Health care companies face challenges in China

The market is growing and the opportunities are there, but so are the risks.

By Stock Traders Daily Dec 27, 2012 11:51AM
SuperStockBy Barry S. Cohen, Stock Traders Daily

It's little wonder that multinational health care companies (MNCs) may be salivating at the opportunities in China:

1) By 2016 China is expected to be the second-largest drug market, forecast to reach nearly $165 billion that year

2) During the next several years the Chinese drug market is supposed to grow at a rate of 15% to 18% a year compared to little or no gains for the Western countries

3) Growing affluence is permitting many Chinese to pay out of pocket or pay high insurance deductibles to gain access to innovative Western medicine

4) China needs new drugs to treat higher than average incidences of hepatitis B and neck and head cancers. China also has growth potential for drugs to treat arthritis, diabetes, osteoporosis, high blood pressure, high cholesterol, depression HIV/AIDS.

However, all that glitters may not be gold. The chance of a recession as well as internal politics could make it difficult for the multinational pharmaceutical companies to make strong headway into the Chinese market. Nowhere in the world are the pressures greater to expand access to better health care while at the same time controlling costs.

Examples abound. One policy decision eliminated differential pricing on approximately 100 drugs MNCs sold into China. For nearly two decades, these drugs had benefited from special pricing as part of an agreement between the Chinese government and the pharmaceutical industry. Furthermore, a blind bid and tender process reduced prices on some drugs by up to 90%. MNCs watched as domestic Chinese pharmaceutical companies bid prices down in an effort to use volume gains to offset collapsing margins.

Despite the caution flags, large MNCs continue to devote substantial resources to cracking the Chinese market. Both Pfizer (PFE) and GlaxoSmithKline (GSK) have made major moves to re-orient sales resources away from developed economies towards China. Eli Lilly (LLY) and Novartis (NVS), among others, have opened new R&D facilities in China, primarily in Shanghai. And given the country's mammoth diabetes problem, Sanofi (SNY) is moving deeper into the country. The company's Lantus insulin product is estimated to have 17% of the Chinese market. Which companies are likeliest to make the deepest inroads into the Chinese healthcare market? Consult our real time trading reports.

Large pharmaceutical companies hoping to stake a claim in China may be eyeing two of the country's largest medical research testing companies as a vehicle to gain entry. Both WuXi PharmaTech (WX) and ShangPharma (SHP) have been mentioned as possible takeover targets.

Even insurance company WellPoint (WLP) has announced its entry with the hopes that it can develop a private healthcare insurance business. And medical device companies like Boston Scientific (BSX), Johnson & Johnson (JNJ) and Medtronic (MDT) are also aggressively expanding into China. For more information about stocks in this space, our real time trading reports help investors identify opportunities before they happen.
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