Even though China is set to become the second-largest drug market by 2020, all is not rosy for its native drugmakers. A government push to drive down costs for healthcare end users is pressuring pharma companies that call that vast country home, with 5 of them issuing profit warnings in recent weeks.
The problem is the Chinese government is substantially expanding its essential drugs list--from just over 300 to more than 800, Reuters reports. But there is another angle to the story: the move to curtail the overprescribing of antibiotics and the resulting drug resistance--perhaps a familiar theme to many in the West.
Obviously, this move could hurt antibiotics makers, particularly the smaller ones. "We remain pessimistic on the outlook for the antibiotics sector in 2012," said SWS Research analyst Ming Shi, whose company downgraded Chinese antibiotics maker United Laboratories, which forecast about a 57% decline in net profit last year.
In the end, many experts are predicting an uptick in M&A and international collaborations, but the top players, including Yunnan Baiyao, Sinopharm and Sichuan Pharmaceutical, should come out relatively unscathed--and perhaps even ahead.
"The big players (pharmaceutical companies) will be able to weather the current storm," predicted Barclays Capital's Jason Mann. "Actually this heavy margin and pricing pressure is good because it forces a consolidation."
Despite the squeeze of healthcare reform, international drugmakers are coming to China in droves, looking to take a share of this huge market. In fact, last week we reported that Pfizer ($PFE) and partner Zhejiang Hisun Pharmaceutical met for a ceremonial document-signing in Los Angeles to solidify plans for a joint venture. And it appears as if the pharma titan will try to ink additional tie-ups in China--and soon.