|Actavis CEO Paul Bisaro|
Ask Actavis ($ACT) CEO Paul Bisaro about China and he'll tell you this: It's more trouble than it's worth. As Bloomberg reports, the generics maker is backing away from the Chinese market, despite forecasts of long-term drug-spending growth there.
On its way out, Actavis will pass many other drugmakers plowing their way in. That's because China is among the fastest-growing pharma markets in the world, perennially on top of growth forecasts from market-watchers like the IMS Institute for Healthcare Informatics. But since the China pharma rush began, the country has grown more prickly.
Bisaro summed it up this way in an interview with Bloomberg: "It is not a business friendly environment. If we're going to allocate capital, we're going to do so where we can get the most amount of return for the least amount of risk. And China is just too risky."
The risks vary. Though China is now spending more, overall, on healthcare, it's also spreading healthcare coverage to more citizens. So, it's bargain-shopping. The central government put some Big Pharma products on its price-control list for the first time, and the provinces put an even bigger squeeze on commonly used drugs.
But that's just a garden-variety danger to the drug business. Last summer, the government sharpened its approach even more, with a crackdown on bribery and corruption in the pharma industry. GlaxoSmithKline ($GSK) was first to be targeted, with allegations of $490 million in bribes.
Authorities broadened their probe to other multinational drugmakers. After some complaint about domestic drugmakers' bribery practices, officials put Sino Biopharmaceutical and now, Sinopharm, under the microscope. And meanwhile, market-watchers were scratching their heads; in at least some cases, authorities were targeting the sort of payments that are commonplace in the Chinese healthcare field.
Plus, while stamping out corruption was the stated intent, drug prices are the subtext. It's a sort of price squeeze by prosecution. It certainly worked on Glaxo; the company promised to lower its prices as part of an apology to government officials.
Actavis doesn't have a substantial business in China, as Bloomberg notes. The company generates a bit more than $5 million in profits there. Pulling out, then, won't be a complicated endeavor; the company has sold one of its operations there already and is in talks to sell another, the news service reports.
Actavis hasn't been roped into the corruption probe. But Bisaro sees the government as capricious and unpredictable, and that sort of approach to rule-making and enforcement isn't easily navigated. So, in the end, given its small presence there, Actavis decided China "wasn't worth the aggravation, the frustration or the concern," Bisaro said.
Of course, companies like Glaxo, Sanofi ($SNY), Bayer and others have put a lot of money, time, effort and employees into China, so pulling out isn't so easy. And Big Pharma says--at least so far--that its businesses in China are worth the trouble. Even GSK isn't considering a pullout. But smaller companies with smaller investments might join Actavis in doing otherwise.
- read the Bloomberg story
Special Reports: Top 10 Generics Makers by 2012 Revenue - Actavis | Top 10 Drugmakers in Emerging Markets