Text Box: Chinese Pharmaceutical Industry

Date Published: October 2005, Pages: 360, Tables: 16, Figures: 23    

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Summary
Text Box: Sample Pages China’s pharmaceutical industry is illustrative of a major industry that was totally directed by the state and subject to central planning, upon which transition-era reforms have had a major impact. The industry has been shaken up following the implementation of several government-initiated structural reforms. The main reforms included: Requiring all pharmaceutical manufacturers to meet GMP standards by 2004, Diminishing drug sales through hospitals Bidding publicly for drug purchase, Implementing a national healthcare insurance system, and Strengthening intellectual property protection and SFDA supervision. The goal was to improve manufacturing and distribution efficiencies, strengthen drug safety supervision, and separate hospitals from the drug retailing business. REGULATIONS With the increasing growth of the Chinese pharmaceutical market, the government realised the importance of supervision of pharmaceutical market. They put forward several regulations and reform measures over the past couple of years, especially in the recent period of healthcare reform. The most influential issues for the foreign companies are the decree of Administration Method of Import Pharmaceuticals recently promulgated by the State Drug Administration, and the launch of a new version of registration certificate for import pharmaceuticals. The Chinese pharmaceutical authority has set up a sound drug supervision mechanism, suitable for a socialist market economy. The establishment of the SFDA is one of the major steps in the country's institutional streamlining. It is composed of the former State Pharmaceutical Administration, the drug administration bureau of the Ministry of Health and the supervision department of the State Administration of Traditional Chinese Medicine. The Ministry of Health has also transferred its pharmaceutical testing institutes to the SFDA to assist it in law enforcement. These regulations and measures lie in the fact that the Chinese pharmaceutical authority will reinforce the administration of pharmaceutical market in the future. China is a very large and complex market that differs in many aspects from Western markets. To succeed in China, firms must therefore consider the Chinese institutional settings. The Chinese culture is, to a great extent, influenced by the need for Guanxi (relationship), and firms should acknowledge that a stronger network of personal and social relationships would lead to smoother development of business in the country. R&D INVESTMENTS There are presently more than 5,000 research and development (R&D) institutions in China, but only a handful of them are able to compete internationally in certain areas. The R&D system consists of specialized research institutes, major universities, biotechnology companies, and R&D divisions of large pharmaceutical enterprises. In recent years, mid- and small-size biotechnology companies are developing at a rapid pace. There are more than 1,000 such entities nationwide at present, and more than 30% of them are privately owned. Special governmental funds are available to promote this type of entrepreneurship. During the past several years, some Chinese pharmaceutical companies began to establish R&D infrastructures largely due to internal growth needs, but their primary focus is directed toward improving existing technologies or developing generic version of new drugs. DISTRIBUTION The Chinese pharmaceutical distribution sector is very fragmented with about 17,000 state-owned pharmaceutical wholesalers. Direct marketing to doctors (detailing), which is the basic marketing activity in developed countries, complemented by advertising, is not yet the key to increasing sales in China. Chinese hospitals generate 60 percent of their revenues from the sale of prescription drugs. Hospital pharmacies are still the main retail outlets for pharmaceuticals, accounting for 80 percent of total drug sales. This situation is changing because the government is encouraging the establishment of retail pharmacies that are not associated with hospitals. Drugs are distributed in China through the Chinese-Style channels. Understanding this system is the key to marketing foreign drugs in China. China has a three tiered distribution system. At the top of the ladder are national level-1 stations in Beijing, Shanghai, Shenyang, Guangzhou, and Tianjin. These allocate products to provincial level-2 distributors, who in turn sell to county and city level-3 wholesaler-drug stores. At the bottom of the distribution chain are China's vast numbers of small retail stores are difficult to reach individually. 
Text Box: Abstract China is expected to become the fifth largest drug market in the world by 2010. Growth will be driven by factors such as an increasingly ageing population, large market size (urban and rural), government support in restructuring the highly fragmented industry, IPR policies, as well as increasing life expectancy. China will remain an attractive location to foreign drug companies, because China offers many advantages in terms of the size of its marketplace, the relatively easy access to patients who are available for clinical trials, and lower clinical trial costs. China has made considerable progress towards an improved standard of living for its population, including better health, reduced levels of poverty, and strong macroeconomic growth. The market for high quality, patient-oriented healthcare services is small, but growing steadily. Most Chinese lack health insurance and only a fraction of the population can afford top-end Western medical care. Currently, there are many successful foreign and joint venture healthcare service providers already in China. Their experiences