By CHEN Yang

“To get any business, we have to say yes to anything. The turnover in India is 120 days. In South America, it’s 180 days. But shall we ever see a dime from it?”

This is how FANG?Hongjun of Tianyu Pharm, described the market during an industry summit. Since 2019 when China began buying drugs in bulk, margins for pharmaceutical companies have collapsed. Everyone is looking overseas, but no one is having it easy.

Calls for more profound adaptation

In 2021, pharmaceutical exports grew by a mere 3 percent. Last year, growth turned negative. In the first four months of this year, exports are down 20 percent.

Part of the decrease is attributed to medical equipment, which makes up about half of total exports. The world stockpiled masks, gloves, and antigen tests during the pandemic, but the buying stopped when Covid was over. And of course, vaccine exports didn’t last through 2022.

There are, however, quite a few bright spots. China’s API (active pharmaceutical ingredient) makers now have close to a quarter of the global market. Pharmaceutical exports excluding vaccines, tests, and PPE increased by 6.5 percent in 2022.

On the innovation front, BeiGene’s lymphoma treatment Brukinsa won accelerated approval from the FDA in 2019. Other cancer drugs are in clinical trials.

Exporters’ concerns go beyond individual drugs or categories. The China Chamber of Commerce report lists unfavorable foreign exchange rates, expensive raw materials and shipping, and cumbersome custom processes that went into effect during the pandemic as some of the most pressing challenges.

Some of these conditions are temporary. The long run, however, calls for more profound adaptation.

Moving to the high end

ZHANG Qiuying, an executive at Huayao International Medical, says for some common drugs, such as acetaminophen and amoxicillin (a common antibiotic), her company has gone from selling ready-to-use pills to APIs. Margins are thinner for less processed ingredients, she says.

So for mass-market drugs, low-cost makers in India and Indonesia will prosper. Chinese companies will have to find new revenue from high-end products.

Pharmaceutical companies’ relationships with clients also vary according to their location.

In Africa, Huayao’s largest market, some buy ready-to-use drugs; others buy ingredients and process them locally. In some cases, Huayao provides equipment or invests in local factories.

Destination USA

Despite the changes, opportunities are plenty. LI?Dongming of Shanghai Pharmaceuticals, says Southeast Asia and the US are his primary targets.

Southeast Asia has a ballooning middle class but extremely inadequate local supply, while the US is appealing for its streamlined approval and entry procedures. In contrast, each country in the EU has slightly different policies. The US also accounts for 55 percent of global innovator sales. Chinese companies are keen to get a slice of that. ?

For now, most Chinese drug makers compete with their Indian counterparts in the generic market. Li says they should focus on areas where Indian competitors do not dominate, such as eye and respiratory medicine. Generics make up only 20 percent of US drug sales but the market is huge.

Learning local ways

Most pharmaceutical executives say for each country or region, they adopt different strategies. Having large distributors who don’t charge high markups is crucial for the price-sensitive Middle East, for example. In some countries, personal meetings are far more effective than showing up at industry conferences.