Survival is getting hard for foreign pharma in China
Back story of Actavis quitting from China
To be honest, it is getting a little bit boring to hear those successful stories that foreign companies made in Chinese market. And there are still more companies out there wish to make their Chinese dream come true. It sounds not fresh for me anymore at the moment. Dream is always beautiful, but you have to face to the reality anyway. After decades of developing at two digit speed, foreign companies don’t sound attractive than before to the Chinese. The market size in china is still big comparing to other countries, but getting smaller itself. Competition is extremely tough, the means of production is getting more expensive, and governmental rule is tight too. I don’t want to send the negative feelings to anyone, but there are just real facts that happening right now that companies should really consider before expanding in Chinese market.
On 16th January of 2014, Actavis CEO Paul Bisaro announced that they are quitting from China. For the life science business area, Actavis is not as well-known as others in China. Originally from Iceland and the head-quater is located in Dublin, it is actually one of the famous generic drug producer and they are quite active in merger-acquisition. Actavis expanded into Chinese market by acquiring business from U.S. Alpharma in 2005. Last year, its Chinese market manager Gao announced that, they were very confident of Chinese market, and planning to set two new products into the market each year.
What exactly happened to Actavis? Bisaro explained on Morgan Healthcare Conference: "Chinese business environment is not friendly, we would like to invest to the low risk market with higher return, Chinese market is undoubtedly too risky for us. Additionally, Actavis had small size of business with couple hundred employees and 4-5M euro annual profit in Chinese market”. Some rumors show that Actavis was also under the inspection of Chinese regulatory authorities related to western pharmas’ bribery business investigation after GSK’ falling down .
Is Actavis the only generic drug producer made decision like this? In 2005, Merck sold Yabo factory located in Guangdong and quit the generic drug producing; In 2010, the Indian biggest generic producer Ranbaxy stopped the cooperation with Chinese and sold the all shares of Guangdong Nanxin. In 2013, Astrazeneca announced that they will stop the generic drug investment in China and changing the producing direction.
Some Chinese experts think that, the generic market looks big, but actually not that juicy for foreign investor. First of all, the R&D, manufacturing, technical process are much more expensive than local pharmaceuticals. As a foreign, if you want to bidding off the other local competitors, you have to reduce the price. Although the foreign companies would like to reduce it, but still they will face the cost of model limitation of themselves. Second of all, from the resourcing point of view, there are very limited generic drugs could be approved. Third, lack of local business culture, incongruous management model are also the factors of generic drug failure.
