Chinese Drug Industry Cites Rising Costs

Detailed figures from China's pharmaceuticals industry indicate solid rates of growth in 2004, but rising costs outpaced sales growth in the year. Overall, profit increased to a healthy US$3.71bn, although margin growth in China's dominant basic drug industry lagged behind other market segments.

China's medical equipment industry, which is dominated by foreign firms, saw the strongest growth, reaching a value of US$2.77bn. The biotech sector, while still small at US$302mn, saw the second highest growth of all sectors, with traditional Chinese medicines ranked third in terms of the rate of sales growth.

The results highlight the growing presence of foreign companies and indicate that that the Chinese industry is starting to develop, although crude products continue to dwarf all other sectors. The state-run sector as a whole appears especially troubled, with value-added tax contributions -- an important performance indicator -- declining by a sharp 23% in 2004.

Local observers now expect this year's 12% profit growth to continue to slow in 2005, with patented drugs dominating the market in value terms. In volume terms, local producers are expected to maintain their dominant market share in crude drugs and traditional medicines. However, last year's results appear to confirm expectations of consolidation in the industry, as the top 10 firms accounted for 43% of sales and 40% of the entire industry's profit in 2004.