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Pharmaceutical Cluster
Shanghai & China
International University of M
onaco M
BA
2011
Insight into China
20% of Global Population
1.5% of global pharmaceutical market - $25.7
billion
Largest pharmaceutical
producers in the world
Annual average growth rate
16.72%
International University of M
onaco M
BA
2011
Economic performance of
China
Macroeconomic Indicators
Size of population – 1.3 billion (2010)
GDP – $4627.7 billion
Inflation – 3.3%
Consumer price Index – 123.6 (3.3% growth)
Exchange Rate – 6.8409 ($/CNY)
International University of M
onaco M
BA
2011
Activity Time Trend
11th November 2001 – Entry into World Trade Organization
Improved transparency & Intensifying of commercial legal procedures
Obligations include
Sharpening of rules on intellectual property
Tariff concessions
Market access of non-Chinese service dealers participating in the distribution of pharmaceuticals
Better patent system, medical insurance has become more widespread
Pharmaceutical-related regulations have been improved
To become the third largest pharmaceuticals market in the world by 2011 according to a report released by a market research firm know as IMS
China's pharmaceutical revenue is growing fast –Market may double by 2013.
Sales of prescription drugs in China will grow by US$40 billion through 2013
International University of M
onaco M
BA
2011
Shanghai & Pudong
Shanghai
18 million Inhabitant – Tenth largest cities in the world
Located at the delta of the Yangtze River, longest and busiest in China
Largest and most important centre of Industry in China
China’s leading port and commercial city
Pudong
Flagship of China’s economic reform
Permanent Population – 4.12 Billion
Gross output value - RMB 400.139 billion
International University of M
onaco M
BA
2011
Development of Pudong Area
Government Support
Development of local physical infrastructure
Provision of funding for Shanghai research institutions and support of venture capital investment to facilitate technology commercialization
Foster favorable trade and tax environments
Provision of financial and insurance freedom and help to expand its capacity as a financial center
Improvement of the legal environment and protection of intellectual property
International University of M
onaco M
BA
2011
Diamond
AnalysisPharmaceutical
Cluster
Firm Strategy &
Rivalry
Demand Conditions
Related & Supporting Industries
Input Conditions
International University of M
onaco M
BA
2011
Input Conditions
A drug supervision and management body was formed in 1998. The goals for this body are to intensify supervision and control over medicines, and gradually set up a drug management system featuring legal management, unified law enforcement, standard codes of conduct, honest practice and high efficiency
Foreign Companies doing R&D in China
Subsequently China’s entry into the WTO, many strong pharmaceutical companies are transferring their research and development centers to China. For example, Roche of Switzerland opened its R&D center in Shanghai recently
Supervision & FDI in China
International University of M
onaco M
BA
2011
Input Conditions
Governmental Policies
The main goal of the government is to improve manufacturing and distribution efficiencies, strengthen drug safety supervision, and separate hospitals from the drug retailing business
To reach these goals the following provisions were required:
Requiring all pharmaceutical manufacturers to meet GMP standards
Diminishing drug sales through hospitals
Bidding publicly for drug purchase
Implementing a national healthcare insurance system and
Strengthening intellectual property protection and SFDA supervision
Governmental Policies
International University of M
onaco M
BA
2011
Input Conditions
The pricing mechanism is based upon three reflections when setting the maximum retail price - production cost, a wholesaler spread set by the government and the prices of comparable products in the market. Any products priced above this level will be removed.
The central government has been playing a significant role in pharmaceutical price readjustment. Future price reductions will originate from hospital pharmaceutical retail shops.Government drug pricing
policy
International University of M
onaco M
BA
2011
Input Conditions
Since 2002, China's pharmaceutical logistics industry has been expanding constantly. A great amount of capital is being injected into this industry. In 2007, China had 3 main pharmaceutical logistics centers put into operation and many more are yet to come.
Pharmaceutical Logistics
International University of M
onaco M
BA
2011
Input Conditions
China’s over-the-counter market is growing fast and has become the fourth largest OTC market in the world. Foreign enterprises have been closely observing the growing OTC market
The central government has been playing a significant role in pharmaceutical price readjustment. Future price reductions will originate from hospital pharmaceutical retail shops.
Over the Counter Market and Pricing
International University of M
onaco M
BA
2011
Strategy & Rivalry -Buyer Power
International University of Monaco MBA 2011
International University of M
onaco M
BA
2011
Strategy & Rivalry -Supplier Power
International University of Monaco MBA 2011
International University of M
onaco M
BA
2011
Strategy & Rivalry -New Entrants
International University of Monaco MBA 2011
International University of M
onaco M
BA
2011
Strategy & Rivalry -Substitutes
International University of Monaco MBA 2011
International University of M
onaco M
BA
2011
Strategy & Rivalry -Degree of Rivalry
International University of Monaco MBA 2011
International University of M
onaco M
BA
2011
Demand Conditions
Longer Life-span
The average lifespan for Shanghai people reached 81.08 in 2010 - the first time it has passed 81
China: 75 years
Infant mortality Shanghai: 3 per 1,000 China: 6 per 1,000
The pre and post-natal mortality rate for women was 6.68 in 100,000
Age Structure: Larger older population
Com-pared with the 5th national census in 2000, the proportion of those aged 0-14 in the city population dropped 3.4 %
Aged 65 and above rose by 0.5 %
BuyersLocal Consumers
International University of M
onaco M
BA
2011
Demand Conditions
Employment
Employs 9.4607 million people
4.2 % unemployment rate
Local labor markets -sub regional chemical fields
Middle Class Expansion/China
Present estimates of middle class in China range from 100 million to 247 million
An income of about $9,000 is necessary to be considered middle class
China could have over 600 million middle class citizens by 2015
Per Capita Income
China is on track to create a 700% growth in per capita income in just 20 years
Shanghai: $18, 400
“Sophisticated demanding buyers pressure companies to meet high standards, to innovate and to move forward more developed segments.” Michael Porter
International University of M
onaco M
BA
2011
Demand Conditions
Total: 5,898,415
Type A and Type B infectious diseases (3,499,582)
Plague, Cholera, HIV, Viral, Tuberculosis
Type C infectious diseases (2,398,833)
Leprosy, Camp Fever
Health Conditions
International University of M
onaco M
BA
2011
Demand Conditions
Hospitals
67,000 in China; 759 in Shanghai
Managed Care Organizations (MCOs)
Medical facilities provided 132.17 million out-patient and emergency services and 647,000 surgical procedures for hospitalized patients, both increasing by about 13 %
Medical services at the 228 involved 1,190 teams of general practitioners and a health database covering 1.7 million families
Health supervision agencies shut 3,369 illegal clinics, withdrawing the licenses of four facilities and collecting 16.91 million yuan
Government Agencies
International Companies
Large range and product differentiation reduces buyer power
Overall, buyer power is moderate
Key Buyers
International University of M
onaco M
BA
2011
Demand Conditions
Pharmaceutical market is growing more than 20% a year
Demand is projected to increase 13.6 % annually to 375 billion yuan in 2011
Growth decline from 2011-2015 to $48.8 billion by 2015
Aggressive government spending , economic boom, rapidly aging population
The trend toward unhealthy lifestyles and an increasing demand for drugs to treat chronic diseaseLocal Demand
International University of M
onaco M
BA
2011
Market Segmentation
International University of M
onaco M
BA
2011
International University of Monaco MBA 2011
International University of M
onaco M
BA
2011
International University of Monaco MBA 2011
International University of M
onaco M
BA
2011
Market Share
International University of Monaco MBA 2011
International University of M
onaco M
BA
2011
Leading Companies
AstraZeneca PLC
GlaxoSmithKline Plc
Northeast Pharmaceutical Group Company Limited
Pfizer Inc.
Yangtze River Pharmaceutical Group
International University of M
onaco M
BA
2011
Demand Conditions
Global pharmaceutical sales will rise 5% -7% in 2011 to $880 billion
The 2011 projection compares with 2010’s 4% to 5 % growth in drug sales to $840 billion
It is expected for drug spending in China to increase at least 25% in 2011
China is expected to expand by as much as 17% to $180 billion worldwide while growth in the United States market slows
Global Demand
The ultimate size and forecast exponential growth in future demand for pharmaceuticals, coupled with the inherent low-cost structure of Chinese manufacturing offer huge opportunities for pharmaceutical enterprises.
International University of M
onaco M
BA
2011
Demand Conditions
Patent Protection
Over the next five years, multinational corporations will lose patent protection of products worth US$140 billion in annual sales
Example:
Novartis, $1.25 billion in R&D
Bayer, $5 billion sales increase by 2015
Global Demand
“arguably ranking as the best pharmaceutical outsourcing destination among all Asian territories when looking at the multiple factors of cost, risks and market opportunities” PriceWaterhouseCooper
International University of M
onaco M
BA
2011
Related and Supporting Industries
Biotechnology Industry
Chemical Industry
Engineering Industry
Packaging Industry
Hospital andMedical Services
Drugs Discover and
DevelopmentManufacture Market
The Shanghai Pharmaceutical cluster benefits from internationally competitive related and supporting industries, able to
deliver cost-effective inputs (materials, machinery, services) in an efficient and preferential way thank to the geographical proximity
provide advantages in innovation and upgrading through close cooperation and sharing of information with pharmaceutical firms
Pharmaceutical Value Chain
Other Services
International University of M
onaco M
BA
2011
Biotechnology Industry
The field shows immense importance in augmenting existing technologies in the pharmaceutical industry (i.e. research of simple molecules through trial-and-error to treat symptoms of diseases)
In Shanghai-Pudong the establishment of the Zhangjiang Hi-Tech park fostered the development of biotech industry
1996 - Agreement of National Shanghai Biotechnology and Pharmaceutical Industry Base
Many biotech firms raised as spin-offs from local universities with proven record in the field
Shanghai Fudan-Zhangjiang Bio-Pharmaceutical, founded by six teachers from Fudan University
Local Government is accommodating in the proactive search for new park residents, with regard to research-intensive activities
Drugs Discover and Development
Manufacture Market
International University of M
onaco M
BA
2011
Chemical Industry
Raw Materials
Weighing of Recipes
Batching & Mixing
Tableting/Capsuling/Filtering/
Stirring
Filling
Sealing and Labeling
Packaging
Provides bulk drugs and raw materials for the production of all pharma’s product categories
Tablet/Capsules, Oral liquid, External Preparation
As average, raw materials account for 33% of the drug’s MRP - Maximum Retail Price
(i.e. bulk drugs, dyes, preservatives, glycerin, lactose, solvents)
The growth of the chemical industry in Shanghai-Pudong specialized in areas such as pharmaceuticals, biotechnology and specialty chemicals
Gross production value of the Yangtze Delta chemical industry increased from 333.18bn Yuan (41.6bn USD) to 1,304.90bn Yuan (163.1bn USD) between 1998 and 2005
Drugs Discover and Development
Manufacture Market
International University of M
onaco M
BA
2011
Raw Materials
Weighing of Recipes
Batching & Mixing
Tableting/Capsuling/Filtering/
Stirring
Filling
Sealing and Labeling
Packaging
Engineering Industry
Pharmaceutical industry is highly capital intensive requiring consistent investments in custom design machinery, in accordance with stringent regulations
As average, Pharmaceutical’s processing expenditure accounts for 25% of the drug’s MRP - Maximum Retail Price
Machinery for mixing and granulating, tablet coating, capsule manufacturing, autoclaves, drying chambers, etc.
In Shanghai-Pudong, the Jinqiao Export Processing Zone achieved great development in the machinery industry, attracting multinational corporations to produce and sell quality machinery worldwide
As of July 2005, the development zone absorbed investment totaling USD14.159 billion, of which USD12.721 billion made by foreign enterprises
Drugs Discover and Development
Manufacture Market
International University of M
onaco M
BA
2011
Raw Materials
Weighing of Recipes
Batching & Mixing
Tableting/Capsuling/Filtering/
Stirring
Filling
Sealing and Labeling
Packaging
Packaging Industry
The pharmaceutical packaging industry encompasses all activities including package testing and validation, package designing and development, package prototyping of pharmaceutical products
High cooperation with pharmaceutical firms
Products can be subdivided into different packaging segments: blisters, blow-molded plastics, ampules, caps and closures, tubes and glass, bottles, strip packs
Pharmaceutical packaging materials industry’s contribution rate in China is lower than other developed countries (10% compared to average 30%)
Over the next five years predicted a rapid development of the local pharmaceutical packaging industry
Actual packaging industry’s annual output can only meet 80% of the domestic pharmaceutical demand
Drugs Discover and Development
Manufacture Market
International University of M
onaco M
BA
2011
Hospitals and OTC Pharma Industry
China has a large and fast-growing over the counter (OTC) pharmaceuticals industry
Retail sales value of OTC drugs expanded by 102% between 2003 and 2009
Total OTC pharmaceuticals retail market increased to 72.02bn Yuan in 2009, and the market is expected to surpass 100bn Yuan by 2013
Growth in the OTC pharmaceutical market propelled by increasing public awareness about health care, rapid rise in urban living standard & growing disposable income levels
China’s 124bn USD healthcare reform (April 2009) boosts demand for pharmaceutical products ranging from generic drugs to medical equipment.
As part of the reform essential drugs are to be sold at government hospitals at wholesale prices
40-60% decline in traffic in some of the drugstores located where implemented the healthcare reform
Drugs Discover and Development
Manufacture Market
International University of M
onaco M
BA
2011
Major Challenges
Current operation mode of most distributors is not in line with the requirements of modern distribution, especially with regard to scale and automation.
Many distributors lack logistics management knowledge and talented managerial professionals
Macro regulation and control from the government is limited.
Profits today are at very low levels. The existence of a large number of undersized distributors has caused malignant competition and chaotic growth, which has resulted in higher costs, lower profits, and conflicts over limited market shares
Many distributors have limited market development and service capabilities.
International University of M
onaco M
BA
2011
Future Trends & Recommendations
Scale-up to achieve economies of scale required for economic performance
Merging with domestic and foreign-owned companies
Narrowing their focus to specific geographic market or healthcare areas
Enhancing modern logistics management
China's domestic pharmaceutical industry growth is exploding. With 17% growth, the future looks bright. However, systemic planning will be required.
International University of M
onaco M
BA
2011
Contact Us
Gabriele Cavargna Bontosi [email protected]
Ola Farahat [email protected]
Rajesh Namagiri [email protected]
Camilla Sorina [email protected]
Elena Vertlib [email protected]
Kseniya [email protected]
Thank You !
Q&A
International University of M
onaco M
BA
2011