China Watch P232:Takeaways from an expert call on plasma industry in China
Remaining positive on domestic plasma leaders
We hosted a group teleconference on the plasma industry with executives from Sinco Pharma. Key takeaways include: 1) the abrupt growth acceleration in MNC products in 1Q16 is not sustainable; 2) the price increase of plasma products will continue as the supply shortage is unlikely to be resolved in 3-5 years; 3) industry consolidation could accelerate as the government is getting stricter about plasma trading between manufacturers; 4) tax reform is positive for large distributors; 5) brand awareness is not strong among physicians due to supply shortage; 6) most sales of plasma are generated by tier 1 hospitals, although management has seen growth accelerate at low-tier hospitals.
Growth trend at MNCs could moderate
Management indicates the high growth rate for MNCs in 1Q16 was mainly due to a low base and Grifols, after it received a new license recently. Octapharma did not experience such high growth in 1Q16. Management expects MNC growth to return to normal. We highlight that MNCs grew 48% in 1Q16, vs. domestic players -1%, according to our approval data. In addition, management indicates there is no quota limit on albumin imports, although the supply of MNC products should be stable as the Chinese government allows only products from plasma collected in the US.
Long-term benefits for domestic players
Management highlights the price increase will continue, as the supply shortage is unlikely to be resolved in 3-5 years. However, it believes manufacturers would take a bigger share from the price increase with a higher ex-factory price. In addition, the company expects acceleration in industry consolidation due to stricter regulations on plasma trading between manufacturers. More importantly, management believes the government is unlikely to allow imports of other plasma products such as IVIG, as it sees plasma as an important strategic material and wants to strengthen domestic companies.
Background of Sinco Pharma
Sinco Pharma, headquartered in Chengdu, Sichuan province, is a contract sales agent for imported pharmaceutical products including albumin, antibiotics and others. The company is one of two exclusive distributors of Octapharma in China. In 2015, Sinco Pharma had approximately a 7.9% share of the albumin market in China, vs. 6.4% for CBPO, based on our approval data. The company’s distribution network for plasma products covers 24 provinces in China excluding eastern China. The company achieved revenue and net profit of RMB1.1bn/69m, representing growth of 15.4% and 0.4% respectively. Albumin is the largest contributor for the company with revenue of RMB668m in 2015, accounting for 61% of total revenue in 2015.
Please contact the Deutsche Bank Asia health-care team for a transcript of the call.