China: the pharmaceutical industry, light and dark in a key sector

It’s not only the power of statistics to drive the pharmaceutical industry toward China.  The most populous country in the world has other characteristics that render it desirable: economic growth, increasing urbanization, the ageing of the population, and disease tied to industrialization.  The economic synthesis is simple in its numerical indifference: the sector is growing faster than the GDP and therefore represents an increasing proportion.  Over the past 5 years, healthcare expenditure has more than doubled, and escalated from 5 to 7% of the GDP; it marks the passage of a society from agrarian to urbanized, where diseases are better diagnosed and the treatments are more attentive.  The single-child policy has aged the Chinese population, which now necessitates assistance and medical drugs.  Diseases typical of wealthy countries—such as diabetes and high cholesterol—have reached alarming levels.  At the same time, industrialization with the concomitant environmental destruction has lead to higher incidences of cancer and neurological diseases.  This panorama has an important economic value that lends itself to two contradicting assessments.  On one hand, there are the absolute values that will project China to second place in healthcare spending in 2020, behind only the US.  On the other hand, per capita consumption lingers at low levels, a remnant of a past in which traditional medicine and the rural cultural structure imposed non-industrialized remedies.  Both of these evaluations pique the interest of foreign multinationals and domestic biomedical companies.  In fact, nearly all the largest and established pharmaceutical companies have research and manufacturing centers in China.  Competition in appealing to consumers is fierce, and multinationals boast an untouchable position based on product quality and reputations built among customers.  The government is attempting to standardize regulation and to initiate a sector up-grade, as they consider it instrumental to a more ambitious project: the creation of a low-cost, efficient healthcare system.  This is one of the riskiest challenges for the new Chinese administration.  The Chinese domestic pharmaceutical industry demonstrates a series of incongruences and delays.  The first is a constant in the Chinese economy: excessive sector fragmentation.  There are almost 4,000 manufacturers operating in the country.  They lack the capacity and financial resources to sustain the compulsory costs of R&D that preclude new product market launch.  Even the risk margins are excessive in imagining new products capable of penetrating the pharma giants’ patent wall.  Therefore, Chinese companies frequently resort to survival tactics, or seek out short cuts by violating intellectual property laws.  Foreign companies not only criticize the inadequate intellectual property protection afforded by the government, but it inhibits the birth of domestic firms with the ability to receive remuneration for their investments without failing due to the deficient legal protection for their discoveries.  Distribution channels also reflect the lack of transparency, being frequently relegated to lobbies, corruption and redundancy.  It’s enough to realize that 75% of prescriptions are written during hospital stays.  This strategic sector presents, therefore, promising results and inextricable problems.  Solving these problems will be one of Prime Minister, Li Keqiang’s, priorities—one of many.  The novelty of the situation with respect to the country is not its severity, but its urgency.  China’s uncontrolled growth means time is no longer an inexhaustible resource.