Bulk Drug Sector Faces with Difficulties

Review of 2005

The bulk drug sector accomplished the sales revenue of RMB95.6 billion from January to October 2005, an increase of 31.1% over the same period of 2004 and a profit of RMB5.35 billion, an increase of 22.91%. In spite of a growth in both revenue and profit, the profit growth was still lower than the sales revenue growth. Many staple bulk drug producers gained relatively high revenue, but the gross profit rate decreased distinctly. It clearly indicates the impact from the price rise of raw materials. The cost is still a headache for bulk drug producers.

Challenges in 2006

First of all, the pressure of environmental protection will become greater. The production suspension caused by pollution in Henan Huaxing Pharmaceutical Co., Ltd. and Zhejiang Jingxin Pharmaceutical Co., Ltd. in 2005 has aroused general concern in the pharmaceutical sector. How can drug producers acquire the capability to put huge amounts of capital in environmental protection will be a major challenge.
    Secondly, there is still a possibility for RMB appreciation. Once RMB appreciation becomes a reality, far-reaching impacts will be produced on the export of bulk drugs and especially staple bulk drugs. The profit of staple bulk drugs in China is already very low today. RMB appreciation will surely affect the profit-making capability. Price rise may be a strategy of remedy but it can not be used for long. How can drug producers face the reality in which the cost of raw materials is getting higher and the price and the profit of products are getting lower? It is also imperative even for special bulk drug producers with relatively high profit to form core competitive edge, develop their own product brands and strengthen the ability of technology digestion and innovation. Hisun Pharmaceutical Co., Ltd. specialized in the production of special drugs has already started to develop towards formulations and fixed its development targets on overseas standardized markets in Europe, the United States and Japan to avoid competition with domestic producers in the domestic market. It is without doubt a wise choice.

Opportunities

China will adopt further measures to reduce the price of drugs in 2006 and the price reduction margin will be greater than 2005. In such a scenario, the demand of conventional drugs with low price will increase drastically. The domestic demand of staple bulk drugs, some antibiotics in particular, will be effectively promoted. Hisun Pharmaceutical Co., Ltd. specialized in the production of special drugs experienced a trial in the production of basic special drug pravastatin and some satan bulk drugs. The competition from India led to a drastic price drop of tatin and satan bulk drugs to the bottom. Owing to the high technical barrier in high-end tatin bulk drugs, special drug producers such as Hisun Pharmaceutical Co., Ltd. still retain their advantages and can maintain their superior position in special bulk drugs.
   The expiry of patents will become a problem besetting several pharmaceutical giants in 2006. It is without doubt a piece of good news to special bulk drug producers in China. Besides, cardiovascular diseases have become the biggest killer. Great quantities of imitation drugs will be produced and put in market. Despite the price reduction of bulk drugs caused by the expiry of patents, the emergence of great quantities of imitation drugs will increase the market demand of special bulk drugs and make up for some loss caused by the price reduction to producers.