China’s Bio-pharmacy and Medical Device Markets Have Huge Potential

Neither revenue nor profit of China’s biological pharmaceutical industry grew rapidly in 2011. But in view of China’s large, aging population, the industry – greatly supported by the State – attracts much attention from domestic pharmaceutical firms, more and more of which have set foot in bio-pharmaceuticals.
   Hualan Biological Engineering Inc (SZ: 002007), Zhejiang DA Diagnostics Co., Ltd (SZ: 300244), Grandhope Biotech Co., Ltd (SZ: 300238), Hybio Pharmaceutical Co., Ltd (SZ: 300199) and Walvax Biotechnology Co., Ltd (SZ: 300142) rank among the 10 most competitive listed pharmaceutical companies in the small and medium-sized enterprise (SME) board. Benefiting from new medical reform, grass-roots medical institutions achieve more State support promote the dural market, more than 40% (soaring 25.8%) shares of which were taken by Grandhope Biotech in 2011, when the company also invested a large sum of money – totaling RMB20.16 million, 15.7% of its operating revenue – in R&D. Thanks to the effort, Grandhope Biotech has become a leader of SME board-listed pharmaceutical companies.
   According to relevant policies, Hualan Biological Engineering Inc closed several plasma stations in 2011, making domestic supply of blood products tighter. Because of the closure, the operating revenue of the company dropped 23.8% YOY to RMB961 million in 2011; net profit plummeted 39.46% YOY to RMB370 million.
   The short supply will encourage blood product enterprises to develop, and propelled by policies and demand, the sector will expand more rapidly, according to analysts.
   China’s growing biological product market attracts both multinational and domestic enterprises. Multinationals like Novartis, MSD and GSK enter the domestic market through cooperation or acquisitions. Leading domestic firms are Beijing SL Pharmaceutical Co., Ltd (SZ: 002038), Zhejiang Jingxin Pharmaceutical Co., Ltd (SZ: 002020) and Tasly Pharmaceutical Group Co., Ltd (SH: 600535). For domestic enterprises – engaged in or to be engaged in biological products – R&D is the most important task.
   Listed medical device enterprises performed well in 2011, when the operating revenue of Lepu Medical Technology (Beijing) Co., Ltd (SZ: 300003) increased 19.44% YOY to RMB919.84 million; net profit rose 15.27% to RMB473.15 million. Two major products of Lepu, a bracket and a plugging device, saw 14.48% and 22.24% growth respectively in operating revenue.
   The progress of Lepu is attributed by analysts to its new products and global strategy. Lepu purchased Comed to promote CE authentication of products by making use of Comed’s advantages in clinical testing and product registration. Moreover, Lepu hopes the acquisition will improve its international layout and product integration. In 2011, Lepu conducted trial sales in 63 countries/regions, and achieved 12 product registration certificates.
　　The performance of Edan Instruments Inc (SZ: 300206) in 2011 was amazing, attributable to newly launched products including the U50 portable digital color ultrasonic diagnostic system and elite V8 multi-parameter monitor. Increasing varieties of product lines in the fields of gynecology and obstetrics is another reason.
　　The abovementioned good performance suggests that the domestic medical device industry has huge potential to develop. According to Investment Trend Prospect of China’s Medical Health Industry in 2012 issued by Zero2IPO, China’s medical device market accounts for 14% of its pharmaceutical market, far lower than the international standard (42%). Compared with world’s per capita consumption of medical devices, the domestic level is predicted to grow rapidly.
   Many foreign enterprises, optimistic about the domestic market, have founded research centers in China, set up local business relationships and gradually establish relevant channels. It is worth noting that they are trying to attract mid-level and low-end customers while maintaining high-end
clients.