Corruption crackdown squeezes pharma firms
May 26, 2014 Category Health, Weekly
A crackdown on corruption and pricing in China’s fast growing pharmaceutical market has squeezed profits and margins. A Reuters’ analysis of more than 60 listed Chinese healthcare firms shows average profit margins declined to around 10% last year from 15% in 2012. Average net profits fell 2.1%, down from close to 20% growth in previous years. China is the largest emerging drugs market and is set to be the global number two overall within three years, according to consultancy IMS Health. “Most companies, local and foreign, have enjoyed an easy growth phase for 5 to 6 years as money was thrown at the healthcare system to improve access,” said Alexander Ng, Hong Kong-based Associate Principal at McKinsey & Co. “Now China is more into cost containment mode and the squeeze on pricing and margins is a lot more apparent.” Over the past year, China has cracked down on high prices and corruption in the healthcare sector. Executives of GlaxoSmithKline (GSK) were charged with bribery earlier this month. Industry and legal sources said the investigations into the sector were likely to grow more intense, which is likely to lead to declining sales growth, with some doctors saying they are worried to meet pharmaceutical representatives. “Selling through bribing definitely won’t work anymore,” said a Shanghai-based Sales Executive at a global drugmaker, speaking on condition of anonymity. The Reuters’ analysis showed combined revenue growth in the sector fell to 17.9% last year, from 22.6% in 2012 and more than 28.8% in 2011, the Shanghai Daily reports.
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