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China’s Pharmaceutical Market An Overview

This presentation provides an overview of China's pharmaceutical market, including market background, regulatory environment, industry issues, intellectual property rights, growth sectors, and conclusions. Explore the fastest growing pharmaceutical market in the world.

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China’s Pharmaceutical Market An Overview

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  1. China’s Pharmaceutical MarketAn Overview

  2. Presentation Outline • Market Background • Regulatory Environment • Industry Issues • Intellectual Property Rights • Growth Sectors • Conclusions

  3. China- the fastest growing market in the world

  4. China- Import vs Export

  5. Strong Hard Currency Reserve

  6. Increasing U.S. Direct Investment into China

  7. China Pharmaceutical Industry Output & Growth Rate ---A Large and Growing Market

  8. China Pharmaceutical Commercial Sales & Growth Rate (Billion Yuan)

  9. Market Segmentation----Foreign Directly Invested Pharmaceutical Companies • 2000, FDI 645 pharm. • Revenue 23.6%, Profit 25.8% of Total • Local Products (69%), Imports (16%), • JV products (15%)

  10. Company 1999 2000 Domestic 43% 47% Joint Venture 29% 30% Foreign 28% 21% Majority companies are foreign invested

  11. Rank Total output Earning Revenue 1 Harbin 999 North China 2 North China J&J Harbin 3 Sijiazhong Harbin 999 4 Northeast China North China Shijiazhong 5 Shanghai Pharm ShiJiazhong Northeast China 6 Harbin Shandon Xinhua Shandon Xinhua 7 Shanghai Xianfong Beijing double-crane Harbin 8 Zhejiang Hisun BMS J&J 9 Shangdon Xinhua Harbin Shangdon LuKang 10 999 Harbin 6th Pharma Tianjin Pharm Top 10 Pharmaceutical Companies

  12. 2001 2000 Company 1 1 Shanghai Roche 2 3 Shanghai BMS 3 2 Dalian Pfizer 4 7 Merck Sharp & Dohme 5 6 Glaxo 6 8 Beijing Double-Crane pharm. 7 10 Sino-Swed Pharm Corp 8 4 North China Group 9 5 Sandoz 10 12 Harbin Pharm. Group 11 16 Novartis 12 9 J&J 13 11 Astra-Zeneca 14 17 Bayer 15 34 Shandon Lu Nan Pharm. Rank of Drug sales in 14 major area 2001China

  13. Chemical Drug Industry Rev. NE Core Business Profit

  14. Market Segmentation • Hospital Dominance (90%) • Rising OTC use (up to 30% in Coastal Cities) • Anti-Infective (30%), CNS (13%), Cardiovascular (12%), Gastrointestinal (11%), • Generics (98%)

  15. Market Characteristics • Extreme Regional Diversity (Urban v Rural; Coastal v Inland) • Generics Dominant • 95%+ for domestic products • Fragmented Domestic Industry • Too Many Producers (6,700) without Economy of Scale • Inefficient Distribution System • Gradual Shift to Local Products • Rapid Changes in Policy Environment

  16. Market Drivers • Demographics • Population Growth • Ageing Population • Urbanisation • Large Untapped Rural Population • Increasing Wealth • Policy & Regulation • Healthcare Reforms • Separation of Drugs from Hospitals • Focus on R&D & Technology Transfer

  17. Market Drivers • Cultural Influences • Increasing Awareness of Medicine • Increasing No of Healthcare Facilities • Western Imports Deemed Superior and Safer by Doctors and Patients • Growing Trend of Self-medication OTC • WTO Accession • More Investment and Technology Transfer • Distribution channel shake ups • Foreign health insurance moves in • M&A among Local Manufacturers

  18. Healthcare Provisions • Established in 50s under Planned Economy • State Healthcare Insurance • Labour Insurance System • Rapid Rise of Healthcare Expenditure over the Years • 19% rise in total healthcare expenditure vs 11% total government expenditure rise

  19. Problems in Healthcare System • Lack of Stable Budget Resources • Great Variability in Ability to Pay by Employers • Casual Attitudes toward Medical Expenditure • Incompatible with New Ownership Structure • Deferred Payment Causes Resentment and Social Problems

  20. Reforms to Healthcare • Broader Coverage of Population • Capped Healthcare Expenditure • Co-Payment Systems • Commercial Medical Insurance • Healthcare Fund for Major Diseases • Pilot Studies in Jiangxi and Zhejiang Provinces

  21. Regulatory Environment • Governmental Organisations • State Drug Administration (SDA) • Ministry of Health (MOH) • State Development Planning Commission (SDPC) • State Economic & Trade Commission (SETC) • Ministry of Labour & Social Security (MLSS) • Local Drug Administrations • Societies and Associations • 22 National Medical or Related Associations

  22. SDA • Merger of 3 Former Governmental Departments • Composition • Department of Drug Registration • Synthetic, Biological and TCM Divisions • Department of Medical Devices • Standards, Product Registration and Supervision Divisions • Department of Safety Supervision • Department of Market Compliance

  23. Government Policies • Drug Administration Law (1998) amended in 2001 • Drug and Profit Controls • Reimbursement Lists for Drugs • Based on State Essential Drug List (SEDL) • National A (fully reimbursable) and B (co-payment) Lists • 15% Adjustable for B List by Provinces • Only Generic Names are Used.

  24. Domestic Industry Issues • Structural Problems • Fragmented industry with too many (6700) manufacturers dominated by SOEs • Lack of Innovation and Competitive Edge • Generics Dominant • Less than 5% of sales on R&D against 20% of pharm industry average • Over-capacity • Outdated Management Structure

  25. SOE Reforms • A Major Government Programme • Consolidating Small and Inefficient Enterprises • WTO Pressure • Rationalisation in Geographical and Sector Terms • Multitude of Ownership Structures • Export-Oriented Preparation-Dominated Products

  26. IPR • Counterfeiting of Trademarks • Lax Enforcement of Law and Protection of Local Industry • WTO Accession Exempts China From Giving Immediate Patent Protection • Administrative Protection (AP) is Rumoured to be Phased Out in Favour of 20-Year Patent • Pre-AP Local Generics Considered Legal • Requirement of Large Generic Prints on Labels

  27. Protection of IPR • New Drug Protection From Date of Approval • 12 Years for Class I Drugs, • 8 for Class II & III and • 6 for Class IV & V • Protection Void • After 2 Years of Non-manufacturing or Technology Transfer

  28. Administrative Protection (AP) • Background • Effective on 1 January 1993 • Manufacturing and Sales Exclusivity in China for 7.5 Years • Qualifying Conditions • Not Under Chinese Patent Protection Before 1 January 1993 • Home Country Exclusivity Obtained Between 1 January 1986 and 1 January 1993 • Not on Sale in China before Application

  29. Challenges in Distribution • Dominated by SOEs • National: China Medicines Group • Provincial (Regional): 500 Distributors • Competition breaking former geographical boundaries • Local: 2,500 + SOEs and newly setup medical distributors • 16,000 + Wholesalers and 63,000 Retailers with Largest Player Accounting for only 3.46% of Total Sales

  30. Problems in Distribution • Large in number • Small in scale • Multi-layered operations • Over-valuing of drugs • Poor management • Cumbersome • Inefficient • Wasteful • Safety concerns

  31. WTO Challenges (1) • Regulatory Environment • More in Line With International Standards • More Transparent Administration • ICH Guideline Increasingly More Relevant • Administrative Barriers to Offset WTO Requirements

  32. WTO Challenges (2) • IPR Protection • Essential to Bring Legislation and Implementation in Line With WTO Standards • Loopholes to Be Closed: Administrative Protections • Concerns Over Confidentiality of Application Dossier Data

  33. WTO Challenges (3) • Domestic Industry • Price Reforms: More Conducive to Innovation • Focus on Innovation and Technology Transfers • Comprehensive Legislature Needed: Medical Devices • GMP and ISO9000 Series • Market Exclusivity for Appointed Distributors • M&A

  34. WTO Challenges (4) • Distribution • Entry of Large Foreign Distributors Into Market • Manufacturers to Be Allowed to Sell Direct to Wholesalers and Retailers • Consolidate to Survive

  35. Go West • Central Government Plan in 1999 to Develop West and Central China • 23% of Population Accounting for 10% of Total Pharmaceutical Output, Below National Average and Way Behind Compared with Coastal Counterparts • TCM Sector in Western Region More Developed than Chemical Drugs

  36. Development of West • Bright Spots: Xian-Janssen and Sichuan Pharma • Traditional Links with Coastal Enterprises • Rise in Popularity for Tibetan Medicine

  37. Favourable Policies for Development of West • Priority in Granting New Drug Approvals • Overseas Capital and Technology Encouraged, Avoid Me-Too Products • Multi-Level Co-Operation with East • Develop Market in South Asia and Eastern Europe • Further Develop TCM and Ethnic Medicines • Environmental Awareness

  38. Biological Products • Types • Biochemical, Biological and Genetically Engineered Products • Science and Technology Driven • Average Growth Rate 12.5% Worldwide Compared with 8% for Pharmaceuticals • US$ 20 Billion in 2000 with 100+ Products

  39. Biological Products • High Resistance to Economic Cycles • OTC including Vitamines Lead Advertising Categories in China’s US$10 Billion Advertising Expenditure • Long-term Stable Market Demand • High Entry Barrier • One of Pillar Industries Along With Material, Information and Energy Technologies

  40. Biological Products in China • 300+ Biotech Research Institutions, 200+ Biomedical Enterprises and 50+ Biotech Companies • Has Been Growing 12% pa Higher Than 8% GDP • Gene-Based Sector: 15 Products Approved and 50+ in Pipeline; US$ 280 Million Sales Expected for Year 2000

  41. Biological Products In China • Growth Areas in Biomedicine / Biotech • Fermentation and Production of TCM Biological Active Ingredients • Innovation of Antibiotics Production • Vaccines and Enzyme-based Diagnostics • Protein and Peptide Drugs • Targeted Drugs • Amino Acid Industry • Genetically Engineered Products

  42. Biological Products in China • Problems in Biomedicine/Biotech Sector • Imitation Prevalent • Duplications • Insufficient Investments and Small Scale • Sub-optimal Financing Structure • “Down-stream Technology” Lagging Behind • Post WTO IPR Impact on Imitation-driven Sector • Import Competition

  43. Main Product Categories • Interferon • 20+ Companies US$120 Million pa Sales • Shenzhen Kexing Accounts for 60% of Market • Widening Indications Predict Further Growth • EPO (Erythropoietin) • One of Top Three Most Popular of Biological Products • US$150 Million pa with 15 Producers • Oversupply for the Time Being

  44. Main Product Categories • Colony Stimulating Factor (CSF) • G-CSF and GM- CSF • Larger Demand for CSF Than EPO • 10 Producers • Recombinant Human Growth Hormone (e-HGF) • Flat Sales Since Launch Owing to Limited Indications • Difficulty in Identifying New Indications

  45. Main Product Category • Recombinant Human Insulin • First Biological Product to Be Marketed Back in 1982 • Market Prospect Promising • Monoplised by Tonghua Dongbao Co Ltd • Genetically Engineered Hepatitis B Vaccine • Current Sales of 70 Million shots pa • Future Demand High • Tiantan and Kangtai Dominate Market

  46. OTC Market in China • 700 OTC, 70 % will be registered as OTC • Urbanization. Large migration from rural • Sales by chain pharmacies in coastal cities increased by 45% in 2001. • Foreign companies allowed to run OTC distribution

  47. OTC Drugs • Annual Growth >30% in the Past 10 Years • Future Growth Projected at above 20% • East and Southeast Asia Fastest Growth • Vitamins and Slimming Drugs Largest Category in OTC

  48. OTC Drugs in China • OTC and Prescription Drug Classification System Introduced in China in 1999 • Increasingly Comprehensive Legislation • OTC Sales 10-15% of Total Synthetic Drug Market • Averaging 25% Growth over Past Decade • Along with Healthcare Products They Account for the Second Largest Spend by Consumers • 8% of Total Spend on OTC Including Healthcare Products vs 10% on Home Purchase and Improvement • US$2.7 Billion Sales Expected in 2001

  49. Drivers for OTC Drug Market • World-wide Trend • Increase in Health Awareness and Self-medication • Non-SOE Employees Exceed SOE Employees in Number • Travellers and Mobile Population Increase • Healthcare Reforms Divert People to OTC • Rural Area Reliance on OTC

  50. TCM • TCM Source Materials Number Over 12,000 • TCM Industry Produces 5,000+ TCM Preparations in Large-Scale Production • TCM Sector Outperforms Average Medical Industry’s Performance Indicators • Ride on the Back of Strong Worldwide Demand for Natural Medicines

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