CPhI
China 2017 is China’s largest exhibition about the pharmaceutical and health
care industry. The exhibition will be held for the 17th time in Shanghai
from June 20 to 22. The organisers are expecting the biggest representatives of
Chinese and international pharmaceutical ingredients players from more than 120
countries. Suppliers, distributors, and buyers will gather at one place to connect
and discuss the trend of China’s health care market.
This
year’s exhibition is going to be divided into different zones, including active
pharmaceutical ingredients, fine chemicals and intermediate suppliers,
biopharmaceuticals suppliers, animal health products, natural extracts
products, finished dosage suppliers, excipients suppliers, and nutraceuticals.
Some
of the leading Chinese enterprises which take part in the exhibition are the
Yangtze River Pharmaceutical Group, North China Pharmaceutical, the CSPC
Pharmaceutical Group, Qilu Pharmaceuticals, and Jiangsu Hengrui Medicine.
Market
intelligence firm CCM, a provider of data, information, and analysis about
China’s healthcare and pharmaceuticals industry, gives an overview about the
mentioned industries in China as well as the biggest news on Amino Acids and
Vitamins trends as well as manufacturers' performance.
Global pharmaceuticals
industry
China’s pharmaceuticals industry is one of the largest worldwide. That’s why the
exhibition deserves a lot of attention to be part of the exciting trend this
industry is going through at the moment. Back in the year 2014, the worldwide
pharmaceutical industry has generated revenue worth more than USD1 trillion.
While North America has the largest share in the global pharmaceutical
industry, China’s pharmaceutical sector is showing the highest growth rate
worldwide.
Source: Statista
The
spine of the pharmaceutical industry is the research and development
department. After all, the share of costs in pharmaceutical company’s R&D
can make up to 20% of the total costs.
According
to consulting giant PWC, the major trends of the pharmaceutical industry are
reshaping the market significantly in the near future. The most important
trends with the most impact are the increase of chronic diseases, washed
boundaries of traditional healthcare, surging demand in developing countries,
and switching focus of governments from treatment to prevention.
The
challenges companies in the pharmaceutical industry are facing nowadays are
rising customer expectations and poor scientific productivity. After all,
customers demand on healthcare products is growing in the background of
environmental friendly production and efficiency of drugs and other products.
Also, while the output of new products has been remaining on the same level in
the last years, the research and development methods do not really change
significantly, which doesn’t give much hope for a boost anytime soon.
China’s pharmaceuticals
industry
China
has the largest population worldwide and needs to ensure healthcare and a
stable pharmaceuticals industry. Hence, the country has reached the second
largest pharma market. After all, China is responsible for about 40% of the
global API production. And still, the government is further investing in this
sector to ensure growth and innovation.
The
main advantages for the pharmaceuticals industry in China are the comparable
low production costs while quality remains good.
While
China’s wealthy middle class is growing, the average Chinese is getting older,
and the access to healthcare is improved continuously, China’s pharmaceuticals
and healthcare market is developing to a promising field for foreign investors
and players in this business.
Besides
the growing wealth for China’s population, the demand for healthcare products
and drugs is increasing seamlessly. One of the key drivers for this trend can
be found in the rise of chronical diseases, caused by significant air and water
pollution in China, which is responsible for the higher appearance of diseases
like cancer, heart diseases and other chronic conditions. According to some
research, China’s number of new cancer cases in 2015 was reported to have
reached over 4 million. Furthermore, As China’s population is growing older, by
2020 already 170 million elders beyond 65 years old will demand a tremendous
amount of health care products and services.
Exports to China
The
largest exporting country for pharmaceutical and healthcare products to China
is the USA, which is also the biggest producer.
However,
the export situation for foreign traders is not easily in China. Domestic
manufacturers are enjoying the strong benefit, that they are allowed to sell
their products to the consumers directly. Foreign exports on the other side are
facing a complex distributing system, where they are requested to sell their
products via local distributors in China. Furthermore, mark ups in the supply chain
increase the costs and therefore the final price of imported products.
The
lack of transparency, combined with cheap Chinese counterfeit medicines and
price controls are still keeping up barriers for overseas importers to China.
It
is notable, that in China only about 20% of all drugs are patented and branded
medication. Even this number is rising enormously in the last years, it is
still a sign of China’s embracement for traditional Chinese medicine and
generic sales of drugs.
R&D
China
used to be a manufacturer of cheap and generic drugs with little efforts in
research and development of new drugs. Facing a low-income population, also
foreign traders were traditionally selling old and cheap drugs in China’s
market in the last decades. This situation is changing rapidly nowadays.
Foreign enterprises are selling their new and more expensive pharmaceutical
products to China’s expanding middle class, as also China’s manufacturers have
discovered the need for effective R&D.
Hence,
many scientists, who worked in advanced countries in Europe or the USA, coming
back to China and bring the knowledge to modernise domestic research and
development.
CCM: The trend of
China’s main pharmaceuticals production
Amino Acids
In
the past years, a slowdown in Chinese economic growth, serious overcapacity,
low prices, increasing burden from environmental protection and product
homogenization hinder the development of amino acid enterprises. They struggle
for development and make sweeping transformation and reform, in order to remain
competitive and profitable in the overall industry.
China’s
Amino Acids are undergoing a different trend in the first half of 2017. For
instance, methionine prices continued going down while the prices of threonine
remained strong. Lysine price was able to increase significantly in the first
half of 2017.
It
is worth mentioning, that several outbreaks of animal diseases are increasing
the awareness for healthy animal feed and further boosting the demand for amino
acids like methionine. Asia-Pacific is the leading market for methionine, with
huge populated countries like India and China, which growing middle classes are
thriving the need for meat, and hence methionine for the production of
feed. While the global annual growth rate for methionine demand has been
about 6% since the year 2013, China’s growth rate in demand is rising even
higher. After all, the demand is rising annually by about 7% up to 10%. The
L-methionine markets in China have been remaining stable in the first quarter
of 2017 but on a low level. The new production method, used by an increasing
number of manufacturers, namely the fermentation process, enables the
production of fewer costs. Hence, the demand will be higher for L-methionine
compared to the more expensive product DL-methionine.
Due
to the avian influenza outbreaks, not only affected livestock companies were
forced to limit or stop business, but also non-affected companies were ordered
by the government to reduce their business in order to avoid the spread of the
flu to humans. As a result of the production limitations, the prices of chicken
and eggs have dropped significantly in the last months. The low demand for the
feed then has reduced the price for methionine by almost USD 100 per tonne.
Another
factor with massive impact is a threat of methionine overcapacity in China. The
profitable methionine business in China and worldwide has led many
manufacturers to expand their production and install new projects. Hoping for
higher revenue out of the new product lines, the danger of methionine
oversupply is getting acute. Big enterprises like Shandong NHU and Bluestar
Adisso, and Evonik have announced production expansions, which may exceed the
growing demand for methionine.
Import & Export
Trade
analysis firm Tranalysis shows the import and export volume of some major amino
acids in China for March 2017.
Source: Tranalysis and China Customs
Vitamins
China’s vitamins industry has developed rapidly in the past decade, becoming the
largest producer and exporter worldwide. However, since the output volume has
witnessed continuously growth while the value went down in the last years,
China’s vitamin business is losing profitability.
The
market situation is very monopolistic, as only a few enterprises are dominating
the production of certain vitamins. The leading vitamins manufacturers in China
are Hubei Guangji Pharmaceuticals and Zhejiang Tianxin Pharmaceuticals.
Furthermore, BASF and DSM are playing a huge role in this industry in China’s
and global markets.
In
the first half of 2017, most of China’s vitamins have seen significant rises in
price, which is mainly due to the strict environmental regulations ordered by
the government. As a fact, vitamins producer in China are always one
of the key targets for environmental inspections. According to CCM, in 2016 the
local governments have carried out inspections in 15 provinces of China. As the
supervision goes on in 2017, the supply of vitamins will remain tight.
In
late of April, the China Food and Drug Administration has released the On
Requesting Public Comment on Further Strengthening Supervision over Healthcare
Food. This paper is optimising the business process of manufacturers, as it
clears the definition of healthcare products, enhancing the regulations on
labels and advertisements, advances the filling work for new registrations,
standardises the approval process, and optimises procedures for technological
review. According to CCM, the consulting paper will save approval costs and
time for producers significantly.
In
the beginning of March 2017, the 9th National Pharmaceuticals Industry
Symposium took place, in which the mentioned price surges of pharmaceuticals
has been discussed. The API manufacturers were complaining about surging prices
and asked for new regulations to abandon the current monopolized situation of
China’s pharmaceuticals industry. Currently, API manufacturers need an API production
license, issued by the government, to be allowed entering the market in China.
In addition to that, so called Good Manufacturing Practice certificates are
needed as well. The problem is, that less enterprises are approved for these
licenses, which keep the number of manufacturers low and creates the
monopolistic situation.
This
system is demanded to be changed, to make it easier for new manufacturers to
get the permission of producing and selling pharmaceuticals, especially the
needed cheap drugs. To achieve this, API’s should be excluded from the national
drug management system and production guidelines could be implemented, which
ensure sufficient supply of pharmaceuticals.
The
market situation of vitamin E is a good example for the high monopolistic
situation, not only in China, but worldwide. For this vitamin, the four biggest
players account for more than 90% of the global supply. The enterprises are
Zhejiang Medicine, Zhejiang, NHU, Royal DSM, and BASF.
For
China, the price of vitamin E showed the beginning of a surge in March 2016,
after a depressing year in 2015. Insufficient supply of raw materials for
vitamin E boosted the price rise even more. The last price rise was made in
March 2017 by Zhejiang NHU, raising quotations by 30% again, according to CCM’s
price monitoring.
China
also inherits the largest vitamin B2 producer worldwide, namely Guangji
Pharmaceutical, who is accounting for global sales of 55%. The company has
increased prices several times in 2016, due to production suspensions and
marketing strategies. A report by the company states “We adheres to our
marketing strategy in controlling supply and increasing prices, and managed to
realise the optimum balance.”
Import & Export
The
import and export trend for major vitamins in China in March 2017 are presented
by Tranalysis.
Source: Tranalysis and China Customs
Healthy beverages
The
busier lifestyle of China’s growing urban middle class is driving the market
for functional beverages because a rising number of workers don’t have the time
anymore for a healthy and balanced meal every day. The lacking energy and
nutrients are guaranteed nowadays by consuming functional beverages including
taurine and vitamins. Hence, an increasing number of enterprises discover China
as a promising market for functional beverages, launching new products into the
large market. One example is French food manufacturer Danone, which is
contributing a new vitamin beverage called Mi-PRD to traders in China. The main
benefits of the new product are taurine plant-extracted ingredients.
The
company hopes to increase the sales in China with the new product, since it was
facing weakening profitability in this market recently, with negative effects
on the financial numbers of the Mizone brand in 2016. According to the CFO of
Danone, Cecile Canabis, the main challenge of vitamin drinks in China is the
high competition, leading to short life cycles and small market shares of
highly-priced products.
According
to CCM, China is ranked second behind the USA in the number of energy beverage
sales in the global market. Recent growth number of up to 25% have caused high
attention by international enterprises to penetrate into this promising market.
It is expected that the domestic retail sales volume of functional beverages
will hit 15.04 billion litres by 2020, with a corresponding sales value of
USD23.78 billion.
Many
manufacturers are launching new products into the market to gain some market
share. One example is the aforementioned product Mi-PRD of the Mizone brand by
Danone. Even this product is not being able to buy in retail yet, the company
has already announced new beverages with exotic flavours like pineapple,
litchi, orange, mango, peach, and cucumber.
Nevertheless,
also China’s domestic manufacturers are launching new products in China’s
functional beverage market. Hangzhou Wahaha has introduced the new functional
drink Burnlaxy. Special ingredients, besides taurine and vitamins, are
ginseng, maca, and fresh ginger. The company has lost its market share of 4.9%
in 2012 to 0.9% in 2015. It needs to be awaited if the company can get market
share again with launching new functional drinks. Other successful products by
this company are Wahaha Get C and Hai Jing Lemon.
Feed Industry
According
to CCM, China’s feed industry is recovering in 2017 with a continuously rising
output of feed.
The
first quarter also saw prices of live pig in China continually falling and
meanwhile its breeding pig quantity decreased, affected by weak demand for pork
and environmental policies as well. The price is not likely to surge in the
foreseeable future.
After
all, China’s live pig market decreased steadily since February 2017, due to the
reduced market demand, pressure from pig farming regulations, as well as
competition with importers. The pork consumption in China has witnessed a
decline after the Spring Festival in early February. Furthermore, as a plan of
China’s government, a huge number of farmers need to move out of so-called
forbidden areas in China, relocating into economically supported zones for
livestock and poultry. The imports of live pigs also went up significantly by
almost 20% in Q1 2017.
However,
the figures did stablise in Q2 and might even climb up again in the third
quarter of 2017. Affected by the national restrictions in pig farming, the
quantities in breeding-forbidden areas will continue to reduce, and national
production capacity will not recover soon. Yet, farms in regions suitable for
pig faming may be active in purchasing new live pigs given the considerable
profitability. Therefore, live pigs on offer are expected to gradually increase
in H2, restraining possible price hike in the coming period.
Performance of key
enterprises
Hubei
Guangji Pharmaceutical is greatly affected by the strict environmental
regulations that are taking place in China currently, as the vitamin B2 and B6
production belongs to the heavy polluting industry. However, the investments in
better waste disposal has lowered the production costs on the other hand, which
actually improved the gross profit margin of many products.
Julong
Biological was able to increase the revenue in 2016, due to the excellent
performance of its L-tryptophan business. The revenue witnessed an increase by
more than 25%. The company is one of the world’s largest supplier of
L-tryptophan, which is being exported to many countries in Europe, America,
Southeast Asia and Australia. After all, this product made up more than half of
the total revenue share.
Bluestar
Adisso announced a weak methionine business in Q1 2017, while the specialties
business boomed. The strong performance can be mainly described with the stable
development of the company’s specialties as well as an efficient cost control
implemented by the factory administration. Bluestar
Adisso is the second largest manufacturer of methionine globally, only
following Evonik. The company had a global market share of about 27% in 2016.
While the price of methionine in China keeps falling, the demand is still
surging by about 6% on global markets.
Eppen
Biotech is currently preparing for the initial public offering. The company
underwent a rapid growth in recent years, reaching USD21.75 million in total
profit 2015. However, the company is still facing several challenges, according
to CCM’s research. One of the major challenges is regarding the environmental
pollution. Even the company, whose production of most products cause heavy
pollution, has already invested in and implemented new waste disposal systems,
the outcome is not enough to please the local government and nearby population.
Hence, Eppen Biotech is in great need to continue investing in environmentally
friendly production, or the IPO prospect, as well as the corporate valuation,
might be in danger. Another challenge detected by CCM are patents as well as
intellectual properties. The company was facing several issues of a lawsuit in
terms of patent violence in the past. Due to uncertainties of further patents,
the company may face similar issues in the future.
LHG
showed a mixed performance in 2016 and the beginning in 2017. Most of the
quarters witnessed a negative net profit. The company is mainly affected by a
fiercer competition in the MSG market, an amino acid which occupies about 80%
of LHG’s production. The market price of it is going down constantly in recent
months, leading to problems for the company. Also, the environmental pressure
from the government is bothering LHG, as the production of MSG is highly
polluting, which requires large investments for the company. However, despite
the mentioned problems, recent efforts in enlarging the product portfolio as
well as getting into new markets, the odds are well for the company to expand
further and become one of the giants in China‘s health industry.
Lianing
Wellhope was enjoying a steady growth of profit throughout 2016. The total
profit in 2016 even increased by more than 35% compared to 2015. However,
Wellhope is also facing the risk of China’s abandoned corn stockpiling policy,
which let the prices of corn, one of the main raw materials for feed products,
rise under uncertainty. However, China’s policy of implementing forbidden
farming areas in the country is benefitting the enterprise. Wellhope is stated
in one of the developing zones in the northeast of China, which offers the company
a great geographical, logistical and economical advantage to competitors. This
is due to the low distance to many raw material producers like corn farmers. In
addition to this, the area of Wellhope is also labelled as one of the key areas
for China’s pig industry, which offers some benefits in environmental
protection and pollution management.
Yongan
Pharmaceutical did witness a falling revenue in 2016, while the net profit
surged by more than 250%. Compared to 2015. This trend is explained by the company
with reduced production costs as well as a boom in demand for taurine and
related to this the rising prices. Yongnan Pharmaceutical is China’s largest
producer of taurine and ethylene oxide, a raw material used in the production
of taurine. The performance in 2015 was pretty bad, due to the low market price
of ethylene oxide and oversupply in the market. Taurine was making up for
84.35% of product revenue in 2016, followed by the second largest product,
Ethylene oxide, which only accounted for 6.14%. Looking at the product revenue
structure in 2015, taurine was only accounting for 73% and Ethylene had a
larger share with 17%. Yangnong Pharmaceutical is not only China’s largest
taurine producer but also worldwide, accounting for over 50% of global sales,
according to CCM. Notably, around 80% of the company’s production is used for
export. Especially in the feed sector taurine has become a highly-demanded
addition, since the use of antibiotics was restrained by the government and
taurine is showing itself as a good substitute for immunity enhancement.
China’s pharma industry
till 2020
The
State Council in China has recently released the five-year development plan for
China’s pharma industry, which gives a guidance for the further development of
this large industry and what players, domestic and overseas, can expect.
One
of the main goal is to cover the production of almost every branded drug
without patent protection in China, which will decrease imports significantly.
To achieve this ambitious goal, the government is going to encourage innovation
of new drugs and ease the approval for novel drugs to get market access. The
long process of this approval has been a thorn in many manufacturers’ eyes for
many years already.
Another
measurement is the building of well-equipped pharma industrial parks throughout
the country, where especially small and medium sized companies can target
highly selective drugs to develop and produce.
Speaking
of small and medium sized companies, the highly fragmented situation of China’s
pharma industry is one of the main challenges, which makes innovation so
difficult in the country. Hence, the government in Peking is encouraging
mergers and acquisitions to establish larger size companies with sufficient
resources for effective research and development.
Finally,
the new five-year plan is targeting the oversupply of generic drugs in China.
While novel drugs are going to be widely encouraged by the government,
oversupplied generics will be controlled. The Chinese government now demands
bioequivalence testing for generics to ensure the quality of those, and
furthermore encourages qualified third-party verification service providers to
also join the activities.
Meet CCM and Tranalysis at the Exhibition. You can easily arrange an appointment by going to our event page and fill out the appointment form.