Pharma brands set for growth in China

09 November 2012

BEIJING: Pharmaceutical and healthcare companies are set to enjoy rapid growth in China, as the sector almost triples in value by the end of the decade, according to McKinsey.

The consultancy estimated that China's healthcare industry would generate $1tr per year by 2020, compared with $357bn in 2011 and $156bn in 2006.

"From pharmaceuticals to medical products to consumer health, China remains among the world's most attractive markets, and by far the fastest-growing of all the large emerging ones," it said.

Pharmaceuticals delivered $71bn in sales last year, of which the ten top ten multinationals claimed $10bn. Traditional Chinese medicines were also worth $13bn, while medical products yielded $20bn.

"It is not surprising that multinationals are flocking to take advantage of the opportunities, but long-term success is by no means assured," McKinsey added. "We expect a clearer separation between winners and laggards."

As examples, Bayer HealthCare and Novo Nordisk already number the country among their top three global markets, while GE Healthcare and Philips both secure over $1bn per year from Chinese device and equipment sales.

Since 2006, some 13 of the 20 biggest pharma firms worldwide have also created R&D facilities in the Asian nation, and the ten largest global operators in this category now employ approximately 25,000 sales staff locally.

Urbanisation is likely to exert a major influence on future growth, as 142m people migrate from rural regions to cities from 2012 to 2020. The amount of consumers aged 65 years old and above will also rise from 122m today to 223m in 2030.

Elsewhere, increasing affluence will stimulate demand for more extensive health insurance. In 2020, fully 75% of urban consumers should be middle class – with annual disposal incomes of $7k to $27k – versus 29% in 2005.

Currently, government insurance schemes reach 95% of citizens, but these policies are mostly "basic", as shown by the fact one third of provinces do not provide universal outpatient coverage.

When assessing the future of the biomedical sector, McKinsey predicted indigenous firms will consolidate and climb the value chain, as standards improve and the government seeks to ensure the top 100 pharma firms take 50% of sales by 2015.

Multinationals are also set to pursue acquisitions and tie-ups with domestic firms, as cost pressures and low official reimbursements for premium lines present problems. Pfizer has already made strides in this area.

Among the wider obstacles facing firms are complications related to reimbursement, product registration, pricing, tendering and distribution, not least due to the complex regulatory environment.

Data sourced from McKinsey; additional content by Warc staff