Industry Trend Analysis - Steady Improvement In The Business Environment To Bode Well For Multinational Drugmakers - OCT 2017

BMI View: 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. 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 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, while improvements to the country's historically weak regulatory environment appear to be gathering momentum. Reflecting this positive outlook, the vast majority of major multinational pharmaceutical firms, including Bayer, Novartis, AstraZeneca and Sanofi reported positive sales growth in Q217. Given the bright outlook for medicine sales and the substantial potential for growth in the market, these firms will remain committed to the market and will seek to expand their presence, exemplified by GlaxoSmithKline's (GSK) 'in China, with China, for China' strategy. As part of the strategy, GSK is focussed on strengthening its R&D commitment through various partnerships and joint ventures with local research institutions.

We note that despite our positive view on the Chinese pharmaceutical market, significant risks remain. While the regulatory environment has improved in recent years such as greater transparency and the growing use of priority reviews for patented medicines, we note that implementation of policy remains slow. In particular, the resources needed to develop the capacity of the regulatory bodies has been and is likely to remain the primary impediment to improvement. Moreover, China's rebalancing of its economy and the impact of slower GDP growth will present risks to multinational drugmakers. A weaker economic outlook will reduce the purchasing power of the consumers, which is particularly pertinent in the Chinese market where out-of-pocket payments remain a major source of healthcare financing.

Divergent Economic Growth Trends
GDP Growth, %y-o-y
Source: National Bureau Of Statistics, BMI

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