China Pharmaceuticals and Healthcare Report Q2 2019 PDF

Q2 2019
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China
Pharmac
Pharmaceuticals
euticals & Healthcar
Healthcare
e
Report
Includes 10-year forecasts to 2028
China Pharmaceuticals & Healthcare Report | Q2 2019
Contents
Key View............................................................................................................................................................................................ 5
SWOT .................................................................................................................................................................................................. 7
Industry Forecast........................................................................................................................................................................... 8
Pharmaceutical Market Forecast ........................................................................................................................................................................................... 8
Healthcare Market Forecast ...................................................................................................................................................................................................10
Prescription Drug Market Forecast......................................................................................................................................................................................13
Patented Drug Market Forecast............................................................................................................................................................................................15
Generic Drug Market Forecast...............................................................................................................................................................................................17
OTC Medicine Market Forecast .............................................................................................................................................................................................19
Pharmaceutical Trade Forecast ............................................................................................................................................................................................21
Industry Risk/Reward Index ....................................................................................................................................................23

Asia Pacific Innovative Pharmaceuticals Risk/Reward Index....................................................................................................................................23
Innovative Pharmaceuticals Risk/Reward Index ...........................................................................................................................................................31
Regulatory Development ..........................................................................................................................................................33

Regulatory Review......................................................................................................................................................................................................................33
13th Five-Year Plan: Key Points.............................................................................................................................................................................................38
Market Overview..........................................................................................................................................................................46
Competitive Landscape.............................................................................................................................................................52
Company Profile...........................................................................................................................................................................57
AstraZeneca..................................................................................................................................................................................................................................57
Bayer HealthCare .......................................................................................................................................................................................................................59
China Shijiazhuang Pharmaceutical Group (CSPC).......................................................................................................................................................61
Eli Lilly (Lilly China) .....................................................................................................................................................................................................................63
GlaxoSmithKline .........................................................................................................................................................................................................................65
MSD ..................................................................................................................................................................................................................................................67
Merck KGaA ..................................................................................................................................................................................................................................69
North China Pharmaceutical Corporation .......................................................................................................................................................................71
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Novartis .........................................................................................................................................................................................................................................72
Pfizer................................................................................................................................................................................................................................................74
Roche ..............................................................................................................................................................................................................................................76
Sanofi...............................................................................................................................................................................................................................................78
Shanghai Pharmaceuticals Holding Co .............................................................................................................................................................................80
Sinopharm ....................................................................................................................................................................................................................................82
China Demographic Outlook....................................................................................................................................................84
Pharmaceuticals & Healthcare Glossary .............................................................................................................................87
Pharmaceuticals & Healthcare Methodology ....................................................................................................................89
Key View
Key View: China will remain the key emerging Asian market over the coming years. The fundamentals of China’s healthcare market
are positive for sustained growth in demand for medicines; namely a large, growing and ageing population, coupled with significant
prevalence of chronic diseases. Since 2017, the dynamics of the pharmaceutical industry have also shifted somewhat for foreign
drugmakers. However, ongoing challenges with regards to medicine pricing and the impact of low levels of intellectual property
protection will continue to pose risks to China's pharmaceutical market growth.
Headline Expenditure Projections
• Pharmaceuticals: CNY944.56bn (USD142.68bn) in 2018 to CNY1,061.23bn (USD149.4bn) in 2019; +12.4% in local currency
terms and +4.8% in US dollar terms.
• Healthcare: CNY5,501.95bn (USD831.11bn) in 2018 to CNY6,124.3bn (USD862.5bn) in 2019; +11.3% in local currency and
+3.8% in US dollar terms.
HEADLINE PHARMACEUTICALS & HEALTHCARE FORECASTS (CHINA 2017-2023)

Indicator 2017 2018e 2019f 2020f 2021f 2022f 2023f
Pharmaceutical sales, USDbn 120.881 142.683 149.470 165.104 181.272 200.391 219.131
Pharmaceutical sales, % of GDP 1.01 1.07 1.11 1.11 1.12 1.12 1.12
Pharmaceutical sales, % of health expenditure 16.5 17.2 17.3 16.9 16.5 16.0 15.5
Health spending, USDbn 732.672 831.110 862.581 975.459 1,101.094 1,254.405 1,417.963
f = Fitch Solutions forecast. Source: World Health Organization (WHO), National Sources, Fitch Solutions
Latest Updates
• In December 2018, as part of China's efforts to make life-saving medications cheaper, authorities announced a pilot programme
to change the way the country procures drugs in its major cities. Eleven major cities, including Beijing, Shanghai and Guangzhou,
are to join together to bulk purchase medicines through a tender process.
• A report released in early December 2018 stated that the Chinese pharmaceutical sector has tremendous investment
opportunities in the manufacturing of affordable, high-quality medicine in a way that would create job opportunities and help
develop skills in Africa.
• In early December 2018, German pharmaceutical giant Merck announced its plans to expand its R&D facilities in China in 2019 in
an effort to support development within the growing market segment.
• In November 2018, it was stated that stricter inspections of Chinese vaccine manufacturers caused a shortage of flu vaccines,
raised the risks of widespread infections and highlighted the lack of staff at the country’s top pharmaceutical regulator.
• At the end of November 2018, Jianke.com, China's online healthcare platform, announced that they will be entering into a
strategic partnership with US-based global pharmaceutical leader Pfizer. Both companies will leverage their leadership in their
respective fields and successful practices to implement a patient-focused strategy in terms of retail, hospital services and
internet healthcare, in addition to co-creating an omnichannel retail system that combines online and offline channels.
Risk/Reward Index
China's large and expanding population, increasing burden of chronic diseases and the ongoing reforms shaping the country's
medicine market, results in the country scoring 71.2 out of 100 in our Innovative Pharmaceuticals Risk/Reward Index and ranking
fourth in the region. Despite the government's commitment to improving healthcare access, the attractiveness of the country's
pharmaceutical market to innovative drugmakers will be weakened by greater pricing pressures and a weak intellectual property
environment.
Economic View
The negative impact on the Chinese and US economies from tit-for-tat tariffs imposed since early-July has yet to be fully felt, but will
very likely intensify in 2019, which could force the two sides to reach a compromise on the trade issue. Under this scenario, we
could see a pause in further tariffs and potentially the dialling back of tariffs by both sides in 2019, which would result in an easing of
the weakness in the Chinese industrial sector, boding well for the Chinese economy.
Political View
We maintain our view for the US-China trade dispute to remain a drawn-out conflict, seeing the ceasefire agreed at the sidelines of
the G20 summit in Argentina on December 1 as just a lull before a likely re-escalation of trade tensions. Key policy positions remain
distant between the two countries, such as China’s subsidies to its state-owned enterprises and the three-month truce will likely be
too short for those positions to change enough to agree on a long-term deal. A re-escalation in trade tensions would likely lead to
increased tariff and non-tariff barriers and could also heighten geopolitical tensions, with the two countries embroiled in disputes
elsewhere, such as the South China Sea.
SWOT
SWOT Analysis
Strengths • Well-established and strong local manufacturing, with an international export profile.
• Growing population numbers.
• Progressive healthcare reforms introduced by the government in recent years.
• Strong demand for patented innovative drugs, driven by rising incomes. Generic substitution, however,
somewhat threatens this outlook.
Weaknesses • Aggressive pricing policies undermine investor confidence.

• Widespread production, distribution and sale of unregistered and counterfeit medicines.
• Financial sustainability of the healthcare system remains a challenge given the growing disease burden.
• Low levels of intellectual property protection and limited capacity of regulators pose significant challenges
to drugmakers in China.
Opportunities • Increasing medical research and development capacity.

• The private sector will play an increasingly pivotal role in healthcare expansion in China - boosting
opportunities for multinational drugmakers and healthcare providers.
Threats • Large counterfeit sector continues to pose risks to pharmaceutical industry performance.
• Fierce local competition and unfamiliarity with the country's commercialisation channels will reduce the
appetite for multinational drugmaker investment.
• Further pricing pressures from the tendering process could weigh on the sector's performance.
Industry Forecast
Pharmaceutical Market Forecast
Key View: China remains one of the most attractive APAC markets for innovative drugmakers. New regulatory pathways and
improvements to China’s drug approval process will bolster long-term growth opportunities for drugmakers. However,
pharmaceutical policy continues in an aggressive cost-containment direction.
Latest Updates
• In December 2018, as part of China's efforts to make life-saving medications cheaper, authorities announced a pilot programme
to change the way the country procures drugs in its major cities. Eleven major cities, including Beijing, Shanghai and Guangzhou,
are to join together to bulk purchase medicines through a tender process.
• In early December 2018, German pharmaceutical giant Merck announced its plans to expand its R&D facilities in China in 2019 in
an effort to support development within the growing market segment.
• At the end of November 2018, Jianke.com, China's online healthcare platform, announced that they will be entering into a
strategic partnership with US-based global pharmaceutical leader Pfizer. Both companies will leverage their leadership in their
respective fields and successful practices to implement a patient-focused strategy in terms of retail, hospital services and
internet healthcare, in addition to co-creating an omnichannel retail system that combines online and offline channels.
Pharmaceutical Market Forecast

2014-2028
f = Fitch Solutions forecast. Source: SMEI, AESGP, NBS, Wind Terminal, local news sources, Fitch Solutions.
Structural Trends
In 2018, we calculate that China's pharmaceutical market to be valued at CNY944.56bn (USD142.68bn), experiencing a 15.6%
increase from the previous year. In 2019, we expect the market to grow by 12.4%, reaching a value of CNY1,061.23bn
(USD149.47bn). Over the forecast period to 2023, we calculate the pharmaceutical market will reach a value of CNY1,457.2bn
(USD219.13bn), experiencing a compound annual growth rate (CAGR) of 9.1% in local currency terms and 9% in US dollar terms.
Over the extended forecast period, medicine sales will experience a 10-year CAGR of 8.2% and 8.4% in local currency and US dollar
terms respectively, reaching CNY2,071.2bn (USD318.6bn) by 2028. In 2018, per-capita pharmaceutical sales remained at
USD100.83. Pharmaceutical sales as a percentage of GDP was 1.07% in 2018 and is expected to remain fairly steady over our
10-year forecast period. As a percentage of healthcare, pharmaceutical sales represented 17.17%, which we forecast to decrease to
12.72% by 2028.
China will remain the key emerging Asian market over the coming years. The fundamentals of China’s healthcare market are
positive for sustained growth in demand for medicines; namely a large, growing and ageing population, coupled with a significant
prevalence of chronic diseases. For foreign drugmakers, the dynamics of the pharmaceutical industry have shifted somewhat since
2017. The Chinese government announced far-reaching reforms to its pharmaceutical regulatory system with the aim of speeding
up approvals of medical technologies, thus easing bottlenecks in introducing new treatments to the market. Most importantly,
these reforms implied that data from clinical trials conducted outside the country will now be accepted as part of the regulatory
filings by the Chinese Food and Drug Administration (CFDA), hence removing the need to conduct additional trials in the country.
Moreover, the impact of these reforms, including greater regulatory transparency and the growing use of priority reviews, will
continue to be felt into 2018 and beyond, boosting revenue-earning opportunities for multinational drugmakers. Moreover, in the
government's 2018 work report, the Chinese Premier mentioned the government's support for the construction of science and
technology innovation centres in Beijing and Shanghai and the establishment of 14 national innovation zones, with the aim of
establishing a greater multinational drugmaker presence in the country.
Despite these positive developments, innovative drugmakers will continue to face numerous challenged in China, limiting the
market's attractiveness. A lack of effective regulatory data protection and patent enforcement, inconsistent patent examination
guidelines, the non-transparent and unpredictable government pricing and reimbursement policies, rampant counterfeiting of
medicines and unregulated active pharmaceutical ingredients, remain key issues of concern. The government has also imposed
aggressive cost-containment measures within the pharmaceutical sector to limit spending which will continue to negatively impact
the outlook for patented drug sales in the country.
PHARMACEUTICAL SALES, HISTORICAL DATA AND FORECASTS (CHINA 2015-2023)

Indicator 2015 2016 2017 2018e 2019f 2020f 2021f 2022f 2023f
Pharmaceutical sales, USDbn 106.528 108.141 120.881 142.683 149.470 165.104 181.272 200.391 219.131
Pharmaceutical sales, USDbn, % y-o-

12.20 1.51 11.78 18.04 4.76 10.46 9.79 10.55 9.35
y
Pharmaceutical sales, CNYbn 669.470 718.690 816.890 944.558 1,061.235 1,155.729 1,250.778 1,352.641 1,457.219
Pharmaceutical sales, CNYbn, % y-o-

14.44 7.35 13.66 15.63 12.35 8.90 8.22 8.14 7.73
y
Pharmaceutical sales constant

101.128 108.563 123.397 142.683 160.307 174.581 188.939 204.326 220.124
exchange rate, USDbn
Pharmaceutical sales, USD per

76.3 77.1 85.8 100.8 105.3 115.9 126.9 140.0 152.7
capita
Pharmaceutical sales, % of GDP 0.96 0.96 1.01 1.07 1.11 1.11 1.12 1.12 1.12
Pharmaceutical sales, % of health

16.3 16.1 16.5 17.2 17.3 16.9 16.5 16.0 15.5
expenditure
f = Fitch Solutions forecast. Source: SMEI, AESGP, NBS, local news sources, Fitch Solutions.
Healthcare Market Forecast

Key View: We expect the development and improvement of the healthcare system to remain a key area of China's government
expenditure. The implementation of the compulsory health insurance fund will have a significant impact on healthcare sector
expansion in the coming years, feeding into pharmaceutical sales. Moreover, policies aimed at reducing out-of-pocket spending and
increasing healthcare accessibility will bolster the healthcare outlook.
Latest Updates
• A report released in early December 2018 stated that the Chinese pharmaceutical sector has tremendous investment
opportunities in the manufacturing of affordable, high-quality medicine in a way that would create job opportunities and help
develop skills in Africa.
• In November 2018, it was stated that stricter inspections of Chinese vaccine manufacturers caused a shortage of flu vaccines,
raised the risks of widespread infections and highlighted the lack of staff at the country’s top pharmaceutical regulator.
Healthcare Expenditure Forecast

2014-2028
f = Fitch Solutions forecast. Source: World Health Organization (WHO), Fitch Solutions.
Structural Trends
China's government is spearheading aggressive reforms of the country's healthcare system as it seeks to expand access to care and
improve the performance of the healthcare system. Multinational drugmakers and healthcare providers will benefit from the
Chinese government's continued implementation of reforms to address emerging social problems such as an ageing population,
rising inequality and pollution. In 2018, healthcare spending reached a value of CNY5,501.9bn (USD831.1bn), with per capita
expenditure on healthcare reaching a value of USD587.3. In 2019, we calculate that healthcare spending will reach a value of
CNY6,124.3bn (USD862.5bn), growing 11.3% from the previous year in local currency terms. By 2023, we expect health expenditure
to have reached a value of CNY9,429.4bn (USD1,417.9bn), representing a CAGR of 11.4% in local terms and 11.3% in US dollar
terms. Over the long term, healthcare spending is expected to reach CNY16,284.4bn (USD2,505.3bn) in 2028. By this time health
expenditure will represent 8.5% of GDP. Government expenditure on healthcare reached CNY3,403.9bn (USD514.1bn) in 2018,
accounting for 61.87% of total health spending. By 2023, we expect public healthcare spending will reach CNY5,622.1bn
(USD845.4bn). The government's investment in healthcare expenditure will continue to be limited. Private expenditure on
healthcare reached CNY2,098.03 (USD316.9bn) in 2018, accounting for 38.13% of total health spending. By 2023, we expect
private healthcare spending will reach CNY3,807.3bn (USD572.5bn).
China’s ageing population and rising chronic disease burden will create a dire need for reform of the country’s over-burdened public
health care system as well, which will present opportunities for the burgeoning private hospital sector. According to the National
Bureau of Statistics, public hospitals received far more patients than their private counterparts, with their number of patient visits
reaching 2.5bn in 2016, seven times the 360mn patient visits at private hospitals. To address the issues of undersupply and ease the
burden on public hospitals, the government has been increasing medical spending and introducing more private capital to reform
the healthcare services sector.
The importance of growth in the private healthcare sector was outlined by the Chinese government in the 13th Five-Year Plan, while
the latest 'Hospital Construction Guidance' issued in July 2016, encourages investment in private health centres so they can grow in
scale and improve the quality of their services. Moreover, according to the 'National Healthcare Service System Planning
2015-2020' issued in March 2015, China aims to expand the scale of private hospitals at a faster pace than public hospitals. In April
2014, the National Development and Reform Commission (NDRC), the NHFPC and the Ministry of Human Resources and Social
Security issued a circular which outlined measures to encourage the development of the private healthcare sector. This included:
• Encouraging private health institutions to provide a variety of medical services to help meet the heterogeneous needs of the
population.
• Establishing mechanisms to negotiate reimbursements between private health institutions and health insurance agencies.
The government also implemented several key supportive policies, including streamlining the approval procedures for setting up
private hospitals, expanding the state medical insurance scheme to qualified private hospitals and supporting doctors from public
hospitals to practice in private facilities. The number of private hospitals in China has doubled since 2011, according to NHFPC.
China had 16,900 private hospitals as of April 2017, accounting for 57.2% of all hospitals in the country.
We expect these initiatives to accelerate the influx of private healthcare providers into China which has already seen forays by
companies such as Raffles Medical Group, Columbia Pacific Management and Ramsay Healthcare among others. Consequently,
medical device and pharmaceutical will stand to gain, especially as it provides an additional sales channel for high-value
pharmaceutical and medical device products.
HEALTHCARE EXPENDITURE TRENDS, HISTORICAL DATA AND FORECASTS (CHINA 2015-2023)

Health spending, USDbn 652.047 671.131 732.672 831.110 862.581 975.459 1,101.094 1,254.405 1,417.963
Health spending, USDbn, %

13.74 2.93 9.17 13.44 3.79 13.09 12.88 13.92 13.04
y-o-y
Health spending, CNYbn 4,097.758 4,460.243 4,951.268 5,501.950 6,124.323 6,828.211 7,597.551 8,467.230 9,429.457
Health spending, CNYbn, %

16.01 8.85 11.01 11.12 11.31 11.49 11.27 11.45 11.36
y-o-y
Health expenditure constant

589.602 641.758 712.409 791.643 881.192 982.471 1,093.166 1,218.299 1,356.748
FX rate, USDbn
Health spending, USD per

466.7 478.2 519.8 587.3 607.4 684.7 770.8 876.1 988.4
capita
Health spending, % of GDP 5.86 5.98 6.12 6.24 6.38 6.58 6.80 7.02 7.24
GOVERNMENT HEALTHCARE EXPENDITURE TRENDS, HISTORICAL DATA AND FORECASTS (CHINA 2015-2023)
Govt. health spend, USDbn 397.627 416.038 454.314 514.188 531.651 598.207 670.080 756.509 845.430
Govt. health spend, USDbn,

12.44 4.63 9.20 13.18 3.40 12.52 12.01 12.90 11.75
% y-o-y
Govt. health spend, CNYbn 2,498.868 2,764.932 3,070.173 3,403.924 3,774.725 4,187.452 4,623.550 5,106.438 5,622.110
Govt. health spend, CNYbn,

14.68 10.65 11.04 10.87 10.89 10.93 10.41 10.44 10.10
% y-o-y
Govt. health spend, % total

60.98 61.99 62.01 61.87 61.63 61.33 60.86 60.31 59.62
health spend
PRIVATE HEALTHCARE EXPENDITURE TRENDS, HISTORICAL DATA AND FORECASTS (CHINA 2015-2023)
Private health spend, USDbn 254.420 255.093 278.358 316.922 330.929 377.251 431.015 497.895 572.533
Private health spend, USDbn,

15.84 0.26 9.12 13.85 4.42 14.00 14.25 15.52 14.99
% y-o-y
Private health spend, CNYbn 1,598.890 1,695.311 1,881.095 2,098.026 2,349.598 2,640.759 2,974.001 3,360.793 3,807.347
Private health spend, CNYbn,

18.15 6.03 10.96 11.53 11.99 12.39 12.62 13.01 13.29
% y-o-y
Private health spend, % total

39.02 38.01 37.99 38.13 38.37 38.67 39.14 39.69 40.38
health expenditure
Prescription Drug Market Forecast

Key View: Expansion of medicine reimbursement and healthcare reforms in China will result in increased access to healthcare
services and medicines, issuing in an uptick in demand for prescription medicines over the long term. We note that the potential for
greater generic substitution to maintain pharmaceutical expenditure poses a downside risk to our forecast.
Prescription Drug Market Forecast

2014-2028
f = Fitch Solutions forecast. Source: SMEI, AESGP, local news sources, Fitch Solutions.
Structural Trends
In 2018, we calculate that prescription drug expenditure in China reached a value of CNY815.5bn (USD123.2bn) and the sub-sector
is expected to grow to CNY920.6bn (USD129.6bn) by 2019. By 2023, we forecast the market will be valued at CNY1,288.0bn
(USD193.6bn) - experiencing a compound annual growth rate (CAGR) of 9.6% in local currency terms (9.5% in US dollar terms).
Prescription drugs will continue to play a dominant role in the pharmaceutical market, accounting for 86.35% of total sales in 2018.
Healthcare reforms by the Chinese government will lead to an expansion of healthcare access, as well as an increase in medicine
affordability. Moreover, the expansion of medicine reimbursement will also boost the prescription medicines market. As a result,
access to medicines will continue to improve, driving the prescription drug market. We note that there will inevitably be pressures
placed on healthcare funding following healthcare reforms, which will place scrutiny on the rational use of medicines. Therefore we
anticipate that there will be greater preference for generic medicines on a volume basis moving forward, which may repress long-
term prescription growth. However, the market share between generic and patented medicines will broadly remain the same due to
the high-value nature of innovative drugs.
PRESCRIPTION DRUG MARKET INDICATORS, HISTORICAL DATA AND FORECASTS (CHINA 2015-2023)
Prescription drug sales, USDbn 90.686 92.495 103.883 123.202 129.674 143.914 158.748 176.308 193.689
Prescription drug sales, USDbn, % y-o-

12.73 2.00 12.31 18.60 5.25 10.98 10.31 11.06 9.86
y
Prescription drug sales, CNYbn 569.910 614.711 702.023 815.595 920.684 1,007.395 1,095.360 1,190.080 1,288.030
Prescription drug sales, CNYbn, % y-o-

14.98 7.86 14.20 16.18 12.88 9.42 8.73 8.65 8.23
y
Prescription drug sales, % of total

85.1 85.5 85.9 86.3 86.8 87.2 87.6 88.0 88.4
sales
f = Fitch Solutions forecast. Source: SMEI, AESGP, local news sources, Fitch Solutions.
Patented Drug Market Forecast

Key View: The growth of the innovative drug market in China will be boosted by increased demand for advanced treatments for
cancer, cardiovascular disease and other ailments common in an ageing population. However, we believe growth will be moderated
by pricing pressures and a reluctance to reimburse medicines, particularly expensive ones, over the short term.
Patented Drug Market Forecast

2014-2028
f = Fitch Solutions forecast. SMEI, AESGP, local news sources, Fitch Solutions.
Structural Trends
We forecast patented drug spending to increase from CNY216.08bn (USD32.64bn) in 2018 to CNY363.01bn (USD54.5bn) by 2023,
equating to a local currency and US dollar CAGR of 10.9% and 10.8% respectively, which will come under pressure from patent
expirations. Over our extended 2018-2028 forecast period, we calculate the patented drugs sector will experience a slightly lower
local currency CAGR of 10.0% to reach a value of CNY558.03bn (USD85.85bn) by 2028. Over the long term, we forecast patented
drugs as a percentage of total prescription sales to moderately increase from 26.49% in 2018 to 29.79% in 2028.
Providing a boost to the market outlook is the renewed focus on improving the regulatory environment for patented
medicines. Latest in a string of regulatory initiatives implemented by the CFDA is a reform put forward by the State Council to boost
the country's support for innovative drugs and medical devices and accelerate their access to patients. In October 2017, the CFDA
announced far-reaching reforms to its regulatory system that aims to speed up approvals of medical technologies in the country,
thus easing bottlenecks in introducing new treatments to the market. Most pertinently, data from clinical trials conducted outside
the country will now be accepted as part of the regulatory filings by the CFDA, hence removing the need to conduct additional trials
in the country. This will result in a significant increase in the speed with which multinational drugmakers will be able to secure
approvals in China, increasing their access to the country's drug market.
In less than a year since the Chinese government reformed the drug approval process, it was reported that Chinese patients will get
access to breakthrough medicines before Americans. AstraZeneca announced that it will bring its newest anaemia treatment,
roxadustat, to pharmacies in Shanghai and Beijing approximately a year before the drug is available in the US. Eli Lilly is also
collaborating with Hutchison China MediTech to introduce fruquintinib, a treatment for colorectal cancer in China, by late 2018.
China MediTech will subsequently launch fruquintinib in the US and Europe markets. Furthermore, Takeda Pharmaceutical is
planning seven drug launches in China in the next five years, more than in any other market.
PATENTED DRUG MARKET INDICATORS, HISTORICAL DATA AND FORECASTS (CHINA 2015-2023)
Patented drug sales, USDbn 23.090 23.860 27.161 32.640 34.802 39.116 43.685 49.106 54.589
Patented drug sales, USDbn, % y-o-y 13.74 3.34 13.83 20.17 6.62 12.40 11.68 12.41 11.16
Patented drug sales, CNYbn 145.108 158.573 183.548 216.076 247.094 273.811 301.426 331.468 363.014
Patented drug sales, CNYbn, % y-o-y 16.01 9.28 15.75 17.72 14.36 10.81 10.09 9.97 9.52
Patented drug sales, % of prescription sales 25.5 25.8 26.1 26.5 26.8 27.2 27.5 27.9 28.2
Patented drug sales, % of total sales 21.7 22.1 22.5 22.9 23.3 23.7 24.1 24.5 24.9
Generic Drug Market Forecast

Key View: Ongoing healthcare reforms in China will drive significantly increased demand for medicines, and generic medicines will
benefit as the country will be required to rationalise pharmaceutical expenditure. While the generic medicine segment will lose
market share over the long term due to increased affordability of high-value medicines, the market will continue to expand rapidly.
Generic Drug Market Forecast

2014-2028
Structural Trends
Generic medicines will remain an important segment within China's pharmaceutical market, gradually eroding patented medicines'
market share over a multiyear timeframe. We forecast generic drug market spending to increase from CNY599.52bn (USD90.56bn)
in 2018 to CNY925.02bn (USD139.1bn) by 2023, equating to a compound annual growth rate (CAGR) of 9.1% in local currency
terms. Over the long term, generic drug sales will increase further to CNY1,314.9bn (USD202.2bn) by 2028, corresponding to a
CAGR of 8.2% in local currency and 8.4% in US dollar terms. In 2018, generic drugs accounted for 73.5% of prescription drug sales
and 63.5% of total sales.
Growth within the generic medicine sub-sector will be supported mainly by increased volume consumption, driven by rising
medicine demand and cost-containment measures encouraged by the Chinese government. On March 21 2018, China’s State
Council drafted and approved a new policy promoting generic drugs with the aim of lifting the standard of pharmaceutical
manufacturing and making affordable medication available to more people. The policy comprises new quality standards and tax
incentives and encourages the pharmaceutical industry to produce high-quality generics to meet domestic demand and compete
in the international market. The policy also aims to improve the rate of inclusion of generic drugs in the procurement catalogue and
initiate procurement procedures promoting equal competition between generic drugs and patented drugs. In addition, the health
authorities aim to create a system that encourages producers to copy ‘clinically necessary’ drugs, including those in short supply, in
order to handle public health emergencies.
GENERIC DRUG MARKET INDICATORS, HISTORICAL DATA AND FORECASTS (CHINA 2015-2023)
Generic drug sales, USDbn 67.596 68.635 76.722 90.562 94.872 104.798 115.063 127.202 139.100
Generic drug sales, USDbn, % y-o-y 12.40 1.54 11.78 18.04 4.76 10.46 9.80 10.55 9.35
Generic drug sales, CNYbn 424.802 456.138 518.475 599.519 673.590 733.585 793.934 858.612 925.016
Generic drug sales, CNYbn, % y-o-y 14.64 7.38 13.67 15.63 12.36 8.91 8.23 8.15 7.73
Generic drug sales, % of prescription sales 74.5 74.2 73.9 73.5 73.2 72.8 72.5 72.1 71.8
Generic drug sales, % of total sales 63.5 63.5 63.5 63.5 63.5 63.5 63.5 63.5 63.5
OTC Medicine Market Forecast

Key View: China's OTC medicine market remains one of the most attractive in APAC region, with a significant market share and a
robust outlook for growth. However, government focus on improving access to prescription medicines will reduce demand for OTC
drugs, leading to an erosion of market share over the long term.
OTC Medicine Market Forecast

2014-2028
Structural Trends
The over-the-counter (OTC) medicine market value stood at CNY128.9bn (USD19.48bn) in 2018 and is forecast to reach
CNY169.19bn (USD25.44bn) by 2023, representing a five-year local currency compound annual growth rate (CAGR) of 5.6% and
5.5% in US dollar. Given that most medicines are freely available over-the-counter, the growth of the OTC sector will continue over
our 10-year forecast period. Over our extended 2018-2028 forecast period, we calculate that the OTC medicines market will
experience a CAGR of 4.4% in local currency terms, yielding a total OTC medicines market value of CNY198.2bn (USD30.5bn) by
2028.
China's non-prescription medicine market will present significant opportunities for drugmakers focused on consumer health.
China's rapidly expanding population will offer strong opportunities in the consumer healthcare segment, especially with the rising
number of distribution channels and a growing preference for self-medication and preventative care. Moreover, limited or restricted
access to healthcare in rural areas results in patients resorting to self-medication due to the high cost of consultations and lack of
availability of transportation from rural areas to healthcare facilities. To this end, in 2016, Bayer announced the opening of its
second-largest OTC drug manufacturing facility in the Asia-Pacific region. Located in Yunnan, China, the plant will produce OTC
medicines along with traditional Chinese medicines (TCM).
OTC MEDICINE MARKET INDICATORS, HISTORICAL DATA AND FORECASTS (CHINA 2015-2023)
OTC medicine sales, USDbn 15.842 15.646 16.998 19.481 19.796 21.190 22.524 24.083 25.442
OTC medicine sales, USDbn, % y-o-y 9.26 -1.24 8.64 14.61 1.62 7.04 6.29 6.92 5.64
OTC medicine sales, CNYbn 99.560 103.979 114.867 128.964 140.551 148.333 155.418 162.561 169.189
OTC medicine sales, CNYbn, % y-o-y 11.45 4.44 10.47 12.27 8.98 5.54 4.78 4.60 4.08
Over-the-counter (OTC) medicine sales, % of

14.9 14.5 14.1 13.7 13.2 12.8 12.4 12.0 11.6
total sales
Pharmaceutical Trade Forecast

Key View: As the largest pharmaceuticals market in Asia Pacific, China continues to present a highly dynamic pharmaceutical trade
environment. The upward trajectory in imports comes as China's demand for medicines, especially innovative treatments, continues
to grow in line with the country's disease burden and healthcare modernisation. Meanwhile, exports will see continued and robust
growth due to high demand for generic medicines.
Pharmaceutical Trade Forecast

2014-2023
f = Fitch Solutions forecast. Source: United Nations Comtrade Database DESA/UNSD, Fitch Solutions
Structural Trends
In 2018, pharmaceutical imports were valued at CNY174.7bn (USD26.3bn). This is forecast to grow to CNY269.5bn (USD40.5bn) by
2023 with a five-year compound annual growth (CAGR) of 9.1% in local currency terms and 9% in US dollar terms. In comparison,
China's pharmaceutical export value was CNY33.3bn (USD5.0bn) in 2018, which is forecast to rise to CNY57.9bn (USD8.7bn) by
2023 with a five-year compound annual growth (CAGR) of 11.7% in local currency terms and 11.6% in US dollar terms.
The rise in China's pharmaceutical exports is driven by two main trends. First, given the attractiveness of China to multinational
drugmakers, firms have been investing heavily into the country. In the immediate term, the focus has been to meet domestic
demand, however, we expect this to gradually alter towards exporting medicines across the region, facilitated by the Chinese
government's push to develop and modernise the pharmaceutical industry. Lower input costs, such as labour, makes China an
attractive production location, and several firms have reportedly been manufacturing products in the country. The second factor is
the development of home-grown pharmaceutical companies. While the focus remains on the domestic market in the immediate
term, we expect Chinese pharmaceutical companies to move towards exports. Notably, this extends beyond the export of active
pharmaceutical ingredients, in which the country already has a strong position, to include the export of finished dosages.
PHARMACEUTICAL TRADE DATA AND FORECASTS (CHINA 2017-2023)

Pharmaceutical exports, USDmn 4,334.84 5,041.18 5,402.78 6,145.37 6,942.74 7,798.93 8,718.30
Pharmaceutical exports, USDmn, % y-o-y 7.88 16.29 7.17 13.74 12.98 12.33 11.79
Pharmaceutical imports, USDmn 22,358.78 26,391.37 27,646.76 30,538.58 33,529.12 37,065.50 40,531.64
Pharmaceutical imports, USDmn, % y-o-y 11.78 18.04 4.76 10.46 9.79 10.55 9.35
Pharmaceutical trade balance, USDmn -18,023.94 -21,350.19 -22,243.98 -24,393.21 -26,586.38 -29,266.57 -31,813.34
PHARMACEUTICAL TRADE DATA AND FORECASTS, LOCAL CURRENCY (CHINA 2017-2023)
Pharmaceutical exports, CNYmn 29,294.07 33,372.59 38,359.76 43,017.57 47,904.88 52,642.80 57,976.67
Pharmaceutical exports, CNYmn, % y-

9.69 13.92 14.94 12.14 11.36 9.89 10.13
o-y
Pharmaceutical imports, CNYmn 151,096.58 174,710.85 196,292.00 213,770.07 231,350.90 250,192.12 269,535.41
Pharmaceutical imports, CNYmn, % y-

13.66 15.63 12.35 8.90 8.22 8.14 7.73
o-y
Pharmaceutical trade balance, CNYmn -121,802.51 -141,338.27 -157,932.24 -170,752.50 -183,446.02 -197,549.32 -211,558.73
Industry Risk/Reward Index

Asia Pacific Innovative Pharmaceuticals Risk/Reward Index
Key View: Opportunities for pharmaceutical companies in the Asia Pacific region will remain diverse. Multinational drugmaker
interest will be skewed towards the larger markets of the region and the smaller, underdeveloped pharmaceutical markets will
present the weakest commercial incentives owing to their relative market size and level of pharmaceutical development. As such, it
is vital that companies appreciate the varying levels of investment risk and reward that are present in the markets in the Asia Pacific.
Fitch Solutions' Innovative Pharmaceuticals Risk/Reward Index tool, which provides a globally comparative and numerically based
assessment of a market's attractiveness for companies looking to launch a high-value drug, was established to address this.
Divergent Regional Trends Will Shape Drugmaker Opportunities

Note: Scores out of 100; higher score = lower risk. Source: Fitch Solutions' Innovative Pharmaceuticals Risk/Reward Index
Main Regional Features And Latest Updates
• The Asia Pacific (APAC) average in our Innovative Pharmaceuticals Risk/Reward Index (RRI) outperforms the global average by a
small margin. This is because the region comprises two of the world's largest pharmaceutical markets (China and Japan) and is
boosted by the significant growth potential of several emerging markets.
• The region's aggregate attractiveness to innovative drugmakers masks substantial heterogeneity within its markets. Broadly, the
region can be segmented into two distinct groups: developed countries and emerging markets. The former is characterised by
high per capita pharmaceutical spending and score highly for access to, and demand for, innovative medicines. However, we
have seen some emphasis on cost-containment, driven by high levels of government-financed spending on healthcare. In
emerging markets, affordability and access to medicines are key issues leading to low-cost generic drugs becoming increasingly
dominant.
• With regard to assessing rewards, the RRI identifies industry-specific factors, such as the size of the pharmaceutical market, and
country-specific factors, such as the size of the pensionable population, which represent opportunities for potential investors.
Japan scores the highest for the Rewards component of the index due to its large medicine market, high per capita medicine
spending and the size of its pensionable population. Meanwhile, Laos scores the lowest in the region.
• With regard to assessing risks, we identify industry-specific dangers, such as a country's pricing regime, and those emanating
from the state's political and economic profile which call into question the likelihood of anticipated returns being realised over
the assessed time period. Focusing on the Risks component of the index, Myanmar has the lowest score among the APAC
markets due to low levels of patent respect, which is further exacerbated by the significant political and economic risks faced by
the pharmaceutical firms operating in the country. Singapore scores the highest in the sub-sector.
Asia Pacific: Developed Markets Present Significant Drugmaker Opportunities

Outperformers: High-Reward And Low-Risk Markets
The outlook for medicine sales in APAC remains highly positive and will be boosted by the focus on reducing healthcare inequality
and improving healthcare access across the region. Key drivers of pharmaceutical and healthcare market growth in the APAC region
also include epidemiological transition towards an increased chronic disease burden and rapid economic development. As such,
APAC markets will remain among the more attractive destinations for firms seeking to launch innovative medicines. Japan, ranked
first in the APAC region and second globally, is the most attractive within the region by a significant margin. Australia is ranked
second in the region and 10th in the global rankings, reflecting the gap between the two markets. Scoring in the Innovative
Pharmaceuticals RRI favours larger markets with greater sales potential for multinationals. Both Japan and Australia have sizeable
pharmaceutical markets relative to the rest of the world, though the former's is considerably larger.
Fundamentals underpinning demand for novel pharmaceuticals in Japan are strong. The country has a large pensionable
population, a preference for branded medicines, a strong drug approval process and a robust medical system that provides high
levels of healthcare access. Similar factors are also at play in Australia, with further improvements in the approval process likely to
encourage the launch of innovative treatments in the country. However, this strong demand for pharmaceuticals, coupled with
significant government contribution towards total drug spending, has incentivised authorities to introduce cost controls, resulting in
greater pricing pressures. This is more acute for Japan, which scores significantly below the regional and global average for the
Pricing Regime indicator. Australia scores below the regional average, but above the global.
• Tough pricing environment will create challenges for pharmaceutical companies in Japan. While the country’s demographic
profile provides considerable growth potential for innovative drugmakers, commercial rewards for multinational drugmakers in
Japan will be significantly affected by the government's introduction of an annual medicine price revision by 2021. Marking a
departure from the traditional biennial price review, this will significantly weigh on the patented medicine market's growth
trajectory.
• Cost-containment will remain high on the Australian government’s agenda. The government will play a lead role in encouraging
the uptake of biosimilars and generic medicines as a way in which to alleviate pressure on its national health system. One of its
policy moves has been a strategic agreement between the government and the Generic and Biosimilar Medicines Association
(GBMA), an organisation whose members include the Association for Accessible Medicines, Medicines for Europe, and the
Canadian Generic Pharmaceutical Association, among others. Under the agreement, which operates until 2020, the government
and GBMA discussed proposals to support a viable generics and biosimilars sector and increase the uptake of these medicines.
Underperformers: Low-Reward And High-Risk Markets
Laos and Myanmar sit at the bottom of the APAC Innovative Pharmaceuticals RRI. Both countries are characterised as low-reward,
high-risk markets.
• Reflective of its underdeveloped country status, Myanmar has a small medicine market with the lowest per capita
pharmaceutical spending in the region. Intellectual property protection in the country is also minimal, a reflection of the nascent
nature of the regulatory regime, and highlighted in Myanmar's Patent Respect score. The country is also plagued by significant
economic and political risk, both in the short and long term, underpinning Myanmar's low score for these indicators. The
military's continued influence over the country's political system and persistent ethnic tensions is unlikely to diminish over the
coming years. These issues are thus likely to continue to weigh on efforts to obtain peace within the country and will continue to
weigh on the business environment. The country ranks 100th out of the 110 markets in the Innovative Pharmaceutical RRI.
• Urbanisation is minimal in Laos and, together with low purchasing power, this indicates weak demand for, as well as limited
access to, innovative medicines. The resulting small aggregate pharmaceutical market means that opportunities for innovative
drugmakers are limited, and results in the country ranking 104th out of the 110 markets in the Innovative Pharmaceutical RRI.
From a Country Risk perspective, the main impediment is the country's economy, with Laos scoring the lowest on both the
short- and long-term economic risk indicators among the APAC markets.
REWARDS AND RISKS SCORES

Industry Country Industry Country Regional Global
Rewards Risks RRI
Rewards Rewards Risks Risks Rank Rank
Japan 89.4 76.4 86.2 82.2 81.0 81.7 84.6 1 2
Australia 77.7 73.6 76.7 74.4 82.3 77.6 77.0 2 10
South Korea 77.2 60.6 73.0 71.1 83.3 75.9 74.0 3 16
China 82.4 45.2 73.1 65.6 70.6 67.6 71.2 4 19
Taiwan 68.7 56.2 65.6 70.4 84.1 75.9 69.2 5 22
Hong Kong 51.9 73.3 57.3 81.1 88.6 84.1 66.6 6 26
Singapore 43.4 71.2 50.3 90.3 89.6 90.0 64.2 7 30
Malaysia 45.2 51.6 46.8 81.1 70.6 76.9 57.3 8 41
Vietnam 67.0 38.1 59.7 44.1 57.3 49.4 56.1 9 43
New Zealand 39.2 67.7 46.3 63.5 89.6 74.0 56.0 10 44
India 67.2 34.2 58.9 44.2 57.8 49.7 55.7 11 45
Indonesia 66.2 37.8 59.1 35.4 54.7 43.1 53.5 12 50
Thailand 61.5 43.8 57.1 19.5 60.9 36.1 49.7 13 55
Philippines 45.8 37.4 43.7 43.2 47.6 45.0 44.1 14 71
Bangladesh 48.4 31.9 44.3 39.0 37.9 38.6 42.3 15 72
Pakistan 46.7 35.8 44.0 21.6 15.6 19.2 35.3 16 82
Sri Lanka 30.5 34.2 31.4 42.2 40.6 41.6 34.9 17 84
Cambodia 22.2 30.7 24.3 34.3 25.1 30.6 26.5 18 95
Myanmar 24.8 31.7 26.5 20.9 15.4 18.7 23.8 19 100
Laos 13.0 32.6 17.9 24.8 24.8 24.8 20.3 20 104
Global Average 50.0 50.0 50.0 50.0 50.0 50.0 50.0 ~ ~
Regional Average 53.4 48.2 52.1 52.5 58.9 55.0 53.1 ~ ~
INDUSTRY REWARDS SCORES

Market Expenditure, Spending Per Capita, Sector Value Growth, Industry
Rewards Rewards
USDbn USD % Rewards
Japan 98.2 96.3 16.5 89.4 86.2
Australia 86.2 78.9 22.9 77.7 76.7
South Korea 89.0 74.3 14.7 77.2 73.0
China 99.1 47.7 86.2 82.4 73.1
Taiwan 77.1 67.9 21.1 68.7 65.6
Hong Kong 45.9 61.5 59.6 51.9 57.3
Singapore 38.5 56.0 34.9 43.4 50.3
Malaysia 53.2 34.9 28.4 45.2 46.8
Vietnam 78.9 33.9 94.5 67.0 59.7
New Zealand 35.8 58.7 0.9 39.2 46.3
India 91.7 11.9 85.3 67.2 58.9
Indonesia 83.5 22.9 92.7 66.2 59.1
Thailand 75.2 39.4 45.0 61.5 57.1
Philippines 61.5 21.1 25.7 45.8 43.7
Bangladesh 59.6 12.8 88.1 48.4 44.3
Pakistan 57.8 10.1 89.9 46.7 44.0
Sri Lanka 30.3 23.9 51.4 30.5 31.4
Cambodia 14.7 16.5 84.4 22.2 24.3
Myanmar 23.9 7.3 82.6 24.8 26.5
Laos 3.7 14.7 64.2 13.0 17.9
Global Average 50.0 50.0 50.0 50.0 50.0
Regional Average 60.2 39.5 54.4 53.4 52.1
COUNTRY REWARDS SCORES

Rewards Urban/Rural Split Pensionable Population, % Population Growth, % Country Rewards Rewards
Japan 95.4 100.0 10.1 76.4 86.2
Australia 89.9 69.7 65.1 73.6 76.7
South Korea 77.1 67.0 31.2 60.6 73.0
China 40.4 55.0 30.3 45.2 73.1
Taiwan 67.0 65.1 27.5 56.2 65.6
Hong Kong 99.5 75.2 43.1 73.3 57.3
Singapore 99.5 62.4 60.6 71.2 50.3
Malaysia 63.3 38.5 66.1 51.6 46.8
Vietnam 10.1 45.0 52.3 38.1 59.7
New Zealand 81.7 70.6 47.7 67.7 46.3
India 6.4 35.8 58.7 34.2 58.9
Indonesia 33.0 32.1 54.1 37.8 59.1
Thailand 29.4 60.6 24.8 43.8 57.1
Philippines 18.3 28.4 74.3 37.4 43.7
Bangladesh 12.8 29.4 56.0 31.9 44.3
Pakistan 14.7 22.9 82.6 35.8 44.0
Sri Lanka 0.9 53.2 29.4 34.2 31.4
Cambodia 2.8 23.9 72.5 30.7 24.3
Myanmar 11.0 34.9 45.9 31.7 26.5
Laos 16.5 20.2 73.4 32.6 17.9
Global Average 50.0 50.0 50.0 50.0 50.0
INDUSTRY RISKS SCORES

Risks Patent Respect Pricing Regime Protectionism Industry Risks Risks
Japan 97.2 19.3 99.1 82.2 81.7
Australia 77.5 56.0 81.7 74.4 77.6
South Korea 77.5 39.0 81.7 71.1 75.9
China 77.5 56.0 52.3 65.6 67.6
Taiwan 77.5 19.3 92.7 70.4 75.9
Hong Kong 77.5 89.0 81.7 81.1 84.1
Singapore 89.4 89.0 92.7 90.3 90.0
Malaysia 77.5 89.0 81.7 81.1 76.9
Vietnam 39.4 71.1 33.9 44.1 49.4
New Zealand 77.5 19.3 69.7 63.5 74.0
India 22.0 61.5 69.7 44.2 49.7
Indonesia 22.0 71.1 33.9 35.4 43.1
Thailand 11.0 19.3 33.9 19.5 36.1
Philippines 39.4 39.0 52.3 43.2 45.0
Bangladesh 11.0 89.0 52.3 39.0 38.6
Pakistan 22.0 1.8 33.9 21.6 19.2
Sri Lanka 39.4 61.5 33.9 42.2 41.6
Cambodia 22.0 89.0 18.3 34.3 30.6
Myanmar 3.2 89.0 5.0 20.9 18.7
Laos 11.0 89.0 5.0 24.8 24.8
Global Average 50.0 50.0 50.0 50.0 50.0
COUNTRY RISKS SCORES

Long Term Short Term Long Term Short Term Op
Country
Risks Economic Risk Economic Risk Political Risk Political Risk Risk Risks
Risks
Index Index Index Index Index
Japan 72.5 56.0 89.9 93.6 87.2 81.0 81.7
Australia 84.4 76.1 92.7 71.6 84.4 82.3 77.6
South Korea 99.1 99.5 82.6 62.4 78.0 83.3 75.9
China 92.7 92.2 53.7 82.6 51.4 70.6 67.6
Taiwan 89.0 95.4 71.6 78.0 85.3 84.1 75.9
Hong Kong 90.8 93.6 64.2 84.9 99.1 88.6 84.1
Singapore 77.1 79.8 80.7 100.0 100.0 89.6 90.0
Malaysia 79.8 78.9 51.4 67.0 73.4 70.6 76.9
Vietnam 63.3 63.3 35.8 88.1 46.8 57.3 49.4
New Zealand 93.6 78.0 88.1 89.0 94.5 89.6 74.0
India 55.0 69.7 68.8 74.3 39.4 57.8 49.7
Indonesia 69.7 67.0 45.0 60.1 43.1 54.7 43.1
Thailand 74.3 81.7 34.9 58.7 57.8 60.9 36.1
Philippines 76.1 68.8 46.8 40.8 26.6 47.6 45.0
Bangladesh 56.9 73.4 38.5 25.7 16.5 37.9 38.6
Pakistan 30.3 20.2 16.5 10.1 8.3 15.6 19.2
Sri Lanka 41.3 40.8 45.9 38.5 38.5 40.6 41.6
Cambodia 13.8 22.9 29.4 36.7 23.9 25.1 30.6
Myanmar 22.0 29.4 5.5 26.6 4.6 15.4 18.7
Laos 5.5 3.7 26.6 83.5 14.7 24.8 24.8
Global Average 50.0 50.0 50.0 50.0 50.0 50.0 50.0
Regional Average 64.4 64.5 53.4 63.6 53.7 58.9 55.0
Innovative Pharmaceuticals Risk/Reward Index

Key View: China's large and expanding population, increasing burden of chronic diseases and the ongoing reforms shaping the
country's medicine market, results in the country scoring 71.2 out of 100 in our Innovative Pharmaceuticals Risk/Reward Index.
Despite government's commitment to improving healthcare access, the attractiveness of the country's pharmaceutical market to
innovative drugmakers will be weakened by greater pricing pressures and a weak intellectual property environment.
China: Innovative Pharmaceuticals RRI - Global And Regional Rank
• Regional rank (out of 20): 4th

• Global rank (out of 110): 19th
China Innovative Pharmaceuticals Risk/Reward Index

Q219
Note: Scores out of 100; higher scores = lower risk. Source: Fitch Solutions' Innovative Pharmaceuticals Risk/Reward Index
Industry Rewards: Reflecting the high growth outlook for China's pharmaceutical market, the country scores 82.4 out of 100, far
above the regional average of 53.4. A favourable disease profile, greater public health insurance benefits, region-leading
pharmaceutical expenditure and an evolving regulatory environment will drive the growth of the country's innovative drug sector.
Country Rewards: China scores 45.2 out of 100, below the regional average of 48.2. Urbanisation is minimal, with the vast majority
of the population living in rural areas, characterised by the lack of healthcare infrastructure, thereby restricting population's access
to healthcare services. However, the government's healthcare initiatives, as reflected in China's 13th Five-Year Plan (2016-2020) to
integrate rural and urban health insurance schemes, will boost demand for medicines over the long term.
Industry Risks: China scores 65.6 out of 100, above the regional average of 52.5. Demand for innovative pharmaceuticals is
strong in the country, however the need to increase the cost-efficiency of its healthcare system will exacerbate the challenging
pricing environment. For medicine price control, the Chinese authorities have introduced a tendering system whereby authorities
consider the efficacy and safety of a product as well as its price during the reimbursement decision-making process. Patented
medicines, therefore, compete directly with generic drugs in the same group during the tender process. As a result, multinational
drugmakers provide price discounts in order to list their products on the national health insurance scheme. Moreover, shortcomings
in the existing intellectual property environment will continue to pose challenges for the patented drugmakers operating in the
country.
Country Risks: Highlighting the short-term economic and political risks, China scores 70.6 out of 100, above the regional average
of 58.9. In addition to the domestic investment growth slowdown that is being engineered by the Chinese government as it seeks
to clean up the financial system, we also expect the Chinese economy to face external headwinds amid the ongoing trade conflict
with the US. That said, Chinese economic growth has not experienced a significant slowdown, thanks to the economy’s gradual
rebalancing towards the services sector including pharmaceutical industry and the new economy, and we believe that these will
remain the economy’s bright spots over the coming quarters.
Regulatory Development
Regulatory Review
The China Food and Drug Administration (CFDA) is the administrative body responsible for the regulation of medical devices and
pharmaceuticals on the Chinese mainland. The CFDA is separated into various departments that are individually responsible for the
registration, tracking, and monitoring of medical devices and drugs. The CFDA is directly under the State Council of the People's
Republic of China and its main responsibilities include:
• The implementation and enforcement of pharmaceutical rules and laws.

• Regulations for all drug, food, supplement, medical device and cosmetics in China.
• Inspection, sales, research and advertisement of drug, food, supplement, medical device and cosmetics products.
• Drug approvals.
Going forward, there will be an overhaul of the organisation of China’s food and drug authorities. In March 2018, China’s National
People’s Congress approved plans for the China Food and Drug Administration (CFDA) to be merged into a newly formed National
Market Supervision Administration. The CFDA is currently a standalone agency, but under the new plans in will become part of the
newly-formed State Administration of Market Supervision. A new State Drug Administration under the merged ministry will be
responsible for overseeing drug approvals. The plan also states that Market Regulatory Administrations at the sub-provincial city and
county levels of local government will be responsible for the regulation of drug distribution and sales. This differs from the current
arrangement in certain provinces in which the local FDAs at city and county levels have not been merged with other local agencies
and have been independently handling the initial review of distribution license applications and enforcement of distribution rules
for drugs, medical devices, foods and health foods.
Biosimilar Regulations
Underlying the constructive outlook for biosimilars in China are a number of structural drivers, including the emergence of new
diseases coupled with the country's ageing population, rising incomes and a rapidly expanding middle class. As the prices of most
biological drugs remain unaffordable by the majority of the population in China, biosimilars developed by local and international
companies will play an increasingly important role. Thus, the primary driver will be cost, and the ongoing need for China's health
system to limit expenditure. The most common biosimilars on the market in China are used in treatment of cancer (breast cancer,
kidney cancer, leukemia, and skin cancer), autoimmune disease, anemia and treatment related to organ transplants.
In order to meet the international standards, CFDA issued Guidelines on Biosimilars: Research, Development and Evaluation in 2015
for development, production and testing of biosimilars. The guidance has been welcomed by the industry and it proposes a
framework which will allow biosimilars to undertake an abbreviated approval process in China. Moreover, seeking to transform the
domestic sector into a global leader in this field, the authorities have taken steps to create a supportive operating environment for
firms invested in biosimilars.
OTC Medicine Regulations
The prices of over-the-counter (OTC) medicines are determined by the government or made adjustable to market forces according
to law. Product prices are listed in the catalogue of the national basic health insurance scheme. By fixing and adjusting medicine
prices, the state controls the average social cost, cost margin and circulation balance, therefore complying with the regulations
stipulated in the Pricing Law of the People's Republic of China. The wholesale and retail mark-ups on OTC medicines are 15% and
17% respectively. The government regulates manufacturer and consumer prices, while the wholesale price is determined by the
market.
Advertising Regulations
The promotion and marketing of pharmaceuticals, including both prescription-only and OTC products, are primarily governed by
the Drug Administration Law, the Advertising Law, the Rules for the Examination of Pharmaceutical Advertisements and the
Examination and Release Standards of Pharmaceutical Advertisements. In addition, only OTC drugs can be advertised directly to the
consumer. Prescription drugs can be advertised only in designated medical and pharmaceutical journals intended for healthcare
professionals.
Counterfeit Medicines
Counterfeit medicines, IP violations, price controls and a lack of transparency remain some of the most commonly quoted barriers
to better penetration of the Chinese market by foreign producers, especially US-based multinationals. The production, distribution
and sale of unregistered and counterfeit medicines are widespread in China due to a lack of regulatory control. The country is the
largest source of exports of counterfeit drugs and a major supplier of substandard active pharmaceutical ingredients (APIs) in the
world. According to the United States-China Economic and Security Review Commission (CESRC), China is the largest producer of
counterfeit pharmaceuticals in the world and the global trade in counterfeit drugs is estimated to be between USD23bn per year.
The CESRC also reports that 65% of seized counterfeits worldwide and 79% of all seized counterfeits in the US care sourced from
China.
While counterfeiting has an impact on the revenues of pharmaceutical manufacturers, the costs to the healthcare system are also
significant due to the serious, or lack of, impact such substandard drugs have on patient health. For example, in 2008 contaminated
heparin, a blood thinning agent, was used by Baxter in its medication distributed in the US hospitals which led to 81 deaths. The
drug contained a contaminated API which was traced to the supply chain in China. In 2012, the police in China arrested more than
1,900 people in a crackdown on the manufacture and sale of falsified medicines. In March 2016, 37 people were arrested in eastern
China over a vaccine scandal.
While the central government has strict rules on counterfeit medicines, enforcement of regulations on the ground is occasionally
lacking. Nevertheless, in the past few years, China has moved to improve Good Manufacturing Practice (GMP) quality enforcement
efforts, as well as punish offenders more strictly, reducing the economic and social impact of falsified medicines.
Intellectual Property Issues
The State Intellectual Property Office (SIPO) is responsible for patents in China. China's Patent Law was first enacted in 1984, at a
time when the country was still operating as a planned economy and before being amended in 1992, 2000 and most recently in
2008. In December 2008, the Patent Law was revised (The Amendment to Patent Law 2008) to further strengthen the legal
protection for inventors in China. The new contents were designed to shift China's economy patterns from manufacturing and
exports towards technology and innovation. The patent law was also amended in order to comply with the Agreement on Trade-
Related Aspects of Intellectual Property Rights (TRIPS). While the third amendment brought the rules closer to international
standards, it was criticised for lacking clarity. In July 2017, Shanghai's first national intellectual property rights protection service
centre was established to shorten the patent application process to about 15 months and enhance IPR protection.
Despite the progress in strengthening the intellectual property protection environment, the Pharmaceutical Research and
Manufacturers of America (PhRMA) published its annual submission for the United States Trade Representative (USTR)'s Special 301
Report, highlighting the challenges faced in key international markets for innovative pharmaceutical firms. The report for 2018 has
recently been published and, as in 2015, 2016 and 2017, China has been highlighted as one of the markets that requires the most
urgent action to address and resolve issues causing headwinds to innovative drugmakers. China continues to be monitored under
the United States Trade Representative (USTR)'s Section 306, to address market access barriers raised in previous reports. A lack of
effective regulatory data protection and patent enforcement, inconsistent patent examination guidelines, the non-transparent and
unpredictable government pricing and reimbursement policies, rampant counterfeiting of medicines and unregulated active
pharmaceutical ingredients remain key issues of concern.
China’s weak IP protection has long been criticised by various Western countries. In response to its trading partners’ demand for
better IP protection, Beijing has repeatedly stated that it will improve its IP practices in order to move up the value chain as part of
the Made In China 2025 initiative. In April 2018, according to a news release, China’s government announced a series of measures
to increase the country’s importation of drugs, including enhanced IP protection in the pharmaceutical industry which will benefit
the foreign drugmakers. While IP protection in China will improve, we note that Beijing will still have difficulties in meeting Western
standards over the coming years. According to the World Bank, China’s IP protection index came in at 4.5 out of a maximum of 7.0 in
2017, which marked an improvement from 4.0 in 2015, but still lagged significantly behind more developed economies such as the
US, Germany and Japan and as such, improving IP protection will likely be a long-term effort.
SPECIAL 301 SUBMISSION 2018: ISSUES RAISED FOR CHINA

Key Issues Of
Overview
Concern
A draft amendment by China’s State Intellectual Property Office in November 2016 to its Patent Examination Guidelines
required examiners to review post-filing experimental data, which PhRMA views as an important step towards the
Restrictive
implementation of a clear and consistent standard of drug patentability. However, concerns remain regarding the
Patentability
implementation and interpretation of the proposed amendments. In addition, certain therapeutic methods, referred to as
Criteria
specific therapeutic methods, cannot be protected by patents in China and the inability to obtain patents on these
inventions undermines the incentives to invest in them.
China's regulatory data protection system is not in line with international standards, leading to inconsistent application of
Regulatory Data
the law and uncertainty for drugmakers when applying for marketing approval. Moreover, the ability for generic medicines
Protection
to use data supplied to the CFDA by the originator's manufacturer provides an unfair commercial advantage to follow-on
Failures
medicines and disincentivises investment in clinical trials within the country.
Loss Of Patent Lengthy regulatory approval processes for pharmaceutical products results in a significant loss of effective patent term
Term Due To for such products. Though China has indicated it will address this problem by implementing patent term restoration to
Regulatory account for the lengthy regulatory approval process, this continues to be a problem that undermines the incentives
Delay intended to be created by the patent system.
Delays And
While PhRMA welcomes the 2017 update to the National Reimbursement Drug List – the first update since 2009 – which
Lack Of
improves the access and affordability of innovative medicines for Chinese patients, PhRMA encourages the Chinese
Transparency In
government to shift towards a more timely, transparent and predictable reimbursement system, in which manufacturers
Government
may apply for reimbursement at any time, drug clinical assessment is completed within a pre-defined period following the
Pricing And
application, and negotiations between manufacturers and the responsible government agency take place periodically.
Reimbursement
New medicines typically take four to six years longer to reach the Chinese market than other major international markets.
Lengthy
The approval of clinical trials is a significant contributor to this delayed approval time, which is principally due to a lack of
Regulatory
human resources. This lengthy regulatory approval process results in a significant loss of effective patent term for
Approval
biopharmaceutical products. To this end, CFDA is undertaking significant reform efforts to accelerate the drug review and
Process
approval process and align its regulatory framework with international standards.
The production, distribution and sale of unregistered and counterfeit medicines are widespread in China due to a lack of
Counterfeit regulatory control. The government has sought to improve this situation by implementing national plans to improve drug
Medicines safety and severely crack down on the production and sale of counterfeit medicines, resulting in several positive and
tangible actions on the enforcement front.
Source: PhRMA
Pricing Regime
China’s pharmaceutical industry is regulated by multiple government authorities that retain administrative rights throughout the
value chain, including approvals for licenses and drug applications, supervision of drug pricing, design and implementation of the
drug-tendering mechanism, as well as setting basic medical insurance and reimbursement policies.
Overall control of drug prices is the responsibility of the National Development and Reform Commission (NDRC), formerly called the
State Development Planning Commission (SDPC). The NDRC's pricing policy is based on the control of profit levels and sales
discounts within the industry. Prices of drugs on the Essential Drugs List are set by the government, while most other drug prices
are set after negotiations between the government and the manufacturers.
National level price negotiations form part of a broader reform as authorities seek to balance the need to improve patient access to
innovative treatments while lowering costs. Initial patented drug prices can be freely set by the manufacturers since drugs can only
be listed for medical insurance reimbursement after 2 years of market availability, following which the government controls the
maximum retail price.
In July 2017, 36 new drugs were added to the national insurance programme including novel oncology pharmaceuticals such as
Roche's Herceptin (trastuzumab) and Johnson & Johnson's Velcade (bortezomib). This marked a significant step toward making
these medicines available to the population and in turn promoting sales. As the NRDL places a heavy emphasis on cost companies
had to reduce their prices considerably to gain listing. For example, GlaxoSmithKline's breast cancer drug Tykerb (lapatinib) was
added to the list after a price cut of 42%, Bayer's liver and kidney cancer drug Nexavar (sorafenib) was reduced by 51.5% and Roche
slashed the price by an average of 59% to get three monoclonal antibodies - MabThera (rituximab), Herceptin and Avastin
(bevacizumab) - onto the list.
In the latest round of negotiations in October 2018, drugmakers offered up discounts averaging 56.7% for medications that
included blockbusters from Novartis, Pfizer and AstraZeneca. 17 cancer drugs reached deals with the Chinese government for
inclusion in the country’s NRDL. Of them, 10 are relatively new drugs that just reached China this year or in 2017. AstraZeneca
offered the largest discount, 71% for Tagrisso (osimertinib). In addition, Pfizer also cut prices of its renal cell carcinoma drug Inlyta
(axitinib) and lung cancer medicine Xalkori (crizotinib) by more than 70%.
Medicines are becoming a major component of health expenditure in China. Selection of effective and cost-effective medicines
represents an important effort to improve medicines use. Since the year 2000, updates to China’s NRDL have been less frequent,
with the last revision dating back to 2009. In early 2017, the Chinese Ministry of Human Resources and Social Security ended that
long interval with an update that is noteworthy, not only for its comprehensiveness but also for its novel approach to negotiating
pricing for premium-priced drugs, the majority of which are manufactured by MNCs. In 2017, experts in pharmacy,
pharmacoeconomics and clinical practice advised the NRDL to factor in the clinical and added value of each drug. The government
started assessing health technologies using cost-effectiveness and budget impact, which were previously described as optional.
Health economic evidence is increasingly being used by the authorities and is likely to become important to reimbursement
decisions in China.
Reimbursement Regime
Getting the medicines listed on China's National Drug Reimbursement List (NRDL) is an important commercial consideration for
multinational drugmakers. This is because the NRDL determines which medicines are reimbursed and the level of reimbursement
offered by the state's health insurance scheme. This has direct implications on out-of-pocket patient spending, a key impediment to
patient access to innovative pharmaceuticals. Notably, drugs listed on the NRDL are segmented into two distinct categories:
• List A medicines are fully reimbursed by the Chinese authorities. The current list consists largely of older pharmaceuticals and
overlaps significantly with China's NEDL. There are a total of 503 medicines listed in List A; for example, bleomycin, which is used
for the treatment of cancer.

• List B medicines are partially reimbursed by the state, at a percentage of the total price. This consists largely of higher-value
drugs with a total of 1,624 items included; examples include benazepril, an angiotensin converting enzyme inhibitor, and
thymalfasin, an immunomodulating agent.
The multinational pharmaceutical firms will also have to be cognisant of other drug lists in China and the role each plays in their
commercial strategy. Critically, regional authorities in China have provincial reimbursement drug lists (PRDLs). Unlike the NRDL,
these provincial lists are revised on a more regular basis, with some variations between the different areas. The more frequent
revisions, together with the opportunity for companies to market their product's value to a regional authority, make the PRDLs a
potential alternative to the NRDL, especially for high-value treatments. Jiangsu authorities, for example, have been reimbursing
Viread since 2015, while several high-value pharmaceuticals such as Herceptin (trastuzumab) and Nexavar (sorafenib) are covered
in Zhejiang.
As the NEDL places a heavy emphasis on cost - with reports of companies reducing their prices by half to gain listing - multinational
drugmakers will have to carefully consider the role NEDL or PEDL will play. In our view, this focus on cost lends itself best to off-
patent, older products that are unlikely to command the same premium as newer innovative pharmaceuticals.
13th Five-Year Plan: Key Points
Summary Of Contents
Chapter 1: Overview
Chapter 2: Innovation To Drive Development
Chapter 3: Economic Institution
Chapter 4: Modernisation of The Agricultural Sector
Chapter 5: Industries
Chapter 6: Expand The Network Economy
Chapter 7: Build A Modern Infrastructure Network
Chapter 8: New-Type Urbanisation
Chapter 9: Regional Development
Chapter 10: Environmental Protection
Chapter 11: Continue Opening Up
Others
Chapter 1: Overview
TARGETS
2015 2020 Annual changes Binding
Economic development
(1) GDP, CNYtrn 66.7 >92.7 >6.5%
(2) Productivity: CNY10,000/person 8.7 >12 >6.6%
(3) Urbanisation rate, (residential), % 56.1 60 3.9*
(3) Urbanisation rate, (Hukou), % 39.9 45 5.1*
(4) Services as a share of GDP, % 50.5 56 5.5*
Innovation
(5) R&D as a share of GDP, % 2.1 2.5 0.4*
(6) Patents per 10,000 people 6.3 12 5.7*
(7) Contribution of technology advancement, % 55.3 60 4.7*

2015 2020 Annual changes Binding
(8) Broadband access, % 40 70 30*
(8) Mobile Wi-Fi access, % 57 85 28*
People's living conditions
(9) Disposable income growth rate, % >6.5
(10) Average education level, year 10.23 10.8 0.57* Y
(11) Job creation, 10,000 >5,000*
(12) Poverty relieved rural population, 10,000 5,575* Y
(13) Population with pension, % 82 90 8*
(14) Reconstruction of shanty areas, 10,000 2,000* Y
(15) Life expectancy, year 1*
Environment
(16) Arable land, 10mn Mu 18.65 18.65 0* Y
(17) Additional land for construction, 10,000 Mu <3,256* Y
(18) Water usage reduction per unit GDP 23* Y
(19) Energy usage reduction per unit GDP 15* Y
(20) Non-fossil fuel, % 12 15 3* Y
(21) Carbon emission reduction per unit GDP 18* Y
(22) Forest coverage, % 21.66 23.04 1.38* Y
(22) Forest reserve, bn metre cube 15.1 16.5 14* Y
(23) Air quality: days of good quality/365, % 76.7 >80 Y
(23) PM2.5 reduction for polluted cities 18* Y
(24) Water: better than class III, % 66 >70 Y
(24) Water: less than class V, % 9.7 <5 Y
(25) Other pollutants - chemical oxygen demand reduction, % 10* Y
(25) Other pollutants - ammonia nitrogen reduction, % 10* Y
(25) Other pollutants - sulphur dioxide reduction, % 15* Y
(25) Other pollutants - nitrogen oxides reduction, % 15* Y
Note: *indicates cumulative. Source: Fitch Solutions
Development Concepts: Innovation, Coordination, Environmentally Friendly, Open-Door, Sharing
The central government will urge officials to follow through on new development concepts and adapt to the 'new norm' of
economic development. The government will help expand total demand (via monetary and fiscal policies) if necessary, but will
mainly focus on supply-side structural reforms, so that production will fit the increasingly sophisticated demands of the Chinese
population.
Chapter 2: Innovation To Drive Development
Technology And Innovation
• Support the development of frontier tech and science.

• Allow enterprises to lead innovation, while using national funds to develop large projects.
• Construct high-end national science laboratories for the development of fundamental sciences.
• Develop large high-tech and innovation centres to utilise economies of scale.
Mass Entrepreneurship And Innovation
• Encourage the development of service centres in different parts of China to start-up companies and small- and medium-sized
companies.
• Encourage the population to participate in the mass entrepreneurship and innovation programme by promoting crowd-
sourcing, collective support and crowd-funding.
Build A System That Encourages Innovation
• Instead of pushing for innovation themselves, government entities should provide services to those who innovate.
• Develop and enhance the system to ease the process of monetising technological achievements. Ensure that technocrats and
scientists can earn a proportional profit for the technological advancement they bring about.
• Develop a system that supports mass innovation.
Focus On Talent
• Continue to expand the pool of skilled labour.

• Improve the allocative efficiency and mobility of skilled workers.
• Improve the work environment for talent, attracting foreign talent and encouraging overseas students to come back.
Develop New Drivers For Growth
• Promote the upgrade of consumer goods to meet the needs of more sophisticated consumers.
• Expand effective investment.
• Find new comparative advantages for exports.
Chapter 3: Economic Institutions
Enhance The Existing Economic System
• State-owned enterprise (SOE) reforms: Continue to consolidate SOEs, make them bigger, better and stronger.
• Strengthen the system to manage SOE assets: develop national investment and management companies to manage state
assets.
• Promote mixed ownership structure for companies.
• Promote the healthy development of the non-public sector.
• Adopt modern practices with regards to the protection of property rights.
Improve Market Efficiency
• Continue price reforms on commercial goods and promote fair competition.
Deepen Reforms For The Administrative System
• Allow decentralisation to prevent excessive intervention of government authorities and simplify administrative processes.
• Improve the efficiency of oversight and services.
Speed Up Fiscal And Taxation Reform
• The central government should wield more power and responsibility in terms of fiscal decision-making; continue to conduct
taxation reform; improve the system for transfer payments from the central government to local governments; and improve the
efficiency of fund allocation for local governments.
• Regulate the budget disclosure process and improve transparency.
• Continue to reform the tax system.
• Improve the sustainability of government spending.
Financial Sector Reforms
• Allow the development of various financial institutions to meet different financial needs of the population.
• Improve transparency of the financial system and deleverage the financial market.
• Enhance the oversight mechanism and improve efficiency.
Improve Macroeconomic Management Skills
• Local governments need to follow the central government's plans and strategies.
• Improve and develop new methods for macroeconomic management.
• Improve the decision-making and execution process for economic policies.
• Adopt the negative list system to improve the investment and financing experience for enterprises.
Chapter 4: Modernisation Of The Agricultural Sector
Food Security
• Ensure food production security by preventing the reduction of arable land and improving its quality.
• Encourage farmers to change their production to better fit market demand.
• Push for the development of secondary and tertiary sectors in rural areas.
• Improve the quality of food by setting stricter standards and improving supervision.
• Improve the sustainability of the agricultural sector by promoting environmentally friendly production methods.
• On the international market, China should import only when needed, and needs to export more. Companies need to continue to
seek overseas investment opportunities.
Modernise The Business Model In The Agricultural Sector
• Allow companies to gain economies of scale through long-term land leasing and other methods.
• Encourage the development of new types of business entities (such as cooperative) in the sector.
• Strengthen the development of agriculture-related service sectors.

• Encourage the use of machinery in agriculture for more efficient production; utilise information technology to improve
management and allocative efficiency.
Improve Support And Protective Measures For Agriculture
• Government will extend subsidies in the agricultural sector.

• Improve the pricing and storage policies for agricultural products.
• Improve financial services in the rural areas.
Chapter 5: Industries
Manufacturing
• Increase the potential for further industrial upgrades by focusing on materials science and other key technologies that are
fundamental to industrials.
• Promote the development of new manufacturing methods (such as intelligent manufacturing).
• Push for the upgrade of traditional manufacturing sectors.
• Enhance the quality and branding of Chinese products.
• Curb overcapacity through market measures, financial subsidies, legal or even administrative measures.
• Lower costs for companies: simplify regulation, provide tax relief, and lower energy prices and logistics costs.
Support The Development Of Cutting-Edge Industries And Let Them Drive Growth
• Let cutting-edge industries support growth.

• Support the development of strategically important industries (such as aerospace, IT, life science and nuclear).
• Allow these industries to gain economies of scale.
• Improve the business environment for them.
Support The Development Of The Services Sector
• Promote the professionalisation of producer services (such as consulting, legal, ratings, etc).
• Improve the quality of consumer services (such as tourism, entertainment, etc).
• Allow the market to play a greater role by enhancing the regulatory environment.
Chapter 6: Expand The Network Economy
Build A More Efficient Information Network
• Improve the high-speed fibre network and mobile network system.

• Speed up the development for IT technology.
• Increase the speed for networks and reduce fees.
Internet + Plan
• Enhance knowledge of fundamental IT technology.

• Promote the bridging of Internet and offline industries.
National Big Data Strategy
• Speed up the process of official data-sharing programmes.

• Promote the healthy development of the big data industry.
• Promote cybersecurity.
Chapter 7: Build A Modern Infrastructure Network
Improve The Existing Modern Transportation System
• Enhance the national railway system.

• Develop an intercity urban transport system.
• Improve the efficiency and role of national transportation interchanges.
• Reduce carbon emissions; adopt IT to improve the efficiency and reliability of managing the transportation system.
Modernise The Energy Sector
• Shift energy consumption structure towards the use of more environmentally friendly energy sources.
• Develop a more intelligent energy transfer and storage system.
• Use IT to develop an intelligent management system of energy production.
Water Safety
• Improve the allocative efficiency of water resources.

• Perfect hazard prevention measures (flood and drought control).
Chapter 8: New-Type Urbanisation
Speed Up The Process Of Converting The Rural Population To Urban Citizens
• Deepen Hukou reform.

• Adopt a residential certificate system for all cities to ensure social security coverage.
• Improve the system of such conversion processes.
Improve The Layout Of Cities
• Promote city clusters and use them as the blueprint for regional development.
• Adopt the 'central cities + satellite cities' model to improve resource allocation efficiency in each region.
• Promote small- and medium-sized cities and cities with unique characteristics.
Improve Living Conditions In Urban Areas
• Promote new-type urbanisation.

• Improve infrastructure in cities.
• Speed up the reconstruction of the shanty towns and develop necessary amenities.
• Improve the efficiency and quality of managing cities.
Enhance The Housing Supply System
• Provide housing subsidies to less-well-off families; improve the public housing system; continue to manage housing markets to
ensure the healthy development of property markets.
Coordinated Development Between Urban And Rural Areas
• Promote county economies; improve the countryside; allocate public resources to rural and urban areas equally.
Chapter 9: Coordination Of Regional Development
Follow The Central Government's Plan
• Promote the western development plan.

• Revitalise north-east China and other traditional industrial hubs.
• Support the development of Central China.
• Allow East China to lead economic and social development.
• Richer regions to support the poorer regions.
Jing-Jin-Ji Integration
• Offload non-essential functions from Beijing.

• Optimise the space usage in the region and allocate adequate functions.
• Build an integrated transportation system.
• Improve environmental conditions.
• Promote the sharing of public services within the region.
The Yangtze River Economic Belt
• Environmental protection: reduce water pollution and increase vegetation coverage.

• Improve the quality of the transportation system along the Yangtze River.
• Improve the strategic layout and allocation of industries for cities along the Yangtze River.
Subsidise The Development Of Less Developed Regions
• Support the development of old revolutionary bases, autonomous regions and border areas.
• Promote industrial transformation in those regions.
Marine Economy
• Promote the development of the marine economy.

• Enhance environmental protection in the seas.
• Protect maritime sovereignty and develop a mechanism to settle territorial disputes.
Chapter 10: Environmental Protection
• Optimise the urbanisation layout in China by following the 'Two Horizontal Lines, Three Vertical Line' layout.
• Avoid waste of natural resources (water, land, mining products, etc).

• Develop a 'Circular Economy' to encourage recycling, and improve the efficiency of resource consumption.
• Reduce pollution and emissions, prevent environmental hazards; strengthen environment-related infrastructure and legal
systems; allow degenerated regions to recover.
• Promote environmental protection industry.
Chapter 11: Continue Opening Up
Set Up Multi-Dimensional, Multi-Tiered And Composite Connectivity Networks
• Continue to cooperate with other countries to dissolve excess production capacity.

• Exporters need to upgrade their production.
• Continue to attract foreign investment and scale up outbound investments.
• Improve the institutions for cross-border business activities.
• Promote the implementation of the OBOR initiative.
Others:
Intensify Cooperation With Hong Kong, Macau And Taiwan
Strive To Alleviate Poverty
• Take targeted measures to ensure that assistance reaches poverty-stricken villages and households.
Improve The Education And Physique Of The Population
• Deepen healthcare reform.

• Support the development of Chinese traditional medicine.
• Improve the medical insurance system to cover the entire population.
• Improve institutions and mechanisms for managing and supervising food and drug safety.
Improve The People's Well-being
• Local governments need to be proactive in promoting job creation.

• Reduce income inequality in China.
• Improve the social security system in China.
• Do a better job creating employment.
Editor's note: This is an unofficial summary of the 13th Five-Year Plan. It is a translation of the text that was presented by Chinese
state-owned media after it was approved by the National People's Congress on March 16 2016 (see source below). The purpose of
this translation is to provide as accurate an account as possible in English of the key points of the 13th Five-Year Plan.
Source: Xinhua News Agency (http://news.xinhuanet.com/politics/2016lh/2016-03/17/c_1118366322.htm)
Market Overview
The continued expansion of China's universal healthcare coverage, coupled with steady improvements in the regulatory
environment will continue to drive strong medicine sales growth for multinational pharmaceutical firms in the world's second
largest pharmaceutical market. While we note that pharmaceutical revenue growth is unlikely to return to previous highs and
pricing pressures will increase, China will remain a key emerging market for drugmakers.
China's pharmaceutical market was valued at CNY816.9bn (USD140.31bn) in 2017, with prescription medicine uptake accounting
for 85.94% of total drug expenditure and the OTC segment representing the remaining 14.06%. Within the prescription drug
market, patented medicines contribute a small portion to overall sales being consumed by the affluent class in the country and
amounted to 22.47% in 2017. Generic drugs, in contrast, are the mainstay for the Chinese population, amounting to 73.85% in
2017. However, we highlight that there remains a high quantity of counterfeit drugs, which will weigh on spending. China's
healthcare spending in 2016 amounted to CNY4951.27bn (USD732.6bn) in 2017 at 6.12% of GDP. Government health expenditure
accounted for 62.01% of total health expenditure in 2017. Private healthcare spending amounted to 37.99% of total health
expenditure in 2017.
Lifestyle-related diseases are a growing concern for governments around the globe, with those in the Asia Pacific region being no
exception. Driven by an ageing population, changing lifestyles and increasing urbanisation, China's rising non-communicable
disease burden will be a central factor supporting pharmaceutical market growth over a multi-year horizon. This, combined with
various government incentives to improve access to treatment, will progressively support a greater multinational drugmaker
presence, although a tailored approach to the market will be needed if drugmakers' commercial strategies are to succeed.
It has been our view that China will remain an attractive destination for pharmaceutical investment by multinational drugmakers,
and we expect that improved government commitment to the sector's development along with an already well-established
manufacturing industry for medicines will ensure that the country remains a key target over the long term. The Chinese
government is in the process of establishing a number of progressive healthcare reforms as part of its drive for innovation, with the
pharmaceutical sector being a key component (highlighted in China's 13th Five-Year Plan). Moreover, the development of a 'Healthy
China' is central to the Chinese government's agenda for health and development and the country's president, Xi Jinping has put
healthcare at the centre of China's policy-making endeavour.
While we currently forecast the Chinese pharmaceutical market to expand at a robust rate in comparison to other countries within
the region, we note that there are increasing downside risks to this view. A lack of effective regulatory data protection and patent
enforcement, inconsistent patent examination guidelines, the non-transparent and unpredictable government pricing and
reimbursement policies, rampant counterfeiting of medicines and unregulated active pharmaceutical ingredients remain key issues
of concern. The government has also imposed aggressive cost-containment measures within the pharmaceutical sector to limit
spending which will continue to negatively impact the outlook for patented drug sales in the country.
Healthcare Sector
China's growing ageing population and rising urbanisation levels are expected to be the key growth drivers for the country's
healthcare market. These factors, coupled with rising Chinese wages and improving living conditions, are expected to continue
driving healthcare spending moving forward. Moreover, the government is spearheading an aggressive reform of the country's
healthcare system as it seeks to expand access to care and improve the performance of the healthcare system.
The healthcare system in China is under the leadership of the National Health and Family Planning Commission, but healthcare
governance has been decentralised among Bureaus of Health in 31 provinces/autonomous regions. The present healthcare
delivery system in China is generally organised according to government administration, which includes central, provincial,
prefectural (regional), county, and township levels. Each township (in rural areas) or subdistrict (in urban areas) is in charge of several
villages or residents communities. Each government unit at the county level or higher has a functional health bureau under dual
control of the corresponding government and the health bureau of a higher administrative level. Thus, the Chinese healthcare
delivering system comprises several vertical segments.
Public facilities continue to dominate the provider sector in China; public hospitals account for 80% of all hospitals in the country
and 90% of all inpatient hospital beds. Public hospitals (12,708 as of 2016) provided 2.85bn diagnoses and treatments, accounting
for 87.2% of cases provided by all hospitals in China, according to the National Health and Family Planning Commission (NHFPC).
Based on a decision at a State Council executive meeting chaired by Chinese Premier Li Keqiang in October 2017, it was announced
that China will implement public hospital reform to optimise medical care resources for public health. The guidelines, released by
the State Council aim for modern hospital management with clear responsibilities, scientific governance, efficient operation and
strong supervision by 2020. More than 2,300 public hospitals nationwide participated in the healthcare reform and removed the
15% medicine price mark-ups, thus enabling rationalisation of medical costs.
The country is making several improvements in its healthcare delivery system. The programmes such as Healthy China 2020 (and
the more recent Healthy China 2030), designed by the National Development and Reform Commission (NDRC), have paved the way
for universal insurance, a change to the way hospitals are funded, more subsidies for state-run healthcare facilities and the
establishment of a national essential drugs list. The central government is aiming to increase health expenditure to 6.5-7.0% of GDP
by 2020 to achieve the list of 10 targets, including improving a number of key health indicators such as, increasing average life
expectancy to 77 years, reducing under-five mortality rate of children to 13%, reducing maternal mortality ratio to 20/10,000,000,
establishing a comprehensive and equitable medical and healthcare system and enhancing the country's disease monitoring
system. Some of these aims such as improvements in healthcare infrastructure, the broadening of insurance coverage and
significant support for innovation will have positive implications for multinational pharmaceutical companies.
Furthermore, the government is becoming more engaged in the process of expanding healthcare access and developing rural
healthcare infrastructure. For instance, the government designed the Rural Health Project to achieve increased and more equitable
access to quality health services in the rural areas. Launched in 2008, the project, supported by the World Bank and the Department
for International Development, was implemented in 40 counties in eight provinces, focusing on the development of the rural health
insurance system and improvement of the rural health service delivery. As part of strengthening the health service delivery system,
around 2,300 village clinics were built, expanded or rehabilitated, with improved medical equipment. A rural health human resources
development plan was formulated, and 180,728 health workers were trained.
HEALTHCARE RESOURCES (CHINA 2013-2018)

Indicator 2013 2014 2015 2016 2017 2018e
Hospitals, total 21,694 22,745 24,320 25,678 27,361 29,050
Hospitals, private 11,029 12,166 14,049 16,004 18,113 20,167
Hospitals, public 10,665 10,579 10,271 9,674 9,248 9,161
Hospitals, beds 6,181,900 6,601,200 7,015,200 7,410,500 7,940,300 8,477,196
Hospitals, beds, per '000 population 4.47 4.75 5.02 5.28 5.63 6.00
Source: Fitch Solutions
HEALTHCARE PERSONNEL (CHINA 2013-2018)
Indicator 2013 2014 2015 2016 2017 2018e
Physicians, total 2,285,794 2,374,917 2,508,408 2,651,398 2,828,999 2,991,740
Physician, per '000 population 1.65 1.71 1.80 1.89 2.01 2.00
Dentists, total 138,279 139,011 139,702 140,350 140,951 141,648
Dentists, per '000 population 0.10 0.10 0.10 0.10 0.10
Pharmacists, total 395,578 409,595 423,294 439,246 452,968 469,809
Pharmacists, per '000 population 0.29 0.29 0.30 0.31 0.32 0.32
Indicator 2013 2014 2015 2016 2017 2018e
Nurses, total 2,783,121 3,004,144 3,241,469 3,507,166 3,804,021 4,138,298
Nurses, per '000 population 2.01 2.16 2.32 2.50 2.70 3.00
HEALTHCARE ACTIVITY (CHINA 2013-2018)
Indicator 2013 2014 2015 2016 2017 2018e
Public inpatient admissions, '000 173,880.00 184,300.00 189,520.00 204,490.00 219,430.00 233,116.00
Public inpatient admissions, per '000

125.75 132.58 135.66 145.70 155.68 165.00
population
Outpatient visits, '000 7,314,000.00 7,601,870.00 7,699,250.00 7,931,700.00 8,183,110.00 8,470,001.00
Outpatient visits, per '000 population 5,289.29 5,468.54 5,511.16 5,651.37 5,805.61 5,980.00
Hospitals, average length of stay, days 8.9 8.9 8.9 8.8 8.6 8.0
Surgical procedures, '000 39,291.24 43,829.20 45,557.00 50,822.00 55,957.00 60,815.00

Research & Development
The Chinese government is increasingly encouraging pharmaceutical R&D at both central and provincial levels. Multinational
pharmaceutical companies continue to expand their R&D operations in China, advancing the country's progress in the field. One
attraction for these companies is the country's relatively lower cost base, compared with developed markets globally. Shanghai has
become a research hub, with several foreign drugmakers, including Novartis, Roche and Eli Lilly, setting up research and production
bases around the city in recent years. The city boasts a number of quality universities and hospitals, which serve to attract overseas
scientists. In addition, China's large pharmaceutical market and its strong growth potential provide an impetus for international
pharmaceutical firms to develop medicines specifically for the country's domestic market. We hold the view that China's R&D
industry will continue to grow, driven by the sustained investment into R&D by multinational pharmaceuticals as well as robust
government support for the sector.
Clinical Trials
New Clinical Trial Registrations

2013-2017
Note: New Trials begun in the given year. Sourced by date of initial registration. Includes clinical trials of drugs, medical devices, surgical procedures and behavioural
interventions. Source: ClinicalTrials.gov, Fitch Solutions
Clinical trials of pharmaceuticals are governed by the China Food and Drug Administration's (CFDA) Drug Registration Rules and the
Pharmaceutical Good Clinical Practices. Clinical trials will continue their influx into China as the country remains the key emerging
market within the Asia Pacific region. Many of the leading multinational pharmaceutical companies are actively conducting trials in
China, including Gilead Sciences, AstraZeneca and Bayer.
The significant commercial opportunities from China's pharmaceutical market will be a key factor attracting companies to conduct
clinical trials in the country. While recent changes in the healthcare system have impinged upon multinational drugmaker revenues,
the growth drivers - an increasing chronic disease burden and advances in healthcare access - remain robust. As such, multinational
drugmakers have maintained their commitment to the Chinese market and will continue to invest in conducting clinical trials.
Moreover, the government will continue to develop the state's regulatory capabilities. This was affirmed as officials disclosed plans
to accept data from overseas clinical trials to speed up approvals of drugs, a potential boon for international drugmakers as well as
patients who often face lengthy delays for new medicines to reach the market. Strategies are also being implemented to fight drug
backlogs and inefficiencies, including the development of a new clinical trial approval system and several measures designed to
encourage more participation by Chinese researchers and research centres in international clinical trials. We highlight that advances
in the regulatory process are critical for the clinical trials sector as the long start-up time has been a significant impediment to firms.
According to industry estimates, the start-up time to conduct trials in China can take more than 24 to 30 weeks, far longer than its
East Asian peers such as South Korea and Taiwan, where only 10 to 15 weeks and 11 to 16 weeks respectively, are needed. For
example, the investigational new drug application for Remsima was submitted to CFDA in 2014, with approval for clinical trial only in
2017.
Epidemiology
The demand for chronic disease treatments in China will see a strong uptick over the coming years and this shift in the
epidemiological profile reflects the increasing prevalence of lifestyle-related diseases. Cardiovascular diseases, diabetes and cancer
have become the leading causes of death among Chinese adults. Hypertension and cigarette smoking are the leading preventable
causes of death in China. China's disease profile will continue to present lucrative opportunities for pharmaceutical and healthcare
companies.
Burden Of Disease Projection

2005-2030
Note: DALYs = disability-adjusted life years; e/f = Fitch Solutions estimate/forecast. Source: Fitch Solutions Disease Database
Chronic Obstructive Pulmonary Disease
Chronic Obstructive Pulmonary Disease (COPD) is a leading cause of morbidity and mortality with high financial implications in
China. There is an increasing public health concern for COPD due to increase in tobacco smoking and biomass fuel use along with
an ageing population. The direct and indirect costs are expected to continue rising, with an estimated 40mn people afflicted
with the disease in China, resulting in a mortality rate of 1.2mn every year. COPD poses a high economic burden with the total
expenditure per patient costing 40% and nearly one-third of an average family income in urban and rural areas of China,
respectively. It is also a key driver of disability with an estimated 5-10mn patients being either partially disabled or completely unable
to work. We highlight that awareness of COPD remains limited in the rural regions in China with implications for medication and
treatment. The head of Guangzhou Institute of Respiratory Diseases, Rong-chang Chen, pointed out that two-thirds of COPD
patients are initially diagnosed in the late stages of the disease; therefore, prevention and earlier diagnosis will provide an
opportunity to better safeguard public health.
Diabetes
The demand for diabetes pharmaceuticals in China will be robust over the long term. The rise of diabetes can be traced to a number
of factors, including improved economic standards, westernised diet and lifestyle changes. According to the International Diabetes
Federation (IDF), there were over 114mn cases of diabetes in China in 2017. According to the World Health Organization (WHO), the
prevalence of diabetes in Chinese adults has increased from less than 1% in 1980 to 9.4% in 2014. According to our Disease
Database, a total of 8.2mn DALYs were lost to the disease in 2017. IDF estimates that 13% of medical expenditure in China is directly
caused by diabetes, with yearly costs estimated to reach USD47bn by 2030. These costs include a general loss of productivity,
hospitalisation, and treatment of diabetes-related illnesses, such as heart disease, dialysis and strokes. More than half of the people
with diabetes may be undiagnosed, and according to estimates, only one-quarter of people with diabetes are receiving treatment in
China. The delayed diagnosis and treatment has resulted in 1.3mn diabetes-related deaths in 2015, according to the IDF. Therefore,
there is a need to build primary and community health care services to ensure people with diabetes have access to the treatment
that they need. In China, World Diabetes Day and several similarly themed publicity events have been used to spread information on
diabetes prevention and to raise public health literacy. Public health lifestyle campaigns have been pushed forward to advocate
rational diet and adequate exercise and to discourage smoking and the consumption of alcohol.
Cancer
According to Globocan, the number of new cancer cases in China will grow significantly from 3,065,438 in 2012 to 4,385,961 by
2025. The burden is expected to increase in the coming decade because of the ageing of the population as well as changes in
lifestyle that increase the risk of developing cancer, such as excessive calorie intake and physical inactivity. The elderly are expected
to contribute to the majority of these new cases with men being the most affected. Amongst men, lung cancer is the most
common cancer followed by liver cancer, stomach cancer, oesophageal cancer and colorectal cancer. Amongst Chinese women,
lung cancer is the most common, followed by breast cancer, stomach cancer, colorectal cancer and liver cancer.
According to Globocan, the number of new cases of lung cancer in China is expected to grow from 652,842 in 2012 to 1.1mn by
2030. In China, lung cancer has been the leading cause of death. Broadly, the ageing population in China will be an important factor
driving the rise of cancer cases and, consequently, the demand for oncology treatments. With a large smoking population, air
pollution and unhealthy lifestyle, the growth of lung cancer incidence in China will continue to rise. In addition, there will be country-
specific factors shaping China's cancer disease profile. The particularly elevated levels of air pollution in China, for example - with a
study published by Berkeley Earth in 2015 highlighting that 38% of the Chinese population live in areas where the level of fine
particulate matter (PM2.5) was classified as 'unhealthy' - will serve as a central issue exacerbating the prevalence of lung cancer.
ESTIMATED NUMBER OF NEW CASES OF CANCER IN CHINA

Year Estimated Number Of New Cancers (all Male Female Both sexes
ages)
2012 total 1,822,769 1,242,669 3,065,438
ages < 65 895,156 691,383 1,586,539
ages >= 65 927,613 551,286 1,478,899
2025 total 2,687,918 1,698,043 4,385,961
ages < 65 1,121,262 820,497 1,941,759
ages >= 65 1,566,656 877,546 2,444,202
Source: Globocan
Competitive Landscape
Research-Based Industry
China will remain the key emerging Asian market over the coming years. The fundamentals of China’s healthcare market are
positive for sustained growth in demand for medicines; namely a large, growing and ageing population, coupled with a significant
prevalence of chronic diseases. Moreover, since 2017, the dynamics of the pharmaceutical industry have shifted somewhat for
foreign drugmakers.
China continues to stand out as the major emerging market for multinational pharmaceutical firms. The government remains
committed to the improvement of healthcare access, exemplified by the universal healthcare scheme's expansion to cover chronic
diseases. In a push to improve healthcare coverage, more than 100 Western medicines were added to public insurance policies in
2017, including AstraZeneca’s Brilinta (ticagrelor), and cancer treatments like Roche’s Herceptin (trastuzumab), MabThera/Rituxan
(rituximab), Avastin (bevacizumab) and Tarceva (erlotinib).
Moreover, improvements to the country's historically weak regulatory environment appear to be gathering momentum. Latest in a
string of regulatory initiatives implemented by the CFDA is a reform put forward by the State Council to boost the country's support
for innovative drugs and medical devices and accelerate their access to patients. In October 2017, the CFDA announced far-
reaching reforms to its regulatory system that aims to speed up approvals of medical technologies in the country, thus easing
bottlenecks in introducing new treatments to the market. Most pertinently, data from clinical trials conducted outside the country
will now be accepted as part of the regulatory filings by the CFDA, hence removing the need to conduct additional trials in the
country. This will result in a significant increase in the speed with which multinational drugmakers will be able to secure approvals in
China, increasing their access to the country's drug market.
Most of the top 20 multinational pharmaceutical companies have been expanding their footprint and are setting up more R&D
facilities through various enterprise structures. One attraction for these companies is China's relatively lower cost base, compared
with developed markets globally. In addition, China's large pharmaceutical market and its strong growth potential provide an
impetus for international and domestic pharmaceutical firms to develop medicines, specifically for the country's domestic market.
With regards to the local drugmakers, the majority of domestic pharmaceutical companies in China are often too small to compete
with foreign companies. Nonetheless, the local pharmaceutical companies are beginning to innovate. There has been rapid growth
of new drugs in the pipeline; for example, the number of applications of local innovative drugs entering clinical trials in China has
grown from 21 in 2011 to 88 in 2016, a compound annual growth rate of 33%. Domestic pharmaceutical companies have also
started spending more on R&D with about 800 new molecules currently under development in China - up from 240 in 2012.
However, there are downside risks to China's attempts to develop its R&D and grow its share of patented medicines created in the
country. We highlight that the overall transition of Chinese drugmakers towards innovative treatments will be a long-term
process. In addition, Chinese consumers prefer multinational firm's pharmaceutical products due to concerns over the quality of
domestic drugs. China has been a prolific source of counterfeit and defective medicines.
MULTINATIONAL MARKET ACTIVITY

Company Operations
Novartis
• Novartis has steadily developed its presence in China and now conducts R&D in the country. The main site remains
in Zhangjiang with a chemical R&D centre in Changshu.
• Complimenting this is the firm's state-of-the-art campus in Shanghai. Research activities include the use of
analytics and biomarkers, in vivo pharmacology, protein production, characterisation and scale-up screening along
with proteomics.
• Novartis has its Novartis Pharmaceuticals (Innovative Medicine), Alcon (ophthalmic health care) and Sandoz
(generics) businesses in China.
Pfizer
• The US-based firm's presence in China is through a wide product portfolio that covers a range of therapeutic areas.
• The firm also undertakes R&D in the country with its China Research and Development Centre (CRDC) located in
Zhangjiang High-Tech Park.
• The company has introduced more than 50 innovative drugs in China, including prescription drugs and consumer
health products which span therapeutic areas of cardiovascular, anti-infection, arthritis, oncology, CNS, urology,
vitamins & mineral supplements, calcium supplements.
Roche
• Roche has been highly active in China with a host of operations involving both its pharmaceutical and diagnostic
divisions.
• It has played an active role in expanding health insurance coverage in China as it works with local insurance firms.
This is along with the cancer awareness and prevention programmes carried out by the firm.
Sanofi
• Sanofi China, established in 1982 with headquarters in Shanghai, has a wide range of businesses covering
pharmaceuticals and human vaccines (Sanofi Pasteur).
• The group has 11 regional offices in Beijing, Tianjin, Shenyang, Jinan, Hangzhou, Nanjing, Wuhan, Chengdu,
Guangzhou, Fuzhou and Urumqi, and three production bases in Beijing, Hangzhou, and Shenzhen.
• At the end of 2017, Sanofi had over 9,500 employees in China.
MSD
• MSD has a sizeable presence in China that includes both product sales and R&D.
• The Hangzhou plant supplies medicines not only for the Chinese market but also for the broader Asia Pacific
region. This plant is also a critical part of the global supply chain for the company.
Johnson & Johnson

• Like other multinational drugmakers, Johnson & Johnson has a sizeable presence in the Chinese market. It has
several key manufacturing facilities throughout the country that serve to manufacture products from consumer
healthcare to pharmaceuticals.
• The opening of its Asia Pacific Innovation Centre in October 2014 served to further cement its strong focus on
extending its capabilities throughout the pharmaceutical value chain in China.
GlaxoSmithKline
• As part of the 'in China, with China, for China' strategy, GlaxoSmithKline is focussed on conducting research and
Company Operations
development activities in China.

• The company has had a challenging experience in China over the past few quarters following a bribery scandal that
had a significant impact on its business.
AstraZeneca
• China is among the most important markets for AstraZeneca and the firm has invested significantly in the country.
• The firm undertakes a wide range of activities in the country, having established a supply base in Wuxi, a production
site in Jiangsu as well as its headquarters in Shanghai with a R&D centre.
Takeda
• The firm is headquartered in Shanghai and has major business operations in Beijing, Tianjin and Guangzhou.
• Takeda also opened the Takeda Shanghai Development Centre with a focus on general medicine in China and
oncology therapeutics for the rest of Asia.
AbbVie
• AbbVie, the R&D spin-off from Abbott, discovers, develops and markets biopharmaceuticals and small molecule
drugs in China.
• For AbbVie, the Chinese market is increasingly important and it aims to ensure that investment in research and
development in its China division can cater to the domestic market.
Generic Drugmakers
The domestic manufacturing in China has witnessed notable growth in recent years, boosted by the rising demand for generic
medicines. This is in part stimulated by the government's drug procurement policy, which has focused on public sector cost
containment. While the government encourages and relies upon innovation to meet industry targets, China will probably continue
to rely on the widespread prescription of generics in the public insurance plan to hold down the overall healthcare expenditures,
and the current R&D capability also limits the possibility of launching domestic patented drugs in the near term.
In April 2018, the State Council of China announced that China will promote the research and availability of generics and improve
their quality and efficacy to lower healthcare costs and to better meet public demand. According to the statement, drugs that are
indispensable for clinical treatment and in short supply will be encouraged to be made as generics, especially for those of major
infectious diseases, rare diseases, paediatrics and public healthcare incidents. The list of encouraged generic drugs will be published
regularly by China's medical authorities, and research projects on key drugs will be enrolled in national technology programmes.
The announcement reinforces the commitment to ensure the supply and distribution of high quality generic drugs, especially for
the treatment of major contagious diseases, paediatric diseases, rare diseases and public health outbreaks. This is the latest
supportive guideline to compliment the progress in China’s pharmaceutical sector reform.
On March 5 2016, the State Council General Office issued the ‘Opinion on Conducting Consistency Evaluations of the Quality and
Efficacy of Generic Drugs’. Signalling a push for an industry-wide overhaul of generic drug quality, the opinion set forth the new
evaluation and approval requirements for generic drugs that had been approved for marketing, including both domestic and
imported generic drugs. Historically, mandatory bioequivalence study was not a mandatory part of the generic approval process in
China. Generic drugs were not required to undergo bioequivalence testing against branded drugs. Instead, generic drugs only
needed to show conformity with the so-called ‘national standard’. Therefore, generic drugs were not deemed equivalent to branded
drugs.
The opinion set forth the requirement for reference products, compared to which the generic consistency evaluations (GCE) should
be conducted. According to the opinion, a reference product must be the branded version of a generic drug or an internationally
acknowledged generic version, if the branded version is unavailable. With GCE, China’s generic medicines will become a closer
substitute to branded medicine, at a fraction of the cost. It will also help to drive more significant price cuts for branded drugs when
patents expire. The state-funded health insurance will also give preferential treatment to GCE-approved generic medicine, by
putting them on equal ground as branded drugs. We believe that improving the quality of domestically-produced generic drugs is a
critical component in China’s healthcare reform.
Along with domestic drugmakers that specialise in me-too products, China has seen a significant investment by foreign drugmakers
in the country’s generic medicine industry as well. In 2017, for instance, Teva formed a joint venture with Guangzhou Pharma to sell
generic medicines in the country. In addition, Pfizer and Zhejiang Hisun Pharmaceuticals, a leading Chinese pharmaceutical
company, announced the launch of Hisun-Pfizer Pharmaceuticals, a joint venture formed between the two companies to develop,
manufacture and commercialise off-patent pharmaceutical products in China and global markets. Therefore, foreign drugmakers
are making inroads in China through partnerships with local firms.
Pharmaceutical Distribution
Drug distribution remains complex in China and limits the growth in the country's pharmaceutical market. The country's
pharmaceutical distribution base is fragmented with more than 13,000 distributors catering to the needs of the local market. The
highly fragmented structure results in higher prices and makes room for corruption. The three largest distributors - Sinopharm,
Shanghai Pharmaceuticals and China Resources claim around 20% of the market. Chinese drug distributors purchase drugs from
drug manufacturers, warehouse them until the receipt of orders from downstream customers, such as hospitals, retail pharmacies
and other sales channels, and then deliver the drugs to customers via their logistics networks. Because of the fragmented nature of
the distribution, drugs typically flow through several layers of distributors, with multiple hand-offs before they reach the hospitals or
pharmacies. It often takes two to three intermediaries to get drugs from the manufacturer to the dispenser. For some products,
there can be as many as six intermediaries in the distribution chain.
The multi-layer hierarchy increases drug distribution costs. Each layer of distributors earn a mark-up on their upstream drug
purchase costs and receive sale rebates from their upstream suppliers, either drug producers or high-tier distributors, once they
meet pre-agreed sales targets, typically set on a monthly, quarterly and yearly basis.
The State Council of the People's Republic of China’s proposed two invoice system for drug distribution in eight healthcare reform
pilot provinces, which aims to eliminate intermediate sub-distributors, is likely to accelerate the consolidation of the pharmaceutical
distribution industry. The system requires only two invoices to be issued during the drug distribution process – one from the drug
producer to the distributor and the other from the distributor to the end-consumer. Only distributors with direct access to end
customers are likely to survive under the new system. We believe large distributors will take the opportunity to penetrate smaller
and lower-tier healthcare institutions through partnerships with, or acquisitions of, downstream sub-distributors that have
relationships with end-customers. Fujian province was the first to implement the new system a few years ago and has so far reduced
the number of distributors to 11 from over 100.
Foreign Firms Are Entering The Country
There are limited foreign distributors in China, but multinational firms will increase their presence in the country. The UK based
Boots has established a joint venture with Guangzhou Pharmaceuticals and Nanjing Pharmaceutical Group, a major state-owned
distributor. US-based Cardinal Health has a multi-regional network in China due to the purchase of distributor Zuellig Pharma. The
Ministry of Commerce stated in the Five-Year Plan that it aims to attract foreign investment in drug distribution and retail and
participate in the restructuring of drug distributors to further develop the distribution industry.
Pharmaceutical Retail Sector
China’s retail pharmacy segment is highly fragmented due to low entry barriers and significant local government protectionism
that hinders industry consolidation. Chinese retail pharmacies include pharmacy chain stores, individual stores and OTC
medicine counters in supermarkets. China had 448,057 retail pharmacy stores, including 243,162 independent retail pharmacy
stores and 204,895 chain stores, owned or managed by 4,981 retail pharmacy operators at end-2015. Retail pharmacies
distribute OTC drugs, some prescription drugs with valid doctor’s prescriptions, healthcare products, cosmetics and daily necessities.
China’s retail pharmacies generally have weaker bargaining power against upstream manufacturers and distributors compared with
hospitals as they only have a 20% share of the country’s drug sales. The development of retail pharmacy chain stores is
geographically bifurcated in China, with more economically developed regions having higher chain rates than less developed
regions.
Company Profile
AstraZeneca
SWOT Analysis
Strengths • Capital strength and experience to penetrate the fast-growing Chinese market.
• Local manufacturing facilities.
• Expansion of local R&D efforts.
Weaknesses • Aggressive pricing policies, low levels of intellectual property protection and limited capacity of regulators
pose significant challenges to drugmakers.
• Strong local and multinational competition.
• Sizeable counterfeit medicine industry.
Opportunities • Potential for R&D activity expansion by drawing on a skilled but low-cost scientific base, together with low
operational costs.
• Strong prescription medicine market growth.
• Progressive healthcare reforms and a desire to increase insurance coverage across the country.
Threats • Continued government cost-containment policy; generic substitution policies.

• Strong reliance on traditional medicines and remedies.
• Downward pressure on prices further restricting profitability.
Company Overview
Since entering China in 1993, AstraZeneca has established end-to-end R&D capabilities in the country, from discovery to clinical
development and manufacturing of innovative medicines. Its comprehensive presence includes manufacturing sites in Wuxi and
Taizhou and a distribution centre in Wuxi. The company's China headquarter is based in Shanghai and the firm has more than
11,000 employees in the country.
Strategy
China has been a bright spot for AstraZeneca. Accentuating this view, the CEO of AstraZeneca stated, 'China is becoming
economically more developed, it's growing and becoming richer, regions of China that could not afford medicines before are
progressively able to. Therefore, growth in the Chinese market will reassure investors of the company's long-term financial potential
in the country.' The company has also capitalised on recent regulatory reforms implemented by China's Food and Drug
Administration to speed up the drug approval process of its non-small cell lung cancer medicine Tagrisso (osimertinib). The
drugmaker has strict views on unethical behaviour by sales representatives, including the promotion of drugs for 'off-label' uses. The
company has clarified that it covers some costs for doctors to attend scientific or academic meetings, but that healthcare
professional must spend at least 70% of each day attending scheduled presentations or symposia.
Recent Developments
2018
• In August 2018, China’s State Drug Administration gave approval to AstraZeneca to sell the first ovarian cancer treatment
available in the country.
• In August 2018, AstraZeneca announced that it will bring its newest anaemia treatment to pharmacies in Shanghai and Beijing
about a year before it’s available in the US.
• In February 2018, AstraZeneca formed a new strategic partnership with Ali Health, a subsidiary company of Alibaba, to deliver
new smart health services driven by the internet and artificial intelligence to help patients find and stay on the right medicines.
• In December 2018, China became the first country to approve a new anaemia drug from AstraZeneca and FibroGen, well before
decisions by regulators in the United States or Europe.
Financial Developments
2018
• In Q318, emerging Markets, led by China, delivered double-digit growth. Emerging markets, representing 32% of total product
sales, is the second-most important sales region for AstraZeneca after the US market, which accounts for 33% of total product
sales. Strong sales performance in the US (25% increase in Q318) was driven by the success of AstraZeneca's new product
portfolio, including Tagrisso and Imfinzi, plus strong sales of Farxiga and Brilinta, offset by the impact of continued competitive
intensity on sales of Symbicort (budesonide/formoterol). China remains a stand-out market for AstraZeneca, with quarterly sales
up 32% as the company continued to outperform in the world’s second-biggest drugs market, where it is turning increasingly to
smart tech to drive sales. China sales, comprising 56% of total emerging markets sales, increased to USD954mn in Q318. New
medicines delivered particularly encouraging sales growth, compounded by strong performances from Pulmicort, Crestor,
Symbicort and Zoladex (goserelin). These new medicines represented 11% of China sales in the year to date, up from 7% in the
first nine months of 2017. Oncology sales in China increased by 55% year-to-date (48% at CER) to USD646mn, reflecting
primarily the contribution from Tagrisso, Zoladex and Iressa (gefitinib).
Bayer HealthCare
SWOT Analysis
Strengths • Strength in terms of financial capital and experience.
• Well-established market presence in China.
• Diverse product portfolio.
• Strong expansion into the Chinese OTC market.
Weaknesses • Sizeable counterfeit medicine industry.

• Strong domestic and multinational competition.
• Aggressive pricing policies, low levels of intellectual property protection and limited capacity of regulators
Opportunities • Potential to expand R&D activity by drawing on a skilled but low-cost scientific base, together with low
operational costs.
• Strong OTC product market growth.
• Recent investment to expand manufacturing base.
Threats • Wide-ranging price cuts and downward price pressures.

• Need for cost-containment in public healthcare expenditure given population ageing.
Company Overview
Bayer established its presence in China in 1882 and by the end of 2016, about 10,000 people were employed by the company in
Greater China (Mainland, Hong Kong and Taiwan). With the country now Bayer Consumer Health's second largest market, after the
US, the firm has stepped up its involvement in the region. With a number of major investments underway, Bayer is positioned to be a
key engine in China's pharmaceutical development.
Strategy
The Greater China region (China, Hong Kong, Macau and Taiwan) is one of the key markets for Bayer HealthCare and the wider Bayer
Group. This is unsurprising given the large population, unmet need for medical treatments and the government's efforts to improve
healthcare access. Recognising the importance of the Chinese market, Bayer HealthCare moved its headquarters to Beijing in 2011.
At the same time, the firm also recognised the fragmented nature of the Chinese market and therefore segregated its business into
the Northern, Southern and Middle zone to cater to the needs and the developmental pace of each zone.
In recent years, Bayer has made efforts to expand in the OTC medicine market. Besides the OTC manufacturing sites in Shanghai,
Qidong and Kunming, Bayer announced, in January 2016, a milestone opening of its state-of-the-art manufacturing site of
traditional Chinese medicines and western medicines in the Majinpu bioengineering and pharmaceutical industrial park in Yunnan.
The site is Bayer's second largest OTC manufacturing facility in the Asia Pacific, which will greatly enhance the company's integral
capabilities in providing high-quality self-care solutions to meet the diverse healthcare needs of Chinese consumers.
Recent Developments
2018
• In March 2018, Bayer secured conditional approval from China’s commerce ministry for its planned acquisition of the seed
company Monsanto.
2018
• In Q318, sales of Stivarga (regorafenib), a cancer drug, showed increases in China, after market launch in December 2017.
China Shijiazhuang Pharmaceutical Group (CSPC)

SWOT Analysis
Strengths • An overseas presence, unlike most Chinese pharmaceutical companies.
• Access to capital through China Pharmaceutical Group Limited.
• A well-known brand identity, supported by several trademarks.
Weaknesses • Lack of involvement in high margin products.

• Strong competition from other domestic manufacturers.
Opportunities • Expansion into frontier markets.

• Strong export potential in relation to other nascent regional markets.
Threats • Current export partners shifting to local production.

• Increasing price controls in the domestic market.
Company Overview
Founded in 1997, China Shijiazhuang Pharmaceutical Group (CSPC) manufactures active pharmaceutical ingredients (APIs) and
finished medicines. CSPC has 10 affiliates, including Zhongrun Pharma, Weisheng Pharma, Zhongnuo Pharma and Ouyi Pharma.
One subsidiary, China Pharmaceutical Group Limited, is listed on the Hong Kong Stock Exchange. CSPC exports to more than 60
countries. The production facilities of CSPC Pharma are mainly located in Shijiazhuang City, Hebei Province, China.
Strategy
CSPC primarily sells commodity pharmaceuticals, such as antibiotics and analgesics, in vast volumes. Its annual production capacity
is 20bn tablets, 8bn capsules, 3bn injectable units and 1bn soft capsules. It is the world leader in the production of vitamin C (25,000
tonnes), penicillin (16,000 tonnes), caffeine (8,000 tonnes), amoxicillin (6,000 tonnes) and 7-ACA (1,600 tonnes). CSPC is also
involved in the manufacture of genetically-derived drugs and liposomal formulations.
To ensure future growth, CSPC is increasingly engaging in original R&D. Its National Class 1 drug 'EBP' is indicated for the treatment
of ischemic cerebral apoplexy and has intellectual property protection in over 80 countries. The commercialisation of the drug is
planned in South Korea, the US and Europe.
In terms of quality, CSPC Pharma has established a self-contained three-level quality control system, and all the drugs have achieved
GMP certification, and all the subordinated companies have passed ISO9000, OHSAS18000 and ISO14001 certifications, and the
up-to-standard rate of the products has been kept at 100%. Meanwhile, CSPC Pharma has been engaged in improving the quality
connotation by technology, and 6 pharmaceutical products (such as caffeine, vitamin C, VB12, amoxicillin, etc) have achieved COS
certification of EU and obtained entry to the high-end markets in Europe and America.
Recent Developments
2018
• In April 2018, it was announced that China’s major suppliers of raw drug ingredients including Zhejiang Hisun Pharmaceutical,
CSPC Pharmaceutical Group and Zhejiang Hisoar Pharmaceutical will see a little impact from the trade tariffs, since most of these
are focused on the domestic market and US sales account for a small percentage of their sales and profits.
• To reduce import reliance on foreign-made medicines, a number of domestic drugmakers are also looking to develop innovative
products targeting chronic diseases such as cancer. Moreover, in line with ‘Made in China 2025’ plan, pharmaceutical R&D is
increasingly being encouraged by the Chinese government at both central and provincial levels, with around one-third of China's
provinces highlighting the pharmaceutical industry as a target for development, and universities and manufacturers often
collaborate closely on research projects. After Li’s announcement in March 2018, to nix import tariffs on cancer medicines, the
MSCI China healthcare index touched the highest level since 2005, led by a 15% gain by China Shijiazhuang Pharmaceutical
Group.
2018
• CSPC announced its interim results for the first half year ended June 30 2018. The group recorded a turnover of approximately
HKD10,787mn, representing an increase of 49.8% y-o-y.
Eli Lilly (Lilly China)

SWOT Analysis
Strengths • Local manufacturing facilities.
• Active in supplying to both the public and private markets in the country.

• Strong local and multinational competition.
operational costs.
• Increasing clinical trials opportunities.
• Increase in the chronic disease burden, with the company particularly well-placed to capitalise on the rising
number of diabetes cases.
Threats • Continued government cost-containment policy in China.

Company Overview
In 1981, Eli Lilly established its first overseas representative office in Shanghai, China. Over the years, the company adhered to the
'people-oriented, good faith is supreme, the pursuit of excellence' credo, and with the tide of China's reform, the company became
one of the fastest growing pharmaceutical companies. Eli Lilly is strongly committed to China, both through local manufacturing
and sales & marketing. Manufacturing, R&D and sales divisions have all seen increased headcounts. In particular, the number of
marketing representatives targeting second- and third-tier cities have expanded significantly.
Strategy
The aim of Eli Lilly is to become China's long-term strategic partner in the area of healthcare. The company has been committed to
the cause of public health and social public activity. At the same time, the company has carried out different forms of public
education activities, the popularisation of disease information and health literacy to improve the quality of life.
Eli Lilly’s product portfolio is well suited to benefit from the growing demand for diabetes in China, with further support provided by
government efforts to boost disease awareness and education among healthcare professionals. In 2012, Eli Lilly opened the Lilly
China Research and Development Center to investigate novel diabetes medicines tailored specifically for the Chinese population.
Moreover, in 2014, the US-based drugmaker opened its third insulin plant in Suzhou, in a bid to further expand its presence in the
country's growing diabetes treatment market. In line with the Healthy China 2030 Plan, the firm has also been devoted to
connecting patients with physicians to battle diabetes, and in 2017, to help people living with diabetes access adequate medical
resources and disease-prevention education, Eli Lilly, together with Tencent and DXY, the largest medical education platform in
China, initiated Lilly Connected Care Program with the aim to provide connected diabetes management solutions and connected
care.
Recent Developments
2019
• In January 2019, Eli Lilly and Innovent announced that their PD-1 drug gained approval in China, becoming the second
domestically produced drug in China of this type.
2018
• In September 2018, Eli Lilly along with Chi-Med reported that fruquintinib will be marketed as Elunate for colorectal cancer.
• In November 2018, Eli Lilly announced that it is considering the sale of a portfolio of off-patent drugs in China as the
pharmaceutical firm seeks to raise cash amid a push into higher-growth products.
• In December 2018, it was announced that Paraxel and Eli Lilly are teaming up to launch a clinical research learning and
development programme in China.
GlaxoSmithKline
SWOT Analysis
Strengths • Financial capability, diverse product portfolio and industry experience to exploit the fast-developing Chinese
drug market.
• Diversified local manufacturing presence, operating prescription and OTC medicines, consumer health and
vaccine-manufacturing plants.
• Strong sales and marketing support for its wide-ranging portfolio.

• Strong local and foreign competition.
Opportunities • Potential for R&D activity expansion by drawing on a highly skilled, yet low-cost pool of local scientists,
together with low operational costs.
• Growth in the patented drug market given the rising incomes.
• Progressive healthcare reforms to expedite approval of innovative medicines.

Company Overview
GlaxoSmithKline (GSK) has a presence across China with commercial operations in 250 cities, including five regional hubs in Beijing,
Shanghai, Guangzhou, Hangzhou and Chengdu, five manufacturing sites in Shanghai, Suzhou, Hangzhou and Tianjin and one
global R&D centre in Shanghai. Since 2010, the company has achieved seven China Food and Drug Administration registrations in
China.
Strategy
GSK China has a 100-year legacy of transforming the health, lives and futures of people around China. As part of the 'in China, with
China, for China' strategy, GSK will continue to strengthen its commitment to research and development in China to better serve
Chinese patients. Within the country, the UK-based drugmaker offers products for the following therapeutic groups: antibiotics,
antivirals, respiratory, oncology, gastrointestinal, anti-diabetes, anti-epileptics, immunosuppressant, cardiovascular and dermatology.
The company has registered nearly 70 medicines in China and its prescription medicines and vaccines unit is headquartered in
Shanghai, while the OTC unit is located in Tianjin, and the Consumer Healthcare division is based in Hong Kong. The central holding
company, GlaxoSmithKline (China) Investment, is located in Beijing.
Recent Developments
2018
• GSK officially launched its blockbuster triple-therapy HIV drug on the Chinese mainland, pricing it lower than in neighbouring
markets.
• In a bid to harness the power of technology and e-commerce to promote wellness and medical services, on May 8 2018,
GlaxoSmithKline (GSK) China and JD.com, China’s leading online retailer, signed a memorandum of understanding, under which
the two partners will fully leverage each other’s complementary strengths in healthcare, pharmaceuticals and internet
applications and work together to create innovative solutions that will improve patient experience across the whole healthcare
ecosystem and value chain, from seeking treatment to receiving care and to managing health.
2018
• In Q318, sales in Emerging Markets were flat in actual terms, but grew 8% in constant exchange rate (CER) terms, driven by
strong growth of Cervarix in China and Horlicks in India. Cervarix sales increased 51% in CER terms, primarily driven by market
expansion in China.
MSD
SWOT Analysis
Strengths • Possesses capital strength and experience to penetrate the fast-growing Chinese market.
• Strong product pipeline reflects continuing and increasing R&D investment.
• Active in supplying to both the public and private markets in the country.

operational costs.
• Expansion of healthcare coverage and services.
• Growing population numbers and rising chronic disease burden.

Company Overview
Merck & Co, one of the leading US-based multinationals, operates in China through a fully owned subsidiary, Merck Sharp & Dohme
(MSD). MSD China (established in 1992) has manufacturing and R&D facilities in the country. MSD Asia Pacific Division, mostly
dealing in sales and marketing, was established in 1997. MSD's therapeutic areas include: anti-inflammatory, anti-fungal and
dermatological, cardiovascular, gastrointestinal, neurological, respiratory and ophthalmic. MSD China also deals with vaccines.
Strategy
In line with one of our core views for the global pharmaceutical industry, MSD appreciates the importance of corporate social
responsibility (CSR) in China, as demonstrated by its numerous collaborations with local firms, non-government agencies and the
state. We believe that multinationals that do not embrace CSR will lose investors and underperform compared with their rivals.
Key Developments
2018
• In September 2018, Eisai and Merck & Co announced that the China National Medical Products Administration (NMPA) approved
the kinase inhibitor LENVIMA (lenvatinib) as a single agent for the treatment of patients with unresectable hepatocellular
carcinoma (HCC) who have not received prior systemic therapy.
2018
• Global vaccines grew 7% y-o-y, generating USD1.5bn in revenue in the second quarter of 2018. Growth was facilitated by a
strong demand for Gardasil, aided by the new dosing regime in the US, and the increasing uptake in China following regulatory
approval.
Merck KGaA
SWOT Analysis
drug market.
• Considerable domestic manufacturing capacity in China.
• Expansion of healthcare services and healthcare system reforms in the country.
Weaknesses • Aggressive pricing policies, low levels of intellectual property protection and limited capacity of regulators
pose challenges for multinational drugmakers.
Opportunities • Potential for R&D activity expansion by drawing on a highly skilled, low-cost scientific base and low
operational costs.
• Strong patented product market growth.
• Growing population numbers and a rising burden of chronic diseases.
Threats • Need for cost-containment in public healthcare expenditure, given population ageing.
• Wide-ranging price cuts and downward price pressures.
Company Overview
China is an important strategic market for Merck KGaA. Since entering China in 1933, Merck KGaA has established end-to-end R&D
capabilities in the country, from discovery to clinical development and manufacturing of innovative medicines. Its comprehensive
presence includes manufacturing sites in Shanghai, Beijing and Nantong.
Strategy
Merck KGaA will continue to expand and diversify the company's commercial operations in China and the pharmaceutical company
will maintain its commitment towards healthcare initiatives in the country.
Recent Developments
2018
• Merck KGaA announced its plans of building a single-use manufacturing operation in Wuxi to target the biosimilars market.
• On June 20 2018, Alibaba Health, the healthcare division of the Chinese e-commerce giant, Alibaba, entered into a strategic
collaboration with Merck KGaA to provide Chinese patients and families better access to patient-centric healthcare services. At a
Shanghai signing ceremony, both sides stated their aim to focus on tracking and tracing drugs and internet health services,
along with the joint exploration of areas such as pharmaceutical e-commerce and artificial intelligence (AI).
• In November 2018, Merck KGaA signed an agreement with the Guangzhou Development District on innovation development in
Southern China. Pursuant to this agreement, Merck will establish an innovation hub in Guangzhou scheduled to open
September 2019.
2018
• Merck KGaA registered a decline in net sales of 4.4% y-o-y to EUR3.6bn (USD4.2bn) in its Q118 financial results, due to negative
foreign exchange effects and continuing market share decline in the company's performance materials business segment in
China.
North China Pharmaceutical Corporation

SWOT Analysis
Strengths • NCPC is one of the leading pharmaceutical companies in the Chinese market.
• NCPC has a well-established, sizeable infrastructure with many subsidiaries.
• Well-established R&D operations with active involvement in the biotech field.
Weaknesses • Largely basic product portfolio.

• Rising foreign and local company competition.
• Rising local manufacturing sector competition.
• Vulnerable to low levels of intellectual property protection.
• Pressure from Asian API producers.
Opportunities • Overall market growth and rising demand for healthcare from a growing burden of chronic diseases.
• Strong biotech sector presence.
Threats • Increased interest by foreign players in the Chinese marketplace.

• Impact on sales due to an increasingly competitive marketplace.
Company Overview
Established in 1953, North China Pharmaceutical Group Corporation (NCPC) is a leading pharmaceutical manufacturer in China. Its
products include raw materials and finished preparations of antibiotics, semi-synthetic antibiotics, vitamins, biotechnology drugs,
immunosupressers, nutraceuticals, veterinaries and herb extracts. In 2003, NCPC has established business relationship with over 60
countries and regions around the world. NCPC has the full-line facilities with cGMP level and has the ability to supply complete
dosage forms to international generic market of both non-regulated and regulated countries.
Strategy
Located in Hebei Province, NCPC has eight production platforms: microbial pharmaceutical; chemical synthesis pharmaceutical;
biochemical pharmaceutical; modern biotechnology; natural drug extraction; nutritional healthcare products; bio-energy; and
biochemicals. NCPC now has 29 subsidiaries. Among which North China Pharmaceutical is a listed company at Shanghai Stock
Exchange with 59.87% of shares held by NCPC. NCPC is one of the four groups of the candidate enterprises approved by the China
Securities Regulatory Commission for overseas listing. Keeping in close cooperation with foreign companies and institutions, NCPC
has established 16 joint ventures and cooperative ventures. NCPC currently produces over 430 kinds of antibiotics, semi-synthetic
antibiotics, pharmaceutical intermediates, synthetic vitamins, biotechnology products, veterinary and neutraceuticals both in bulk
and in finished products. NCPC sells bulk antibiotics 7,000 tonnes (6,900 long tonnes; 7,700 short tonnes), vitamins 10,000 tonnes,
antibiotic intermediates 7,500 tonnes, powder for injection 1.8bn vials, capsules 1.03bn grains annually.
NCPC uses economies of scale to produce medicines at a very low cost to meet the growing local demand. The company is active
in all therapeutic sub-sectors but focuses on anti-infectives, which are extremely popular in China. However, over the medium term,
growth in sales of anti-infectives is set to underperform compared with other therapeutic categories, primarily with the introduction
of rational prescribing. To offset reduced sales, we expect NCPC to increase its focus on higher margin pharmaceuticals, such as
biosimilars.
Novartis
SWOT Analysis
Strengths • Strong domestic manufacturing capacity in China.
• Expansion of healthcare services and healthcare system reform in the country.

pose challenges to multinational drugmakers.
Opportunities • Rising population numbers.

• Expansion of healthcare coverage and a rising burden of chronic diseases.
• The development of a new pharmaceutical plant to enhance the company's manufacturing capabilities in
the country.
• Healthcare modernisation to assist Novartis's penetration of rural markets.
• Wide-ranging price cuts and downward price pressures on medicines.
Company Overview
Emboldened by strong financial results, the Swiss multinational drugmaker, Novartis has increased its activities in China over the
past decade. The company intends to boost sales in rural areas, sell more vaccines and generic drugs, and ramp up original R&D in
the country. This strategy presents the company with an advantage over other large drugmakers due to its full-spectrum approach,
which lessens reliance on patented drugs. However, cost-cutting pressures have led the company to scale down some of its local
research operations.
Strategy
Novartis’ emerging market growth strategy will continue to expand and diversify the company's commercial operations. While
developed markets will maintain a dominant share of the company's business operations, the drugmaker continues to roll out a
host of healthcare projects in key emerging markets within the Asia Pacific region, including China.
Since entering China in 1886, the Swiss drugmaker has established end-to-end R&D capabilities in the country which includes
capacity for discovery, clinical development and manufacturing of innovative medicines. It has two manufacturing sites in Shanghai
and Suzhou. Currently, the firm owns a number of subsidiaries present in the country: Novartis Pharmaceuticals, Novartis Oncology
(innovative drugs), Alcon (eye care) and Sandoz (generic drugs). The drugmaker has two R&D centres nationwide employing around
7,000 people across China.
China continues to lead pharmaceutical sales in the emerging markets for Novartis and the multinational drugmaker's product
portfolio is well suited to benefit from the growing demand for chronic disease products, with further support provided by efforts to
boost disease awareness and education among healthcare professionals. In June 2016, the Swiss drugmaker invested more than
USD1bn to develop its new R&D centre located in the midst of the cluster of academic, biotech, and pharmaceutical research
institutions in Shanghai’s Zhangjiang Hi-Tech Park, making it Novartis’ third major research centre after Basel (Switzerland) and
Cambridge (US). The research centre will focus on diseases more prevalent in China, such as lung, liver and gastric cancer. As such,
Novartis’ support of research into chronic diseases in China will enhance its already established presence in the country's
pharmaceutical market.
Recent Developments
2018
• The CEO of Novartis, Vasant Narasimhan stated the company’s aim ‘to more than double the pharmaceutical giant's sales in
China over the next five years and gain faster reimbursement for cutting-edge cancer drugs such as CAR-T treatments, as the
country speeds up approvals.’
• In a bid to make foreign oncology drugs more affordable for the Chinese population, on March 20 2018, Li Keqiang announced
the government’s aim to eliminate import taxes on cancer drugs, providing a boon for global drugmakers such as Novartis,
Roche, AstraZeneca, looking to the world’s second-biggest pharmaceutical market for growth.
• In December 2018, Novartis division Sandoz partnered with Chinese manufacturer Gan & Lee to bring biosimilar insulins to the
US and EU.
Financial Performance
2018
• Emerging markets (all markets except the US, Canada, Western Europe, Australia, New Zealand and Japan) remain a key growth
driver for Novartis. The firm experienced moderate growth of 2% y-o-y in US dollar terms and 10% cc, to USD3.1bn, driven by a
strong performance in China (+13% in US dollar terms, +15% cc). The Asian country will continue to provide opportunities to
expand, as pricing pressures in the US pose downside risks for Novartis.
Pfizer
SWOT Analysis
Strengths • Financial capability, wide product portfolio and industry experience to exploit the fast-developing Chinese
drug market.
• Strong domestic manufacturing capacity.

Opportunities • With far-reaching healthcare reforms and the introduction of universal health insurance, China should offer
massive sales and profit opportunities.
• Rising burden of chronic diseases.
• Strong patented market growth in China.
• Wide-ranging price cuts and downward price pressures on medicines.
Company Overview
Pfizer first established its operations in China in 1983 and employs 11,000 people currently. Known locally as 'Huī ruì', Pfizer initially
targeted the relatively affluent east coast cities, such as Beijing and Shanghai, and is currently present in around 170 urban areas.
The company is ranked the number one foreign biopharmaceutical company in China. It has launched over 50 innovative drugs in
the country and has operations in over 300 cities.
Strategy
Pfizer is a market leader in China's cardiovascular and antibiotic market and has four state-of-the-art manufacturing facilities in the
country. It has invested over USD1bn in China to date and employs over 11,000 employees in the country. With the advent of far-
reaching healthcare reforms and the introduction of universal health insurance in China, the company is concentrating on
maximising brand awareness, engaging in the rural cooperative medical scheme and reaching 'as many people as possible', through
differential pricing. The company has continuously been offering a broad innovative product portfolio and actively collaborating
with health service providers, academia and governments to support the rapid growth of healthcare in China.
Pfizer manufactures and supplies pharmaceutical products for cardiovascular disease, endocrinology, neuroscience, arthritis and
other inflammatory diseases, infectious diseases, urology, ophthalmology and oncology in the country. The company markets more
than 40 products in China, including the leading brands Lipitor, Norvasc, Celebrex, Viagra, Diflucan (fluconazole), Zithromax
(azythromycin), Zoloft and Champix (varenicline). As in most other markets, US-based Pfizer's Lipitor (atorvastatin) is the best-selling
drug in China for the treatment of hypercholesterolaemia.
Recent Developments
2018
• In December 2018, Pfizer announced that it is set to implement a new retail, hospital services and internet healthcare strategy in
China as part of a deal with local online pharmacy and health services platform Jianke.
2018
• China is Pfizer's leading emerging market, with sales increasing by 24% in the first nine months of 2018. Albert Bourla, Chief
Operating Officer, said that Pfizer will increase investment in the China and will give the country’s management team more
autonomy to deliver long-term commercial opportunities. Within China, sales of Pfizer’s cardiovascular and anti-infectives
products have performed particularly well. Pfizer has also put more focus on the county-level hospitals, rather than just the large
hospitals in the Tier 1 cities.
Roche
SWOT Analysis
Strengths • Capital strength and experience to penetrate the fast-growing Chinese market.
• Innovative and broad product portfolio targeting some of China's fastest-growing and most lucrative
therapeutic areas.
• Well-established manufacturing presence.
• Expansion of healthcare services and healthcare system reform.

operational costs.
• Strong patented product market growth.
Threats • Wide-ranging price cuts and downward price pressures on medicines.

• Need for cost-containment in public healthcare expenditure, given population ageing.
Company Overview
Roche - established in China in 1997 - operates two core businesses, diagnostics and pharmaceuticals. The company manufactures,
markets and sells prescription pharmaceuticals for the central nervous system and infectious diseases, cardiovascular diseases,
inflammatory and auto-immune diseases, dermatology, metabolic disorders and respiratory diseases. The company has over 40
branch offices nationwide with the headquarters located in Shanghai.
Strategy
Since entering China in 1997, Roche has established end-to-end R&D capabilities in the country, from discovery to clinical
development and the manufacturing of innovative medicines and diagnostic solutions. Its comprehensive presence includes
manufacturing sites in Shanghai and Suzhou. The Swiss drugmaker operates in China through three wholly owned companies:
Roche China, Roche Diagnostics (Shanghai) and Roche Fine Chemicals. The company also holds stakes in a number of joint
ventures including Shanghai Roche Pharmaceuticals and Roche Zhongya (Wuxi). The company's China headquarters is based in
Shanghai and the firm has more than 5,000 employees in the country.
China will continue to lead pharmaceutical sales in the emerging markets for multinational drugmakers such as Roche and the
Swiss pharmaceutical firm’s product portfolio is well suited to benefit from the growing demand for diabetes and oncology
products, with further support provided by government efforts to boost disease awareness and education among healthcare
professionals. Moreover, changes to China's National Reimbursement Drug List (NRDL) will shape the country's pharmaceutical
market and provide subsequent opportunities for Roche.
Recent Developments
2018
• In August 2018, Roche’s Alecensa lung cancer medicine became the latest beneficiary of China’s efforts to speed up approvals in
the world’s second-biggest drug market.
• In a bid to make foreign oncology drugs more affordable for the Chinese population, on March 20 2018, Li Keqiang announced
the government’s aim to eliminate import taxes on cancer drugs, providing a boon for global drugmakers such as Novartis,
Roche, AstraZeneca, looking to the world’s second-biggest pharmaceutical market for growth.
• Post the listing of Herceptin on the NRDL, the rapid uptake and demand of the medicine resulted in a nationwide shortage and
overwhelmed Roche’s current production capacity. Roche applied to change Herceptin's existing production site in China to a
higher-capacity plant soon after it received shortage reports. During a press statement in June 2018, Roche’s spokesperson, Anja
von Treskow, stated that ‘the significant reduction of patients’ out-of-pocket payments led to the rapid increase of demand for
Herceptin.’
2018
• In the International region, sales grew 8%, led by the Asia Pacific and Latin America sub-regions. In the Asia Pacific region, growth
was driven by sales in China, which continues lead pharmaceutical sales in the emerging markets for Roche due to additional
reimbursement as well as broader market penetration for legacy products Avastin (bevacizumab), Rituxan (rituximab) and
Herceptin (trastuzumab).
Sanofi
SWOT Analysis
drug market.
• Considerable domestic manufacturing capacity in China.
• Strong presence in the cardiovascular and cancer therapeutic areas, as well as rare diseases and vaccines.
Weaknesses • Strong local and foreign competition.

Opportunities • Potential for R&D activity expansion by drawing on a highly skilled, yet low-cost pool of local scientists,
together with low operational costs.
Threats • Price caps on prescription medicines.

• Government resistance to revising its overly bureaucratic and discriminatory pricing and reimbursement
policy.
• Lack of clarity over the process for future product inclusion on the essential drugs list.
Company Overview
Sanofi has a strong interest in China and offers a broad product portfolio, including vaccines. The company employs 6,000 people in
200 Chinese cities and has manufacturing plants in Beijing, Hangzhou and Shenzen.
Strategy
China is a key country for Sanofi globally. The pharmaceutical firm has been operating in the country since 1982 and in order to
meet the needs of public health in China, the company actively engages in the healthcare ecosystem by partnering with scientific
research institutions, universities, disease associations, peer companies, and a variety of professional platforms through multi-
dimensional strategic partnerships. The new hub builds on Sanofi’s existing presence in China, which includes the Sanofi China
headquarters in Shanghai along with 11 regional offices. With the China R&D Centre and the Asia-Pacific R&D Centre in Shanghai,
combined with Sanofi China’s other offices, the company employs 9,500 in the region.
Recent Developments
2018
• In September, it was announced that Sanofi will give its business in China a more prominent billing in how it presents financial
results, highlighting the growing importance of the country's pharmaceutical market to the French drugmaker.
• In May, Sanofi and China’s Ping An Insurance Group signed a memorandum of understanding for a strategic partnership to
actively support the Healthy China 2030 blueprint that positions health as an indispensable prerequisite for people's overall well-
being as well as the foundation of China's economic and social progress. The two companies will collaborate in three key areas:
health awareness, quality of care and affordability of care. Sanofi and Ping An are currently working on a Clinical Decision
Support System program in a bid to better understand how diabetes patients are treated, which will help the two companies to
jointly offer integrated solutions to improve diabetes management in China.
• In July, Sanofi announced its plans of increasing its R&D presence in China, by establishing a global research hub focused on data
analysis in Chengdu, a provincial capital in the southwest of China. The French drugmaker will invest EUR66mn (USD77mn) to
support clinical research and development of innovative drugs by focusing on managing global multi-centre clinical trial data.
Bringing together global data and analysis, the hub will accelerate the availability of trial results, from Phase I to Phase IV.
• In November, Sanofi announced that it plans to set up its first research institute in China, in the eastern city of Suzhou, to further
expand its presence in the world's most populous country.
2018
• Asia Pacific generated EUR1,028mn (USD1,165.8mn) of sales in Q318 of which China was EUR644mn (USD730.3mn).
Shanghai Pharmaceuticals Holding Co

SWOT Analysis
Strengths • Leading position in both pharmaceutical product and distribution markets.
• National distribution network with a focus on direct sales to hospitals.
Weaknesses • Largely basic product portfolio.

• Rising multinational and local company competition.
Opportunities • Overall market growth and rising demand for healthcare given the demographic and epidemiological trends.
• Government encouragement towards local production.
Threats • Increasing competition from both local and international players.

• Sizeable counterfeit drug industry.
Company Overview
Shanghai Pharmaceuticals Holding is one of the few companies in China that has a leading position in both pharmaceutical product
and distribution markets. The company's core business is in pharmaceuticals and covers four major activities: R&D, manufacturing,
distribution and retailing. The company was founded on January 18 1994 and is headquartered in Shanghai, China. Shanghai
Pharmaceutical is listed on both the Shanghai Stock Exchange and Hong Kong Exchange. The company is focused on five
therapeutic areas of digestive and metabolic systems, cerebral and cardiovascular diseases, infectious diseases and oncology.
Strategy
Shanghai Pharmaceuticals Holding is engaged in the research and development, manufacturing, distribution and retailing of
pharmaceutical products. It operates through the following segments: pharmaceutical, distribution and supply chain solutions,
pharmaceutical retail and other operations. The company's manufacturing facilities provide products ranging from chemicals and
biochemical to modern TCM (Traditional Chinese Medicine), healthcare products and medical devices.
Shanghai Pharmaceutical manufactures and markets a broad range of pharmaceutical products out of which 70% of the drugs are
listed on the National Essential Drug List. The company's products are manufactured according to stringent quality standards and
its facilities have attained a good manufacturing practice (GMP) certification. Some of Shanghai Pharmaceutical's well-known
trademarks include Sine, Leishi, Longhu and Cangsong. Out of all of its pharmaceutical products, chemical and modern Chinese
drugs occupied the largest shares in its pharmaceutical products revenues.
Moreover, the company has built strategic alliances in innovative drug R&D with the following institutions and corporations:
Shanghai Institute of Materia Medica; China Pharmaceutical University; Shengyang Pharmaceutical University; Mitsubishi Tanabe
Pharma Co.; Second Military Medical University; Shanghai Fudan Zhangjiang Biopharm. The company has also established close
relationships with major domestic and foreign drug manufacturers through supply chain solutions such as modern logistics,
information support and point of sale distribution, which covers more than 27,000 hospitals. The company has a nationwide
commercial network and an efficient, agile, smart and modern supply chain service.
Recent Developments
2018
• In January, Shanghai Pharmaceuticals Holding Co announced its plan to sell HKD3.1bn worth of new shares to fund the
development of its manufacturing and distribution businesses.
• In December, Shanghai Pharmaceutical’s subsidiary, Shanghai Pharma Sine Pharmaceutical Factory passed the quality
consistency evaluation for generic drugs and received the 'Supplementary Application Approval for Pharmaceuticals' for its
Metformin Hydrochloride Sustained-Release Tablets from the National Medical Products Administration (NMPA).
2018
• In the first quarter of 2018, the company achieved CNY4.9bn of sales revenue in the pharmaceutical industry, representing a y-o-
y growth of 30.82% compared to the corresponding period of last year and 59.44% of gross profit rate.
Sinopharm
SWOT Analysis
Strengths • Access to foreign investment through its listing on the Hong Kong Stock Exchange.
• A commitment to both organic and inorganic growth.
• Well-established manufacturing capacity.
• Widespread pharmaceutical and medical distribution network covering 31 provinces, autonomous regions
and municipalities and 30 international standard distribution centres.
Weaknesses • Minimal presence in foreign markets.

• Strong competition from other domestic manufacturers.
• Vulnerable to low levels of intellectual property protection.
Opportunities • Acquiring another drug distributor to achieve critical mass.

• Increasing demand for medicines in the local market due to demographic and epidemiological trends.
• Leveraging a strong distribution network.
• Government emphasis on local production of medicines.
Threats • Strong local and regional competition.
Company Overview
State-owned Sinopharm was jointly founded in 1998 by China Pharmaceutical Group, China National Pharmaceutical Industry
Corporation, China National Pharmaceutical Foreign Trade and Corporation and China National Medical Equipment. It is managed
directly by China National Pharmaceutical Group Corporation (CNPG) and has 16 subsidiaries and holding companies along with five
listed companies, namely Sinopharm Group, China National Medicines, Beijing Tiantan Biological Products, Shyndec Pharmaceutical
and Shenzhen Accord Pharmaceutical. The sheer size of the organisation enables it to engage in various pharmaceutical activities
such as distribution, R&D and retail pharmacies.
Strategy
Sinopharm has 10 wholly-owned and share-holding subsidiary companies and six listed companies, covering every aspect of the
medical and healthcare industry. The company's core business is medical distribution and logistics. Given the country's vast size and
huge population, distributing pharmaceuticals in China is a formidable task in practice, fraught with numerous challenges. One
particularly significant barrier is the transporting of medicines to the people in rural locations, where per capita income is low and
operations are therefore less profitable.
In distribution, Sinopharm owns a medical distribution network and 30 distribution centres with international standards and close to
3,000 retail outlets in 31 provinces, autonomous regions and municipalities. As a leading provider of supply chain services, the
company is also the largest retailer of medicines, healthcare products and medical equipment.
2017
• In December 2017, Walgreens announced its decision to further expand its global retail pharmacy business by buying a 40%
stake in Sinopharm Holding Guoda Drugstores, one of the leading pharmacy chains in China, under the state-owned China
National Pharmaceutical Group Corporation (Sinopharm).
• In April 2017, Sinopharm International signed a contract with Serbia's Ministry of Health to supply more than CNY1.0bn worth of
medical equipment to Nis Clinical Center.
• In July 2017, Sinopharm expressed interest in buying Cardinal's China operations. Cardinal is one of China's largest drug
distributors
China Demographic Outlook

Demographic analysis is a key pillar of our macroeconomic and industry forecasting model. Not only is the total population of a
country a key variable in consumer demand, but an understanding of the demographic profile is essential to understanding issues
ranging from future population trends to productivity growth and government spending requirements.
The accompanying charts detail the population pyramid for 2017, the change in the structure of the population between 2017 and
2050 and the total population between 1990 and 2050. The tables show indicators from all of these charts, in addition to key
metrics such as population ratios, the urban/rural split and life expectancy.
Population
(1990-2050)
f = Fitch Solutions forecast. Source: World Bank, UN, Fitch Solutions
China Population Pyramid

2017 (LHS) & 2017 Versus 2050 (RHS)
Source: World Bank, UN, Fitch Solutions
POPULATION HEADLINE INDICATORS (CHINA 1990-2025)

Indicator 1990 2000 2005 2010 2015 2020f 2025f
Population, total, '000 1,172,445.2 1,283,199.0 1,321,623.5 1,359,755.1 1,397,028.6 1,424,548.3 1,438,835.7
Population, % y-o-y 0.61 0.58 0.57 0.50 0.32 0.13
Population, total, male, '000 601,588.5 659,001.0 679,544.3 699,882.2 719,760.0 734,089.9 741,194.6
Population, total, female, '000 570,856.7 624,198.0 642,079.2 659,872.9 677,268.6 690,458.4 697,641.1
Population ratio, male/female 1.05 1.06 1.06 1.06 1.06 1.06 1.06
na = not available; f = Fitch Solutions forecast. Source: World Bank, UN, Fitch Solutions
KEY POPULATION RATIOS (CHINA 1990-2025)
Indicator 1990 2000 2005 2010 2015 2020f 2025f
Active population, total, '000 768,970.1 878,511.0 957,033.4 1,002,840.2 1,014,777.3 1,002,171.9 995,649.4
Active population, % of total population 65.6 68.5 72.4 73.8 72.6 70.4 69.2
Dependent population, total, '000 403,475.1 404,687.9 364,590.1 356,914.9 382,251.3 422,376.4 443,186.3
Dependent ratio, % of total working age 52.5 46.1 38.1 35.6 37.7 42.1 44.5
Youth population, total, '000 337,208.0 316,039.6 262,894.1 242,692.0 247,072.8 248,745.5 239,489.8
Youth population, % of total working age 43.9 36.0 27.5 24.2 24.3 24.8 24.1
Pensionable population, '000 66,267.2 88,648.4 101,696.0 114,222.9 135,178.5 173,630.9 203,696.5
Pensionable population, % of total working age 8.6 10.1 10.6 11.4 13.3 17.3 20.5
URBAN/RURAL POPULATION & LIFE EXPECTANCY (CHINA 1990-2025)
Indicator 1990 2000 2005 2010 2015 2020f 2025f
Urban population, '000 310,018.0 460,373.3 561,980.7 669,353.0 776,943.5 869,344.8 940,897.8
Urban population, % of total 26.4 35.9 42.5 49.2 55.6 61.0 65.4
Rural population, '000 862,427.2 822,825.7 759,642.7 690,402.1 620,085.1 555,203.4 497,937.9
Rural population, % of total 73.6 64.1 57.5 50.8 44.4 39.0 34.6
Life expectancy at birth, male, years 67.7 70.4 72.5 73.8 74.6 75.4 76.2
Life expectancy at birth, female, years 71.0 73.7 75.6 76.8 77.7 78.5 79.3
Life expectancy at birth, average, years 69.3 72.0 74.0 75.2 76.1 76.9 77.7
POPULATION BY AGE GROUP (CHINA 1990-2025)
Indicator 1990 2000 2005 2010 2015 2020f 2025f
Population, 0-4 yrs, total, '000 133,229.7 81,757.5 79,269.3 82,581.4 85,884.7 80,836.8 73,272.3
Indicator 1990 2000 2005 2010 2015 2020f 2025f
Population, 90-94 yrs, total, '000 340.1 752.7 1,133.6 1,554.6 1,868.7 2,427.4 3,203.1
Population, 95-99 yrs, total, '000 43.7 110.6 169.7 272.3 400.9 503.0 675.8
Population, 100+ yrs, total, '000 3.3 9.2 16.9 29.2 51.5 79.4 104.0
POPULATION BY AGE GROUP % (CHINA 1990-2025)
Indicator 1990 2000 2005 2010 2015 2020f 2025f
Population, 0-4 yrs, % total 11.36 6.37 6.00 6.07 6.15 5.67 5.09
Population, 100+ yrs, % total 0.00 0.00 0.00 0.00 0.00 0.01 0.01
Pharmaceuticals & Healthcare Glossary

Terms Used In Datasets, Daily Analysis And Reports
Pharmaceuticals, medicines, drugs: synonym terms used interchangeably.
Pharmaceutical market/sales: the sum of revenues generated by generic, patented and over-the-counter (OTC) drugs through
hospitals, retail pharmacies and other channels. Unless otherwise stated, market value is reported at final consumer price including
mark-ups, taxes, etc.
Prescription drugs: patented and generic medicines regulated by legislation that requires a physician's prescription before they
can be sold to a patient.
Patented drug: an innovative medicine granted intellectual property protection by a patent office. The patent may encompass a
wide range of claims, such as active ingredient, formulation, mode of action, etc, giving the patent holder the sole right to sell the
drug while the patent is in effect.
Generic drug: a bioequivalent medicine that contains the same active ingredient as an originator drug. The originator drug is an
innovative medicine that no longer has intellectual property protection due to patent expiry. The definition for generic drugs
includes off-patent originator medicines.
Over-the-counter (OTC) drug: a medicine that does not require a prescription to be sold to patients. Also known as non-
prescription medicines.
Biosmilar: a drug that is similar to a biological reference product, and which is manufactured by a company other than the
originator. Regulatory approval of biosimilars is technically possible following patent expiry of the reference product. There are
several terms used to describe these drugs in various markets, including 'similar biologics' (India), 'similar biological products'
(Singapore) and 'subsequent entry biologics' (Canada). However, biosimilars is the official name given in the EU pharmaceutical
directives, and that was adopted in the 2010 US legislation.
Healthcare expenditure: government and private spending on medical products and services. This includes the purchase of
healthcare services and goods by public entities such as ministries and social security institutions; government purchase of new
assets including investments into buildings, machinery (capital expenditure); or by private entities such as non-profit institutions and
households. The inclusion of this factor in our forecasts necessitates taking into account the essential attributes of country-specific
healthcare sector characteristics such as comprehensiveness, consistency, standardisation and timeliness. The inclusion of this
factor in our forecasts necessitates taking into account the essential attributes of country-specific healthcare sector characteristics
such as comprehensiveness, consistency, standardisation and timeliness.
Government healthcare expenditure: (includes capital healthcare expenditure): refers to current healthcare expenditure which
includes healthcare goods and services used or consumed during the year, capital expenditure on assets, restoration or
enhancement paid by government entities such as a ministry of health, other ministries, parastatal organisations and social security
agencies, including transfer payments to households to offset medical care costs and extra-budgetary funds to finance healthcare
provision.
Private healthcare expenditure: spending on health by private entities such as commercial or mutual health insurance
providers, households, non-profit institutions serving households, resident corporations and quasi-corporations not controlled by
governments.
Medical devices: equipment and products used for diagnosis or therapy in patients. Whereas pharmaceuticals achieve their
principal action by pharmacological, metabolic or immunological means, medical devices act by physical or mechanical means.
Medical devices include a wide range of products, including syringes, thermometers, blood glucose tests, prosthetic limbs,
ultrasound scans and X-ray machines.
Clinical trials: for the purposes of registration, a clinical trial is any research study that prospectively assigns human participants or
groups of humans to one or more health-related interventions to evaluate the effects on health outcomes. Clinical trials may also be
referred to as interventional trials. Interventions include, drugs, cells and other biological products, surgical procedures, radiologic
procedures, devices, behavioural treatments, process-of-care changes and preventive care. This definition includes Early Phase I to
Phase IV trials.
Hospitals: health facilities larger than clinics, including general hospitals, specialised hospitals, public hospitals and private hospitals.
Hospital beds: a piece of furniture for recovery from illness, available at all facilities classified as hospitals by the relevant national
statistical office.
Public inpatient admission: a person receiving medical treatment overnight in a hospital as defined by the relevant national
statistical organisation. Excludes outpatient (non-overnight) visits. Units: thousands of visits.
Outpatient visit: a person who is not hospitalised overnight but who visits a hospital, clinic or associated facility for diagnosis or
treatment.
Physician: a skilled healthcare professional trained and licensed to practice medicine.
Proprietary Tool Terminology
Disease Database: a fully country-comparative interactive tool that provides dynamic forecasts of the burden and number of
deaths of 268 diseases and injuries in 178 countries, from 1990 to 2030. Fitch Solutions’ disease database incorporates WHO, World
Bank, IMF and Fitch Solutions data to create a proprietary dataset. The data is quantified as the sum of disability-adjusted life years
lost to a disease in a particular country.
Disability-adjusted life years (DALYs): the sum of the years of life lost (YLL) due to premature mortality in a population and the
years lost due to disability (YLD) for incident cases of the health condition. The DALY is a health gap measure that extends the
concept of potential years of life lost due to premature death (PYLL) to include equivalent years of 'healthy' life lost in states of less
than full health (broadly termed 'disability'). One DALY represents the loss of one year of equivalent full health.
Communicable disease: an infectious disease transmissible (as from person to person) by direct contact with an affected
individual or the individual's discharges or by indirect means (as by a vector).
Non-communicable disease: also known as chronic diseases, non-communicable diseases are not passed from person to
person. They are of long duration and generally of slow progression.
Innovative Pharmaceuticals Risk/Reward Index (RRI): quantifies and ranks a country's attractiveness in terms of its
pharmaceuticals industry; it balances the Risks and Rewards of launching innovative medicines in different countries. It should be
emphasised that the RRI broadly assess the rewards and the risks that a company will face when looking to launch an innovative
drug in a market. For example, we do not differentiate between drugs that are part of different therapeutic groups or whether the
drug being launched is the first to be launched in the market or will be one of the many different drugs of the same therapeutic
class that has been launched in the market.
Rewards: this component of the RRI is composed of an evaluation of an industry's size and growth potential (Industry Rewards),
and also macro industry and/or country characteristics that directly impact the size of business opportunities in a specific sector
(Country Rewards).
Risks: this component of the RRI is composed of an evaluation of micro, industry-specific characteristics, crucial for an industry to
develop to its potential (Industry Risks) and a quantifiable assessment of the country's political, economic and operational profile
(Country Risks).
Acronyms
CAGR: compound annual growth rate
WHO: World Health Organization
LHS: left-hand side
RHS: right-hand side
EUR: euro
USD: US dollar
Pharmaceuticals & Healthcare Methodology

Pharmaceutical Expenditure Forecast Model
Historic pharmaceutical market data is collected from a range of sources, including:
• regulatory agencies;
• pharmaceutical trade associations;
• company press releases and annual reports;
• subscription information providers;
• local news sources;
• information from market research firms that is in the public domain.
Currently available data varies in confidence levels, so it is calibrated by Fitch Solutions’ Pharmaceuticals & Healthcare analysts. In
the absence of a complete time series of numbers, intermediate years are calculated from secondary sources. This 'composite'
approach is used to ensure the accuracy and consistency of historic data, which is crucial for reliable forecasts.
To remove the effect of inflation, real pharmaceutical expenditure figures are then calculated by removing the annual average
consumer price index (CPI).
Real per-capita pharmaceutical expenditure numbers are calculated by dividing by population figures.
A linear regression (see Note 3 for explanation) is then performed on five years of real per-capita pharmaceutical expenditure
against real per-capita final consumption (see Note 4 for explanation). From analysis of the top 130 economies, Fitch
Solutions has established a strong statistical relationship between pharmaceutical expenditure and final consumption expenditure
(r = 0.985).
Healthcare Expenditure Forecast Model
Historic government and private healthcare expenditure data is sourced from the World Health Organization (WHO)’s Global Health
Expenditure Database, which contains the National Health Accounts (see Note 1 for explanation). This methodology has been used
for a few markets including Hong Kong, Taiwan, Somalia, Puerto Rico, Kosovo, Burkina Faso, Cuba and North Korea. This is due to
elements of healthcare sector-financed expenditures being omitted in the System of Health Accounts 2011 methodology, owing to
lack of appropriate methods and data sources.
For the remainder of the markets, historic government and private healthcare expenditure data is sourced from the World Health
Organization (WHO)’s Global Health Expenditure Database, which contains the System of Health Accounts 2011 (see Note 2 for
explanation). In December 2017, WHO released estimates of health expenditures through an updated framework called the System
of Health Accounts 2011. The new classification now captures more accurately the health financing reforms taking place in
member states, and enables more insightful and policy relevant analysis to be conducted. Each country’s health expenditure
estimates are available in absolute amounts in national current units (NCU) and common currencies including US dollars (USD) and
international dollars at purchasing power parity (PPP).
To remove the effect of inflation, real healthcare expenditure figures are then calculated by removing the annual average CPI.
Real per-capita healthcare expenditure numbers are calculated by dividing by population figures.
A linear regression is then performed (see Note 3 for explanation). This is first on five years of real per-capita public healthcare
expenditure against real per-capita government final consumption expenditure (see Note 4 for explanation). This generates a
10-year forecast of future real per-capita public healthcare expenditure figures from 'known' projected real per-capita government
final consumption expenditure figures. Another linear regression is simultaneously performed on real per-capita private healthcare
expenditure against real per-capita private final consumption expenditure.
To generate the nominal public healthcare spending forecast, population and CPI numbers are returned to both real per-capita
public healthcare expenditure figures and real per-capita private healthcare expenditure figures.
The overall healthcare expenditure forecast is then calculated by combining public and private healthcare expenditure.
Notes On Methodology
Note 1: National Health Accounts methodology. The global health expenditure database that WHO has maintained for the past ten
years, provides internationally comparable numbers on national health expenditures. WHO updates the data annually, taking,
adjusting and estimating the numbers based on publicly available reports (national health account reports, reports from the Ministry
of Finance, Central Bank, National Statistics Offices, public expenditure information and reports from the World Bank, the
International Monetary
Fund, etc). The estimates are sent out to the Ministries of Health for validation prior to publication but users are advised that country
data may still differ in terms of definitions, data collection methods, population coverage and estimation methods used. This
database is the source for the health expenditure tables in the World Health Statistics Report and the WHO Global Health
Observatory.
Note 2: System of Health Account 2011
In response to the pressing need for reliable and comparable statistics on health expenditure and financing, the OECD, in co-
operation with experts from OECD member countries, developed the manual, A System of Health Accounts (SHA), releasing the
initial 1.0 version in 2000. Building on SHA 2000, the OECD worked with the World Health Organization (WHO) and Eurostat to
publish A system of health accounts 2011 edition (SHA 2011). The formal process of producing SHA 2011 started in 2007 as a co-
operative activity of health accounts experts from the OECD, WHO and Eurostat, known collectively as the International Health
Accounts Team (IHAT). The resulting manual has been the subject of an extensive and wide-reaching consultation process aimed at
gathering inputs from national experts and other international organisations around the world.
This year, the WHO reported healthcare expenditure data using the framework of System of Health Accounts 2011 (SHA 2011). The
macro-economic variables were also updated to calculate some indicators. At present, National Health Accounts (previously used
methodology) are at different stages of development in various countries and may not only differ in the boundaries drawn between
health and other social and economic activities but also in the classifications used, the level of detail provided and in the accounting
rules.
The SHA 2011 framework makes health accounts more adaptable to rapidly evolving health financing systems, further enhances
cross-country comparability of health expenditures and financing data, and ultimately improves the information base for the
analytical use of national health accounts (NHAs). SHA 2011 reinforces the tri-axial relationship and the description of healthcare
and long-term care expenditure – that is, what is consumed has been provided and financed. The framework provides an approach
that better reflects the complex and changing systems of healthcare financing, eliminates ambiguities regarding some of the
financing categories, provides new approaches for country-specific analysis and is sufficiently flexible to accommodate future
changes. The framework also allows middle and low-income countries to provide a more transparent picture regarding foreign
assistance.
In summary, the SHA 2011 financing framework increases the transparency of health financing systems, creating the possibility to
monitor changes, compare health expenditures across countries and over time, as well as providing better information for analysis
of the performance of healthcare financing systems. This is due to the clear distinction between the following four elements:
financing schemes, financing agents managing the schemes; revenues of each scheme and the institutional units providing those
revenues.
Note 3: Linear regression equation.
y = mx + b
Where y = unknown variable, m = slope of gradient, x = known variable, and b = where the line crosses the y-axis.
Note 4: Final consumption is the sum of government final consumption expenditure and private final consumption expenditure.
Government final consumption expenditure is the sum of expenditure on final goods and services made by the government.
Included in this are investments into healthcare infrastructure, buildings, machinery, public sector salaries, but it does not include
transfer payments such as unemployment benefits or pensions. Private final consumption expenditure is the sum of all private
consumption of goods and services within the economy, including both durable and non-durable goods. Housing purchases,
however, are excluded. Government final consumption expenditure and private final consumption expenditure are the 'G' and 'C' in
this equation:
GDP = C + I + G + (X - M)
Where GDP = gross domestic product, C = private final consumption expenditure, I = gross investment, G = government final
consumption, X = exports, and M = imports.
Innovative Pharmaceuticals Risk/Reward Index Methodology
Our Innovative Pharmaceuticals Risk/Reward Index (RRI) quantifies and ranks a country's attractiveness in terms of its
pharmaceuticals industry; it balances the Risks and Rewards of launching innovative medicines in different countries. It should be
emphasised that the RRI broadly assesses the rewards and the risks that a company will face when looking to launch an innovative
drug in a market. For example, we do not differentiate between drugs that are a part of different therapeutic groups or whether the
drug being launched is the first to be launched in the market or will be one of the many different drugs of the same therapeutic
class that has been launched in the market.
To form a country's RRI score, we combine industry-specific characteristics with broader economic, political and operational market
characteristics. We weigh these inputs in terms of their importance to investor decision making in a given industry - in this case, that
of innovative pharmaceuticals. The result is a nuanced and accurate reflection of the realities facing investors in terms of the
balance between: 1) opportunities and risk; and 2) sector-specific and broader market traits. This enables users of our RRI to assess a
market's attractiveness in both a regional and global context.
The RRI also encompasses a combination of our proprietary forecasts and analyst assessment of the regulatory climate, as well as
globally acceptable benchmark indicators (eg, the World Bank's Ease Of Doing Business Scores and Transparency International's
Corruption Perceptions Index). As regulations evolve and forecasts change, so does the RRI score, providing a highly dynamic and
forward-looking result.
The Innovative Pharmaceuticals RRI universe comprises 110 countries.
Benefits Of Using Fitch Solutions’ Innovative Pharmaceuticals RRI
• Global Rankings: One global table, ranking 110 countries for the launch of innovative pharmaceuticals from least (closest to zero)
to most attractive (closest to 100).Accessibility: Easily accessible, top down view of global, regional or sub-regional Risk/Reward
profiles.
• Comparability: Identical methodology across 110 countries allows users to build lists of countries they wish to compare, beyond
the confines of a global or regional grouping.
• Scoring: Scores out of 100 with a wide distribution, provide nuanced investment comparisons. The higher the score, the more
favourable the country profile.
• Quantifiable: Quantifies the Risks and Rewards of doing business in the innovative pharmaceuticals sector in different countries
around the world and helps identify specific flashpoints in the overall business environment.
• Comprehensive: Comprehensive set of indicators, assessing industry-specific risks and rewards alongside political, economic and
operational risks.
• Entry Point: A starting point to assess the outlook for the innovative pharmaceuticals sector, from which users can dive into more
granular forecasts and analysis to gain a deeper understanding of the market.
• Balanced: Multi-indicator structure prevents outliers and extremes from distorting final scores and rankings.
Weightings Of Categories And Indicators
The RRI matrix can be split into two distinct components:
Rewards: This component of the RRI is composed of an evaluation of an Industry's size and growth potential (Industry Rewards),
and also macro industry and/or country characteristics that directly impact the size of business opportunities in a specific sector
(Country Rewards).
Risks: This component of the RRI is composed of an evaluation of micro, industry-specific characteristics, crucial for an industry to
develop to its potential (Industry Risks) and a quantifiable assessment of the country's political, economic and operational profile
(Country Risks).
Assessing Our Weightings
We deliberately afford Rewards a greater weighting (65% of a market's final RRI score) and within this, the Industry Rewards pillar
accounts for a majority 75%. This is to reflect the fact that when it comes to long-term investment potential, industry size and
growth potential carry the most weight in indicating opportunities, with other structural factors weighing in but to a slightly lesser
extent. In addition, our focus and expertise in Emerging and Frontier Markets has dictated this bias towards industry size and growth
to ensure we are able to identify opportunities in countries where regulatory frameworks are not as developed and industry size is
not as big (in USD terms) as in developed markets, but where we know there is a strong desire to invest.
INDICATORS - RATIONALE AND SOURCES

Source Rationale
Rewards
Industry Rewards
Denotes breadth of pharmaceutical market. Large markets score higher than

Fitch Solutions
Market Expenditure, USDbn smaller ones. Scores are based on annual average expenditure over a five-
Forecast
year forecast period.
Denotes depth of pharmaceutical market. High-value markets score better

Fitch Solutions
Spending Per Capita, USD than low-value ones. Scores are based on annual average expenditure over a
Forecast
five-year forecast period.
Fitch Solutions Denotes sector dynamism. Scores are based on annual average growth over
Sector Value Growth, %
Forecast a five-year forecast period.
Country Rewards
Fitch Solutions Urbanisation is used as a proxy for the development of medical facilities.
Urban/Rural Split
Forecast Predominantly, rural states score lower.
Fitch Solutions Shows the proportion of the population over 65. States with ageing
Pensionable Population, %
Forecast populations tend to have higher per capita expenditure.
Fast-growing states suggest better long-term demand and thus growth for all
Fitch Solutions
Population Growth, % industries. Scores are based on annual average growth over a five-year
Forecast
forecast period.
Risks
Industry Risks
Fitch Solutions Markets with fair and enforced intellectual property regulations score higher
Patent Respect
Subjective Indicator than those with endemic counterfeiting.
Markets with a free pricing environment score higher than markets where
Fitch Solutions
Pricing Regime governments and private-sector payers put downward pressure on
Subjective Indicator
pharmaceutical prices as a mechanism to control expenditure.
High scores are awarded to markets which have realised the economic and
Fitch Solutions social benefit of pharmaceuticals, in turn modernising the provision of
Protectionism
Subjective Indicator healthcare through reforms and essential drug lists and encouraging local
manufacturing and research and development by foreign firms.
Fit
Fitch
ch Solutions, 30 North C
Colonnade
olonnade,, Canary W
Wharf
harf,, L
London.
ondon. E14 5GN, UK
Tel: +44 (0)20 7248 0468
Fax: +44 (0)20 7248 0467
Web: www.fitchsolutions.com
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using the service on a trial basis). All such content is copyrighted in the name of Fitch Solutions Group Limited and as such no part of this content may be reproduced,
repackaged, copied or redistributed without the express consent of Fitch Solutions Group Limited.
All content, including forecasts, analysis and opinion, has been based on information and sources believed to be accurate and reliable at the time of publishing. Fitch
Solutions Group Limited makes no representation of warranty of any kind as to the accuracy or completeness of any information provided, and accepts no liability
whatsoever for any loss or damage resulting from opinion, errors, inaccuracies or omissions affecting any part of the content.
This report from Fitch Solutions Macro Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch
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Q2 2019

Industry Risk/Reward Index ....................................................................................................................................................23

Regulatory Development ..........................................................................................................................................................33

China Demographic Outlook....................................................................................................................................................84

Pharmaceuticals & Healthcare Glossary .............................................................................................................................87

Pharmaceuticals & Healthcare Methodology ....................................................................................................................89

Headline Expenditure Projections

HEADLINE PHARMACEUTICALS & HEALTHCARE FORECASTS (CHINA 2017-2023)

Weaknesses • Aggressive pricing policies undermine investor confidence.

Opportunities • Increasing medical research and development capacity.

Pharmaceutical Market Forecast

PHARMACEUTICAL SALES, HISTORICAL DATA AND FORECASTS (CHINA 2015-2023)

Pharmaceutical sales, USDbn, % y-o-

Pharmaceutical sales, CNYbn, % y-o-

Pharmaceutical sales constant

Pharmaceutical sales, USD per

Pharmaceutical sales, % of health

Healthcare Market Forecast

Healthcare Expenditure Forecast

HEALTHCARE EXPENDITURE TRENDS, HISTORICAL DATA AND FORECASTS (CHINA 2015-2023)

Health spending, USDbn, %

Health spending, CNYbn, %

Health expenditure constant

Health spending, USD per

Govt. health spend, USDbn,

Govt. health spend, CNYbn,

Govt. health spend, % total

Private health spend, USDbn,

Private health spend, CNYbn,

Private health spend, % total

Prescription Drug Market Forecast

Prescription Drug Market Forecast

Prescription drug sales, USDbn, % y-o-

Prescription drug sales, CNYbn, % y-o-

Prescription drug sales, % of total

Patented Drug Market Forecast

Patented Drug Market Forecast

Generic Drug Market Forecast

Generic Drug Market Forecast

OTC Medicine Market Forecast

OTC Medicine Market Forecast

Over-the-counter (OTC) medicine sales, % of

Pharmaceutical Trade Forecast

Pharmaceutical Trade Forecast

PHARMACEUTICAL TRADE DATA AND FORECASTS (CHINA 2017-2023)

Pharmaceutical exports, CNYmn, % y-

Pharmaceutical imports, CNYmn, % y-

Industry Risk/Reward Index

Divergent Regional Trends Will Shape Drugmaker Opportunities

Main Regional Features And Latest Updates

Asia Pacific: Developed Markets Present Significant Drugmaker Opportunities

Outperformers: High-Reward And Low-Risk Markets

Underperformers: Low-Reward And High-Risk Markets

REWARDS AND RISKS SCORES

Japan 89.4 76.4 86.2 82.2 81.0 81.7 84.6 1 2

Australia 77.7 73.6 76.7 74.4 82.3 77.6 77.0 2 10

South Korea 77.2 60.6 73.0 71.1 83.3 75.9 74.0 3 16

China 82.4 45.2 73.1 65.6 70.6 67.6 71.2 4 19

Taiwan 68.7 56.2 65.6 70.4 84.1 75.9 69.2 5 22

Hong Kong 51.9 73.3 57.3 81.1 88.6 84.1 66.6 6 26

Singapore 43.4 71.2 50.3 90.3 89.6 90.0 64.2 7 30

Malaysia 45.2 51.6 46.8 81.1 70.6 76.9 57.3 8 41

Vietnam 67.0 38.1 59.7 44.1 57.3 49.4 56.1 9 43