The pharmaceutical industry of China has witnessed outperformance on the part of innovation drugs in the recent time. Innovators operating in the pharmaceutical sector are observed to have benefited from stiffened import regulations by the Chinese government and expansion of rebates on more number of drugs by authorities therein.
Eugene Huang, an analyst at Jefferies, has argued about the potential of a few drivers that have helped rally the shares of China’s dominant biopharmaceutical producer, 3SBio (1530.HK), to 33.0 per cent. While leaders in the China pharmaceutical market could have been favored by mid-to-long term consolidation and upgradation in the industry, the risk of price cuts may have been overlooked.
Three Factors to Possibly Navigate Pharmaceutical Industry in China
So what could drive the Chinese pharmaceutical sector in the near future? This is one question on the mind of every pharma operator in the country. However, an assuring analysis by Huang is expected to relieve the worries of industry players. Huang predicts a weighty transition in the industry anchored by long-term research and development policy reforms, National Reimbursement Drug List’s (NRDL) mixed influence in the medium term, and vast provincial tender executions in the near term.
The polarized impact of tendering in large provinces such as Shandong, Guangdong, and Beijing may have advantaged drug innovators, however, generic drug companies such as SBP are anticipated to feel the pinch in terms of price cuts. An average 12.0 per cent and 32.0 per cent price cuts were noted in Guangdong and Fujian respectively. Heavier price cuts are prognosticated to haunt generics in the foreseeable future.
Buy and Hold Ratings of Top Pharma Companies
Huang has analyzed a buy rating for three major pharmaceutical firms, viz. China Medical System (867.HK), YiChang HEC ChangJiang Pharmaceutical (1558.HK), and CSPC Pharmaceutical (1093.HK). CSPC could continue to ride on recuperation in vitamin C prices and ensure strong growth of its oncology and NBP drugs. The company is prophesied to find long-term growth with its research and development pipeline activities.
The sales growth of Sino Biopharmaceutical (1177.HK) from new drugs and NRDL could be optimistic, although it is forecasted to be one of the largest preys of tendering price cuts. The company is projected to see a rise in its marketing and research and development costs.
3SBio, on the other hand, is rated a hold by the analyst.