China is a major player in the pharmaceutical industry, but it has not yet become a global powerhouse. With the rising barriers to new drug development and increasingly robust patent protection systems, Chinese pharmaceutical companies are facing an unavoidable reality: they must adapt to international standards, invest heavily in independent research and development of new drugs, or risk being left behind in the global market.
From a production standpoint, China possesses strong capabilities. Its formulation manufacturing capacity ranks first globally, while its bulk drug production is second only to India, accounting for 25% of the global API (Active Pharmaceutical Ingredient) market. China also leads in the output of certain chemical drugs, especially antibiotics and vitamin C. However, when it comes to R&D, China still lags significantly. Among the top-selling drugs in the global Western medicine market, very few are developed in China with independent intellectual property rights. The lack of original innovation and the widespread issue of product homogenization have created a chaotic market environment, where many companies produce the same generic drugs, leading to low profit margins and insufficient investment in R&D.
According to Wang Xiaoliang, director of the Institute of Materia Medica at the Chinese Academy of Medical Sciences, China struggles to produce "true" new drugs. The root cause lies in the historical disconnect between scientific research, production, and the market during the planned economy era. This legacy has hindered the development of corporate R&D capabilities. In contrast, developed countries adopt a market-oriented approach to drug R&D, where basic research, development, industrialization, and commercialization are closely integrated and led by enterprises. In China, however, the responsibility falls mainly on research institutes and pharmaceutical companies. Research institutions conduct basic and some development research, while companies rarely engage in fundamental research and focus only on parts of development and production. This division, which has persisted for over 50 years, has prevented companies from building their own R&D foundations.
The pharmaceutical industry is known for high risk, high input, and high returns. Major multinational pharmaceutical companies typically allocate 10% to 20% of their profits to R&D. For example, Pfizer invests over $5 billion annually in R&D, while AstraZeneca spends more than $14 million per working day. In contrast, China's overall R&D investment in the pharmaceutical sector has remained around 1% of total sales for years. Meanwhile, advertising costs can reach 5% to 10% of sales, largely due to an inefficient distribution system and high sales expenses. In foreign markets, over 80% of pharmaceutical sales return to manufacturers, providing sufficient funding for further innovation. In China, only a small portion of sales reaches the producers, sometimes as low as 10% to 20%. As a result, companies often spend more on marketing than on R&D.
Experts suggest that for China to achieve independent innovation, enterprises must take the lead. Companies should collaborate closely with research institutions, leveraging their scientific strengths and integrating them into enterprise-led market-oriented management. They should also build their own R&D teams with strong scientific capabilities. At the same time, it's essential to motivate companies to invest in innovative drug development and improve the overall market environment. The current lack of R&D investment is partly due to the unfair market conditions. Some well-researched products from domestic manufacturers may have excellent efficacy, but due to higher production costs, they struggle to compete. As a result, companies focus more on marketing than on innovation.
If 10% of national retail drug sales were redirected toward new drug development, annual investment could reach 200 billion yuan, with pharmaceutical companies investing 20 billion yuan each year. This amount would be more than ten times the government’s current investment. With such support, the development of "bombshell" new drugs with annual sales exceeding one billion US dollars is within reach.
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