By Li Zhijun, Techno-Economic Research Dept, Development Research Center of the State Council (DRC)

Research Report No 42, 2013(Total 4291)

Chemical pharmaceutical industry is an important integral part of China's medical industry and it accounts for about half of the total output value of China's medical industry. Accelerating the development, structural readjustment and the transformation and upgrading of China's chemical pharmaceutical industry is of vital importance to facilitating the ever-increasing growth of the medical industry, protecting and improving people's health, addressing natural disasters and health problems and advancing economic and social development.

I. Basic Conditions and International Status of China's Chemical Pharmaceutical Industry

1. Chemical raw medicine

As the globally major producer and exporter of chemical raw medicine, China can produce more than 1,500 kinds of chemical raw pharmaceuticals, with the country's capacity ranging from 2 million to 3 million tons, accounting for about 20% of the world total. China's traditionally superior products, such as antibiotics, vitamins and antipyretic and analgesic drugs, enjoy a big market share, bulk pharmaceutical chemicals with distinguishing features, such as statins, perindoprils and losartans, have become new superior export products and, the number of varieties that are dominant on international market is daily on the increase. Varieties and products that were previously dependent on imports, such as floxacins, statins, vitamin B2, rifampicins and antibiotics, are now all being exported, expanding international market share gradually.

2. Chemical agent

On the whole, chemical agent production is just in a fledging period, with new drug research and development being inadequate and the focus being laid on the manufacturing of generic drugs. China produces more than 4,000 kinds of chemical agents, and artemisinin, a China-origin drug, is widely used across the globe, making important contribution to the prevention and treatment of malaria worldwide. During the 11th Five-Year Plan period, China invested nearly 20 billion yuan in an array of specific projects, such as "New Medicine Development Project", bringing along the input of approximately 60 billion yuan of social funds in pharmaceutical innovation sphere, and set up over 50 corporate national technology centers through collaboration of manufacturers, schools and research institutions, thus constantly enhancing technical innovation. A number of innovation-oriented enterprises, such as Jiang Su Heng Rui Medicine Co. Ltd., HISUN, Qilu Pharmaceutical Co. Ltd., CHIA TAI TIANQING, Cisen Pharmaceutical Co. Ltd., Harbin Gloria Pharmaceuticals Co. Ltd., KangHong Pharmaceutical Group, LUYE PHARMA, CSPC NBP Pharmaceutical Co. Ltd., and Anhui Biochem United Pharmaceutical Co. Ltd., have been developing rapidly.

II. Main Problems Facing the Innovation, Transformation and Upgrading of China's Pharmaceutical Industry and the Causes

The pharmaceutical industry is a sector that calls for high technology and high input. With a higher industrial concentration, the industry can generate higher returns, though it is highly risky and has harsh access barriers. Currently, the main problems facing China's chemical pharmaceutical industry mainly include: enterprises being smaller at large than transnational pharmaceutical giants, the mammoth numbers of pharmaceutical enterprises, lower industrial concentration, low-level duplicate construction, serious homogenization and low-level competitions, poor technical innovation capability and weak international competitiveness. Plus, the chemical pharmaceutical industry has been hard hit by price reduction for 30 straight times in 14 years, irregular tender-based purchases, and the formulation of drug management policies in succession, narrowing the profit margins of enterprises and severely impeding the pharmaceutical research and development, GMP improvement, comprehensive environmental protection management, structural readjustment and industrial upgrading.

Various factors have caused the above-mentioned problems, which mainly include:

1. New medicine approval

The shortage of pharmaceutical examiners of China Food and Drug Administration, the imperfection of the examining system and the unevenness of levels of enterprises' research and development papers all incur a vicious circle of examining efficiency being low, examining quality being poor, examiners being under high pressure and reporting enterprises being worried.

2. Purchase of essential drugs through tendering and pricing

The "double-envelope" system is adopted by various localities in purchase of essential drugs by invitation to bid, and the one who offers the lowest prices will win the bidding. Firstly, the war of price reduction for work performance going on among various provinces and municipalities in tender-based purchasing of essential drugs has made some drug prices lower and lower, hitting the benchmark drug safety line. secondly, the practice of seeking after low prices could neither reflect the fluctuating trends of production cost, nor leaves any reasonable profit margins for enterprises, which is a deviation from the market law and threatens the existence and development of some Chinese top-notch enterprises mainly involved in the production of essential drugs.thirdly, winning the bidding at below-cost prices is suspected to go against some established laws, leaving tender-based purchasing of essential drugs in face of legal risks, encumbering the enterprise transformation and crippling the core competitiveness of China's pharmaceutical industry.

3. Inadequacy of R&D capabilities

R&D funds spent by European and American pharmaceutical enterprises usually account for 10%~15% of their sales revenues, with some even reaching 45%, while funds used by Chinese enterprises in pharmaceutical research and development make up less than 1% of their sales revenues, with a small number reaching 6%~8%. The R&D funds cost annually by all pharmaceutical enterprises in China add up to a total of 10 billion yuan or so, falling far behind what is spent by American Pfizer alone in a year for pharmaceutical research and development (9.4 billion US dollars). The average rate of profit for Chinese pharmaceutical enterprises comes generally to 9% or so, whereas that of world top 50 pharmaceutical firms amounts to 18%, and that of top 10 even reaches 21%.

4. Low-level redundant construction of bulk pharmaceutical chemicals

Low-level redundant construction and overcapacity are indisputable facts in China's production of bulk pharmaceutical chemicals (BPC), and an array of products, such as vitamin C and penicillin, have been classified as restrictive. "Three kinds of wastes" generated in BPC production turn out to be the worst, which are hardest to deal with. Therefore, BPC is categorized by the Ministry of Environmental Protection as one of the industries that need to be put in order with major attention. However, some localities are still expanding production blindly and are engaged in redundant construction, thus causing severe waste.

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