harmaceutical merger and acquisition activity in China reached a record in 2007, with 111 deals worth $2.1 billion, up nearly 30% on 2006, while first-half 2008 saw 53 more deals valued at $1.1 billion, says a new report.
However, the global economic downturn will certainly reduce the number of deals in the last quarter of 2008 and into 2009, says the study, by PricewaterhouseCoopers.
Nevertheless, opportunities in the pharmaceutical industry in China “stretch far and wide,” notes Michael Keech, director of PwC’s global pharmaceutical and life sciences industry group. “Impending healthcare reform, the commitment to innovation by the Chinese government and numerous tax incentives, among other things, are making China a much bigger player in the global pharmaceutical industry. And, given the tremendous growth in this market, along with continuing pressure to control costs, pharma multinationals have ample opportunity to expand by investing in China,” he says.
The report also points out that new reforms introduced in September 2006 to create nationwide healthcare coverage initiatives for over 600 million people in rural areas, has led to increased demand for medicines. While PwC notes that intellectual property protection “has been a major concern for foreign companies operating in China…recent developments have influenced the level of confidence” among firms. These include an amendment to the Chinese Patent Law passed in December 2008 that strengthens legislation and increases the ceiling on monetary penalties for IP infringement.
PwC adds that “China has clearly outlined its intent to fight bribery and corruption, emphasising the need to expand the use of an on-line drug procurement system in hospitals designed to curtail corrupt practices”. The authorities investigated over 1,000 bribery cases in the health sector in 2007 alone.
Consumer Rx market set to boom
Another new PwC study this month estimates that over 200 million households in China will be earning more than 40,000 yuan a year by 2025, making the country’s urban consumer market worth almost as much by then as Japan’s urban consumer market is now.
“Expenditure on private healthcare and medicine by urban Chinese consumers, as a result, is expected to record double-digit growth a year for the coming 20 years,” said Richard Sun, the company’s Hong Kong consumer and industrial products leader.
However, drugmakers will have to differentiate their prices in order to capture growing opportunities in developing countries such as China, the report emphasises. While they have been so far cautious about using differential pricing, fearing that it would encourage arbitrage between nations with higher and lower prices for the same products, most drugmakers will be doing so by 2020, PwC predicts. “They will minimize the risk of parallel trading by branding and packaging the same medicines differently for rich and poor markets, and tracking them using e-tagging technologies,” forecasts Mr Sun.
Proposals to reform China’s health system, providing universal medical care for 1.3 billion people, were unveiled for public debate by the National Development and Reform Commission last October, and one of the most controversial of its proposals has been to open the procurement of medicines through market competition.
Earlier this month, the government announced a blueprint for the first phase of the reforms, to cost 850 billion yuan ($124 billion) over three years and include the implementation of a list of essential medicines to be purchased and distributed under official control. No details of the list’s contents have yet been announced, with the government only saying that these would be issued this year, but senior Ministry of health official Liu Ximming has said that “essential medicines do not mean cheap medicines.”
They will be selected based on disease prevalence, evidence of safety and efficacy and cost-effectiveness, he said.