Taking the long view on Big Pharma in China

Wednesday, August 7, 2013

Big pharma’s Chinese dreams are bruised, but not broken. China’s fast-growing drug market was supposed to save pharmaceutical groups from patent expiries and western governments’ cutbacks. The GlaxoSmithKline PLC bribery scandal may signal a new wave of price pressure and slower growth. But China needs big pharma just as it in turn needs China.

The year of the snake is proving constrictive for foreign pharmaceutical companies in China. The government announced in January the fourth round of price cuts in two years. In July, it began investigating pricing practices at over 60 foreign companies. Now a bribery probe could further hurt those groups’ already-modest margins. GlaxoSmithKline, so far the only company to admit guilt, hurriedly moved to appease the authorities with a promise of price cuts. Glaxo’s stock fell almost 2 percentage points after it fessed up – a fair whack given its China business was less than 3 per cent of last year’s sales – although the share price recovered a little later in the week. The bigger concern is that a snowballing crisis could pave the way for a broader squeeze on profits.

Source: The Globe and Mail (link opens in a new window)

Health Care