China's pharmaceutical industry - forecast for 2010
By Karl Zhong
Shanghai. January 5. INTERFAX-CHINA - The sluggish world economy and ongoing health care reform policy impacted the development of China's pharmaceutical industry in 2009. As we look ahead, 2010 will see the continuation of the reform measures, as well as other developments and trends in the sector in the context of a recovering global economy.
The pharmaceutical industry will likely grow faster in 2010 given that China's pharmaceutical exports are picking up and the deepening health care reform is generating more market opportunities.
Figures from the State Food and Drug Administration's (SFDA) Southern Medicine Economic Research Institute (SMERI) showed that medical insurance funds will be raised by RMB 400 billion ($58.57 billion) in 2010 which may lead to the expansion of the domestic drug market by RMB 200 billion ($29.28 billion).
According to the SMERI, the production value of China's pharmaceutical industry will grow 23 percent year-on-year in 2010. International pharmaceutical consultancy IMS Health Inc. estimates put China as the world's third largest pharmaceutical market by 2010.
Health care reform
With the health care reform only just kicked off and related projects launched on a small scale in 2009, we were not able to see much progress on the public hospital reform front. This year, we will see more progressive implementation of reform policies; for instance, the essential drug system will be implemented in over 50 percent of China's grassroots medical institutions and we expect to see the issuance of the essential drug list for hospitals this year too, which will complement the existing essential drug list for grassroots medical institutions.
With regards to the public hospital reform, we do not expect to see significant progress this year as the government still needs to figure how it can better subsidize hospitals to make up for the loss of their drug revenues following the zero cost-plus markup policy.
An important goal of China's health care reform is resolving the high cost of medical treatment for the Chinese public. As such, declining drug prices will be a trend that will be here for the long term.
After the Ministry of Human Resources and Social Securities (MOHRSS) revised the national drug reimbursement list in November last year, it is likely that the National Development and Reform Commission may follow with a price adjustment of drugs on the list. Therefore, it appears likely that prices of the majority of drugs which are newly included on the list will be reduced to an extent.
The MOHRSS also revealed that it is looking into the set up of a new consultation process between drug manufacturers and government agencies when adjusting prices of drugs on the national drug reimbursement list, marking an interesting shift from the current government-set drug pricing.
The ninth edition of the Chinese Pharmacopoeia will come into effect on July 1, 2010. We believe it will be used extensively by government agencies to supervise the quality of essential drugs as well as to eliminate drugs on the market that do not meet standards.
With regards to the Good Manufacturing Practice (GMP) standards, they are being revised and look set to be published in 2010 and will be more similar to international GMP standards. The government will need to introduce supplementary policies to ensure that pharmaceutical manufacturers abide by the new standards strictly whereas drug manufacturers will likely witness considerable cash flow pressures in a bid to upgrade their equipment to meet the new standards.
In July 2009, the SFDA launched a re-evaluation on traditional Chinese medicines including on production standards and drug safety and will gradually extend the re-evaluation process to all other types of drugs. Drug companies with sub-standard products better buck up or face the heat.
China's pharmaceutical companies will continue to review their operational and business structures in 2010 as companies realize they have to grow stronger to enhance their competitive advantage to make the most of market opportunities.
Further, the establishment of pharmaceutical distribution alliances over the past several years has set a good foundation for future mergers and acquisitions (M & A).
In 2009, Shanghai Pharmaceutical Co. Ltd. announced plans to acquire Shanghai Industrial Pharmaceutical Investment Co. Ltd. and Shanghai Zhongxi Pharmaceutical Co. Ltd., with material progress of the acquisitions due to take place this year.
At present, there is also some speculation that China National Pharmaceutical Group Corp. (Sinopharm) will acquire Shanghai Modern Pharmaceutical Co. Ltd., a subsidiary of the Shanghai Institute of Pharmaceutical Industry (SIPI). In the meantime, we think Beijing Pharmaceutical Group Co. Ltd., China Resources Medications Group Ltd., Taiji Group Co. Ltd., and Holley Group Co. Ltd. are likely to embark on restructuring processes to streamline their operations in the future.