Sandoz to take advantage of China's medical reform

The world second largest generic medicine company, Sandoz, will try to take advantage of its high-quality and affordable medicine to increase its market share in China.

China has just issued a three-year 850-billion-yuan medical reform package, aimed at providing accessible and affordable healthcare to the country's 1.3 billion people

Sandoz's mission to produce and sell economical drugs coincides with Chinese government's new reform policy, according to global CEO Jeffrey George. "We will actively take advantage and support the reform."

Generic medicine, or generics, are pharmaceutical preparations that contain the same active ingredients in the same concentration as better known originator drugs. They are therefore therapeutically equivalent to the original drugs.

They usually appear on the market after the patents of the corresponding originator medicine have expired. The prices are much lower than those of the original medicine, because initial basic and clinical research programs are not required, resulting in tremendous cost saving.

Sources from transnational independent market research and analysis company Datamonitor said that the global generics market exceeded 80 billion yuan last year and the annual growth rate is expected to be 9 percent between 2008 and 2013. It predicted that China will be the world second largest generics market by 2012, with a year-on-year increase of 14 percent from 2008.

"One of the core principles of the new healthcare system reform is popularization of high-quality and affordable pharmaceutical products, which will likely speed up the expansion of the generics sector," said Li Shanshan, a pharmaceutical analyst at Ping An Securities.

George said that Sandoz's solution is not only for patients to have access to high-quality medicines similar to the originated products but also to help the government save money. "I think in a time of financial crisis, when the government is seeking to save money, part of this is shifting the mix to generic products from originated products," he added.

The market is promising but there are a lot of difficulties, said George.

One of the problems is poor-quality knock-offs drugs, which are not safe for patients and not fair to high quality generics producers.

Another difficulty is restrictions on multinational companies to register products.

"We hope for a more level playing field, a fair playing field between local and multinational companies. If we see that happen, we would be likely to invest more," George said, noting that Sandoz so far doesn't make money in China, due to low-grade knock-offs, the restrictions and low price levels in China.

There are 35,000 companies engaged in the generics industry in China, most of which are Chinese firms. Such a large number of companies make price wars inevitable, leading to low product prices across the generics segment in China.

Sandoz currently runs a manufacturing facility in Zhongshan, Guangdong province, with registration capital of 22 million yuan, and has over 350 employees. George wouldn't say what the company's total investment in China is but he said many millions of dollars have been injected into emerging market and further investment in production expansion, research and development, and sales channel penetration is planned.

"We are in discussions with some potential Chinese partners," said the CEO, adding that organic expansion is also under consideration.

Li from the Ping An Securities pointed out that foreign pharmaceutical companies' interest in China's generics market has stirred up serious competition here.

One of Sandoz's rivals, GlaxoSmithKline (GSK), is already leveraging its joint venture in China - Tianjin Smith Kline & French Laboratories Ltd - to explore the generic medicine market. Another rival, Bayer, acquired the generics arm of Roche.

(China Daily 04/13/2009 page8)