industry introduction challenges & opportunities

China Healthcare Industry and Market

Industry Introduction

Challenges & Opportunities

Industry Introduction

13.20%

28.60%

26.10%

19.50%

22.80%

25.60%

18.00%

13.66%15.64%

12.91%

14.60%

16.50%

15.10%

13.10%

13.30%

9.60%

10.00%

20.52%

22.40%

25.70%

27.80%

21.40%20.20%

15.30%

16.70%16.80%

10.90%11.80%

13.50%

14.50%

0

2000

4000

6000

8000

10000

12000

14000

1978

1979

1980

1981

1982

1983

1984

1985

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1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

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2004

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2006

2007

2008 0%

5%

10%

15%

20%

25%

30%

35%

2010 China’s Health Expenditure was 5.1% of the GDP

From WHO statistic yearbook and Tengwei 2013 semiannual summit

China’s Health Expenditure:17.6% of average growth rate in 30 years

Huge room for healthcare industry improvement

World’s average was 6.4%

Developed Countries’ average was 8.1%

China ranked 149 in the world

394

16431860

2673

11.45

1289

78 01 02 03 04 05 06 07 08 09 10 11 12E 15E

China’s Healthcare Expenditure per person:12%-13% of increase in future 5 years

Reasons for fast growth of health expenditure

Macro economy’s growth leads to income increase

Urbanization and aged population growth

Changes of Disease Spectrum:Death rate increase in: Malignant Tumor, Cardiovascular and Cerebrovascular diseases,Mental Disorders, and Nutrition metabolism and endocrine system diseases

Government investment increase

Insurance

Healthcare Industry CapabilityChemicals: 3454API: 1318Chinese Medicine: 2577Biotech: 202VDR: 62Chinese drug decoction pieces:1236

Manufacturers:

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Q3

0%

5%

10%

15%

20%

25%

30%

Healthcare Industry Total OutputGDP


In 2012, China’s GDP growth rate dropped to 7.8%

Healthcare Industry Output increased to 21.3%

2006 2007 2008 2009 2010 2011 2012'1-11

5340 6718

8381 9946

12349

15707 16378

20.0%

25.8% 24.8%

18.7%24.2%

27.2%

21.3%

Total Output Growth Rate

Sub Industry

Output（ B

RMB）

Year-on-year

%

API 298.5 15.80

%18.23

%

Chemicals 455.2

24.30%

27.79%

Biotech 166.6 18.70

%10.17

%

Devices 140.1 20.80

%8.55%

Materials 118.0 24.60

%7.20%

Chinese Med 369.2

21.50%

22.54%

Decoction

Pieces90.2

26.60%

5.51%

Healthcare Industry Revenues

40 62

84

106 140 158 157

13.7%

54.9%

35.4% 25.6% 32.6%23.2%

16.2%

Total Revenue(B RMB)Year-on-year growth rate

Sub Industry

Revenue（ B

RMB）

Year-on-year

%

API 183.3 0.02% 13.29%

Chemicals 434.2 26.11% 31.04%

Biotech 180.9 7.01% 12.37%

Devices 127.2 15.09% 9.23%

Materials 86.7 31.13% 6.30%

Chinese Med 324.4 16.97% 23.82%

Decoction Pieces 53.7 16.69% 3.95%


In 2012, Revenue growth rate increased to 16.23%, lower than output increase

Service Factor Market

HR Supply

Medicine Supply

Equipment Supply

Material Supply

HR Demand

Medicine Demand

Equipment Demand

Material Demand

Service Market

Insurance

Healthcare Service Demand

Healthcare Service Supply

Social Outcome

Insurance

Financing Market

Residential Outcome

Governmental Outcome

Healthcare Market

From 2009-2013 China Healthcare market report and Industry analysis

Relations Between Characters

Industry Chain

Health services related factors of manufacture, circulation

Medical equipment, diagnostic reagents, medical supplies

Wholesaler

Wholesaler

Middle Products

Source Medicine

Raw Material

Final Products

Source Medicine Producing

Final ProductsProducing

Distribution

Drugstores

Hospitals

Patients

Patients

Healthcare Insurance

Healthcare Insurance

Healthcare Services

From 2009-2013 China Healthcare market report and Industry analysis

2011 Top 5 Manufacturers

Rank　 Name

1China Resources Medications Group Limited

2Harbin Pharmaceutical Group Holding Co

3Shanghai Pharmaceutical (Group) Co. Ltd.

4 Shiyao Group Co. Ltd.

5Yangtzejiang Pharmaceutical Group Co. Ltd.

2011 Top 5 Distributors

Rank NameSales Income(10K

RMB)

1 China National Pharmaceutical Group Co. Ltd. 12456339

2 Shanghai Pharmaceutical (Group) Co. Ltd. 4880000

3 China Resources Medications Group Limited 4122375

4 Jiuzhoutong Pharmaceutical Group Co. Ltd. 2479820

5 Nanjing Pharmaceutical Group Co. Ltd. 2013727

2011 Top 5 Chemicals

Name Manufacturer %

1 Clopidogrel Sanofi0.70

%

2 AlprostadilBeijing Taide Pharmaceutical Co., Ltd.

0.67%

3 Atorvastatin Liaoning Dalian Pfizer Inc.

0.59%

4 MoxifloxacinBayer healthcare Co. Ltd. of Beijing

0.56%

5 ActoveginLiaoning Jinzhou Ahon Pharmaceutical Co Ltd

0.51%

2011 Top 5 Chinese Med

　 Name Manufacturer %

1 Kangai injectionJilin Changbaishan Pharmaceutical Group Co. Ltd.

1.90%

2 Xiyanping injection

Jiangxi Qingfeng Pharmaceutical Group Co. Ltd.

1.81%

3 Shuxuetong injection

Mudanjiang Youbo Pharmaceutical Group Co. Ltd.

1.76%

4 Danhong injection

Shandong Buchang Pharmaceutical Group Co. Ltd.

1.46%

5Shenshifuzheng injection

Guangdong Lizhu Group Limin Inc.

1.42%

SDFA Southern Healthcare Industry Research Public

Retailing: Drugstore Geographic

Percentage

China has 0.42 million retail drugstores.

Guangdong, Sichuan, Shandong, Jiangsu, and Hunan possess 38.8% of the total.

Total Number of Drugstores and growth rate

20112010200920082006 2007


Local Healthcare Service

102

254329

441

535

703149.0%

29.5% 34.0%21.3%

31.4%

0

100

200

300

400

500

600

700

800

2007 2008 2009 2010 2011 2012

0

0. 2

0. 4

0. 6

0. 8

1

1. 2

1. 4

1. 6

Growth Rate of Local Use of Medicine（ 0.1Billion RMB）

38.6

165.3200.7

273

351

464328.4%

21.4% 36.0% 28.6% 32.2%0

100

200

300

400

500

2007 2008 2009 2010 2011 2012

0

0. 5

1

1. 5

2

2. 5

3

3. 5

Growth Rate of County Level Use of Medicine (0.1Billion RMB)

63.488.7

128.3

168184

23939.9%

44.6%

30.9%

9.5%

29.9%

0

50

100

150

200

250

300

2007 2008 2009 2010 2011 2012

0

0. 05

0. 1

0. 15

0. 2

0. 25

0. 3

0. 35

0. 4

0. 45

0. 5

Growth Rate of Local Community Use of Medicine (0.1Billion RMB)

66% of the total market

34% of the total market


Treatment Local Distributions

86.9 87.2 84 82.8 81.5

39.5 42.5 46.2 47.5 49.5

0102030405060708090

100

2007 2008 2009 2010 2011

7. 598. 27 8. 77 8. 74 8. 66

2007年 2008年 2009年 2010年 2011年

( )诊疗人次亿次

12712. 417247. 3

34740. 440950

26080. 2

2007年 2008年 2009年 2010年 2011年

( )诊疗人次万次Visits (10K) Visits (0.1B)

Local Community Health Centre Visits County Hospital Visits

Local Health Institution Charges (RMB)In 2011, there were 3.8 billion visits to local health institutions. It was 60.7% of the total visits.

Local Community Health Centre’s average charge is 81.5 RMBCounty Hospital’s average is 49.5 RMB

Hospitalization was 37.75 million held 25% of the total number.


Local Healthcare Terminals70.3 billion

RMB， 6.5%

Hospital Terminals：774.6 billion

RMB， 72.1%

Drugs Retailer Terminals：230 billion

RMB， 21.4%

420K stores

21979 Hospitals2012 Drug

market cap：1075 billion

RMB

Urban6347， 5

9.1%

Rural1399， 1

3%

Three terminals pattern

County Hospitals, 464, 4.3%

Local community Health Centre, 239,

2.2%


Challenges and Opportunities

Recovery of macro economy

OPPORTUNITIES

Government investment growth

Encourage innovation

Base propellant expansion and designated production

The improvement of bidding mechanism

Promotion of the new version of GMP implementation

Reformation of drug technology transfer examination

CHALLENGES

Assessment of generic drugs quality’s consistency

Control of drug price

Control of hospital costs and 0 extra fees

Costs pressure

Shrink of external demand

Patent protection

Supplements and devices development support

Base propellant expansion and designated production

2012

307 500

2009

2013.01.09 Chen Zhu said at the national health work conference， new version of base propellant has approved to pass.

•First-tier health institutes are required to equip with base propellant

•Second-tier hospitals’ base propellant usage and sales should reach 40%-50%

•Third-tier hospitals’ base propellant usage and sales should reach 25%-30%

OPPORTUNITIES SDFA Southern Healthcare Industry Research Public

1. Improve drug quality

evaluation system, figure out an

efficient way to lower price.

2. Expand purchase area, put

high quality and price materials

into purchasing list.

3. Centralize essential and non-

essential drugs purchasing.

Changes

Platform building

Innovation of mechanism

Lower price Quality and price oriented

Drug bidding Purchasing contract and

usage

Main Point

Changes in bidding mechanism


The first 3 generic drugs

can make price

Already on sales

After the first within 5 years,the 2nd and 3rd drug

After 5 years

More than 4 manufacturers

Make price standard

90% price of first generic drug

90% and 80% of the first generic drug

Government set the price

Government set the price

Innovation and

generic drugs have

priority

Based on level of

innovation, set the

price

First will have a

higher margin than

the second

Market selection

Patent protection

Innovations

Priority of making price standard for first generic drug


5071

3731

4490

5050

4682 47684881

4516 45534706

03 04 05 06 07 08 09 10 11 12 13

Eliminated more than 2000 enterprises since last round of GMP

New round of GMP will bring more M&A

There are 597 enterprises get approval

of new GMP

New GMP pass rate is about 15%

？Encourage good enterprises produce more

pharmaceutical productions

Encourage enterprises get approved quickly

Limit registration of enterprises which didn’t approve on time

Make approval of producing requirement more strict

Let the leverage of price be exerted adequately

Give bonus for Implementation of centralized drug purchase

Support GMP project

Promotion of the new version of GMP implementation

New policies:


12.6%

10.7%

9.3%

6.2%

2008 2009 2010 2011

Growth Rate of Visit Fee

13.5%

9.5%8.2%

4.3%

2008 2009 2010 2011

Growth Rate of hospitalization Fee

Control the growth of healthcare fee

Growth rate of visit fee and hospitalization fee shouldn’t be higher than local growth rate of GDP (8%) Results will be recorded into annually audit

Lower the purchasing costs

Prepay visit fee; hospitalization fee should based on insurance payment type

CHALLENGES SDFA Southern Healthcare Industry Research Public

Only about the

consistency with the

original drug

Low quality Generics

Regular Generics

High quality Generics

Same with the

original drug

Better than

original drug

5 consistenciesIngredients, type, standard, safety,

efficiency

In the future four years, China is going to finish 570 types of drugs evaluation, with 33 thousand approvals and 2400 generics consistencies.

Assessment of generic drugs quality’s consistency


0

50

100

150

200

250

300

97- 99年

2000年 2001年 02- 03年

04- 05年

2006年 2007年 2010年 2011' 3 2011' 8 2012' 3 2012' 9 2013' 2

31st average↓15%

High price drugs↓20%

Drug price control

Set a ceiling for drugs profit margin

Cancel some foreign drugs’ individual price making policy

Supervise costs and finished goods price margin

Support high quality generics


Future Trends

New medicines are focusing on prevention

Aging population forces to change the structure of healthcare market

Chronic diseases are becoming major factors

Huge potential of new rural cooperative medical system

industry introduction challenges & opportunities

Documents

shanghai pharmaceutical

harbin pharmaceutical

nanjing pharmaceutical

shiyao group

rmb urban

local healthcare terminals

industry analysis slide

semiannual summit slide