Even after a plunge last month that wiped US$46 billion off Chinese healthcare stocks, domestic drugmakers might be far from their floor as a Beijing-led policy shift gathers pace.
China’s plan to drive down generic drug prices through a centralized bulk procurement program is set to redraw the industry by forcing its thousands of small generic drugmakers to streamline and consolidate after decades of enjoying outsized profit margins.
“There won’t be a second act for traditional generic drugmakers in China,” said Dai Ming (戴明), Shanghai-based fund manager at Hengsheng Asset Management Co (恒盛資產管理)
Photo: Reuters
“In the past, there was hope that these companies would benefit from more government investment in healthcare due to the aging population, but now these healthcare stocks will be further hurt by policy and undergo a greater correction,” Dai said.
To survive the shifting landscape and rely less on generics — drugs whose patents have expired — many companies are scrambling to pump money into research and development (R&D).
Discovering a new medicine allows companies to earn high profits for as long as the new drug is covered by a patent, balancing out the loss of revenue from the fall in generic drug prices.
Chinese companies had been in a sweet spot.
Among the top 100 generic drugmakers, Chinese firms had a 74 percent gross margin and an 18 percent profit margin in the third quarter of last year, compared with a global average of 55 percent and 9.5 percent respectively, according to data compiled by Bloomberg.
The privileged position was due to the quirks of China’s regulatory system. While multinational giants had to wait years for approval to import their new drugs, the domestic generic makers could do a thriving business in copying, testing and getting local permission for the medicines.
At the same time, the industry benefited because of the lack of a centralized system for quality control.
Multinationals like Pfizer Inc and AstraZeneca PLC could win more hospital tenders for their off-patent drugs, as they could more easily offer quality assurances for their higher-cost medicines. That kept prices elevated throughout the pharma sector.
Now, China has embarked on a pilot program in which major cities buy certain drugs in bulk, forcing companies to bid for contracts and driving prices down by an average of 52 percent, one by as much as 90 percent.
Chinese Vice Premier Sun Chunlan (孫春蘭) last week said that China would be expanding the program to cover more cities and drugs, as medicine prices must fall for healthcare to be affordable for the public.
Chinese companies that are already heavily invested in R&D stand the best chance of surviving the new landscape.
Among firms listed in China, Jiangsu Hengrui Medicine Co (恆瑞醫藥) has invested the most in research by far — amounting to 16 percent of revenue in the latest quarter. Guangzhou-based Yipinhong Pharmaceutical Co (一品紅藥業) is in second place with 8.4 percent. Zhejiang Jingxin Pharmaceutical Co (京新藥業), Chengdu Kanghong Pharmaceutical Group Co (康弘藥業) and Tianjin Lisheng Pharmaceutical Co (天津力生製藥) have each invested about 8 percent of sales into research.
Among Hong Kong-traded shares, CSPC Pharmaceutical Group Ltd (石藥集團) has 8.14 percent of sales invested in research and Sino Biopharmaceutical Ltd (中國生物製藥) has 6.23 percent.
Jiangsu Hengrui gets 20 percent of its revenue from novel drugs and 80 percent from generics, a ratio it wants to flip, Lianshan Zhang, president of global R&D, said in an interview last month.
However, a successful novel drug can take decades to develop, and the Chinese pharmaceuticals are up against the deep pockets and research talent of the multinationals, which are enjoying rapid approval from Chinese regulators for their new medicine.
Intel Corp chief executive officer Lip-Bu Tan (陳立武) is expected to meet with Taiwanese suppliers next month in conjunction with the opening of the Computex Taipei trade show, supply chain sources said on Monday. The visit, the first for Tan to Taiwan since assuming his new post last month, would be aimed at enhancing Intel’s ties with suppliers in Taiwan as he attempts to help turn around the struggling US chipmaker, the sources said. Tan is to hold a banquet to celebrate Intel’s 40-year presence in Taiwan before Computex opens on May 20 and invite dozens of Taiwanese suppliers to exchange views
Application-specific integrated circuit designer Faraday Technology Corp (智原) yesterday said that although revenue this quarter would decline 30 percent from last quarter, it retained its full-year forecast of revenue growth of 100 percent. The company attributed the quarterly drop to a slowdown in customers’ production of chips using Faraday’s advanced packaging technology. The company is still confident about its revenue growth this year, given its strong “design-win” — or the projects it won to help customers design their chips, Faraday president Steve Wang (王國雍) told an online earnings conference. “The design-win this year is better than we expected. We believe we will win
Quanta Computer Inc (廣達) chairman Barry Lam (林百里) is expected to share his views about the artificial intelligence (AI) industry’s prospects during his speech at the company’s 37th anniversary ceremony, as AI servers have become a new growth engine for the equipment manufacturing service provider. Lam’s speech is much anticipated, as Quanta has risen as one of the world’s major AI server suppliers. The company reported a 30 percent year-on-year growth in consolidated revenue to NT$1.41 trillion (US$43.35 billion) last year, thanks to fast-growing demand for servers, especially those with AI capabilities. The company told investors in November last year that
Power supply and electronic components maker Delta Electronics Inc (台達電) yesterday said it plans to ship its new 1 megawatt charging systems for electric trucks and buses in the first half of next year at the earliest. The new charging piles, which deliver up to 1 megawatt of charging power, are designed for heavy-duty electric vehicles, and support a maximum current of 1,500 amperes and output of 1,250 volts, Delta said in a news release. “If everything goes smoothly, we could begin shipping those new charging systems as early as in the first half of next year,” a company official said. The new
RSS