Chinese Pharma Industry Explores New Opportunities in Global Economic Downturn

China's API Export Growth Slows Down

In China's competition with India for the position of world's top outsourcing destination, the country's manufacture and export of active pharmaceutical ingredients (APIs) has played an important role. In 2008, China's API exports were estimated to reach over US$18 billion, which constituted nearly 90% of China's total pharmaceutical exports (see China: 25 February 2009: China's API Exports Reach US$18 bil. in 2008). However, the increase of API exports has slowed down at a rate lower than the overall growth rate of Chinese pharmaceutical exports, as revealed by Dr Jia-Li Luo, the Vice President of Hisun Pharma's Business Development Department at the CPhI China 2009 International Forum held in Shanghai, China by UBM, CCCM-HPIE and Pacific Genuity.

Antibiotics remain the largest category in China's API exports, among which the export volume of oncology antibiotics has risen. However, Luo told IHS Global Insight that the sales revenue of oncology antibiotics dropped in 2008 due to the falling price mainly led by manufacturers in India, Italy and Russia. This has exposed one key issue of Chinese API makers—they don't have the voice for pricing their products in international markets, added Luo. He also noted that demand for APIs for diabetes and antipsychotic treatments has shown an increasing trend.

Small to Medium Firms Hit Worst by Global Recession, Look Overseas for Opportunities

The Chinese pharmaceutical industry has not been immune to the economic turmoil. With the appreciation of the Chinese yuan against main foreign currencies, Chinese manufacturers of active pharmaceutical ingredients (APIs) are seeing their price advantages weaken. Meanwhile, in addition to the reduced demand from overseas importers, the risks for export have also increased since the recession makes it difficult for many foreign importers to maintain timely payment. Hisun Pharma's Luo predicted that the increase of Chinese API exports will slow down at a rate of about 15% in 2009.

As one of the leading domestic API makers, 80% of Hisun's products are exported to over 30 markets worldwide including 18 products exported to the U.S. market. However, Luo revealed that the recession has not had much impact on Hisun's performance.

On the other hand, small to medium–scaled companies have a different story to tell. Chen Shaohua, the General Manager of Hubei Minsheng, a small-scale supplier of pharmaceutical intermediates, told IHS Global Insight during the CPhI China 2009, that the economic downturn has had a negative impact on the company’s outlook for 2009. Last year, Hubei Minsheng's total output value stood at 100 million yuan, however, he is not optimistic about the second half of this year although by June the output value already reached 60 million yuan. Currently, some 90% of Hubei Minsheng's products are supplied to domestic pharma companies. In addition to improving efficiency to reduce costs, the company is also actively seeking overseas opportunities in markets like India, he adds.

Big Pharma Seeks Partners in China

While Chinese drug makers seek expansion to overseas markets, multinational drug makers have sped up their steps to enhance their presence in the fast-growing Chinese market. Director of Pfizer's Strategy Management Group, Dr Yining Zhao, told IHS Global Insight that there are many potential partners in the API market in China. Meanwhile, Pfizer is also very interested in teaming up with local companies for formulations. However, the number of qualified partners in this field is still limited. In addition, the biotech field in China is becoming very attractive and Pfizer tends to go for collaborations with local firms instead of in-house R&D or mergers and acquisitions (M&A) in the research and development of biosimilars. In terms of the choice of local partners, he noted that small to medium companies are where they are looking. That's because large companies already have their own internal system, which is very hard to match to international standards.

Roche has also been focusing on enhancing its presence in China based on its strong belief in the Chinese market. For Roche, blockbusters are not sustainable for a company's long-term development; the company is therefore looking at biopharmaceuticals and specialty care, according to Dr Yi Ren, Head of Drug Supply and Discovery Technology at Roche's R&D Centre in China.

Rafael Antunes, Strategic Sourcing officer at Portuguese drug maker Hovione, told IHS Global Insight that with two plants in China, the company is obviously focused more on the Chinese market now although India also remains another major API sourcing destination of Hovione.

Outlook and Implications

The growing investment of multinational pharma companies in China can bring in good opportunities to domestic drug makers. However, the thousands of Chinese firms need to focus on the enhancement of their products' quality to be ready for the increasing opportunities. The low-level competition among small to medium-scale domestic drug makers whose products are highly repetitive can also be a limitation for the market to grow in an efficient way.

In terms of the Chinese drug makers' ambitions of overseas expansion, it is still early to become a trend as the expansion into a foreign market needs a great deal of investment, talent and experience. Comparably, it is likely to be easier to enter into overseas markets through partnering with multinationals or local firms.