the international and domestic markets, global pharma heavyweights are boosting their presence in this region to fulfill a growing need in areas like oncology, arthritis and other diseases. Also, these multinational pharma companies have in recent years increased their investments in China. As per the information available, there were about 1500 foreign joint venture (JV) or wholly-owned companies in China by the end of 2006, accounting for 30 per cent of the total industry.
In terms of market shares, foreign companies' sales value in the Chinese pharma market accounted for 27 per cent of total sales. Foreign and imported medicines captured 60-65 per cent market share in large and medium cities of China, while foreign brands occupied 80 per cent of the medical device market. The hospital market in China has always been a major sales target for foreign JV companies. Between 2002 and 2006, foreign JV pharmaceuticals thrashed domestic counterparts by registering an impressive annual sales growth rate of 25 per cent.
Given the current trend, more and more foreign companies are inclined to establish wholly-owned entities or take over equity stakes from existing Chinese JV partners to accommodate their investments. For example, Shanghai Johnson & Johnson, sanofi-aventis and Fresenius have gone through the JV to wholly-owned process. According to a survey by the Ministry of Commerce of China, in drug manufacturing activities, 57 per cent of multinational companies (MNCs) prefer wholly-owned operations in China.
At present, foreign investments in Chinese pharmaceutical industry are expanding from the previous simple packaging process to upstream and downstream industries, thanks to MNCs that are now accelerating steps to shift R&D processes from developed countries to China to cut down costs. The foreign companies are also actively buying commercially ready R&D projects in China, by means of co-operation, acquisition and mergers.
Booming OTC market
The Chinese government has introduced tighter regulations over prescription medicines in recent years, like product categorisation, sales restriction and prescription-medicine advertising restriction. As a result, sales of many prescription medicines for common diseases like diabetes and blood pressure have now been restricted in pharmacies. Hence, several players are adapting many medicines from prescription categories to over-the-counter (OTC) categories to grab the potential business opportunity offered by China.
With the Chinese pharma market throwing open several business opportunities to its counterparts across the globe, events like CPhI China holds a lot of promise to the foreign companies, who are brushing themselves up to enter this region's pharma market in one way or another. Organised by CMP Information, a division of London-based United Business Media, CPhI China is the leading exhibition on pharmaceutical ingredients, manufacturing and its allied industries.