CPhI China 2017 is China’s largest exhibition about the pharmaceutical and health care industry. The exhibition will be held for the 17th time in Shanghai from June 20 to 22. The organisers are expecting the biggest representatives of Chinese and international pharmaceutical ingredients players from more than 120 countries. Suppliers, distributors, and buyers will gather at one place to connect and discuss the trend of China’s health care market.
This year’s exhibition is going to be divided into different zones, including active pharmaceutical ingredients, fine chemicals and intermediate suppliers, biopharmaceuticals suppliers, animal health products, natural extracts products, finished dosage suppliers, excipients suppliers, and nutraceuticals.
Some of the leading Chinese enterprises which take part in the exhibition are the Yangtze River Pharmaceutical Group, North China Pharmaceutical, the CSPC Pharmaceutical Group, Qilu Pharmaceuticals, and Jiangsu Hengrui Medicine.
Market intelligence firm CCM, a provider of data, information, and analysis about China’s healthcare and pharmaceuticals industry, gives an overview about the mentioned industries in China as well as the biggest news on Amino Acids and Vitamins trends and manufacturers.
Global pharmaceuticals industry
China’s pharmaceuticals industry is one of the largest worldwide. That’s why the exhibition deserves a lot of attention to be part of the exciting trend this industry is going through at the moment. Back in the year 2014, the worldwide pharmaceutical industry has generated revenue worth more than USD1 trillion. While North America has the largest share in the global pharmaceutical industry, China’s pharmaceutical sector is showing the highest growth rate worldwide.
The spine of the pharmaceutical industry is the research and development department. After all, the share of costs in pharmaceutical company’s R&D can make up to 20% of the total costs.
According to consulting giant PWC, the major trends of the pharmaceutical industry are reshaping the market significantly in the near future. The most important trends with the most impact are the increase of chronic diseases, washed boundaries of traditional healthcare, surging demand in developing countries, and switching focus of governments from treatment to prevention.
The challenges companies in the pharmaceutical industry are facing nowadays are rising customer expectations and poor scientific productivity. After all, customers demand on healthcare products is growing in the background of environmental friendly production and efficiency of drugs and other products. Also, while the output of new products has been remaining on the same level in the last years, the research and development methods do not really change significantly, which doesn’t give much hope for a boost anytime soon.
China’s pharmaceuticals industry
China has the largest population worldwide and needs to ensure healthcare and a stable pharmaceuticals industry. Hence, the country has reached the second largest pharma market. After all, China is responsible for about 40% of the global API production. And still, the government is further investing in this sector to ensure growth and innovation.
The main advantages for the pharmaceuticals industry in China are the comparable low production costs while quality remains good.
While China’s wealthy middle class is growing, the average Chinese is getting older, and the access to healthcare is improved continuously, China’s pharmaceuticals and healthcare market is developing to a promising field for foreign investors and players in this business.
Besides the growing wealth for China’s population, the demand for healthcare products and drugs is increasing seamlessly. One of the key drivers for this trend can be found in the rise of chronical diseases, caused by significant air and water pollution in China, which is responsible for the higher appearance of diseases like cancer, heart diseases and other chronic conditions. According to some research, China’s number of new cancer cases in 2015 was reported to have reached over 4 million. Furthermore, As China’s population is growing older, by 2020 already 170 million elders beyond 65 years old will demand a tremendous amount of health care products and services.
Exports to China
The largest exporting country for pharmaceutical and healthcare products to China is the USA, which is also the largest producer.
However, the export situation for foreign traders is not easily in China. Domestic manufacturers are enjoying the strong benefit, that they are allowed to sell their products to the consumers directly. Foreign exports on the other side are facing a complex distributing system, where they are requested to sell their products via local distributors in China. Furthermore, mark ups in the supply chain increase the costs and therefore the final price of imported products.
The lack of transparency, combined with cheap Chinese counterfeit medicines and price controls are still keeping up barriers for overseas importers to China.
It is notable, that in China only about 20% of all drugs are patented and branded medication. Even this number is rising enormously in the last years, it is still a sign of China’s embracement for traditional Chinese medicine and generic sales of drugs.
China used to be a manufacturer of cheap and generic drugs with little efforts in research and development of new drugs. Facing a low-income population, also foreign traders were traditionally selling old and cheap drugs in China’s market in the last decades. This situation is changing rapidly nowadays. Foreign enterprises are selling their new and more expensive pharmaceutical products to China’s expanding middle class, as also China’s manufacturers have discovered the need for effective R&D.
Hence, many scientists, who worked in advanced countries in Europe or the USA, coming back to China and bring the knowledge to modernise domestic research and development.
CCM: The trend of China’s main pharmaceuticals production
In the past years, a slowdown in Chinese economic growth, serious overcapacity, low prices, increasing burden from environmental protection and product homogenization hinder the development of amino acid enterprises. They struggle for development and make sweeping transformation and reform, in order to remain competitive and profitable in the overall industry.
China’s Amino Acids are undergoing a different trend in the first half of 2017. For instance, methionine prices continued going down while the prices of threonine remained strong. Lysine price was able to increase significantly in the first half of 2017.
It is worth mentioning, that several outbreaks of animal diseases are increasing the awareness for healthy animal feed and further boosting the demand for amino acids like methionine. Asia-Pacific is the leading market for methionine, with huge populated countries like India and China, which growing middle classes are thriving the need for meat, and hence methionine for the production of feed. While the global annual growth rate for methionine demand has been about 6% since the year 2013, China’s growth rate in demand is rising even higher. After all, the demand is rising annually by about 7% up to 10%. The L-methionine markets in China have been remaining stable in the first quarter of 2017 but on a low level. The new production method, used by an increasing number of manufacturers, namely the fermentation process, enables the production of fewer costs. Hence, the demand will be higher for L-methionine compared to the more expensive product DL-methionine.
Due to the avian influenza outbreaks, not only affected livestock companies were forced to limit or stop business, but also non-affected companies were ordered by the government to reduce their business in order to avoid the spread of the flu to humans. As a result of the production limitations, the prices of chicken and eggs have dropped significantly in the last months. The low demand for the feed then has reduced the price for methionine by almost USD 100 per tonne.
Another factor with massive impact is a threat of methionine overcapacity in China. The profitable methionine business in China and worldwide has led many manufacturers to expand their production and install new projects. Hoping for higher revenue out of the new product lines, the danger of methionine oversupply is getting acute. Big enterprises like Shandong NHU and Bluestar Adisso, and Evonik have announced production expansions, which may exceed the growing demand for methionine.
Import & Export
Trade analysis firm Tranalysis shows the import and export volume of some major amino acids in China for March 2017.
Source: Tranalysis and China Customs
China’s vitamins industry has developed rapidly in the past decade, becoming the largest producer and exporter worldwide. However, since the output volume has witnessed continuously growth while the value went down in the last years, China’s vitamin business is losing profitability.
The market situation is very monopolistic, as only a few enterprises are dominating the production of certain vitamins. The leading vitamins manufacturers in China are Hubei Guangji Pharmaceuticals and Zhejiang Tianxin Pharmaceuticals. Furthermore, BASF and DSM are playing a huge role in this industry in China’s and global markets.
In the first half of 2017, most of China’s vitamins have seen significant rises in price, which is mainly due to the strict environmental regulations ordered by the government. As a fact, vitamins producer in China are always one of the key targets for environmental inspections. According to CCM, in 2016 the local governments have carried out inspections in 15 provinces of China. As the supervision goes on in 2017, the supply of vitamins will remain tight.
In late of April, the China Food and Drug Administration has released the On Requesting Public Comment on Further Strengthening Supervision over Healthcare Food. This paper is optimising the business process of manufacturers, as it clears the definition of healthcare products, enhancing the regulations on labels and advertisements, advances the filling work for new registrations, standardises the approval process, and optimises procedures for technological review. According to CCM, the consulting paper will save approval costs and time for producers significantly.
In the beginning of March 2017, the 9th National Pharmaceuticals Industry Symposium took place, in which the mentioned price surges of pharmaceuticals has been discussed. The API manufacturers were complaining about surging prices and asked for new regulations to abandon the current monopolized situation of China’s pharmaceuticals industry. Currently, API manufacturers need an API production license, issued by the government, to be allowed entering the market in China. In addition to that, so called Good Manufacturing Practice certificates are needed as well. The problem is, that less enterprises are approved for these licenses, which keep the number of manufacturers low and creates the monopolistic situation.
This system is demanded to be changed, to make it easier for new manufacturers to get the permission of producing and selling pharmaceuticals, especially the needed cheap drugs. To achieve this, API’s should be excluded from the national drug management system and production guidelines could be implemented, which ensure sufficient supply of pharmaceuticals.
The market situation of vitamin E is a good example for the high monopolistic situation, not only in China, but worldwide. For this vitamin, the four biggest players account for more than 90% of the global supply. The enterprises are Zhejiang Medicine, Zhejiang, NHU, Royal DSM, and BASF.
For China, the price of vitamin E showed the beginning of a surge in March 2016, after a depressing year in 2015. Insufficient supply of raw materials for vitamin E boosted the price rise even more. The last price rise was made in March 2017 by Zhejiang NHU, raising quotations by 30% again, according to CCM’s price monitoring.
China also inherits the largest vitamin B2 producer worldwide, namely Guangji Pharmaceutical, who is accounting for global sales of 55%. The company has increased prices several times in 2016, due to production suspensions and marketing strategies. A report by the company states “We adheres to our marketing strategy in controlling supply and increasing prices, and managed to realise the optimum balance.”
Import & Export
The import and export trend for major vitamins in China in March 2017 are presented by Tranalysis.
Source: Tranalysis and China Customs
The busier lifestyle of China’s growing urban middle class is driving the market for functional beverages because a rising number of workers don’t have the time anymore for a healthy and balanced meal every day. The lacking energy and nutrients are guaranteed nowadays by consuming functional beverages including taurine and vitamins. Hence, an increasing number of enterprises discover China as a promising market for functional beverages, launching new products into the large market. One example is French food manufacturer Danone, which is contributing a new vitamin beverage called Mi-PRD to traders in China. The main benefits of the new product are taurine plant-extracted ingredients.
The company hopes to increase the sales in China with the new product, since it was facing weakening profitability in this market recently, with negative effects on the financial numbers of the Mizone brand in 2016. According to the CFO of Danone, Cecile Canabis, the main challenge of vitamin drinks in China is the high competition, leading to short life cycles and small market shares of highly-priced products.
According to CCM, China is ranked second behind the USA in the number of energy beverage sales in the global market. Recent growth number of up to 25% have caused high attention by international enterprises to penetrate into this promising market. It is expected that the domestic retail sales volume of functional beverages will hit 15.04 billion litres by 2020, with a corresponding sales value of USD23.78 billion.
Many manufacturers are launching new products into the market to gain some market share. One example is the aforementioned product Mi-PRD of the Mizone brand by Danone. Even this product is not being able to buy in retail yet, the company has already announced new beverages with exotic flavours like pineapple, litchi, orange, mango, peach, and cucumber.
Nevertheless, also China’s domestic manufacturers are launching new products in China’s functional beverage market. Hangzhou Wahaha has introduced the new functional drink Burnlaxy. Special ingredients, besides taurine and vitamins, are ginseng, maca, and fresh ginger. The company has lost its market share of 4.9% in 2012 to 0.9% in 2015. It needs to be awaited if the company can get market share again with launching new functional drinks. Other successful products by this company are Wahaha Get C and Hai Jing Lemon.
According to CCM, China’s feed industry is recovering in 2017 with a continuously rising output of feed.
The first quarter also saw prices of live pig in China continually falling and meanwhile its breeding pig quantity decreased, affected by weak demand for pork and environmental policies as well. The price is not likely to surge in the foreseeable future.
After all, China’s live pig market decreased steadily since February 2017, due to the reduced market demand, pressure from pig farming regulations, as well as competition with importers. The pork consumption in China has witnessed a decline after the Spring Festival in early February. Furthermore, as a plan of China’s government, a huge number of farmers need to move out of so-called forbidden areas in China, relocating into economically supported zones for livestock and poultry. The imports of live pigs also went up significantly by almost 20% in Q1 2017.
However, the figures did stablise in Q2 and might even climb up again in the third quarter of 2017. Affected by the national restrictions in pig farming, the quantities in breeding-forbidden areas will continue to reduce, and national production capacity will not recover soon. Yet, farms in regions suitable for pig faming may be active in purchasing new live pigs given the considerable profitability. Therefore, live pigs on offer are expected to gradually increase in H2, restraining possible price hike in the coming period.
Performance of key enterprises
Hubei Guangji Pharmaceutical is greatly affected by the strict environmental regulations that are taking place in China currently, as the vitamin B2 and B6 production belongs to the heavy polluting industry. However, the investments in better waste disposal has lowered the production costs on the other hand, which actually improved the gross profit margin of many products.
Julong Biological was able to increase the revenue in 2016, due to the excellent performance of its L-tryptophan business. The revenue witnessed an increase by more than 25%. The company is one of the world’s largest supplier of L-tryptophan, which is being exported to many countries in Europe, America, Southeast Asia and Australia. After all, this product made up more than half of the total revenue share.
Bluestar Adisso announced a weak methionine business in Q1 2017, while the specialties business boomed. The strong performance can be mainly described with the stable development of the company’s specialties as well as an efficient cost control implemented by the factory administration. Bluestar Adisso is the second largest manufacturer of methionine globally, only following Evonik. The company had a global market share of about 27% in 2016. While the price of methionine in China keeps falling, the demand is still surging by about 6% on global markets.
Eppen Biotech is currently preparing for the initial public offering. The company underwent a rapid growth in recent years, reaching USD21.75 million in total profit 2015. However, the company is still facing several challenges, according to CCM’s research. One of the major challenges is regarding the environmental pollution. Even the company, whose production of most products cause heavy pollution, has already invested in and implemented new waste disposal systems, the outcome is not enough to please the local government and nearby population. Hence, Eppen Biotech is in great need to continue investing in environmentally friendly production, or the IPO prospect, as well as the corporate valuation, might be in danger. Another challenge detected by CCM are patents as well as intellectual properties. The company was facing several issues of a lawsuit in terms of patent violence in the past. Due to uncertainties of further patents, the company may face similar issues in the future.
LHG showed a mixed performance in 2016 and the beginning in 2017. Most of the quarters witnessed a negative net profit. The company is mainly affected by a fiercer competition in the MSG market, an amino acid which occupies about 80% of LHG’s production. The market price of it is going down constantly in recent months, leading to problems for the company. Also, the environmental pressure from the government is bothering LHG, as the production of MSG is highly polluting, which requires large investments for the company. However, despite the mentioned problems, recent efforts in enlarging the product portfolio as well as getting into new markets, the odds are well for the company to expand further and become one of the giants in China‘s health industry.
Lianing Wellhope was enjoying a steady growth of profit throughout 2016. The total profit in 2016 even increased by more than 35% compared to 2015. However, Wellhope is also facing the risk of China’s abandoned corn stockpiling policy, which let the prices of corn, one of the main raw materials for feed products, rise under uncertainty. However, China’s policy of implementing forbidden farming areas in the country is benefitting the enterprise. Wellhope is stated in one of the developing zones in the northeast of China, which offers the company a great geographical, logistical and economical advantage to competitors. This is due to the low distance to many raw material producers like corn farmers. In addition to this, the area of Wellhope is also labelled as one of the key areas for China’s pig industry, which offers some benefits in environmental protection and pollution management.
Yongan Pharmaceutical did witness a falling revenue in 2016, while the net profit surged by more than 250%. Compared to 2015. This trend is explained by the company with reduced production costs as well as a boom in demand for taurine and related to this the rising prices. Yongnan Pharmaceutical is China’s largest producer of taurine and ethylene oxide, a raw material used in the production of taurine. The performance in 2015 was pretty bad, due to the low market price of ethylene oxide and oversupply in the market. Taurine was making up for 84.35% of product revenue in 2016, followed by the second largest product, Ethylene oxide, which only accounted for 6.14%. Looking at the product revenue structure in 2015, taurine was only accounting for 73% and Ethylene had a larger share with 17%. Yangnong Pharmaceutical is not only China’s largest taurine producer but also worldwide, accounting for over 50% of global sales, according to CCM. Notably, around 80% of the company’s production is used for export. Especially in the feed sector taurine has become a highly-demanded addition, since the use of antibiotics was restrained by the government and taurine is showing itself as a good substitute for immunity enhancement.
China’s pharma industry till 2020
The State Council in China has recently released the five-year development plan for China’s pharma industry, which gives a guidance for the further development of this large industry and what players, domestic and overseas, can expect.
One of the main goal is to cover the production of almost every branded drug without patent protection in China, which will decrease imports significantly. To achieve this ambitious goal, the government is going to encourage innovation of new drugs and ease the approval for novel drugs to get market access. The long process of this approval has been a thorn in many manufacturers’ eyes for many years already.
Another measurement is the building of well-equipped pharma industrial parks throughout the country, where especially small and medium sized companies can target highly selective drugs to develop and produce.
Speaking of small and medium sized companies, the highly fragmented situation of China’s pharma industry is one of the main challenges, which makes innovation so difficult in the country. Hence, the government in Peking is encouraging mergers and acquisitions to establish larger size companies with sufficient resources for effective research and development.
Finally, the new five-year plan is targeting the oversupply of generic drugs in China. While novel drugs are going to be widely encouraged by the government, oversupplied generics will be controlled. The Chinese government now demands bioequivalence testing for generics to ensure the quality of those, and furthermore encourages qualified third-party verification service providers to also join the activities.
Meet CCM and Tranalysis at the exhibition. Simply make an appointment by filling the form on our event page.