Mergers and acquisitions, operational rationalization and stock repurchasing will only sustain a company’s bottom line for so long. At some point, healthcare spending levels, even in the United States, will negatively impact price and reimbursement, thus reinstating unit growth as the key metric. If you want growth, PaizaBio has some advice for Western pharmaceutical companies: revisit your China strategy.
China’s healthcare system is undergoing significant changes, which will impact the pharmaceutical market. Regulatory changes are underway that will facilitate faster drug registration as well as more options for local manufacture and sourcing. We’re not talking about manufacturing in China for export. We’re talking about manufacturing for the Chinese market, in China, to Western quality standards.
The argument is compelling. China’s GDP has grown 30 fold over the last 35 years. China’s economy is second only to the United States and leads the world in attracting direct foreign investment. While per capita expenditure for health care remains a fraction of the West, growing median income and new government policies designed to increase access to health care in rural areas has created the fastest growing market for pharmaceutical products in the world: 21% annual growth from 2007 through 2012.
With a market value of 750 billion RMB (US$125B), China’s pharmaceutical market may reach equivalency to that of the United States, in value, by 2021. Even with the current transient economic slowdown and increasing price pressures, it’s projected to grow at multiples of the average rate of growth in the West for the foreseeable future.
Then there’s China’s population. With 1.4 billion citizens, China has more potential customers than North America, South America and the European Union combined. Where else are Western pharmaceutical companies going to find such a large potential customer base, especially for the ever increasing specialty pharmaceutical segment, which have a very finite patient pool?.
In terms of growth and expansion, the Chinese Opportunity represents the most significant commercial watershed moment within the pharmaceutical sector, particularly when you consider the increasingly maturing and price sensitive market characteristic of the current dominate pharmaceutical markets. For multinational corporations, China offers:
- Unprecedented growth potential
- Facilitation of developing significant economies of scale
- Sino-influence in export to developing regional countries
- Optimization of in-country logistics on a consistent cost basis
- Minimization of foreign exchange risk
- Potential to capitalize on the imminent expansion of the biosimilars market
This is not to say that taking advantage of the China Opportunity will be easy. Although the Chinese government recently announced a “pilot program” allowing the contract manufacturing of pharmaceuticals, a move that removes significant ownership barriers, the simplest path forward is to engage with a strategic partner like U.S.-based PaizaBio that already has “boots on the ground” in China. Through our strategic partner, Ausia BioTech, we’ve been manufacturing sterile injectables to Western quality standards in China for more than two decades and have implemented some transformative quality programs.
That story, however, is for another day. Until then, keep China in your plans.