Traditional medicine to take bigger role in mainland health-care reform

PUBLISHED : Monday, 11 February, 2008, 12:00am
UPDATED : Monday, 11 February, 2008, 12:00am

Nobody knows exactly how the long-overdue health-care reform plan on the mainland will affect the pharmaceutical industry. But one thing is certain: traditional Chinese medicine will step out of the shadow of western medicine and take a much larger role in the country's health-care agenda.

Unprecedented government support, the rise of retail drugstores on the mainland and a global appetite for herbal medicine all provide a golden opportunity for traditional Chinese medicine, according to industry insiders and analysts.

And domestic TCM makers are moving quickly to grasp the opportunity despite long-standing arguments about how to use scientific methods to modernise traditional medical practices that have developed over thousands of years.

Traditional Chinese medicine, which includes a range of traditional homegrown remedies and practices, is often regarded as a complementary and alternative therapy but has not always enjoyed equal status with western medicine.

'It's quite obvious to see that now the government is supporting the TCM industry. Previously, the government's so-called backing of this traditional industry was very vague,' said Du Jinsong, an analyst at Credit Suisse.

The Ministry of Health and the State Administration of Traditional Chinese Medicine jointly issued a recommended drug list for community health-care institutions in September last year. The list, with Chinese herbal components including pills, pellets, capsules or liquids, accounted for 74.3 per cent of the total 1,037 recommended drugs.

'[As an important part of the health reform], the government wants to provide basic health care to all citizens,' said Mr Du, explaining Beijing's reasons to add more traditional Chinese remedies to the recommended drug list.

'Generally, selling prices of traditional Chinese drugs are much lower than western medicine, and they can also boost the development of the industry.'

A senior doctor from a well-known public hospital in Shanghai said that in big hospitals, which are required to have at least one TCM department, more focus would be put on these departments. The question was how much money the government would spend on TCM research and development.

But this issue pales in comparison with the uncertainty the entire pharmaceutical industry is facing on another key aspect of health-care reform - the Separate Prescription Dispensing plan, which has yet to be confirmed. The plan, which will break the link between drug sales and hospital funding, aims to reduce soaring medical expenses.

In the past, hospitals gained a substantial portion of their income from sales of drugs. But this conflict of interest often led to sales of unnecessary and expensive treatments, as well as corruption.

However, the plan is likely to slow mainland drug sales, which already have suffered a blow because of anti-corruption moves in recent years. Details of the plan are expected to be announced in March after the National People's Congress.

'China's pharmaceutical industry is gloomy because of the potential negative impact of the [Separate Prescription Dispensing] plan, but nobody doubts that TCM will be a beneficiary of the reform,' Mr Du said.

Moreover, TCM will benefit from the rise of retail drug stores on the mainland because the public perceives traditional medicine as having fewer side effects while being cheaper than western drugs.

During the past two decades, the market share of retail drug sales has grown to roughly 20 per cent from about 5 per cent. And Chinese medicine sales account for 45 per cent of total drug sales in retail pharmacies. This is much higher than its roughly 35 per cent share of drug sales in hospital pharmacies in 2006, according to medicare website Menet.

Experts forecast market share gains for retail pharmacies with some estimates reaching 35 per cent by 2015. This is largely due to tightening regulations on hospital pharmacies, more retail drug stores to be introduced into medical reimbursement coverage and emerging giant chain stores, such as US-listed and Shenzhen-based Nepstar Chain Drugstore.

At the end of last year, Nepstar had 2,002 stores in 62 cities and 11 regional distributional centres on the mainland.

Traditional Chinese medicine is also expanding its world market share, benefiting from the growing appetite for herbal medications.

Hermult Kaiser, a science and business consultancy, said sales in the broader category of herbal medicine reached US$85 billion worldwide last year, up more than 10 per cent, while traditional Chinese medicine rose faster at 15 per cent.

It expected that market would increase more than 15 per cent annually up to 2015.

'The markets for traditional drugs and nutritional foods are booming in the United States and Europe, especially in Germany,' it said. 'Meanwhile, advanced biotechnologies are being applied to improve traditional ingredients.'

Mainland customs statistics show that traditional Chinese medicine exports reached US$1.06 billion in the first 11 months of last year, up 7.25 per cent from a year earlier.

But Du Dongsong, an analyst at Ping An Securities, said domestic consumption still dominated production of traditional medicines and, compared with active pharmaceutical ingredients, TCM made up only a small fraction of exports.

Official data shows that in the first eight months of last year, traditional medicine accounted for 4.76 per cent of the total exports of medicine and health products. By contrast, ingredients for western medicine stood at 56.35 per cent.

Experts say that TCM companies - and there are as many as 1,500 on the mainland - will adopt two key but different strategies for expansion. One will rely on famous brands to gain retail market share and the other will focus on unique products which can replace western pharmaceuticals for treating certain diseases, according to Credit Suisse's Mr Du.

Beijing Tongrentang, a well-known mainland traditional Chinese medicine brand, plans to open more than 100 shops nationwide this year, bringing its domestic outlets to 800. Overseas, it plans to have 32 shops this year after adding five new ones.

'Tongrentang will keep its TCM in traditional form and will allocate more resources to the research and development of TCM's functions to enhance people's immunity and prevent the outbreak of any possible diseases,' said spokesman Jin Yongnian.

Hong Kong-listed Wuyi International Pharmaceutical, which derives 90 per cent of its sales from prescription drugs, is taking a different approach.

It recently obtained a licence from the State Food and Drug Administration to manufacture perilla oil capsules to prevent and treat heart disease. The Fujian-based maker of both western and finished TCM says it will bring the product to market to compete with Pfizer's blockbuster Lipitor.

'We are optimistic about the prospect for the perilla oil capsule,' said executive director Dennis Nguyen.

Mr Nguyen expects sales of perilla oil capsules will contribute 30 per cent to 35 per cent of total turnover in the next three years. By then, chemical drugs would only comprise about 35 per cent of total sales, down from the current 60 per cent. The company's gross profit margin would also improve to about 55 per cent from the expected 50.5 per cent this year, since the gross profit margin of perilla oil capsules is about 70 per cent.

Despite the positive factors at play for traditional medicines, fundamental arguments remain - not only about which scientific measures to evaluate their effectiveness but also whether they are safe and effective.

Celebrity scientist Fang Zhouzi is one opponent. He thinks TCM should be preserved as cultural heritage but opposes spending large amounts of public funds to prove their safety and effectiveness.

'Biomedical research has shown that many herbal medicines considered as innocuous by TCM are actually very toxic,' he said. 'Another problem is that TCM practitioners are used to making exaggerated and dubious claims about their efficiency and fool many people.

'National pride complicates the issue and criticising TCM is unthinkable to many Chinese, which is almost like committing a traitorous act.'

Even the industry's defenders say there are challenges.

'Unregulated or inappropriate use of traditional medicines and practices can have negative or dangerous effects,' Hermult Kaiser said.

To make matters worse, some worry about poor quality control from substandard manufacturers who are in the process of modernising TCM. They point to the 2006 Yuxingcao injection accident.

The injectable form of the drug, which claimed to treat a wide variety of illnesses, and others in its class were banned in 2006 following reports it was one of seven injectable drugs causing side-effects ranging from rashes to comas and death.

'I think the problem of Yuxingcao reflects poor quality control during the process of modernising TCM. To change a drug's shape from pills to liquid extracts needs advanced technology and strict supervision because the effectiveness of Yuxingcao itself has been widely accepted by history,' said an industry insider.

As a result, the insider said, TCM registration now requires many more regulatory steps and takes far longer than before, all of which has drawn numerous complaints from manufacturers.

The high risks that TCM injectable drugs bring to the industry could be profound, according to analysts. They say it is one of the top potential setbacks for the industry because a single accident would hit the sector hard.

'I was astonished to know that some TCMs, whose active ingredients have yet to be confirmed, were being injected into veins,' said Ping An's Mr Du. 'This is too dangerous.'