China Resilient: New Pharma Survey Offers Highly Positive Outlook

By Cameron Sharp.

Pharm Exec’s sister trade show company, UBM CPhI, has published its 2015 survey of the Chinese pharmaceutical market based on an opinion poll conducted with domestic and foreign suppliers attending CPhI’s annual China expo in Shanghai in late June. Despite some structural concerns in the context of slowing macro-economic growth overall, the report offers a very positive outlook on prospects for the industry in China.

China is the world’s largest producer of active pharmaceutical ingredients (APIs). Its massive pharmaceutical market is projected to be worth $158 billion worldwide in 2016, while domestic sales alone will account for $63 billion. The companies surveyed believe this behemoth will continue to grow, with 92 percent responding that they believe their China sales will double over the next five years.

In its role as the world’s primary API producer, China has a strong export market. A majority of respondents stated that they were looking to improve relationships with India and Europe primarily, though the U.S. – the least preferable target among the markets considered – still came in at 40 percent.  CPhI, however, expects greater growth in its domestic market, driven by demand for healthcare and medicines in China’s emerging cities.  The long-term potential is self-evident:  China contains 20 percent of the world’s population but accounts for only 1.5 percent of the global pharmaceutical market.

All of this contributes to tremendous confidence that China’s API market has not yet reached a saturation point – the current economic slowdown notwithstanding. The outstanding potential for growth, both domestically and abroad, as well as its past success makes the API market the most popular choice for investment.  Roughly  half of the foreign companies surveyed said that they plan to purchase a local API facility in the near future. Furthermore, India’s emergence as a strong producer of finished formulation products solidifies China’s short-term niche as an API producer on account of regional competition.

The confidence in APIs, however, underscores ambivalence about the future of the finished pharmaceutical market, with many foreign companies expressing doubts that China will be able to transition up the pharmaceutical value chain to more innovative, complex, lower volume products.   Attitudes were fairly split:  Almost as many respondents stated that they believed that China was currently matching Western production values as those who believed it would be 10 years or more before China could come close to that level. Foreign companies, in particular, held numerous doubts about the domestic supply chain, inadequate distribution networks, insufficient patent protection and a lack of good-manufacturing-process (GMP) compliant facilities.

Whatever the outcome, CPhI expressed confidence that it will be a specifically Chinese solution. The size of the Chinese domestic market will make it a standalone force, the ripple effects of which will drive changes outside China itself.   At home, a  burgeoning middle class will exert  profound pressure on the market for products similar to developed nation ailments like cancer and obesity as well as advances in healthcare quality standards. A transformed domestic market will finally provide the  incentive for local manufacturers as well as the Chinese government to echo the concerns of foreign businesses on issues like quality, access, compliance and reputation.  The push toward improved industry performance is reflected by the fact that the government is already ramping up spending on healthcare R&D.

Furthermore, the assimilation of elements of traditional Chinese medicine into contemporary pharmaceutical science also presents a tremendous investment opportunity for foreign companies looking to grow in the Chinese marketplace. Reading between the lines, the CPhI data seems to suggest that businesses will ultimately have to find a place in China by adapting to a unique and autonomous Chinese market as it develops if they want to operate successfully there for the long-term.

You can read the CPhI China Short Report here.