Aggressive pricing tarnishes China's promise to pharma

Drugmakers are coming to realize that China's growth is a mixed blessing. There's no question that projections for Chinese drug sales are much more promising than the numbers in most other countries. But with the government's new focus on affordability--read price-cutting--the margins on those sales aren't likely to be as large as Big Pharma might have hoped.

As Bloomberg reports, it's not just the central government driving prices down. Provincial policies have resulted in big cuts for hundreds of drugs. So, domestic drugmakers are already feeling the pinch. One Chinese pharma exec told the news service that he'd be better off investing in real estate. "Anything is better than drugs these days," said Yangcheng Pharmaceuticals' Tang Changshou. Another executive said the price ceiling on some meds shuts his products out completely.

So, one analyst told Bloomberg, domestic drugmakers are caught between a rock and a hard place. If they take part in government bids, they're likely to end up with prices that won't yield profits. But if they don't participate, that means giving up sales in an entire province. "The more they sell, the more they lose," Citigroup's Richard Yeh told Bloomberg.

Next up for the hurt? Foreign drugmakers. "The best times for multinational pharma companies are over," ShangPharma CFO William Dai said. It's true that pricing policies that have favored foreign companies are falling victim to government reforms, but lower prices don't necessarily mean that China is a lost opportunity. As Sanofi CEO Christopher Viehbacher told Bloomberg, size matters: The "sheer volume of the Chinese market" will make up for lower margins.

- read the Bloomberg piece