The Chinese pharmaceutical industry is one of the fastest growing in the world. The main feature of the Chinese market is the huge population, which creates a commensurate demand.
The scale of the PRC economy creates both a multitude of opportunities for the development of the industry and many problems for the implementation of the tasks set. China is rich in raw materials, which are used in the production of medicines.
For a long time, the economy of the Chinese was oriented more toward exports than to the use of this raw material. The Communist Party of China conducts an active policy in the field of developing public health and providing the population with a wide range of preparations. In general, the Chinese pharmaceutical industry is subject to the same laws that are valid for this industry in the rest of the world. Companies invest billions of dollars in research and development, hoping for success. The creation of a new drug provides colossal profits for firms. In addition to the capital-intensive process of developing a new drug, companies need to test and certify the drug. This process is often not nearly easier. Mergers and acquisitions are a frequent occurrence in the Chinese market. Companies join forces to increase competitiveness.
One of the main factors in the development of China's pharmaceutical industry has become public health reforms. They are divided into 3 stages:
1) The initial stage (2009–2011)
2) The second stage (2011–2016) — 12 five-year plan
3) The final stage (2016–2020) — 13 five-year plan
At the initial stage, the main task was to create a foundation for the health system. To this end, the state invested $ 850 billion in the creation of Basic Medical Insurance, which covered more than 90 % of China's population. This step immediately had an impact on demand in the pharmaceutical market, which was annually increased by 20 %. In 2011, the National List of Basic Medicines appeared. The creation of the list stimulated the society to buy these drugs more actively. Manufacturers of essential medicines have become the main beneficiaries. In order to meet the growing demand, companies began to restructure their distribution network. The second stage of the reform involved strengthening the health system and extending the reforms to its next segments. Mass construction of infrastructure began: 968 district hospitals, 3,549 medical centers, 1,154 public clinics and other buildings connected with public health. Communication was established between public hospitals and high-quality medical institutions. Medical services for middle and low classes were developing actively. The next step was equalization of health services in all regions of the country. Introduction of educational programs on the basic concepts of human health. The final stage of reforms should be minor improvements in the efficiency of the system. For example, stimulating private investment. The primitive distribution system has completely changed. The state united the fragmented producers, creating a number of large firms with revenues of more than 100 billion yuan a year. Also, there were 20 regional companies with revenues of 10 billion yuan a year. The main way of combining and becoming a powerful pharmaceutical industry was mergers and acquisitions. In addition to significant investments, the state provided the industry with tax incentives and stimulated research and development. The result of the reforms is the establishment of the Chinese pharmaceutical industry — as a significant player in the international market. In addition to substantial government support, there are other factors affecting the development of the pharmaceutical industry in China. One of these is the aging of the population. This trend is usually observed in developed countries, where a high standard of living and developed health care is extended. There is a clear trend to increase the percentage of people of retirement age from the general population. This factor seriously affects the economic burden on the able-bodied population. In China there is no common pension system, money is paid only to certain groups of citizens. Children have to redistribute income to provide for their parents. At the same time, for a long time in the state there was a ban on the birth of the second child, it also became an impetus for the growing problem. But for the pharmaceutical industry — it's more of a marketing opportunity, rather than a serious threat. As already mentioned earlier, the age population needs more products of the pharmaceutical industry. Now, this segment of the population generates demand for 23 % -40 % of the prescription drug market and 40 % -50 % of over-the-counter drugs. China's rapid economic growth over the past decades has significantly increased the welfare of the population, hence, the standard of living. As we can see from the statistics, with the growth of incomes, the health care costs also increased noticeably. This is because health (security) is the basic one in the hierarchy of human needs. Naturally, with money, people will try to provide themselves and their loved ones with the necessary medicines. Now the Chinese pharmaceutical industry is one of the largest and fastest growing in the world. The annual growth of this industry ranges from 15 % to 17 % over the past 10 years. In 2013, the PRC surpassed countries such as Britain, Italy, Spain, Brazil, Germany and Canada, and came in third place at the cost of the pharmaceutical market. The top 4 pharmaceutical markets: 1) the US — 310 billion dollars; 2) Japan — 102 billion dollars; 3) China — 60 billion dollars4) Germany — $ 40 billion. The pharmaceutical industry in China is divided into five main segments: — The medical devices market occupies about 6 % — The market of traditional Chinese medicine occupies 8 % — The market of prescription drugs, 33 % — The prep market over-the-counter drugs, 38 % — Other, 15 % Information Explorer Ltd., 2009It would especially like to highlight the significant role of traditional medicine. In China, this segment is particularly important. Chinese traditional medicine has a centuries-old history and enjoys great popularity not only among the population «under heaven», but throughout the world. Many specially go to China, because they believe that local medicines help better. A feature of Chinese medicine is that it treats not a particular disease, but the entire body as a system. Now the state is trying to support this industry by encouraging mergers and acquisitions. The purpose of the Communist Party is to consolidate the traditional medicine market. This will allow you to better control the quality of products. The market of prescription drugs is actively developing in China. Due to the increase in the number of population that enters the middle class, the implementation of health care reform and the stagnation of the European market, the Chinese segment has shown incredible growth over the past decade. In 2010, the prescription drugs market in China has grown more than in Germany. Thus, the «Celestial» came out on the third place in the world, despite the fact that this segment predominantly dominates in developed countries. The peculiarity of China in relation to other developing countries lies in the fact that high European prices for prescription drugs are set here on the market. This policy stimulates with the development of innovations and strengthens the position of producers. Buyers, in turn, receive a quality product that meets the quality standards. The main directions of development of this segment are cardiovascular diseases and diseases of the central nervous system. Soon it is expected that China will come out on top in terms of the size of this market. The Chinese state regulates the prescription drug market through the price ceiling system. This approach provides pharmaceutical companies with the necessary income, and buyers with affordable drugs. The market for over-the-counter medicines is also booming. This is largely due to the Chinese tradition of independent treatment. Often residents of this country try to postpone a trip to the doctor, trying to limit themselves to buying preventive medicines. This especially applies to the younger generation. The most sold drugs in this segment are drugs for headache, muscle pain, bruises, coughs, colds, diarrhea, allergies, as well as vitamins and food supplements. In this segment of the market, joint ventures are often found. Large multinational companies cooperate with local firms in order to expand their market share. For example, Bayer and Wyeth thus cooperate with Chinese firms and sell joint products on the market. Prices in this segment are entirely under state control. The list of prescription drugs is available in the National List of Essential Medicines. This control of the state on the one hand reduces the incomes of pharmaceutical companies, but on the other hand makes these drugs affordable for the general public. The basis of the Chinese pharmaceutical industry is the production of generics. In China, more than 3,500 pharmaceutical companies and 98 % of them produce generics. This market is constantly growing and brings significant revenue to companies, but the loss of patents for many blockbuster drugs, forcing large companies to also go out and compete in this market. Losing the monopoly in their traditional markets, large players are moving to developing countries to occupy a significant market share there. In this regard, China's pharmaceutical market has become very attractive to investors. Many companies purchase or cooperate with Chinese generic manufacturers to quit but a new promising market. One of the key problems of the Chinese pharmaceutical industry for a long time was the maintenance of product quality. Companies striving to increase production volumes, violated the technological process. As an example, we can recall 2009, when it turned out that the produced heparin contains contaminated impurities of hyper-sulfated chondroitin sulfate. The result of these actions were dozens of lives in China, the US and Europe. After this case, the authorities could no longer stand aside, leaving the pharmaceutical industry under weak control. New quality standards for manufactured medicines, production rules, tightened control, anti-corruption laws were introduced. There were also new rules regulating trademarks and advertising of medicines. Despite the measures taken, the poor quality of products and weak control over the industry, which were characteristic of China a few years ago, strongly affected the reputation of pharmaceutical manufacturers from the Middle Kingdom. Now Chinese firms need to re-establish themselves as reliable and responsible suppliers. The peculiarity of the pharmaceutical industry is that the reputation of a company or a specific drug plays a fundamental role. Consumers are not inclined to risk their health and therefore choose proven medicines. China's accession to the WTO, gave a new impetus to the development of quality control of pharmaceutical products. [2]. Now the products of large Chinese companies meet high international standards. The movement in this direction of all pharmaceutical companies of the People's Republic of China will significantly increase the competitiveness of the entire Chinese pharmaceutical industry. The main body controlling the pharmaceutical market in China is China Food and Drug Administration (CFDA). [3]. The main areas of responsibility of the CFDA are: 1) Legislative function in the field of food and pharmaceutical industry control (including traditional Chinese medicine, cosmetics and medical devices) 2) Formulating rules for controlling product licensing, issuing annual plans for the development of surveillance methods and inspection of this process.3) Establishment of operational standards for products.4) Investigation of incidents related to poor-quality products. 5) Consultation of state bodies, in the main queue Komiss Food Safety under the State Council. Gradually, Chinese pharmaceutical companies are increasing their presence in the global market. The main products that are in demand abroad are generics and active pharmaceutical substances (API). [1]. As already mentioned earlier, generics are the basis of the Chinese pharmaceutical market. 98 % of all Chinese pharmaceutical companies are engaged in the production of this type of medicines. This industry is the most attractive for investors, especially in conditions when blockbuster medicines lose their patents. To date, the main purpose of controlling bodies is to develop unified standards for the production of generics and their use in hospitals. These measures will increase the efficiency of work and health systems and safety. In 2012, China became the world leader in the export of active pharmaceutical substances. These deliveries are especially important for developed and developing markets where generics are produced. API help to fight infectious diseases in different regions of the world. Another important part of the pharmaceutical industry of the PRC are contract research organizations. Such institutions assist in analysis and research for pharmaceutical, biotech and meikopribor companies (CRO). For example, WuXi has at its disposal more chemists than any other CRO in the world. It is thanks to these companies that China is successful in innovative pharmaceuticals. The huge potential of the Chinese pharmaceutical industry is far from being fully realized. In order to successfully compete in the global market, the company needs to have huge capital, significant production capacity and an efficient distribution system. Until now, China's pharmaceutical market is very fragmented and fragmented. For example, in China, the three largest pharmaceutical companies own 20 % of the market, while in the US the three largest firms own 96 % of the market. Now China is in the right direction to consolidate the market. In recent years, the situation has improved noticeably, thanks to active mergers and acquisitions. From 2009 to 2015, the number of pharmaceutical companies in the PRC decreased from 5,000 to 3,500. The main role in this was played by the state policy to support vertical and horizontal integration, which was identified in the 12th five-year plan. The ideal of the pharmaceutical market of China is indicated as follows: several top companies and 20 regional ones. But in order to achieve such a ratio it is necessary to solve pressing problems, the main of which are lack of efficiency and transparency. The first area in which it is worth moving the Chinese pharmaceutical industry to increase efficiency and competitiveness — this is the diversification of production. As already mentioned earlier, 98 % of Chinese pharmaceutical companies are engaged in generics. Chinese firms, for the most part, simply copy existing analogues, which already exist in other markets, and promote them at home. There is no particular difference between the preparations. For example, the drug «Conmana», which is used for lung cancer. Few of the Chinese companies have a preliminary qualification assessment of the World Health Organization or a certificate of proper organization of production and quality control of medicines. For example, the list of preparations of the World Health Organization has 355 Indian medicines and only 18 Chinese. 2015 Large Chinese companies receive the main profit from the sale of pseudo-innovative drugs. For a long time the reason for this was corruption and bribery in the CFDA. The ineffective work of the main supervisory authority hampered the development of innovations, violated the security of intellectual property and the rights of small enterprises. The party leadership has exerted a lot of effort in order to restore order to this body. In 2007 and 2012, officials holding senior positions in the CFDA were arrested for corruption. Another problem, which is worth paying attention to, is the unevenness of state aid. Now public investments are aimed at the production of generics. Because of this, not enough funds are received for truly innovative projects that have no analogues in the world. The state needs to develop a more effective system for financing promising developments, because they will help the expansion of Chinese pharmaceutical companies to Western markets. The third trend is an inefficient drug certification system. The CFDA needs 18 months for approval of the drug, while the USA Food and Drugs Administration needs only 10 months. Therefore, Western firms have a notable advantage over their Chinese counterparts. Despite the fact that huge amounts of money are allocated to the development of the pharmaceutical industry, many companies use them not for research and development, but for increasing current capacity. Such investments contribute to guaranteed profits, but do not contribute to the development of firms. Such industry leaders as Sanofi, Phizer, Jonson & Jonson, Merck redistribute 10 % of their income for research and development, while Chinese firms are only 2. With this ratio of investments in the company's innovations from the PRC will never be able to compete on an equal footing with world leaders. Alternatively, the state can determine the percentage of subsidies that should be allocated to research and development.
References:
- Giniat E. Fung P. Weir A. Meyring N. China's pharmaceutical industry — poised for the giant leap // KPMG, 2011.
- Lin S. The Chinese Economy After WTO Accession // Routledge, 2016.
- Pacific Bridge Medical. China Regulatory and Market Access Pharmaceutical Report // 2014.
