中国 4 Phamra: What it means for Indian pharmaceutical industry

中国 4 Phamra: What it means for Indian pharmaceutical industry

By Ravish Bhatia

Source: Global Times

. The Global Times in a recently published op-ed wrote: “The Central Drug Standard Control Organization in India borrowed the regulatory system from Western countries. It is easier for Indian drug producers to obtain approvals from food and drug regulators in the US and UK. In 2017, Indian companies received 304 Abbreviated New Drug Application approvals from the US Food and Drug Administration, according to the Indian Brand Equity Foundation.”

China is increasingly getting eager to improve its Pharmaceutical industry and it wants India’s help in doing so. That too for good reason! China’s healthcare delivery system is faced with many problems. Earlier in March this year, a picture of a mother with her Child became viral on Chinese social media. The text accompanying the image read as follows: “On Shanghai Beiyuan Street, a single mother kneels on the street in the cold wind. She buries her head in her child’s arms and quietly sobs. The 3-year-old son suffers from hydrocephalus [“water on the brain”], and they previously came to Shanghai to seek medical treatment because he had an infection. After using up all their money, they were forced to leave the hospital. The helpless mother just sat on the street, feeling sorry for her child.”

It spoke of hardships and pain that a lot of common people (especially in rural areas) face under the Chinese healthcare system. Under China’s hukou system, a government-subsidized rural medical insurance is often not valid in a different province, which means that villagers who fall seriously ill are not covered when they travel to first-tier cities for medical care. (China has a layered drug reimbursement system – the national level, the provincial level and local city level – while a large part of China’s population remains rural or live in low-tier cities, China’s medical resources are concentrated in large tertiary hospitals in top tier cities leading to high levels of disparity and social problems.)

Beijing is trying hard to change this – as profitably to the economy as possible.

Made in China 2025 and Chinese Biopharmaceuticals

An integral industry targeted under Beijing’s “Made in China 2025” industry plan is Biopharmaceuticals where the impetus is increasingly shifting on domestic innovation and home-grown research and development of new drugs. Alongside, China has also been trying to improve access to medicines, speed up its drug approval process and cut healthcare costs, as part of a wide-ranging 2016-2030 “Healthy China 2030” plan aimed at raising life expectancy.

According to health-care information company IQVIA, China was the world’s second-largest national pharmaceutical market in 2017 — worth $122.6 billion. It was also the biggest emerging market for pharmaceuticals with growth tipped to reach $145 billion to $175 billion by 2022. Healthcare expenditure accounts for a mere 5.6% of GDP, in comparison with a high-income country average of 7.7% and is expected to rise with an increase in per capita income. If spending were to expand to 6.5% of GDP, as proposed in the NHFPC’s “Healthy China 2020” report, healthcare would account for RMB 6.7 trillion by 2020.

Given the scope for growth in the market, and fuelled by Beijing’s health policies –  private investors are beginning to pour in their money into the sector (showing a sign  that healthcare is high on the priority list for the central government at the moment).

However the Chinese pharmaceutical industry is still far behind in terms of quality of new drugs and market capitalization as compared to its US counterparts. For example, Jiangsu Hengrui, China’s largest listed drug maker, holds a market capitalization of $35 billion — which is one-tenth of that of Johnson & Johnson’s.

Beijing also wants to change that, only this time while balancing out its needs for a “healthy China”. Asa a consequence of the nation’s one-child policy, introduced in 1979 and officially phased out in 2015, the burden of caring for ageing parents will put tremendous pressures on the young generations leading to reduced consumptions and growth – which is also why Beijing wishes to take proactive measures in ensuring a healthy population.

This month the General Office of the State Council issued a document to encourage the research and development of generic drugs. The document, entitled “Opinions regarding reforming and perfecting policies in the supply and usage of generic drugs,” stressed that the necessity of doing so is to lower healthcare costs, meet the demands of the public, and build a “healthy China.” To meet the urgent demand for high-quality generic drugs, the medical authority was told to regularly publish lists of generic drugs in need, bring related research projects into national plans, and improve the current protection system for intellectual property rights (IPR), according to document.

With more support in research and development, registration of Chinese-made generic drugs, as well as in the marketing of the drugs in the global market, it noted that the domestic companies will be encouraged by the government to carry out international cooperation.

Additionally China will exempt import tariffs on all cancer drugs and encourage the import of more innovative drugs, according to a statement released after an executive meeting of the State Council presided over by Premier Li Keqiang.

The statement emphasized on three key things –

  1. First, that the authorities will reduce the prices of cancer drugs through centralized government procurement and eliminate premium prices for drugs by means of cross-border e-commerce. This would be supplemented with imports of innovative drugs, especially much-needed cancer drugs and their inclusion in the catalogue of medical insurance reimbursement.
  2. Second, Intellectual property rights protection of the drugs will be strengthened and the data protection period of innovative drugs will be prolonged to six years, within which drugs of the same kind will not go onto the market. This is like a guarantee issued to foreign pharmaceutical giants investing in Specialty Pharmaceutical (SP) drugs such as oncology.
  3. Thirdly, companies will now be able to use their own testing reports to satisfy the import drug testing requirements and reduce time to clear customs. New drugs to be launched concurrently in China and globally will be entitled to a 5-year patent term extension.

Source: Financial Times

After the statement, the stocks of Sinopharm Group and Beijing Tongren Tang took a sharp uptake and in general the industry sentiment was high.

With a rising urban rural divide and a growing middle class, the Chinese state has been trying to make healthcare and drugs accessible to the people more easily.

Earlier last year, Chinese regulators had begun an ambitious program that separated drug sales from medical treatment at public hospitals to lower medical expenses and improve services for patients. The policy eliminated the 15-20 percent surcharges on medicines that were hitherto common in Chinese hospitals.

A report released by Caixin found that between 2011 and 2016, online drug sales skyrocketed from 100 million yuan ($15.9 million) to 4 billion yuan ($635 million). At the same time the prices of generics and over the counter drugs was about half online on e-commerce stores. Because of the complex and costly negotiation process involved in getting a drug approved for procurement by hospitals and approved by health insurance. Pharmaceutical companies practice ‘price maintenance’ and hospitals pressure drug makers to “push retailers to raise prices” to preserve their “near-monopoly over prescription medicines”.

The Chinese government, is trying to combine its healthcare policies and industrial policies (MIC2025 with Healthy China 2030) in a big push effort to improve the healthcare ecosystem of the country and make generics more accessible. This is vital for the Chinese government – that derives its authority by keeping the people satisfied and happy.

Pictures of young mothers crying outside hospitals going viral on social media does not help its cause.

Challenges to Indian Pharmaceutical Industry

Indian pharmaceuticals (most of which focuses on manufacturing of generics) already face challenges around price erosion in generics, erosion of base business resulting from new competition and buyer consolidation in their biggest global market (the US), the Indian pharmaceutical industry needs to move up the value chain soon. The reason the Indian pharmaceutical industry was able to rise in the last decade was because they were the first to file for generic drugs in the western market a decade ago – however there has not been any action beyond that in recent years as patents for most generics expired and the focus shifted to specialty pharmaceuticals.

Opportunities for Indian Pharmaceutical Industry: Impact of US-China trade war on medical treatment

Earlier this month, the New York Times reported that about 12 percent of medical devices imported into the United States come from China, amounting to $3 billion a year. The trump administrations list of products that are eligible for tariffs includes several medical devices that are manufactured in China. This is likely to increase the healthcare costs in the US and provides an opportunity for high end private healthcare providers in India to come up with better alternatives.

Note: India’s import of active pharmaceutical ingredients (API) from China stood at Rs 12,254.97 crore in 2016-17.  While its exports increased by about 3 per cent to USD 7.27 billion in 2017-18, the exports to China stood at USD 182.67 million in 2017-18.

A little later in May, during the Modi-Xi Summit, the Indian side raised the issue of China opening up its markets to Indian IT and Pharmaceutical industries. A little later in June, a senior government official was quoted as saying that China would provide Indian drug manufacturers a platform for exports of pharmaceutical products and would also impart specific training to our companies to understand the Chinese regulatory system and processes.

Source: Economic Times

Indian companies must respond to the interest shown by Chinese companies and local governments in setting up local factories very carefully. They might not just be dealing with their business partners, but also with a very ambitious state (just as Western tech firms are dealing with right now).

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