Why domestic pharma companies are the only investors in new private hospitals in China

by Benjamin Shobert
Earlier this year I had the opportunity to connect with someone who has a front-row seat to China’s hospital privatization.  Positioned to see deal-flow in real time, I asked the question of whether the actual inbound investments were what either the Chinese government or institutional investors expected after China’s recent attempts to prime the privatization engine.  The person very carefully but candidly pointed out that thus far, actual deal flow had not been what they were expecting.
Some of this reflects unrealistic expectations on the part of foreign capital who misread changes to China's FDI catalogue that allowed foreign ownership of hospitals and healthcare institutions.  These disappointed investors misunderstood that China’s process of opening this sector to foreign capital would be gradual and would initially favor private investment and ownership by domestic players over foreign entrants.  Regardless, my contact noted that results thus far were not what many had expected.

Thais buy small hospitals in China

The Thonburi Hospital Group has decided to buy more small hospitals in China, in Shanghai and Guangxi. The negotiation for their acquisition is expected to be complete by mid-2014, said Dr Boon Vanasin, chairman of the group. 

Boon said his group's investment strategy was to concentrate on buying hospitals outside the country. It does not plan to acquire new hospitals in Thailand because the market it is already too competitive.
The target is to acquire three or four hospitals overseas that have more than 200 beds each year. Thonburi Hospital Group has already invested Bt70 billion in China.
"In general we want to hold at least 50 per cent of each hospital that we have taken over, but we have to wait and see if the Chinese government will come out with any new policy. This is largely dependent on the reshuffle in the Chinese's government," Boon said.

Full article at The Nation

Smaller hospitals 'offer huge opportunities' for Big Pharma

China's 10,000 county-level hospitals hold great potential for pharma companies as they treat many patients

by Liu Jie
China's county-level hospitals and community healthcare centres offer huge opportunities for multinational and local pharmaceutical companies, said a report released on Wednesday.
Conducted this year by global management and business strategy advisory firm Boston Consulting Group, the study was based on more than 60 in-person interviews and 900 detailed surveys provided by hospital heads, physicians and patients around China.
According to the report, with their huge base of potential patients and rapid growth, China's 10,000 county-level hospitals hold the greatest potential for pharmaceutical companies.
Covering more than 2,000 lower-tier cities and counties, these hospitals are becoming an increasingly important channel for rural patients to receive preliminary diagnoses and maintenance therapy.
Doctors in these hospitals play key roles when it comes to drug-of-treatment decisions for some diseases, and also given that more than 80 percent of patients renew their prescriptions in county-level hospitals.
However, the county-level hospital market has long been the turf of local Chinese drug makers.
"To succeed, multinational companies will need a broad range of products that can be tailored to local markets, with a special focus on low-price generics and mature products," said Chun Wu, partner and managing director of BCG Greater China.
Segmenting the different markets can also boost margins, she said, adding that hospitals in the larger counties treat far more patients, and sell two to four times more medicines than hospitals in less developed areas.
Regarding community healthcare centers, China's market is small so far, but it holds considerable potential because these facilities are treating an increasing number of patients with chronic diseases such as diabetes and hypertension, said Magen Xia, principal of BCG Greater China.
Sales of drugs for chronic illnesses in these centers are currently as much as a quarter less than in city hospitals, but are growing fast.
The centers and doctors there are playing an increasingly important role when it comes to in-patient care. Instead of just refilling prescriptions, doctors in community healthcare centers are also making some initial diagnoses, participating in disease management, and influencing the brand chosen for drug treatment and decisions to change drugs.
According to the report, more hypertension patients switched from local to multinational brands in the 30 richest cities in China.
"The sheer size and fragmentation of this market is the hurdle that pharmaceutical companies face; while the evolving drug policies are another challenge," said Xia.
Many of these challenges, such as the mandatory inclusion of the drugs in the government's Essential Drug List, zero mark-up requirements and policies that result in insufficient government subsidies, lack consistency or are impossible to fully implement. As a result, drugs not on the government's Essential Drug List are expected to account for a significant portion of the market in community healthcare centers until 2015, said the report.
The national Essential Drug List is expected to be expanded by the end of this year or early next year.
To succeed, companies must identify their key advantages, including scale, manufacturing capability and quality, and actively influence and shape China's Essential Drug List policies in key provinces to favor those advantages.
"It is also important to prioritize the target provinces, taking a pass on those where coverage is minimal or relationships are lacking," said Wu.
Read more: China Daily