The Southern Medicine Economic Research Institute (South Institute) affiliated to the State Food and Drug Administration held the 18th China Pharmaceutical Economic Information Conference in Zhuhai, Guangdong on November 7-8. The meeting invited government officials and industry experts to address the pharmaceutical industry under the current situation. Faced with the policy environment and future development analysis and outlook. We summarize and analyze the main points of the conference as follows.
Three factors drive the pharmaceutical industry to achieve growth The South’s statistics show that in addition to the positive factors such as aging population, urbanization and health care awareness, there are three main factors that will drive the future development of China's pharmaceutical industry:
The global pharmaceutical production center is moving to China. According to the IMS forecast data, the growth of the global pharmaceutical market will gradually slow down. The expected growth rates in 2006 and 2007 are 6-7% and 5-6%, respectively, which is lower than the growth rate of 9.9% in 2005. The two factors of reducing costs and expanding the market have prompted multinational corporations to transfer production or even R&D centers to China. OEM OEM production and contract system R&D have become increasingly popular and have become a positive factor in driving the pharmaceutical economy.
China's macroeconomic situation is good. The pharmaceutical industry is positively related to macroeconomic indicators GDP. In 2003, China's medical and health expenditures accounted for about 5.62% of GDP. Although it is expected that the growth rate of GDP in 2007 will be slower than that in 2006, it will still be at a relatively high level, which will become another factor in boosting the pharmaceutical economy.
Health care system reform. The current medical security in China covers only about 30% of urban workers and 25% of rural population. The goal of the reform of the medical and health system is to establish a low-level and extensive-covered universal health care insurance system. It is expected that the demand for medicines in the country will maintain steady growth.
In the short-term, it will still experience the winter of policy. However, from the perspective of industrial policy, a series of policy factors that the country has recently issued to rectify and standardize the pharmaceutical industry will become the limiting factors affecting the pace of development of the short-term pharmaceutical industry:
Special rectification of the policy of buying, selling and selling bribery medicine. In 2006, the central government listed commercial bribery as one of the main tasks. In April of the same year, the State Food and Drug Administration launched a nationwide special campaign to control medical bribery. Due to the widespread existence of unspoken rules such as giving kickbacks to doctors in the sale of pharmaceuticals by the pharmaceutical industry in China, this governance policy has a direct impact on the pharmaceutical sales of pharmaceutical companies. The promotion of new prescription drugs has become more difficult, the growth of hospital drug use has slowed, and the proportion of foreign-funded joint venture drugs with independent intellectual property rights and standardized operations has increased. South China University of Science and Technology statistics show that in the first half of 2006, the sales revenue of the top 100 pharmaceutical companies in the country only increased by 2.26% year-on-year.
To rectify and standardize the pharmaceutical market order policy. On May 30, 2006, the National Development and Reform Commission jointly issued the "Opinions on Further Upgrading the Market Order of Drugs and Medical Services Markets" jointly with the Ministry of Finance, the Ministry of Health, the Ministry of Labor and Social Security, the Ministry of Commerce, and the State Food and Drug Administration. . The "opinions" covers all aspects of drug registration applications, production and circulation. Comprehensive inspection of registration applications has led to a significant reduction in the number of new drugs on the market; surprise inspections of GMP production in pharmaceutical companies have resulted in a certain increase in the production costs of enterprises; at the same time, measures have been taken to contain more than one drug, in addition to holding compounds. Except for patented drugs, all other varieties may not use trade names. Affected by this, it is more difficult for enterprises to publicize new products in the future, and the price competition of similar products is becoming fiercer.
A new round of drug price cuts. The National Development and Reform Commission is preparing for the 20th time the price cuts for more than 100 commonly used drugs based on western medicine. It is expected that this will be the largest and most significant price reduction action.
Hanging network bidding procurement policy. Tender procurement is yet another policy aimed at reducing drug prices. Hanging on-line bidding is to reduce the artificial factors in the tendering process through the Internet and improve the fairness of the procurement process. In October 2006, Guangdong Province began pilot bidding on the Internet, and also provided for the “two-vote system†regulation for pharmaceutical distribution companies. In principle, all drugs are represented by a first-tier distributor and are distributed to hospitals at most by two distributors. The two-vote system has greatly reduced the circulation of medicines, compressed the living space of a large number of small-scale pharmaceutical sales agencies, and facilitated the increase in the concentration of pharmaceutical distribution companies.
The overall pharmaceutical economic growth in 2006 and 2007 is expected to be based on the data and forecasts of the South Institute. Policy factors will form a certain constraint on the overall development of the pharmaceutical industry in 2006-2007, and the growth rate of the industry will slow down compared to 2005:
In the first half of 2006, the amount of drugs used by hospitals increased by 6.3% year-on-year, and the amount of drugs used by retail pharmacies grew by 16.7% year-on-year. The growth of hospital terminals reached a new low of nearly ten years, but retail pharmacies grew steadily.
It is expected that the growth of the pharmaceutical industry in 2006 will be slower than that of 2005, with the pharmaceutical industry increasing by 12% and the chemical pharmaceutical industry by 8%. In 2007, pharmaceutical sales revenue increased by 9% year-on-year.
Impact on pharmaceutical companies We anticipate that the current policies and market environment will promote the survival of the fittest, the market share will accelerate the concentration of dominant companies, and industry concentration will increase. Enterprises in various sub-industries have been affected to varying degrees and have become disparate.
The prescription drug manufacturers face a more severe living environment as a whole: Anti-commercial bribery leads to a slow increase in the use of drugs in hospitals, and it is more difficult to develop new drugs in the market. In terms of academic promotion, local companies are inferior to foreign pharmaceutical companies, so the market share of the latter will increase. However, local companies with innovative capabilities such as Hengrui Pharmaceutical are still worthy of attention.
The overwhelming survival environment of brand OTC drug manufacturers: relatively loose pricing policies, non-participatory procurement, and the improvement of people’s independent medical awareness have made OTC terminals more active. With many prescription drugs turning to the OTC market, the competition in this area will become fierce in the future. We will focus on the branded proprietary Chinese medicine manufacturers.
Biological vaccine companies are at the peak of the industry: The development of biological products is encouraged by the country's policies, and the demand for vaccines continues to heat up. Different from medicines, the procurement and sales channels of vaccines in China mainly go through the disease control centers at all levels, and the degree of influence by the policies is relatively small.
Large-scale pharmaceutical commercial enterprises are facing opportunities: Anti-commercial bribery, two-vote system and other drug sales policies have hit salespeople with sales of gold as the mainstay. The market share is leaning towards the normative and large-scale pharmaceutical commercial enterprises; the future mergers and acquisitions of pharmaceutical and commercial businesses will tend to be active. In the long-term analysis, the reform of the medical system will eventually lead to the separation of medicines (ie, the separation of doctors' medical service behavior from drug sales). The pharmaceutical industry's position in the industry is expected to increase, driving the industry's profitability to rise. However, in the short term, due to the many uncertainties in the health care reform, the substantial increase in industry profitability remains to be seen.
Three factors drive the pharmaceutical industry to achieve growth The South’s statistics show that in addition to the positive factors such as aging population, urbanization and health care awareness, there are three main factors that will drive the future development of China's pharmaceutical industry:
The global pharmaceutical production center is moving to China. According to the IMS forecast data, the growth of the global pharmaceutical market will gradually slow down. The expected growth rates in 2006 and 2007 are 6-7% and 5-6%, respectively, which is lower than the growth rate of 9.9% in 2005. The two factors of reducing costs and expanding the market have prompted multinational corporations to transfer production or even R&D centers to China. OEM OEM production and contract system R&D have become increasingly popular and have become a positive factor in driving the pharmaceutical economy.
China's macroeconomic situation is good. The pharmaceutical industry is positively related to macroeconomic indicators GDP. In 2003, China's medical and health expenditures accounted for about 5.62% of GDP. Although it is expected that the growth rate of GDP in 2007 will be slower than that in 2006, it will still be at a relatively high level, which will become another factor in boosting the pharmaceutical economy.
Health care system reform. The current medical security in China covers only about 30% of urban workers and 25% of rural population. The goal of the reform of the medical and health system is to establish a low-level and extensive-covered universal health care insurance system. It is expected that the demand for medicines in the country will maintain steady growth.
In the short-term, it will still experience the winter of policy. However, from the perspective of industrial policy, a series of policy factors that the country has recently issued to rectify and standardize the pharmaceutical industry will become the limiting factors affecting the pace of development of the short-term pharmaceutical industry:
Special rectification of the policy of buying, selling and selling bribery medicine. In 2006, the central government listed commercial bribery as one of the main tasks. In April of the same year, the State Food and Drug Administration launched a nationwide special campaign to control medical bribery. Due to the widespread existence of unspoken rules such as giving kickbacks to doctors in the sale of pharmaceuticals by the pharmaceutical industry in China, this governance policy has a direct impact on the pharmaceutical sales of pharmaceutical companies. The promotion of new prescription drugs has become more difficult, the growth of hospital drug use has slowed, and the proportion of foreign-funded joint venture drugs with independent intellectual property rights and standardized operations has increased. South China University of Science and Technology statistics show that in the first half of 2006, the sales revenue of the top 100 pharmaceutical companies in the country only increased by 2.26% year-on-year.
To rectify and standardize the pharmaceutical market order policy. On May 30, 2006, the National Development and Reform Commission jointly issued the "Opinions on Further Upgrading the Market Order of Drugs and Medical Services Markets" jointly with the Ministry of Finance, the Ministry of Health, the Ministry of Labor and Social Security, the Ministry of Commerce, and the State Food and Drug Administration. . The "opinions" covers all aspects of drug registration applications, production and circulation. Comprehensive inspection of registration applications has led to a significant reduction in the number of new drugs on the market; surprise inspections of GMP production in pharmaceutical companies have resulted in a certain increase in the production costs of enterprises; at the same time, measures have been taken to contain more than one drug, in addition to holding compounds. Except for patented drugs, all other varieties may not use trade names. Affected by this, it is more difficult for enterprises to publicize new products in the future, and the price competition of similar products is becoming fiercer.
A new round of drug price cuts. The National Development and Reform Commission is preparing for the 20th time the price cuts for more than 100 commonly used drugs based on western medicine. It is expected that this will be the largest and most significant price reduction action.
Hanging network bidding procurement policy. Tender procurement is yet another policy aimed at reducing drug prices. Hanging on-line bidding is to reduce the artificial factors in the tendering process through the Internet and improve the fairness of the procurement process. In October 2006, Guangdong Province began pilot bidding on the Internet, and also provided for the “two-vote system†regulation for pharmaceutical distribution companies. In principle, all drugs are represented by a first-tier distributor and are distributed to hospitals at most by two distributors. The two-vote system has greatly reduced the circulation of medicines, compressed the living space of a large number of small-scale pharmaceutical sales agencies, and facilitated the increase in the concentration of pharmaceutical distribution companies.
The overall pharmaceutical economic growth in 2006 and 2007 is expected to be based on the data and forecasts of the South Institute. Policy factors will form a certain constraint on the overall development of the pharmaceutical industry in 2006-2007, and the growth rate of the industry will slow down compared to 2005:
In the first half of 2006, the amount of drugs used by hospitals increased by 6.3% year-on-year, and the amount of drugs used by retail pharmacies grew by 16.7% year-on-year. The growth of hospital terminals reached a new low of nearly ten years, but retail pharmacies grew steadily.
It is expected that the growth of the pharmaceutical industry in 2006 will be slower than that of 2005, with the pharmaceutical industry increasing by 12% and the chemical pharmaceutical industry by 8%. In 2007, pharmaceutical sales revenue increased by 9% year-on-year.
Impact on pharmaceutical companies We anticipate that the current policies and market environment will promote the survival of the fittest, the market share will accelerate the concentration of dominant companies, and industry concentration will increase. Enterprises in various sub-industries have been affected to varying degrees and have become disparate.
The prescription drug manufacturers face a more severe living environment as a whole: Anti-commercial bribery leads to a slow increase in the use of drugs in hospitals, and it is more difficult to develop new drugs in the market. In terms of academic promotion, local companies are inferior to foreign pharmaceutical companies, so the market share of the latter will increase. However, local companies with innovative capabilities such as Hengrui Pharmaceutical are still worthy of attention.
The overwhelming survival environment of brand OTC drug manufacturers: relatively loose pricing policies, non-participatory procurement, and the improvement of people’s independent medical awareness have made OTC terminals more active. With many prescription drugs turning to the OTC market, the competition in this area will become fierce in the future. We will focus on the branded proprietary Chinese medicine manufacturers.
Biological vaccine companies are at the peak of the industry: The development of biological products is encouraged by the country's policies, and the demand for vaccines continues to heat up. Different from medicines, the procurement and sales channels of vaccines in China mainly go through the disease control centers at all levels, and the degree of influence by the policies is relatively small.
Large-scale pharmaceutical commercial enterprises are facing opportunities: Anti-commercial bribery, two-vote system and other drug sales policies have hit salespeople with sales of gold as the mainstay. The market share is leaning towards the normative and large-scale pharmaceutical commercial enterprises; the future mergers and acquisitions of pharmaceutical and commercial businesses will tend to be active. In the long-term analysis, the reform of the medical system will eventually lead to the separation of medicines (ie, the separation of doctors' medical service behavior from drug sales). The pharmaceutical industry's position in the industry is expected to increase, driving the industry's profitability to rise. However, in the short term, due to the many uncertainties in the health care reform, the substantial increase in industry profitability remains to be seen.
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