CHINA'S biopharmaceutical sector is expected to quicken its growth in coming years, thanks to strong government support and regulatory changes, even though key hurdles still remain, industry experts said.
The industry, which has been experiencing strong sales growth in recent years, expanded profit by a record 45 percent last year, prompting analysts forecasting promising developments.
China's biopharmaceutical industry has been achieving 30 percent annual revenue growth in the past couple of years, making it the fastest-growing country in Asia, said Fuerstenberg Brock, director of Deutsche Messe AG.
The country is attractive both as a biopharmaceutical market, as well as a location for clinical trials thanks to its large patient population, increasing wealth and low costs.
The industry is also benefiting from an influx of overseas-educated Chinese talent and the implementation of Good Manufacturing Practice requirements, which has improved manufacturing quality and boosted consolidation among companies, according to a report by Ernst & Young.
The fledgling industry, however, takes only 8.46 percent of China's 2007 pharmaceutical sector revenue. China's biotechnology industry is small due to a lack of private funding, which is crucial for global penetration, said Reuters in January.
In 2006, China's venture-capital investments grew 55 percent, but less than 1 percent was invested in biopharmaceutical firms. According to Reuters, despite being well-established, the industry has difficulty securing private investment due to regulatory barriers and the usual concerns over quality control and intellectual property rights.
Ernst & Young attributes the lack of private investment to the youth of most Chinese biotech firms, which, in the early stages of their commercial development, are unable to offer investors viable, timely exits.
Furthermore, public equity investors tend to avoid biotech IPOs because they do not understand how to evaluate them, said Ernst & Young in its latest global biotechnology report.
In its latest report, Deloitte highlights China's overly-complex distribution channel as another hindrance to biopharmaceutical companies, and consequently, investment. An additional challenge raised by Deloitte is government pressure that firms face to lower drug prices.
Chi Donghui, pharmaceutical analyst at Rising Securities, agreed that an ongoing healthcare reform will significantly affect the biopharmaceutical industry. He expects government price ceilings, implemented 24 times between 1997 and 2007, to test companies' abilities to control costs while remaining profitable.
Government support
However, the biopharmaceutical industry will still enjoy increasingly strong government backing, noted Chi. "The industry is a focus of state investment, and will receive constant funding and support from the government," said Chi. Funds are likely to be invested in fields such as the development of vaccines and diagnostic reagents.
Chi added that China aims to develop and market 10 to 15 Chinese-patented vaccines, some of which will be marketed globally.
"The industry's growth at the end of 2007 is eye-catching," stated Chi, who advises investors to keep an eye on industry and innovation leaders, who will win the strongest government support. Rising Securities expects faster growth rates for Chinese biopharmaceutical firms in 2008.
China's plan for development, implemented in 2006, aims to make biopharmaceuticals one of China's leading industries within 15 years. The nation plans to fund five large pharmaceutical groups, promote 10 pharmaceutical distributors, and turn five local firms global.
China's 11th Five-Year Plan, effective 2006-2011, gives biotechnology startups priority for bank loans and grants, and R&D tax breaks.
Ernst & Young said that since 2006, China has been encouraging growth and attracting western firms by streamlining the drug approval process, reforming the Shanghai and Shenzhen stock exchanges, and issuing a comprehensive IP protection plan.
Yet the firm's analysts assert that "state support alone cannot sustain the biotech sector" due to the high costs of drug development.
Adequate funding must be available at every step of the development process for the fledgling industry to reach potential, it said. Attracting investments from larger foreign firms is also critical to bringing later-stage R&D activities to China, which can then develop its own products.