China Pharmaceutical Sector Being Regulated, Now What?


New rules in the pharmaceutical industry will affect drug manufacturers here and overseas.

But how? Moreover, what is the new regulation?

According to IQVIA, China is the world’s second largest pharmaceutical market. In 2017, it had a value of $122.6 billion. As one of the emerging markets for pharmaceuticals, it’s expected to grow to $175 billion by 2022.

As the ageing population also increases, the age group also creates new demands. There was an estimation that by 2027, 324 million people or roughly 22% of the population will be over the age of 60.

But here’s the bigger picture. Large local drug companies are milking money from low-cost generic medicines for years. This scenario gives them gross margins 80 to 90 percent. But the caveat is they are not giving much thought on R&D and innovation. And also consumer protection. Most of them are spending on sales and marketing rather than innovation.

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Government’s stringent implementation on new policy

The government started to take over the procurement of drugs for hospitals in 11 cities. According to Bloomberg’s report, the government will give at least 60% – 70% of orders for 31 specified. China has 4 million new cancer patients every year. And the growing number of ageing population is also a consideration.

The fierce war on prices pushed some major local drug companies to cut costs more than 90 percent. Sino Biopharmaceutical Ltd., the company selling hepatitis treatment entecavir is one of them. The move was intentional to beat Bristol-Myers Squibb Co. and two local competitors, accounting 16 percent of its sales in December 2018.

China aims to make drugs cheaper and accessible to patients.

Support for local drug manufacturers

Multinational companies are the most favored because of the quality. The government is aware of it. For off-patent drugs, domestic generic manufacturers have low credibility. But the new policy will change the procurement scheme. It will also include the implementation of the Generic Consistency Evaluation (CGE).

The new policy will benefit generic drug manufacturers. The government also rolled out tax amendments. These generic drug manufacturers will be labeled as “high tech enterprises.” In return, there would be a reduction of 15% of corporate tax. Other companies have 25% tax rate.

Open doors to foreign pharmaceutical companies

The new regulations in the industry also provide opportunities to foreign players. Foreign brands always have premium pricing. And the government is also looking for other importation of drugs.

Research and development and commercialization strategies should also be considered to get a hold of the huge market in China. Recently, it was reported that China imported dozens of new drugs including cancer medicines for government hospitals according to the Hindu Times.

Cancer-fighting drugs are in demand. The cost of the treatments in China is prohibitive. Cheaper and effective medicines from India could fill the need. Thirty-eight imported drugs were also approved. A recent report noted that 18 antineoplastic drugs were in the list. They are being used in chemotherapy to prolong the life of cancer patients.

What’s in it for you?

Are you in healthcare, pharmaceutical, or medical devices sectors?

You may want to study further the implications of the new policies to your company.

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