Worldwide spending on drugs is predicted to rise by 3% to 6% per year through 2015, mainly due to the growth in developing countries such as China and India. The largest spending will remain on cancer drugs, but spending on diabetes therapies is expected to grow as the disease becomes more widespread in budding markets. In developing countries, much of the growth will be in the generic drugs market, as patents on many top-selling brand name medications will soon expire.
IMS Health predicts that China’s pharmaceutical market, already the third-largest in the world, will grow by 25% or more this year due to the economic changes caused by China’s rapid urbanization. By 2015, drug spending in China’s pharmaceutical market is expected to reach $125 billion, compared to just $41 billion in 2010.
Because many Western drug companies will soon lose their patents, such companies are looking extensively to buy or start joint ventures with Chinese companies to produce generic drugs for the Chinese market. Many of these large Western pharmaceutical firms are not only seeking traditional mergers but are also interested in acquisitions. Pfizer Inc., the world’s largest research-based pharmaceutical company, announced on June 3, 2011 its new plans for a joint venture with China’s Zhejiang Hisun Pharmaceutical Co. Ltd. to produce, market, and sell branded and low-cost generics. UK pharmaceutical giant GlaxoSmithKline acquired Nanjing MeiRui Pharma in December 2010 and announced its plans to purchase Shenzhen GSK-Neptunus Biologicals Co. Ltd. on June 14, 2011.
However, firms looking to enter the Chinese pharmaceutical market must be aware of the relevant regulations and laws in place and not violate them, such as the 2008 PRC Anti-Monopoly Law. Additionally, compliance with laws of other nations, like the US Foreign Corrupt Practices Act (FCPA), can be difficult to assess, as many business transactions in China lack transparency and adequate business records. According to a report released by KPMG, the healthcare, medical device, and pharmaceutical sectors are particularly murky and ambiguous due to considerable use of distributors, agents, and other third-parties. Though such third-parties are sometimes classified by law to be part of the company, they do not usually have the “internal controls in place to sufficiently maintain their own books and records”.