China: Big Pharma's Long March to End?

Dec 01, 2009

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Hector Joseph, Herbal Medicine, 2008
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Yu Mingde (CPEA)
While the global economic system is still adapting to China's role as the 'world's factory,' the country's explosive pharmaceutical sector presages yet another seismic shift in global trade flows. Two revolutions are currently underway in China: The first is the rapidly growing importance of the Chinese pharmaceutical market, which has outpaced GDP growth, expanding at approximately 20% in recent years. Many analysts project China to become the world's second largest market by 2020. The second is the explosive growth of Chinese R&D, bootstrapping with outsourced services and inexorably moving towards in-house portfolios of innovative drugs.

Wei Huacheng (Beijing Pharma Group)
Current figures mask these subterranean shifts, where Big Pharma only sees 1.5% of total sales from this market, which is projected to reach USD 28 billion in prescriptions in 2010. The conventional OTC market is also tremendous, currently valued at around USD 10 billion and counting. As with most everything in China, the market also has 'Chinese Characteristics,' where Traditional Chinese Medicine (TCM) represents another segment worth approximately USD 21 billion encompassing sales of herbal remedies and other treatments that have been handed down over the millennia. TCM treatments are part and parcel of an ancient Chinese philosophical tradition that aims to bring the body's various organs into harmony, rather than focus on individual symptoms and proximate causes. The TCM segment is undergoing rapid modernization with both modern formulation techniques as well as exhaustive research into isolating active ingredients for pharmacological efficacy. However, these modernization efforts are still in their infancy. In the pharmaceutical segment, innovative therapeutics are dwarfed by generics at a scale of four to one, and this proportion is likely to increase as healthcare reform favors local generic producers. Only a few years ago, investing in Chinese R&D was hamstrung by fears of IP leakage. Today these fears often seem a distant memory as global pharma sinks hundreds of millions of dollars into R&D infrastructure, while Chinese startups build competitive IP portfolios of their own. In some cases, Chinese firms have even pursued IP litigation against the multinationals. If there is to be a reset to the innovative pharmaceutical business model, the Middle Kingdom will likely be ground zero.

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