A
renewed push by the central government to expand healthcare reforms and
restrict costs for end users is putting pressure on margins for a growing
number of Chinese drugmakers.
Five Chinese drugmakers including United
Laboratories International Holdings Ltd have issued profit warnings in recent
weeks, citing price pressures and government policies. They are due to report
earnings in March.
Chief among the government's reforms is the
expansion of the essential drugs list (EDL) to more than 800 products from 307,
Health Minister Chen Zhu was reported by Chinese media as saying in early
February.
It is the first expansion since the EDL was
established in 2009 and heralds further price cuts on more expensive drugs
available from hospitals. Prices of drugs on the list are state-controlled and
kept very low, in line with Beijing's policy to reduce healthcare costs for end
users.
"This is particularly challenging for
manufacturers, given that drugs sold through hospitals provide higher margins
and profit contribution," said Jason Mann, head of Barclays Capital's
China healthcare & pharmaceuticals unit.
The move also appears to be aimed at tackling
over-liberal prescription of antibiotics to treat a broad range of medical
conditions, a practice resonant in many parts of Asia, is fuelling a rise in
drug resistance.
"It appears the government is determined
to control the use of antibiotics, and we expect the strict restrictions to
continue in 2012 and demand for bulk medicines and finished products to remain
weak," said SWS Research analyst Ming Shi in a report.
"We remain pessimistic on the outlook for
the antibiotics sector in 2012," said Shi. SWS, which downgraded United
Laboratories to underperform from neutral, forecast a 57.4 percent decline in
2011 net profit for the antibiotics maker.
CONSOLIDATION
As the country's biggest buyer, the government
is using centralized drug tenders, a bulk-buying policy that forces down prices
and which can oust uncompetitive players and encourage consolidation in the
sector. Hospitals previously procured their own drug supplies and drug sales
were a major source of income for hospitals, which received no state funding.
"Strategic events such as M&As and
global collaboration should be a major theme in 2012 for China's healthcare
sector," said Derrick Sun at BNP Paribas in a research note.
Bigger players such as Yunnan Baiyao Group Co
Ltd, Sinopharm Group Co Ltd and Sichuan Pharmaceutical Holdings Group Ltd are
expected to survive and even thrive at the expense of smaller rivals.
"The big players (pharmaceutical
companies) will be able to weather the current storm, Said Mann. "Actually
this heavy margin and pricing pressure is good because it forces a
consolidation."
China's prescription drug market, set to be
the world's second-largest by 2020, is estimated to be worth more than $110
billion by 2015, from $50 billion in 2010.
The market's massive potential has attracted
western drugmakers such as AstraZeneca Plc, Pfizer Inc, Abbott Laboratories and
Novartis AG. These global giants have to set up huge R&D centers to take
advantage of China's lower costs and large pool of scientists to develop
products aimed at Asian markets and largely geared towards higher-end products
unaffected by the EDL.
Given their leading roles in their
sub-sectors, some analysts favor distributors such as Sinopharm Group Co Ltd
and device makers such as Shandong Weigao Group Medical Polymer Co Ltd over
drugmakers, which face policy risks and continued margin pressure.
"Being the only state-owned nationwide
distributor, (Sinopharm) does have clear advantages in terms of financing,
local government support and power over policy influences. Distributors in
general have relatively low exposure to pricing policies," Sun said.
BNP forecast Sinopharm to deliver a net profit
of 1.55 billion yuan for 2011, a rise of 27.8 percent from 2010.
Mann said: "We see the balance shifting
in favor of lower prices in the near term, and more policy headwinds.
Ultimately, we are quite bullish and see great structural potential. (China's
pharma sector) is still fairly underdeveloped and growing rapidly but has much
room to expand."
Donny Kwok and Tan Ee Lyn
(Reporting by Tan Ee Lyn and Donny Kwok;
Editing by Chris Lewis)
Reuters
Business & Investment Opportunities
YourVietnamExpert is a division of Saigon Business Corporation Pte Ltd, Incorporated in Singapore since 1994. As Your Business Companion, we propose a range of services in Consulting, Investment and Management, focusing three main economic sectors: International PR; Healthcare & Wellness;and Tourism & Hospitality. We also propose Higher Education, as a bridge between educational structures and industries, by supporting international programs. Sign up with twitter to get news updates with @SaigonBusinessC. Thanks.
No comments:
Post a Comment