10 Updates

Why Did One Of The World's Largest Generic Drug Makers Exit China?

Feb 3 2014, 6:36pm CST | by

The week of JP Morgan’s January 2014 healthcare conference in San Francisco, Actavis, one of the world’s largest generic pharmaceutical companies, made a splash by emphasizing its emerging market...

Filed under: news

 
 
 

24 weeks ago

Why Did One Of The World's Largest Generic Drug Makers Exit China?

Feb 3 2014, 6:36pm CST | by

The week of JP Morgan’s January 2014 healthcare conference in San Francisco, Actavis, one of the world’s largest generic pharmaceutical companies, made a splash by emphasizing its emerging market strategy, just not the way most investors anticipated.  Where most pharmaceutical companies have elevated the market opportunity in China as key to their revenue growth and profitability, Actavis made clear it views the risks in China as well beyond the potential benefits.  In a much quoted interview at the JP Morgan event, Actavis’ CEO Paul Bisaro stated “If we’re going to allocate capital, we’re going to do so where we can get the most amount of return for the least amount of risk.  And China is just too risky.”

What exactly is Actavis walking away from, and why?  In terms of market size, estimates are that by 2015, China’s generic market will be close to $82 billion .  Actavis is hardly a marginal player in the global generic space and at face value should be one of the companies well positioned to take advantage of China’s growing appetite for generic drugs.  The company is certainly not a passive bystander in shaping markets.  Under Bisaro’s leadership, Actavis has been one of the key players pushing M&A deals in an effort to consolidate the generic drug marketplace.  For a company like Actavis to back away from China publicly, a decision they began to make good on late in January when they sold their stake in a subsidiary in Foshan, China, something more is at work.

The question is what, and whether Actavis’ decision sheds any light on either China or the global generic drug market.  It is essential to distinguish between these two ideas.  Actavis’ decision may be best understood as a statement about China’s diminishing hospitality towards foreign businesses in general, and pharmaceutical companies specifically .  Or, Actavis as a business, with its unique footprint in China within the generic market, might not have been in a position to grow its Chinese market share profitably.

Because of this summer’s events surrounding GSK’s China operations , and allegations of improprieties in both its Chinese sales and clinical trial arms, global pharmaceutical and medical device companies are on-guard over new corruption crackdowns that seem to disproportionately emphasize the wrongdoings of foreign companies.  As Tracy Staton with FiercePharma quite eloquently captured it with respect to the GSK anti-corruption charges from this past summer, “while stamping out corruption was the stated intent, drug prices are the subtext. It’s a sort of price squeeze by prosecution.”  Industry watchers have been somewhat placated over the Chinese government’s recent pursuit of bribery charges against China’s largest pharmaceutical distributor Sinopharm, a domestic company.  To see a domestic company get caught up in China’s pursuit of more transparent pricing – if that is in fact what motivates the government – is encouraging to those fearful of discrimination against foreign companies.

The broader questions that Actavis’ CEO pointed towards as a rationale for the company’s exit from China are not wrong.  Surveys conducted by various American and European business groups in China all point towards worrying trends which suggest China is becoming fundamentally less hospitable to foreigners than in years past.  Favoritism towards domestic companies by government purchasing is nothing unique to China, unless you consider that China’s 144,500 State Owned Enterprises (SOE) represent 35% of the country’s industrial revenue (a percentage many economists believe greatly under-represents the economic impact of SOEs).    Add to the SOE’s position the role of the Chinese government as purchaser of great amounts of pharmaceuticals and medical devices, and you can see what the comments of Actavis’ CEO ring true to many.

In addition, the unique pressures facing businesses selling into China’s healthcare economy make the trade between market size and profit more acute and uncertain than ever.  No one doubts that demographics and disease data point towards incredible demand for healthcare goods and services in China.  What is being questioned is whether foreign companies can profitably capture the opportunity.  One of GSK’s first responses to the events of this summer was to dramatically cut prices , a move that left many wondering less about the company’s guilt and more about what was really motivating the Chinese authorities.  Companies like GSK and Actavis now understand more clearly than they did twelve months ago that healthcare in China is an increasingly political matter, that their biggest customer – the government – is also responsible for the broken funding mechanism that has made access and affordability for healthcare in China one of the most basic and pervasive broken promises the government in Beijing is singularly responsible for.

These issues are solvable.  China’s reimbursement mechanism between the Ministry of Finance and Ministry of Health, as well as hospitals and patients, can be fixed.  The basic government-provided healthcare insurance can become more sophisticated relative to what it pays for.  New drugs can be added to China’s national formulary (known as the Essential Drug List, or EDL).  And, as many overseas drug makers hope, the purchasing power and brand attachment for China’s growing middle class can ensure that, where possible, consumers choose western medicines even if these come at a higher cost.  This has always been the potential, even if the turbulence in the market over the last year has caused some to lose faith that China would develop into a viable market.

If these positive steps were to take place, then would we think differently about Actavis’ decision today?  Or, to be even more direct, are we allowing the events of the past 12 months to obscure more basic business strategy issues at play with Actavis’ specifically?  By the time the Actavis’ announcement went out in mid-January 2014, the company had around 200 employees in China, generating less than $7 in profit .  This is an extremely un-impressive performance for the world’s second largest generic drug manufacturer in what is quickly becoming the world’s largest generic market.  Actavis’ growth mode globally has been heavy on M&A activity, becoming one of the key actors consolidating the generic market.  Is Actavis leaving China now because the reasons the company goes into any market, emerging or otherwise, are not yet a factor in China?  Or, even more cynically, is Actavis’ exit evidence of a corporate strategy that emphasized M&A activity at the cost of a coherent strategy for China, the market most players believe will be the most important market for global generic manufacturers in the coming decades?

The company is widely viewed as one of the leading candidates to acquire Pfizer’s “value products business” – a euphemism for Pfizer’s prized branded generic business.  With opportunities like this to further consolidate the global generic market, is Actavis better served to focus on opportunities outside of China?  The unique pressures of the generic business in China make this question even more important to answer.  Price pressures on generics are going to further intensify.  The government is going to maintain an unrelenting and uncompromising focus on the part of its healthcare system where it believes cost controls are easiest to find, and generic pharmaceuticals top the list.  The Chinese government’s ongoing efforts to incentivize a domestic life science industry are going to further skew the commercial opportunities in the generic market initially, and the patent-protected products tomorrow, as technology transfer expectations between foreign companies and domestic Chinese actors accelerates.

In other sectors of the Chinese economy, when companies have encountered similar frustrations, CEOs have shrugged their shoulders and essentially said, “we don’t really have a choice – we have to be in China.”  Actavis clearly does not believe this, which is either a great tribute to their vision, or a decision that took advantage of a unique moment in time when the company could exit the Chinese market when Actavis’ overall China strategy would not be questioned.  If the Chinese government is successful disrupting the generic market both domestically and internationally, will Actavis sooner or later have to deal with the market forces that today led them to exit China?  If so, Actavis will need to use the next decade to shape global pharma IP standards and the market itself in ways that prevent the Chinese government’s actions from distorting not only its domestic market, but those Actavis is reliant on today.

Source: Forbes Business

 
Update
10

7 weeks ago

RM47mil KWSG contributions still unclaimed

Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the D ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
9

7 weeks ago

Gold shop lost almost RM1mil

Jun 9 2014 3:50am CDT | Source: Business Times Malaysia

KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was broken into ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
8

7 weeks ago

Motion to debate MAS losses in Dewan Rakyat rejected

Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was rejected by the Dewa ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
7

7 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Minister, Datuk Seri ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

7 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selatan’ in the southe ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

7 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2. ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

7 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industry Minister Datuk Seri Mustapa Mohamed said. ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

7 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an allocation ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

7 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan Baz ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

7 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Kinrara Damansara Skyway (Kidex) tod ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Bangladeshi plane catches fire at Nepal airport, passengers safe
Kathmandu, July 28 (IANS) A Bangladeshi aircraft caught fire while landing at Kathmandu's Tribhuvan International Airport (TIA) Monday afternoon, officials said.
 
 
Shift work can worsen asthma, pneumonia
London, July 28 (IANS) A research has found that drugs widely used to treat lung diseases like asthma or pneumonia work better with the body clock.
 
 
Decoded: What triggers sexual arousal in you
New York, July 28 (IANS) Know why just looking at an attractive face stimulates sexual arousal? Well, it takes two to tango!
 
 
Turn your selfie into emoji with this app
New York, July 28 (IANS) Tired of seeing the same yellow-faced smileys? In an age of selfies, how can emojis be far behind?
 
 
 

Latest from the Network

Gwen Stefani recommends acupuncture to pals
Gwen Stefani has been recommending acupuncture to all her friends. The 44-year-old mother-of-three started having the treatment after getting severe migraines while pregnant with her third son, Apollo, and has told all...
Read more on Celebrity Balla
 
Tom Green's 'whirlwind' marriage to Drew Barrymore
Tom Green says his marriage to Drew Barrymore was a ''crazy whirlwind''. The MTV presenter tied the knot with the 'Charlie's Angels' star in 2001 but they separated just five months later and the 42-year-old host admits...
Read more on Celebrity Balla
 
Kim Kardashian accused of kissing Brandon Jenner
Brody Jenner claims that his brother Brandon Jenner and stepsister Kim Kardashian once shared a kiss. The 30-year-old reality star blurted out the shock news during last night's (07.27.14) episode of 'Keeping Up with...
Read more on Celebrity Balla
 
Renee Zellweger lists Connecticut farmhouse for 1.6m
Renee Zellweger has put her Connecticut farmhouse on the market for the second time in three years. The large four-bedroom colonial home first went up for sale in 2011 but failed to sell and now Renee has re-listed it...
Read more on Celebrity Balla
 
India back to square one at Southampton (Analysis)
Southampton, July 28 (IANS/RAY) It was virtually back to the ignominy of 2011, as England plundered runs against a hapless Indian bowling attack on the second day of the third Test to establish a dominant position in...
Read more on Sport Balla
 
Shooter Mansher tops men's trap qualifications
Glasgow, July 28 (IANS) Indian shooter Mansher Singh topped the men's trap qualification while Manavjit Sandhu finished third at the Commonwealth Games here Monday. The qualification will continue Tuesday and will be...
Read more on Sport Balla
 
India vs England: Day 2, third Test, tea scoreboard
Southampton, July 28 (IANS) The following is the scoreboard at tea on Day 2 of the third cricket Test between India and England at the Rose Bowl here Monday: England (first innings) Alastair Cook c Dhoni b Jadeja 95...
Read more on Sport Balla
 
Bell's unbeaten century takes England to 452/5 (Tea report)
Southampton, July 28 (IANS) Ian Bell's unbeaten century took England to 452/5 at tea against India on Day 2 of the third Test at the Rose Bowl here Monday. There was some respite for Indian bowlers, who removed Joe...
Read more on Sport Balla
 
Veteran English shooter Gault retires
Glasgow, July 28 (IANS) England's Michael Gault Monday announced his retirement from competitive shooting after equalling the all-time Commonwealth Games medals tally. Sixty-year-old Gault claimed the bronze in the...
Read more on Sport Balla
 
Ukrainian army seizes cities near plane crash site
Kiev, July 28 (IANS/EFE) Government forces have taken control of several rebel cities in Ukraine's Donetsk region close to where a Malaysia Airlines plane carrying nearly 300 people was shot down earlier this month,...
Read more on Politics Balla