China's Drugs Problem Spells Opportunity for Pharma Giants


Despite escalating global trade tensions, there is at least one area in which China is still opening up—pharmaceuticals.

The country’s Center for Drug Evaluation, China’s version of the Food & Drug Administration, this week made 48 drugs that have already been approved by regulators in the U.S., Japan or Europe eligible for fast-track approval, without additional domestic trials. The move is consistent with Beijing’s policy announced last October to cut red tape around its drug-approval processes.

It is also a positive sign for Western companies like

AstraZeneca
,

Merck and

Pfizer
,

whose drugs are among those in line for approval. For sure, the immediate impact on earnings—and hence share prices—may be limited. Thirty of the drugs in question are used to treat rare diseases with a small number of patients, according to

Credit Suisse
.

But what’s encouraging is that Beijing isn’t letting the broader trade fight get in the way of practicalities. China desperately needs to open up its drug market that generated $123 billion of revenue last year, making it the world’s second largest after the U.S., according to health-care data company Iqvia.

Sky-high prices and shortages in drug supply have led to widespread social discontent recently. A low-budget dark comedy called “Dying to Survive” has become one of China’s most popular movies ever this year. The story—about a businessman smuggling affordable cancer drugs into China from India to help leukemia patients—has resonated deeply with local audiences. China’s premier has called for a quick lowering of cancer-drug prices in response. Beijing already cut import tariffs on cancer drugs to zero in May.

There are also many concerns about the safety of drugs made by local manufacturers. Just last month, parents took to the streets after hundreds of thousands of faulty vaccines were found to have been given to children across the country.

It may take time for China’s drug market to fully liberalize, but it looks to be on track. For a sector looking for new growth opportunities, that can only be good news.

Write to Jacky Wong at JACKY.WONG@wsj.com



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