In 2023, the pharmaceutical industry in China made strides towards high-quality development, steadily advancing in areas such as technological innovation, internationalization, and advanced manufacturing, achieving new breakthroughs. However, influenced by factors such as reduced sales of products related to COVID-19 prevention and control, major economic indicators saw a year-on-year decline. Looking ahead to 2024, the development of the pharmaceutical industry still faces many challenges, urgently needing to overcome difficulties to return to a path of stable growth.
Overall Industry Growth Deceleration
According to data from the National Bureau of Statistics, in 2023, the value added of the pharmaceutical industry above a certain scale was approximately 1.3 trillion yuan, a year-on-year decrease of 5.2% when calculated at constant prices. The operating income of pharmaceutical industry enterprises above a certain scale was 2.95525 trillion yuan, down by 4% year-on-year, and the profit was 412.72 billion yuan, down by 16.2% year-on-year. The growth rates of these three indicators were negative for the first time in many years, and were respectively 9.8, 5.1, and 13.9 percentage points lower than the overall industrial growth rate of the country. The trends of these indicators throughout the year showed a “W-shaped” pattern, with a downward trend in the first quarter, a narrowing of the decline in the second quarter, a bottoming out in the third quarter, and a slight rebound in the fourth quarter.
Trends in various sub-industries showed differentiation. The operating income and profits of two sub-industries, traditional Chinese medicine decoction pieces and Chinese patent medicines, maintained positive growth, especially with the operating income and profit growth rates of traditional Chinese medicine decoction pieces reaching double digits. The operating income of two sub-industries, auxiliary materials and packaging, and pharmaceutical equipment, saw positive growth, but profits declined. The operating income and profits of five sub-industries, including chemical raw materials, chemical preparations, biological products, hygiene materials and medical supplies, and medical instruments and equipment, all experienced negative growth.
Comprehensive analysis reveals three positive factors influencing industry economic indicators: Firstly, there was a significant recovery in terminal consumption of pharmaceuticals. With the normalization of diagnosis and treatment activities, the total number of medical visits in Chinese medical and health institutions from January to September 2023 increased by 6% year-on-year. According to data from the China Pharmaceutical Association’s sample hospital database, the medication expenditure of sample hospitals in 2023 increased by 4.95% year-on-year. According to data from the National Bureau of Statistics, the total retail sales of Chinese and Western medicines (units above the quota) increased by 5.1% year-on-year in 2023. Secondly, sales growth of certain categories of drugs was significant, such as innovative drugs for major diseases, as well as antipyretic and analgesic drugs, antiviral drugs, respiratory system drugs, and traditional Chinese medicine decoction pieces. Thirdly, the widespread decline in chemical raw material prices contributed to the decrease in the cost of chemical raw materials.
The main negative factors were as follows: Firstly, sharp declines in sales of products related to COVID-19 prevention and control. With changes in the situation of COVID-19 prevention and control, sales of products such as COVID-19 virus test kits, vaccines, and protective equipment were limited in 2023, leading to significant decreases in the operating income and profits of the biological products and hygiene materials and medical supplies sub-industries. Secondly, a significant decline in pharmaceutical exports. The value of pharmaceutical exports in 2023 decreased by 16.3% year-on-year, lower than the growth rate of operating income, which turned the role of exports in industry growth into a negative one. Among various sub-industries, the biological products, hygiene materials and medical supplies sub-industry saw the largest decline in exports. Thirdly, a downward trend in the prices of many pharmaceutical products. From national centralized procurement to local alliance procurement, the scope and variety of drugs and high-value medical consumables subject to procurement continued to expand, leading to price reductions for newly included and renewed varieties to varying degrees; fierce market competition and overcapacity resulted in significant price reductions for many chemical raw materials, especially bulk export products such as vitamins, antibiotics, and heparin; CRO/CDMO services also generally saw price declines due to reduced projects and market competition. Fourthly, a significant increase in the prices of Chinese herbal medicines, leading to rising costs for Chinese herbal medicine enterprises. Fifthly, destocking in distribution channels (including international markets) had a negative impact on the operating income of industrial enterprises.
Overall, the main reason for the negative growth of economic indicators in the pharmaceutical industry in 2023 was the high statistical base caused by the sales of products related to COVID-19 prevention and control in the previous year. Compared with 2019 before the pandemic, the operating income and profits in 2023 increased by 13% and 19.4% respectively, and the compound annual growth rates over the four-year period were 3.1% and 4.5% respectively, basically at a reasonable level. However, it is worth noting that some non-pandemic-related factors, such as product price reductions and a slowdown in pharmaceutical exports, will continue to affect the industry’s development in the near future.
Against the backdrop of the overall slowdown in industry growth, the differentiation in enterprise operations has become more severe. Most enterprises still maintained steady operations. According to the third-quarter reports of listed companies in 2023, more than 60% of pharmaceutical industry enterprises maintained growth in the first three quarters, with over 40 companies achieving operating income exceeding 10 billion yuan and over 20 companies achieving net profits exceeding 1 billion yuan. However, the number of enterprises facing operational difficulties is increasing. According to statistics, loss-making enterprises accounted for 24.7% of enterprises above a certain scale in 2023, an increase of 14.7% year-on-year, and the amount of losses increased by 15.6% year-on-year.
Intensive Release of New Policies
In terms of industrial policies, in August 2023, the State Council executive meeting reviewed and approved the “Action Plan for High-Quality Development of the Pharmaceutical Industry (2023-2025)” and the “Action Plan for High-Quality Development of the Medical Equipment Industry (2023-2025)”, which helped promote the industry’s quality and efficiency. In September, the State Council deployed efforts to promote the work related to new industrialization, requiring the enhancement of the resilience and security level of the industrial chain and supply chain, the improvement of industrial innovation capabilities, and the promotion of the integration of digital technology and the real economy as well as green industrial development. In December, the National Development and Reform Commission issued the “Guiding Catalogue for Industrial Restructuring (2024 Edition)”, supplementing and adjusting the encouraged development of products and technologies in the pharmaceutical field.
In terms of drug supervision system, the National Medical Products Administration became an official applicant to join the Pharmaceutical Inspection Cooperation Scheme (PIC/S), which will further promote the alignment of the production and quality management levels of the pharmaceutical industry with international standards; it issued the “Announcement on Strengthening the Supervision and Administration
of the Production Entrusted by the License Holder for Drug Marketing Authorization”, strengthening the supervision of entrusted production entities, especially biological products, traditional Chinese medicine injections, and enterprises with Biopharmaceutical Class B licenses (enterprises holding licenses for the production of Class B drugs). The Center for Drug Evaluation (CDE) of the National Medical Products Administration issued the “Regulations for Accelerating the Review of Applications for Market Authorization of Innovative Drugs (Trial)”, as well as multiple technical guidance principles, further optimizing the review process, shortening the review time for some innovative drugs, and guiding enterprises to reduce homogenized research and development.
Centralized procurement of drugs and high-value medical consumables continued to expand. The eighth and ninth batches of national drug procurement were completed within the year, with the average price reduction of 56% for the 39 drugs in the eighth batch and 58% for the 44 drugs in the ninth batch. By then, a total of 374 varieties had been included in the national procurement, involving 1,645 products from 1,135 enterprises, accounting for 30% of the commonly used drugs in public medical institutions. The number and categories of local procurements increased, with 25 new volume-based procurement projects launched in 2023, further expanding the varieties and extending to areas such as traditional Chinese medicine and biological products. The fourth batch of national centralized procurement of high-value medical consumables was completed, covering products such as artificial lenses and sports medicine, with an average price reduction of around 70% for selected products.
The normalization of adjustments to the national medical insurance drug catalog. In 2023, a new round of negotiations and adjustments to the medical insurance catalog were initiated. Through negotiations, 126 drugs were added to the catalog, of which 57 drugs were approved and included in the catalog in the same year. Over 80% of new drugs can be included in medical insurance within two years of approval. The renewal rules were further optimized, with “simple renewals” alleviating the pressure of continuous price reductions for innovative drugs in the medical insurance catalog, with 70% of the varieties in this round achieving original price renewals. In order to expedite the landing of nationally negotiated drugs, various regions actively promoted the drug entry process into hospitals, improved the “dual-channel” mechanism, and accelerated the availability of innovative drugs to patients. Some regions introduced medical insurance support policies for innovative drugs, such as Beijing’s DRG exclusion payment, Hubei’s separate payment, Shanghai’s multi-payment mechanism, etc., which facilitate the expansion of clinical use of innovative drugs.
In terms of medication policies, in 2023, the National Health Commission issued the “Second Batch of Rare Disease Catalog”, the “Third Batch of Encouraged Generic Drug Catalog”, and the “Fourth Batch of List for Encouraging R&D and Application of Pediatric Drugs”, guiding enterprises to accelerate the development of related products to meet clinical needs. To promote rational drug use in clinical practice, the National Health Commission issued the “Second Batch of National Key Monitoring List of Rational Drug Use Drugs”, including 30 varieties with large clinical usage. In order to promote the reform of the mutual assistance mechanism for outpatient medical insurance for employees, the National Medical Security Administration issued the “Notice on Further Improving the Inclusion of Designated Retail Pharmacies in Outpatient Overall Planning Management”, which helps promote the circulation of prescriptions in hospitals and expand the sales of retail drugs.
To support the revitalization and development of traditional Chinese medicine, in February 2023, the General Office of the State Council issued the “Implementation Plan for Major Projects of Revitalizing and Developing Traditional Chinese Medicine”, deploying projects such as improving the quality of Chinese medicine and promoting the industry, and increasing support for the development of traditional Chinese medicine. In January 2023, the National Medical Products Administration formulated the “Several Measures for Further Strengthening the Scientific Supervision of Chinese Medicine to Promote the Inheritance and Innovative Development of Chinese Medicine”, arranging measures to strengthen the quality management of the entire Chinese medicine industry chain, build a Chinese medicine scientific supervision system with Chinese characteristics, etc.; in February, the “Special Regulations on the Registration and Management of Chinese Medicine” were issued to strengthen guidance on the development of Chinese medicine, improve the Chinese medicine registration management system, and promote the development of new Chinese medicines.
In July 2023, the National Health Commission and ten other ministries jointly issued the “Guiding Opinions on Conducting Concentrated Remediation of Corruption in the Field of National Medical and Health Care”, kicking off a one-year concentrated remediation of corruption in the field of national medical and health care, focusing on key links such as production, supply, sales, use, and reimbursement in the medical and health care field, as well as “key minorities”, which helps purify the industry environment and regulate corporate business practices.
Significant Achievements in Domestic Innovative Drugs
In 2023, the number of applications for and approvals of innovative drugs increased significantly compared to the previous year, with a total of 40 innovative drugs approved for market. The approved types of innovative drugs cover small molecule targeted drugs, monoclonal antibodies, cell therapies, vaccines, and more. The approved indications still primarily focus on anticancer drugs, followed by anti-infectives and autoimmune diseases. In terms of technological innovation, two new CAR-T cell therapy products were added, the first quadrivalent influenza subunit vaccine was approved for market, and Sugofenib became the first domestically produced drug in the field of lung cancer to be recognized as a “breakthrough therapy” by both China and the United States. In terms of applicants, traditional large pharmaceutical companies accounted for a larger proportion, while biotech companies such as Dezhi Medicine, Purun Bioscience, Heyuan Biotechnology, and Xunluo Biotechnology achieved their first product launches.
Cross-border technology licensing cooperation is active. According to incomplete statistics, in 2023, domestic companies conducted more than 80 technology licensing transactions with overseas companies (License-out), with a total transaction amount exceeding $40 billion, a significant increase over the previous year. Chinese innovative drugs are increasingly recognized by foreign companies, with the average upfront payment ratio gradually increasing, reaching up to $800 million for individual projects. Amid a sluggish investment and financing environment, technology licensing revenue has provided important funding sources for some innovative drug companies. Anticancer drugs are the main focus of technology licensing projects, with ADC (Antibody-Drug Conjugate) products being particularly favored, accounting for about one-fourth of transactions. Large transactions were frequent, with 16 projects exceeding $1 billion in transaction value. The EGFR/HER3 bispecific ADC authorized by Baili Tianheng to Bristol-Myers Squibb for $8.4 billion set a new record for single outbound transactions of innovative drugs from China.
Continued improvement in drug innovation. With changes in the competitive environment, domestic drug R&D has gradually shifted from Me-too drugs to the development of First-in-class and Best-in-class drugs. New technologies such as new targets, conjugation technologies, RNA therapies, cell and gene therapies, radiopharmaceuticals, novel delivery technologies, artificial intelligence, big data, and cutting-edge biosciences are widely applied in drug R&D. Nearly 30 varieties developed by domestic pharmaceutical companies in 2023 have been included in breakthrough therapies. More and more Chinese new drug research projects are being selected for presentation at internationally renowned academic conferences, and these pipelines are expected to apply for market approval in the coming years or enter the international market through various channels.
Expansion of the innovative drug industry. The overall sales of innovative drugs by domestic companies have maintained good growth. Large companies combining innovative and generic drugs such as Hengrui Medicine, Zhengda Tianqing, Qilu Pharmaceutical, and CSPC Pharmaceutical have increasingly rich pipelines of new drugs, with the proportion of sales of innovative drugs increasing, and the number of new drugs with annual sales exceeding 1 billion yuan increasing. A batch of innovative biotechnology companies have achieved steady growth in drug sales, with more than ten listed biotech companies with product sales totaling over 20 billion yuan in the first half of 2023 (excluding technology licensing revenue), a year-on-year increase of over 60%. The approval of new drugs/new indications is the core driving factor for income growth; companies’ independent R&D capabilities continue to improve, with significant global sales of Zebutinib by BeiGene, benefiting from authorized cooperation or product sales growth. Companies such as Fuhong Hanlin, Ares, Kangfang Biotech, and Hengrui Medicine have achieved profitability.
Slowing Trend in Exports
Following the decline in pharmaceutical exports last year, pharmaceutical exports remained negative in 2023. Enterprises above designated size achieved an export delivery value of 337.15 billion yuan for the whole year, a year-on-year decrease of 16.3%. According to data from the China Chamber of Commerce for Import and Export of Medicines and Health Products, the export value of pharmaceutical products in 2023 was $102.056 billion, a decrease of 20.7% year-on-year, and the declining trend in exports gradually slowed down according to quarterly data. The main reasons for the decline in exports include a significant decrease in demand for products related to COVID-19 prevention and control, weak global economic recovery leading to overall insufficient overseas demand, destocking in foreign channels, a decline in prices of many chemical raw materials, and adjustments to the supply chain by many foreign companies leading to diversion of purchases of some products. Although the export amount has decreased, the position of Chinese pharmaceutical products in the global industrial chain has not changed, and it is expected that pharmaceutical exports will gradually stabilize and recover in 2024.
Outstanding Achievements in New Drug Overseas Markets
In 2023, a total of 5 domestically developed innovative drugs were approved for marketing in the United States or the European Union through independent registration or product cooperation, including Junshi Biosciences’ Trelupitumab approved by the U.S. Food and Drug Administration (FDA), and the European Union approved Baiji Shenzhou’s Tislelizumab, covering chemical drugs, biological drugs, complex formulations, and other types.
Accelerated Internationalization of Biosimilar Drugs
Baiotai’s Toripalimab and Bevacizumab were approved for marketing in the United States through cooperation. Pharmaceutical companies actively explore the Southeast Asian market and countries and regions along the “Belt and Road” initiative, establish commercial platforms, carry out product registration, and expand the international market space for new drugs.
In terms of generic drugs, in 2023, a total of 24 companies in China obtained 67 ANDA approvals from the U.S. FDA (for 59 varieties), with injection formulations as the main dosage form. The top three companies in terms of the number of ANDA approvals are Fosun Pharma, Pfizer Pharmaceuticals, and Jianniu Corporation.
Intensified Competition in Generic Drugs
In 2023, China’s drug registration applications reached a five-year high, and the number of products approved for marketing increased significantly compared to the previous year. According to the “Annual Drug Evaluation Report 2023,” a total of 62 varieties of original drugs already on the market abroad but not yet on the market domestically were approved, along with 246 first generic versions of chemical drugs and a batch of orphan drugs and pediatric drugs to better meet clinical needs and improve drug supply security.
The number of chemical generic drugs has grown significantly. In 2023, the Center for Drug Evaluation (CDE) reviewed and recommended approval of 1815 applications for generic drugs to be launched, among which non-centralized procurement varieties grew rapidly; 915 applications for generic drug consistency evaluations were approved (326 varieties), including 289 oral solid formulations (163 varieties) and 626 injections (163 varieties). Enterprises with the most consistent evaluation approvals are Kolen Pharmaceutical, Qilu Pharmaceutical, and Shisi Medicine. The rapid growth in the number of generic drug varieties has intensified market competition. With the implementation of drug procurement, the competitive landscape of many varieties has changed, and some traditional leading companies’ positions have been challenged, while some pure generic drug companies have become new entrants, gradually becoming important players in the generic drug field.
The number of registrations for chemical raw materials has steadily increased. As of the end of 2023, the CDE’s platform for the registration of raw and auxiliary materials has registered a total of 5,967 registration numbers for raw materials, an increase of 29% over the previous year, of which 4,531 are in a joint review and approval status with formulations; there are 2,886 registered enterprises, an increase of 15.3% over the previous year’s end. A total of 168 new products were registered for the first time in 2023, and the number of exclusive raw materials registered on the platform gradually decreased from 380 in 2021 to 228 in 2023. According to data from the National Bureau of Statistics, large-scale pharmaceutical companies above designated size produced a total of 3.949 million tons of chemical raw materials in 2023, a year-on-year decrease of 7.0%.
Continuous Growth in the Number of Pharmaceutical Manufacturing Enterprises
In 2023, global biopharmaceutical investment and financing were at a low ebb, and China’s pharmaceutical investment and financing environment continued to tighten due to changes in the capital market environment, industry competition, and pharmaceutical policy adjustments. The performance of the pharmaceutical secondary market was sluggish throughout the year, with the valuation of listed companies trending downward. IPOs of pharmaceutical companies were cold, with a total of 33 pharmaceutical industry companies listed on the A-share market (including the Northbound Exchange), Hong Kong Stock Exchange, and U.S. Stock Exchange in 2023, raising a total of over 29.6 billion yuan, a significant reduction from the previous year. Primary market investment and financing shrank severely. According to statistics, there were 307 investment and financing events related to pharmaceuticals in the primary market in 2023 (excluding medical devices and medical services), with a total financing amount of 42.2 billion yuan, down by 25% and 32% compared to 2022, respectively. Project valuations were adjusted downward, and investors adopted a wait-and-see attitude. Against this background, many research-oriented biotechnology companies faced problems such as insufficient funds and difficulty in financing, and they needed to maintain operations by cutting salaries, laying off employees, and compressing R&D projects, which had a negative impact on pharmaceutical innovation.
The continuous growth in the number of pharmaceutical manufacturing enterprises reflects the vitality of the pharmaceutical economy. According to production licenses, there were more than 600 additional enterprises for raw materials and preparations in 2023; there was a significant increase in pure generic drug companies, with approximately 320 new additions in 2023. Mergers and acquisitions (M&A) and restructuring of domestic enterprises remained inactive in 2023, with few transactions and small scales. According to incomplete statistics, there were 40 M&A transactions in the pharmaceutical industry, with a total transaction value exceeding 28.4 billion yuan. Among them, one transaction involved a multinational company acquiring a domestic enterprise, four transactions involved domestic enterprises acquiring overseas enterprises, and the remaining 35 transactions involved domestic enterprises acquiring domestic enterprises. The project with the highest M&A value was Haier Group’s acquisition of Shanghai RAAS Blood Products, with a transaction value of 12.5 billion yuan; AstraZeneca’s acquisition of Genkiss Biotech with a transaction value of 8.46 billion yuan. In terms of M&A types, most M&A transactions were conducted by enterprise groups to optimize resources through acquisitions of subsidiaries, equity participation, etc., while a small number of M&A transactions involved enterprises integrating upstream and downstream industrial chains to increase market share and competitiveness. In terms of the types of acquiring companies, state-owned enterprises are currently the main force in enterprise M&A.
In 2023, 15 provinces (autonomous regions, municipalities) nationwide saw their pharmaceutical industry operating income grow faster than the national average, with 11 provinces achieving positive growth. Xinjiang, Hainan, Guizhou, and Shanxi achieved double-digit growth in operating income and profits, with Xinjiang and Hainan achieving double-digit growth in operating income and profits. Ten provinces had pharmaceutical industry operating income exceeding 100 billion yuan, a decrease of three from 2022. Jiangsu, Guangdong, Shandong, Zhejiang, and Henan continued to rank in the top five in pharmaceutical industry operating income. Local governments attach great importance to the development of the pharmaceutical industry and generally regard biomedicine as a key development area, issuing policies and measures to support the industry to become stronger and better. Shanghai, Jiangsu, Beijing, and other places promote the high-quality development of the biopharmaceutical industry by encouraging research and innovation, increasing investment and financing support, and setting up pharmaceutical industry funds. The central and western regions actively undertake industrial transfer, with 8 provinces carrying out industrial transfer and development docking activities in 2023, among which 6 provinces including Henan, Inner Mongolia, Yunnan, Gansu, Xinjiang, and Chongqing regard biomedicine as a key area, promoting industrial gradient transfer and facilitating regional coordinated development.
Confidence, Overcoming Difficulties, and Writing a New Chapter
Looking ahead to 2024, from a macro perspective, the international environment is full of uncertainties, and China still needs to overcome many difficulties to promote economic recovery and improvement. The development of the pharmaceutical industry also faces many challenges. First, many contradictions accumulated from years of “overheated” investment need to be resolved, including overvalued assets and excess capacity, to avoid some areas rapidly turning “cold,” or even seeing a wave of small and medium-sized enterprise closures and layoffs. Second, fierce competition and homogenization throughout the industry chain, coupled with the continuous expansion of centralized procurement, the widening implementation of DRG/DIP policies, and the price trends of various products, remain uncertain. Third, in the international market, some countries are driving the “de-Chinafication” of the pharmaceutical supply chain, focusing on replacing Chinese-produced bulk drugs, the impact of which is becoming increasingly apparent. Fourth, against the backdrop of the country’s efforts to resolve financial risks, the short-term investment and financing environment remains bleak, and the overall industry investment level faces a decline.
However, the strong resilience, great potential, and vitality of China’s pharmaceutical industry remain unchanged. First, the pharmaceutical market is expected to achieve stable growth, with normalization of diagnosis and treatment activities, expansion of the medical insurance catalog, overall coordination of outpatient services and prescription circulation, implementation of the “dual-channel” policy for drugs, and the development of internet medical services, which will unleash more market potential. Second, the country continues to introduce policies to stabilize economic growth, expand domestic demand, and create new productive forces, and is expected to increase support for the biopharmaceutical industry, issuing more encouraging policies in the development of innovative drugs, biomanufacturing, etc., and injecting more resources into financial credit, investment and financing, etc. Third, product upgrades and technological progress are driving internal growth. In recent years, the market size of newly listed innovative drugs has continued to expand, new hotspots such as “GLP-1” are creating new demands, and the pace of domestication of the supply chain is accelerating, all of which are beneficial to the growth of the pharmaceutical industry.
Against this background, enterprises across the industry need to understand the situation, actively respond to environmental changes, improve their internal strength, open up cooperation, restructure and integrate, promote industry transformation, upgrade, and high-quality development. It is expected that the pharmaceutical industry will be able to return to a stable growth trajectory in 2024, reaching the growth rate level before the COVID-19 pandemic.
Source: China Pharmaceutical News