Outpatient intravenous therapy ban hitting drugmakers hard

Jiangsu province latest to implement restriction, with 460 if its state hospitals to stop offering the option

PUBLISHED : Thursday, 21 July, 2016, 11:44pm
UPDATED : Thursday, 21 July, 2016, 11:44pm

Some of the country’s largest drugmakers focusing on infusion medications and antibiotics have been hit hard by the gradual banning, over the past two years, of intravenous (IV) drug infusion at major Chinese hospital outpatient departments.

On July 1, south eastern China’s Jiangsu province became the latest to implement the ban, ordered 460 if its state hospitals to stop offering IV therapy to outpatients.

Over the past two years, similar measures have been taken by other provincial governments, including central Anhui and southeastern Zhejiang.

“The business environment has been changing since 2014, and that may spell tougher than ever market conditions ahead for infusion solutions producers and antibiotic makers,” said Shi Lichen, founder of Dingchen Pharmaceutical Management Consulting.

China is the world’s largest manufacturer and consumer of antibiotics, with as much as 162,000 tonnes, roughly half of the world’s total, consumed in 2013, according to a study by the Guangzhou Institute of Geochemistry.

It has not been uncommon for mainland Chinese to buy the drugs — originally designated prescription-only from doctors — over the counter at local pharmacies, and for patients suffering from minor illnesses such as flu to receive antibiotic infusion therapy at hospitals and clinics.

A recent World Health Organisation survey of 1,000 Chinese showed that 61 per cent of respondents incorrectly believed colds and flu could be treated with antibiotics.

This over-prescription of antibiotics has now led to many mainland patients developing more antibiotic-resistant genes than Europeans, according to a study published in the science journal Nature Communications.

“That is partly why local governments across the country started to contain the use of IV therapy, which is a main way people were given their antibiotics in China,” said one chief of medicine, surnamed Zhang, at a leading state hospital in the south of the country.

“An IV infusion itself can also pose a lot of risks, such as infections and stronger side effects.”

Leading producers of the drugs now say their sales have plunged to rock-bottom levels, since the ban was introduced, and hospital cost controls and competition have hammered profit margins.

And they are not helped either by what has become an overcrowded drugs market, plagued by plunging prices, due to ever-more rigid healthcare cost controls.

China Resources Double-Crane, a dominant player in the sector, posted an annual 11.12 per cent slide in revenue from its infusion businesses last year, which dragged net profits down by 10.26 per cent.

Its shares have also lost around a quarter of their value this year in Shanghai.

Hong Kong-listed SSY, another major infusion solutions maker based in northern China, watched its net profits last year fall by 17.9 per cent from 2014, with a 16.5 per cent decline in earnings from its infusion segment.

There is a significant oversupply in the infusion industry. The price competition in the tender process has also intensified the competitive landscape. We do not favour pharma-related players at the current stage
David Li, an analyst with Bocom International

“There is a significant oversupply in the infusion industry,” said David Li, an analyst with Bocom International, in a recent research note.

“The price competition in the tender process has also intensified the competitive landscape.

“We do not favour pharma-related players including SSY at the current stage.”

Cyrus Ng, an analyst with Galaxy Securities who downgraded SSY to hold this February, thinks the stringent regulations on IV infusions will now “spread to more provinces”, loading further pressure onto the already-struggling infusion products market.

He said budget controls by state hospitals, too, will continue to affect bottom lines.

In March, Qu Jiguang, the chairman of SSY told shareholders, “the competition will remain intense and the industry-wide shakeup will persist”.

According to Zhongtai Securities analyst Ethan Wai, the shifting regulatory environment and sustained low profit margins have already eliminated a number of smaller players.

He said that SSY’s top management recently revealed they were approached by over 20 of their peers last year, seeking to sell their businesses.

The company itself has already sold more than 10 per cent of its shares to rival firm Kelun, the number one infusion product maker in China, whose own infusion revenue shrank 4.24 per cent last year.

Shanghai-based Kelun said in its latest annual report that it was reshaping its product mix after facing “huge downward pressures” from an oversupply in the industry.

It is now hoping to develop “an equally strong” non-infusion business within two years, and claimed to have already expanded its R&D activities more than 40 per cent over the last two years.

“Kelun may be a little better off in the sense that it has been quick to roll out new products for oral medications,” said Dingcheng’s Shi.

“But CR Double Crane is likely to be plagued for longer, due to its inefficiency in innovation as a state-owned enterprise.”

CR Double Crane has been readjusting its sights away from China into Central Asia markets, pinning its hopes on its newly-established Kazakhstan ventures, although its volatile economy has already resulted in forex losses amounting to 200 million yuan last year, the Sichuan company revealed recently.

The country’s second biggest drugmaker Harbin Pharmaceutical Group, meanwhile, has attributed its 52 per cent slump in sales volume of Amoxicillin Capsules last year to new restrictions on the use of antibiotics, issued last September.

“The worst is yet to come,” Shi said.

“I expect the ban on IV therapy becoming nationwide next year, and that will take a real toll on a wide range of companies involved in drugs designed to alleviate inflammation and lower blood pressure.”

Gan Xiang, an analyst with Founder Securities, is slightly more optimistic, adding he thinks it too early to say the new bans spell the end of the whole industry.

He noted that people have been taking too many antibiotics for decades in China.

“It will not kill the companies in one go, as it takes ages for people’s deep-rooted mindset to change.”

Zhang, the chief of medicine, agreed, noting that it was always the patients that requested doctors to give an IV infusion, as they believed it would cure their illness sooner.

“If they are not allowed to take it at hospitals, they can still resort to community clinics for IV treatment,”he said.