China crackdowns squeeze pharma margins

From Reuters:

A crackdown on corruption and pricing in China’s fast-growing pharmaceutical market has squeezed profits and margins, raising a red flag to global Big Pharma that the days of easy growth in the country may be over.

Over the past year, China has cracked down on high prices and corruption in the healthcare sector. Authorities probed drugmakers over pricing in July, while a high-profile investigation into British drugmaker GlaxoSmithKline Plc led to executives at the company being charged with bribery earlier this month.

Sales growth is slowing dramatically, as the country is starting to come to grips with the truly gigantic costs of healthcare (likely to hit $1 trillion by 2020, according to McKinsey).  And then there is the issue of favoritism toward domestic firms:

Generics specialist Actavis Plc pulled out of China this year, saying the market was too risky and not a business-friendly environment.

“When you have 5,000 competitors you have to be special, and being a foreign company is no longer enough,” said Guillaume Demarne, Shanghai-based business development manager at healthcare research body Institut Pasteur.

Branded generics, as a strategy, may not work out as well as many had hoped.  Indeed, there are rumors that firms are backtracking already.

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