Why does global generic giant withdraw from China?

The 32nd annual health care conference of JP Morgan was held in San Francisco on January 13-16, 2014 That week, Actavis, one of the world's largest generic companies, caused a stir by emphasizing its emerging market strategy, but it didn't do so in the way most investors expected While most pharmaceutical companies have turned their market opportunities in China into the key to their revenue growth and profitability, atvis has made it clear that it believes that the risks faced in China far outweigh the potential benefits In a quoted interview at JPMorgan's 32nd annual healthcare conference, Paul bisaro, chief executive of atvis, said: "if we are going to allocate capital, then we will allocate it to the place where we can take the least risk and get the most return And China is too risky " What kind of market is atvis evacuating from and why? In terms of market size, it is estimated that China's generic drug market will be close to US $82 billion by 2015 Atvis is not a small player in the global generic market, and on the face of it, it should be one of the companies that can make good use of China's growing demand for generic drugs In terms of influencing the development of the market, the company is certainly not a passive spectator Under the leadership of Pizarro, atvez has been pursuing M & A transactions to integrate one of the major players in the generic market There are other factors at work for a company like atvis, which publicly announced its exit from China (they began to cash in on the decision after selling shares in their subsidiary in Foshan, Guangdong Province, in late January) The question is whether atvis's decision reveals any current situation in China or in the global generic market, and what it reveals It is important to distinguish between the two concepts Atvis's decision may best be understood as testimony that China's overall enthusiasm for foreign companies, specifically pharmaceutical companies, is declining Or, as a company with a unique footprint in the Chinese generic market, atvis may not be able to grow its Chinese market share in a profitable way As a result of a series of incidents surrounding GlaxoSmithKline's China operations last summer, as well as allegations of misconduct in its China sales and clinical trials businesses, major pharmaceutical and medical equipment companies around the world are keeping alert to the Chinese government's anti-corruption actions, which seem to place too much emphasis on the misconduct of foreign companies As Tracy staton, editor of fierce Pharma, the US medical news network, said persuasively about GlaxoSmithKline's anti-corruption allegations last summer, "although eradicating corruption is the stated intention, the price of drugs is the subtext It's a little bit like a lawsuit to keep prices down " Industry observers may be reassured by a recent government bribery lawsuit against Sinopharm, China's largest pharmaceutical distributor Seeing a domestic company involved in China's efforts to increase transparency in drug pricing, if that is actually the motivation behind the government's actions, gives hope to those worried about the government's unfair treatment of foreign companies Many of the broader issues that atweis CEO pointed out as a reason for the company's exit from China are not wrong A number of surveys conducted by various US and European business organizations in China have pointed to worrying trends that show that, fundamentally, China is becoming less friendly to foreign companies than it has been in the past few years The preference of government procurement for domestic enterprises is not unique to China, unless you consider that 144500 state-owned enterprises account for 35% of China's total industrial revenue (many economists think this percentage is far from fully indicating the economic impact of state-owned enterprises) In addition to the importance of state-owned enterprises, there is also the role of the Chinese government as a huge purchaser of drugs and medical devices, so you can see that the comments of the CEO of atvis sound authentic to many people In addition, many unique pressures faced by major enterprises selling to China's healthcare economy make the exchange between market size and profits more sensitive and uncertain than ever before No one doubts that population structure and disease data show that China's demand for health care products and services is staggering The question now is whether foreign companies can benefit from it One of GlaxoSmithKline's first reactions to last summer's bribery scandal was a sharp price cut, which left many people less concerned about the company's criminal behavior and more concerned about the motivation that really prompted the Chinese authorities to act accordingly Companies such as GlaxoSmithKline and atvis now understand more clearly than they did 12 months ago that China's health care is an increasingly politicized affair, and their biggest customer, the Chinese government, is also responsible for the breakdown of the financing mechanism, which makes "making affordable health care available to the Chinese hundred surnames" the sole responsibility of the Chinese government The most basic and common word of dishonesty All these problems can be solved Reimbursement mechanisms between China's Ministry of Finance and Ministry of health, as well as between hospitals and patients, can be fixed The basic health insurance provided by the government can be more refined than the insurance currently paid for New drugs can be added to China's national prescription list, known as the essential drug catalog And, as many overseas drug manufacturers hope, China's growing middle class's purchasing power and brand attachment can ensure that consumers choose Western drugs when possible, even if they are more expensive This has always been the potential of the Chinese market, even though market turbulence over the past year has left some people with no confidence that China will develop into a viable market If these positive measures are implemented, will we have different ideas about today's decision? Or, more directly, will we let the events of the past 12 months obscure a more fundamental business strategy that works in particular in atvez? By the time atvis announced its decision in mid January 2014, it had about 200 employees in China, making less than $7 in profits For the world's second-largest generic manufacturer, such performance is extremely low in China, which is rapidly becoming the world's largest generic market Atvis's global growth model has been heavily dependent on M & A activities and has become one of the major players in the Integrated generic pharmaceutical market Isn't it a factor in China that atvez is leaving China now because of its access to any market - emerging or other? Or, to be more pessimistic, does the company's exit from China show that it has adopted a corporate strategy focusing on M & A activities at the expense of the coherence of its market development strategy in China? You know, most participants in the market think that China will become the most important market for global generic manufacturers in the coming decades The company is widely regarded as one of the main candidates to acquire Pfizer's "value products business" (a euphemism for Pfizer to be regarded as the most valuable brand generic pharmaceutical business) With such an opportunity to further integrate the global generic market, is it better for atvis to focus on opportunities outside the Chinese market? The unique pressure on the generic business in China makes this question more important to be answered The price pressure on generic drugs will be further increased As far as its health insurance system is concerned, the Chinese government will maintain an unforgiving and uncompromising focus It believes that cost control is the easiest to find in the health insurance system, while generic drugs occupy the first place The Chinese government's continuous efforts to stimulate the development of the domestic life science industry will initially further distort the business opportunities of the generic drug market, and in the future, distort the market opportunities of patented drugs, because the technology transfer between foreign companies and domestic companies in China is expected to accelerate In other parts of the Chinese economy, CEOs shrug when companies experience similar setbacks, saying in general, "we really don't have a choice - we have to stay in China." Atvis clearly doesn't believe this, which is either a great testament to their imagination or a unique moment when the company can exit the Chinese market when its overall Chinese strategy is not in doubt If the Chinese government succeeds in disrupting the domestic and international generic drug market, will it sooner or later have to face the market forces that lead to their withdrawal from China today? If so, atvis will need to use the next decade to influence the global pharmaceutical intellectual property standards and the development of the market itself, so as to prevent the Chinese government from distorting its domestic market and the international market on which it now relies.