Better Life Together - Nomura HoldingsStandards In 1998, China’s SFDA introduced Good...
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Better Life Together China Resources Medication Group Samuel Mao, Vice President 1 July 2011
Transcript of Better Life Together - Nomura HoldingsStandards In 1998, China’s SFDA introduced Good...
Better Life Together
China Resources Medication Group
Samuel Mao, Vice President
1 July 2011
Part I – Overview of China’s Pharmaceutical Market
1
China: The Most Attractive Healthcare Market
Healthcare infrastructure
development catching up with
economic development
High priority for government
Affirmative action— US$125bn
allocation between 2009-2011
Rising affordability, awareness and
access to healthcare
Improved insurance coverage
going forward—aim to achieve
universal coverage by 2020
Healthcare Expenditure and Growth of Asia-Pacific Countries Key Growth Drivers for China
Unique Generational Opportunity
Government focus on healthcare reform
in China with substantial investment
expected going forward will see China
overtake Japan as the largest market in
Asia Pacific by 2015.
Note: Bubble size represents contribution to total market growth. Healthcare expenditure in Japan is expected to
decline, contributing to 14.5% decline of total market
Contributing 70%
of Total Market
Growth
10
-15
E M
ark
et
CA
GR
2015E Market Size (US$bn)
China
Hong Kong
Taiw an
India
Indonesia
Malaysia
Thailand
Australia
Japan
PhilippinesSouth Korea
Singapore
-4.0%
0.0%
4.0%
8.0%
12.0%
16.0%
0.0 100.0 200.0 300.0 400.0 500.0 600.0
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China’s Pharmaceutical Market Evolution
China is forecast to become the second largest pharmaceutical market in the world by 2020.
According to 2009 IMS data, China is the 7th largest pharmaceutical market in the world
– Forecast to become the 2nd largest market after the US by 2020(1)
While the current US pharmaceutical market is becoming saturated (IMS estimates CAGR of 1% in the next few years), and other large markets are
slowing down (Japan at <5% growth, European top five at c.3%), China is forecast to grow at an estimated 15% CAGR until 2015
Main drivers of growth:
– Economic growth creating demand for and access to healthcare
– Healthcare reforms (universal medical insurance coverage, establishment of a national basic drug system) and healthcare infrastructure spending augmenting
demand for medicines
– Urbanization expected to create demand in the long term as ―Western‖ disease (obesity, cardiovascular disorders) rates are predicted to increase
– China’s population aged above 50 years old expected to increase by 150m people by 2020 (equivalent of the whole population of Germany and France)
(1) Based on market size on chemical drugs sold in hospitals only, excluding
Active Pharmaceutical Ingredients (APIs) and traditional Chinese medicine
(TCM).
Source: Equity Research, IMS.
2001
State Ranking
USA 1
Japan 2
Germany 3
France 4
Italy 5
UK 6
Spain 7
Canada 8
Mexico 9
China 10
2005
State Ranking
USA 1
Japan 2
Germany 3
France 4
Italy 5
UK 6
Spain 7
Canada 8
China 9
Mexico 10
2009
State Ranking
USA 1
Japan 2
Germany 3
France 4
UK 5
Italy 6
China 7
Spain 8
Canada 9
Turkey 10
2020
State Ranking
USA 1
China 2
Japan 3
Global Pharmaceutical Markets Ranking (as per IMS)(1)
3
Foreign
Companies
17%
Joint Ventures
34%
Local Firms
49%
112
234
489
57
95
152
181
367
735
12 3895
2005 2010 2015E
Patented Generic OTC
China’s Pharmaceutical Market: Industry Profile
The Chinese pharmaceutical market was worth c.RMB 367bn in 2010 and is forecast to grow at an
estimated 15% CAGR until 2015, vs. c.5% growth for the rest of the world.
Market: 15%
Patented:20%
Forecast 2010-
2015E CAGR:
OTC: 10%
Generics: 16%
(In RMBbn)
China’s pharmaceutical sector to almost double from RMB367bn in 2010 to RMB735bn 2015E, growing at 15% CAGR
– Prescription drugs dominate the market with c. 74% share; generics is the dominant drug type in China with c.64% market share
– Traditional Chinese medicines (TCM) not included in these figures but traditionally accounts for c.30% of total sales of broader China drug market
More than half of all drugs in China are sold through hospitals, as hospitals are both prescribers and dispensers
Local manufacturers account for 49% of total drug market, while international pharma player and their JVs account for c.50% of total China drug
market(1)
Multinationals focused on high-end market, commanding premium prices
– Leading players are Pfizer, AstraZeneca, Bayer, Sanofi-Aventis and Roche, with market share of 8.3%, 7.5%, 6.6%, 6.2 and 5.3%(2) respectively
Domestic companies generally dominate the mid / low-end market, mostly engaged in the manufacturing and marketing of generic drugs
– Major players include CR Medications and its subsidiaries, Harbin Pharma, Shijiazhuang Pharma, Shanghai Pharma, Jilin Xiuzheng
– Highly fragmented market, prone for consolidation China Pharmaceutical Market Growth(3) Market Share: International vs Domestic Players
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Regulatory Regime Complex regulatory structure, with the main regulator authority being the State Food and Drug Administration (SFDA)
– Supervises the entire pharmaceutical process from R&D, manufacturing, and distribution to utilization of drugs
In addition to the SFDA, there are eight other government agencies(1) involved in regulating different aspects of the China
pharmaceutical industry, most notably the Ministry of Health (MOH)
– MOH guides healthcare reform; its other responsibilities include compiling the basic insurance drug list and drawing up procurement
regulations for state-owned hospitals
Drug Pricing National Development and Reform Commission (NDRC) is mandated to approve and regulate the prices of new pharmaceutical products
as suggested by the manufacturers based on self-reported production costs
– Handles the pricing of prescription medicines on the national health insurance medicine list (2)
– Prices of medicines outside the basic medicine list are more or less set at levels desired by manufactures since NDRC and local
authorities do not have sufficient staff / resources to ascertain whether production costs provided by manufactures are accurate
Since 1997, the NDRC has issued guidelines lowering medicine pricing on 27 occasions
– Plans to reduce price of medicines produced by foreign companies, which currently enjoy considerable price premiums when
compared with Chinese-made equivalents
Intellectual
Property Protection
State Intellectual Property Office (SIPO) is responsible for patents
China’s IP protection for pharmaceuticals has gradually been conforming to international standards over the past several years, since the
country gained entry into WTO in 2001
– Outstanding issues include lack of enforcement of patent legislation, and the inability of the Chinese legal system to deal with
complicated technological issues, and widespread proliferation of counterfeit medicines
Manufacturing
Standards
In 1998, China’s SFDA introduced Good Manufacturing Practice(3) certification (optional); following China’s entry into the WTO in 2001,
the SFDA implemented a new regulation in July 2004, requiring mandatory GMP certification for all manufacturers
Thresholds and requirements raised several times; most recently a new GMP standard became effective starting 1 March 2011
– Based on European Union regulations – more stringent process validation for manufacturing operations, dynamic process quality
monitoring systems, and human resource management; spot checks are to be performed to ensure quality production at all times
– Substantial costs are required to meet new guidelines, including upgrading manufacturing equipment, waste treatment systems,
operational staff management and training – requiring an estimated total spending of ~Rmb30-50bn from manufacturers
– Expected to lead to a new wave of industry consolidation
China’s Pharmaceutical Market: Regulatory
Background
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Part II – China Resources, Our Parent Company
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China Resources - Overview
With 72 years of history, China Resources has been
growing continuously and established a good business
reputation both in Hong Kong and Mainland China.
By 2010, China Resources has more than 300,000
employees across the whole China.
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China Resources – Organization Structure
China Resources (Holdings) Co Ltd
China
Resources
Enterprise
(00291.HK)
HKD67 Billion
China
Resources
Power
(00836.HK)
HKD80 Billion
China
Resources
Land
(01109.HK)
HKD84 Billion
China
Resources
Cement
(01313.HK)
HKD25 Billion
China
Resources
Gas
(01193.HK)
HKD16 Billion
China
Resources
Medication
Group
Limited
China
Resources
Capital
Holdings
Co., Ltd
China Resources Microelectronics Co., Ltd (00597.HK) HKD4 Billion
HIS Constituent
Stocks
HK-Listed Companies
SBU
8
China Resources - Business Performance
Business performance in the past 10 years
Turnover growth of CR Holdings from
2001 to 2010 (HKD in 100 million)
Profit growth of CR Holdings from
2001 to 2010 (HKD in 100 million)
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Part III – China Resources Medication Group
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CR Medication Organization Chart
2010 Revenue Breakdown
CR Sanjiu* Double-Crane Pharma* Dong-E-E-Jiao* Shanghai Medical
Instruments Co. (SMIC) Beijing Pharma Holdings
Xin-Xibei Double-Crane
China Resources Medications Group
Traditional Chinese
Medicine
Natural Medicine Division
Chemical Medicine
Sector
Zizhu Pharma
Second Pharma
Nutrition and Health
Products
Hua Da Jie Rui
Medical Equipment and
Instruments
Wandong Medical
Equipment*
Distribution
Anhui Huayuan
Changsha Double-Crane
Pharmaceutical
Distribution
Changfu Jinshan Pharma
China Resources (Holdings) Co., Ltd,
Belonging to pre-merger CR
Medications Group
Belonging to pre-merger
Beijing Pharma
TCM: Traditional Chinese Medicine
Note: Segment breakdown estimated based on an aggregation of select subsidiary financials. ―Other‖ segment have been excluded from pie charts.
Note: * denotes listed subsidiaries.
2010 EBITDA Breakdown 2010 Net Income Breakdown
TCM
33.6%
Drug Distribution
5.6%
Medical Equipments /
Instruments
3.5%
Nutrition / Health
Products
23.9%Chemical Drugs
33.4%
TCM
29.1%
Nutrition / Health
Products
19.2%
Drug Distribution
17.4%
Medical Equipments /
Instruments
3.1%
Chemical Drugs
31.2%
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TCM
12.5%
Nutrition / Health Products
6.6%
Drug Distribution
58.3%
Medical
Equipments /
Instruments
4.2%
Chemical Drugs
18.4%
CR Medication Milestones
2007
2008
2009
2010
2009: Announced decision to dispose its
interests in three subsidiaries(1) in order to
focus on core healthcare business
2010: Entered into a merger agreement
with Beijing SASAC to acquire a 50%
stake in Beijing Pharma and became
the100% shareholder of Beijing Pharma
2009: Completed three external
acquisitions(2) in its drug manufacturing and
distribution business
2008: Acquired 71.4% interest in
Sanjiu Pharma and its subsidiaries
for a total consideration of HKD
4.5bn (RMB 4.0bn)
2007: CR Medications Group incorporated in
Hong Kong in May 2007 as an unlisted
investment holding company
2010: Acquired 12 distribution companies
for RMB 770m, adding RMB 4.0bn in new
sales to its distribution platform
(1) These subsidiaries include New Sanjiu Real Estate, Shanghai Tiancheng Innovation Development, and Hanyuan Sanjiu Lihong Food.
(2) Acquired 100% interest in Shanghai Bai’an Medical, 97.9% interest in Shanghai Huayuan Pharmaceutical, and 62.8% interest in Anhui Jinchan Biochemistry.
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China Resources Sanjiu Medical &
Pharmaceutical Co Ltd (SHE:000999)
China-based company principally engaged
in developing, manufacturing and
distribution of pharmaceuticals, healthcare
products and medical appliances
Products:
Herbal Medication
Non-decocted Chinese Herbal
Medicines
Antibiotics
Generic Medication
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Beijing Double-Crane Pharmaceutical
Co Ltd (SHA:600062)
The largest IV solution, injection supply base
in China, China's leading production base for
synthetic antibiotics, innovation base for
natural drugs and nation-wide sale and
service system
Products:
IV Solutions
Anti-hypertensive Products
Anti-diabetes Products
Anti-antibacterial Drugs
Digestive System
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Dong-E E-Jiao Group (SHE:000423)
"Dong-E E-Jiao", with the famous brand "Dong-E" which has a
history of more than 2000 years.
E-Jiao, (gelatin made of donkey-hide / Colla Corii Asini) is the most
famous blood tonic in China. In terms of quantity, the annual
production accounts for 75% of the whole country.
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Beijing Zizhu Pharmaceutical Co Ltd
Designated R&D and manufacture center of medicine for family
planning and reproductive health-care in China
Products:
Family planning medicine
Reproductive health-care medicine
Ophthalmic medicine
Other Health care products
Biological products
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Beijing Pharmaceutical Co Ltd
Top 3 pharmaceutical distribution company in China
3 major fields of business:
Medical treatment market > 3000 hospitals as end-
customers
Community market 10,000 community health service
centers
Commercial distribution > 20 big & middle cities in China
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Target: Expansion
Obtained sole distribution right to the Army, reinforced regional
distribution network, and established distribution networks in 24
provinces in China
M&As in 11 provinces in China, established wholesale distribution
networks in major cities
Signed cooperation agreements with Beijing’s 14 districts and
counties, reinforced the market position in Beijing
Heilongjiang (Tianli 牡丹江天利) Inner Mongolia (Xinhai信海)
Liaoning (Yiyao 辽宁医药实业、Baicao 辽宁北药百草)
Shandong (Zhongxin 济南中信、Lukang 山东北药鲁抗)
Henan (Aisheng 爱生)
Zhejiang (Quzhou Yiyao 衢州医药股份)
Jiangsu (Lian 苏州礼安)
Jinlin (Dage 长春大格、Kangnaier康乃尔)
Heilongjiang (Yongyu 哈尔滨永裕)
Liaoning (Aoderijia 大连澳得瑞嘉)
Beijing (Wanjiari 万家瑞)
Hebei (Jianbang 廊坊建邦)
Hubei (Jinma 金马)
M&A before 2010 M&A in 2010
Beijing Pharmaceutical Co Ltd – 2010 overview
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Established Market To be established via M&A from 2011 to 2015
Beijing Pharmaceutical Co Ltd – future M&A
6 more M&As to be completed
in July 2011 in Beijing,
Jiangsu, Shanxi, Hubei and
Zhejiang provinces
M&As in pipeline to be
completed within the year
Distribution networks to cover
whole China (except Tibet and
Taiwan) via M&A before 2015
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Beijing Wandong Medical Equipment Co
Ltd (SHA:600055)
Leading medical equipment manufacturer in China
Products:
Radiological imaging equipment, including conventional X-ray
diagnostic equipment, high-frequency gastrointestinal diagnostic
equipment, direct digital radiographic (DR) imaging equipment,
vein interventional therapy and high-frequency movable equipment
Magnetic resonance imaging (MRI) equipment
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Shanghai Medical Instruments (Group) Ltd
Largest surgical instruments manufacturer in China
Products:
Surgical instrument
Hygiene material
X-ray diagnostic equipment
Surgery bed
Medical image intensifier
X-ray tube
Medical electronic instrument
Ultrasonic device
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Beijing Second Pharmaceutical – U.S. FDA
Approval
Beijing Second Pharmaceutical Co. Ltd. is the first APIs
manufacturer in China to get US FDA approval for Sulfamethazine
early in 1984, and successfully passed the follow-up FDA
inspections in 1987,1994,1997,2001and 2002 for 5 times
In January 2008, Beijing Second Pharmaceutical commenced its
EU GMP compliance project for its formulation manufacturing site,
aiming at launching Generics in EU market
In July 2009, Beijing Second Pharmaceutical passed the US FDA
cGMP site inspection
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China Resources Medication Group -
Market Position in China
2nd Largest
Pharmaceutical
Company
No .1 Surgical
Instruments
Manufacturer
No.1 Donkey
Gelatin Producer
Top 3 in
Pharmaceutical
Distribution
Top 5 OTC
Producer
1st Choice of Brand in
Family Planning &
Reproductive Health
China Resources Medication
Group Limited
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68% 70% 69% 70%
30% 28% 28% 29% 29% 29%
70% 69%
3%
469
2010
2%
637
2011
2%
812
2012
2%
972
2013
2%
1209
2014
2%
1501
2015
Manufacture
Distribution
Others 15% 20% 20% 19% 18% 18%
84% 81% 81% 81% 81%79%
1%
34
2010
1%
44
2011
1%
58
2012
1%
71
2013
1%
90
2014
1%
113
2015
Manufacture
Distribution
Others
Business Portfolio 2011-2015
Sales in HKD100M Profit in HKD100M
24
(Unit: HKD100M)
1501
1209
973812
637469
2010 2011 2012 2013 2014 2015
Turnover
25.4%
3444
5871
90
2010 2011 2012 2013 2014 2015
Net profit 24.9%
17.0%15.5%14.9%14.8%
13.6%14.0%
2010 2011 2012 2013 2014 2015
ROIC
4.4%
800711
576512
416
2012 2013 2014 2015
Total Assets
16.5%
2010 2011
Compound Growth 26.2%
Manufacture：25.5%
Distribution：26.9%
Compound Growth 27.2%
Manufacture：26.1%
Distribution：31.2%
903
113
Business Strategy & Target 2011-2015
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• Formulation of China
Resources Medication’s
Business Strategy
• China Resources
Medication’s IPO and it’s
Technology Park
• Structure and Management
Optimization
• Strategical Evaluation and
Incentive Program
• 6S Management System
• Information System
• Government Relation
• Enterprise Culture and
Talents Program
• M&A system and process
• Group level M&A
• Business Unit level M&A
• Pharmaceutical Distribution
Integration
• Medical Instrument
Integration
• Business Integration among
Production Entities
• R&D Integration
• Production and Distribution
Integration
Business Strategy & Target 2011-2015
Business
Strategy
and IPO
Internal
Integration
and
Synergy
External
M&A
Managem
ent
Improvem
ent and
Enterprise
Culture
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China Resources Medication Group
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