Evolution of China’s Pharmaceutical Market

Barry Piper
China's pharmaceutical market is changing, some fundamentals will remain the same but little else will remain as market-oriented factors are at play.

The market is large - industry growth will remain positive, driven by the ageing population, urbanisation, increasing wealth, and the government’s commitment to spending more on health care.

International pharmaceutical companies thought China had the cure for weak sales growth in its more developed markets and for revenue erosion due to competition from generics. Unfortunately, the cure effect wore off fast. Whilst China sales for many global pharmaceutical companies climbed as high as 40 per cent in recent years, growth for many has dwindled to 20 per cent this year. So after the boom years, foreign pharmaceuticals are now facing leaner times. The main causes of the decline are a slowdown in the Chinese economy, bribery crackdown that threatens to pull down sales further, and the emergence of local players as more formidable competitors.

Foreign pharmaceuticals have poured resources into China over the past decade as rising incomes have made healthcare more affordable for many.

Foreign pharmaceuticals have poured resources into China over the past decade as rising incomes have made healthcare more affordable for many. At the same time, the government has spent billions of US dollars in healthcare reform, to advance its goal of basic care for more than 90 per cent of its citizens, and creating stronger budgetary controls and price pressure for more affordable drugs. GDP will expand by no more than eight per cent next year, the weakest growth in at least seven years.  Some predict future growth in China pharmaceutical sales as low as 10 per cent a year.

Global pharmaceutical investors now face more intense competition from Chinese companies.

Global pharmaceutical investors now face more intense competition from Chinese companies. The government wants to transform manufacturers of low-cost generics into robust companies capable of handling branded medicines. But capitalising on this opportunity and competing effectively with the global giants will require the region’s domestic pharmaceutical industry to find new approaches. The shift from non-differentiated generics to a more differentiated portfolio will demand the development of more effective go-to-market strategies. At US$160 billion a year, China's R&D spend is a third of the US's, but it's growing at a rate of 25 per cent a year and this emerging market will gather strength.

The shift from non-differentiated generics to a more differentiated portfolio will demand the development of more effective go-to-market strategies.

What can we expect to see happening in the market in the future? Global pharmaceuticals can no longer rely on off-patent products, a segment that has generated tremendous growth over the past decade thanks in part to the Chinese government's policies. Greater accountability and transparency in operational/marketing practices are also expected across both multinational and domestic manufacturers as the government aims for better regulation.

However, China continues to offer significant opportunities for global pharmaceuticals, and inward investment is expected to remain high. Twenty per cent revenue growth is still very healthy, and even slowing down further to 10 per cent is nothing to complain about in the current economy.