The rapidly aging Chinese society and subsequently increasing medical needs provide a range of opportunities for the country’s pharmaceutical market which already is the second-largest in the world after that of the United States. China’s market for pharmaceuticals was worth almost 124 billion U.S. dollars in 2016 and is expected to surge to around 574 billion U.S. dollars by 2022, at a compound annual growth rate of 30 percent.
Currently, the pharma market is highly fragmented, comprising of approximately 5,000 manufacturers, a majority of which are small and medium-size companies. This fragmentation keeps the research and development spending to as low as five percent of sales on average. The companies are mostly engaged in production of generics, therapeutic medicines, active pharmaceutical ingredients and traditional Chinese medicine. More than 90 percent of drugs registered in China are generic ones.
However, this fragmented Chinese pharmaceutical industry is about to witness some degree of consolidation and increased competition in the next few years. In 2017, major medical reforms have started in the country which include stringent drug quality regulations, medicine innovation incentives, reduction in layers of pharma distribution intermediaries, etc. China Food and Drugs Administration (CFDA) started implementing its new policies with test requirements on the quality of off-patent generic drugs as part of a national strategy. Generic drugs approved for production before 2008 are quite prone to being low quality, yet new requirements will likely play a key role in lifting industry standards. The reform will most probably force more than half the nation’s small domestic drug manufacturers to disappear by selling themselves to larger companies. The expanding market share is expected to motivate these larger conglomerates to increase their R&D spending as well as step up acquisitions of overseas assets to enhance competitiveness. Recently, an increasing number of Chinese pharmaceutical and investment companies engaged in mergers and acquisitions abroad speeding up the internationalization progress in the pharmaceutical market. Around 260 biotechnology or pharmaceutical company takeovers with Chinese involvement were registered in 2016.
On the other hand, overseas investment into China’s pharma industry as well as the numbers of international companies bringing products into the Chinese market are growing. On June 1, 2017, CFDA officially became a member of the International Council for Harmonization of Technical Requirements for Pharmaceuticals for Human Use. This initiated the true integration of China’s drug regulatory system into the international community and facilitated foreign drugs review and listing processes. The foreign drug applications in China increased from 13 in 2016 to 37 in 2017.
Within the next decade, the country’s pharmaceutical industry will undoubtedly go through some drastic structural changes. Its position in the global market is likely to shift from a pharma manufacturing base to a strategic and R&D hub.