Special Report

Shot in the arm: Private sector poised for growth in China’s vaccine market

by David Li & Sandra Sun & Ethan Cui & Lily Qi / May 10, 2019

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Innovation, government support and changing demographics are together driving private sector growth in China’s lucrative vaccine market.

Globally, the market for vaccines was worth US$43.8bn in 2017 having grown at nearly 9% since 2013 and is forecast to expand to US$100bn by 2030. In China, where rising disposable incomes are making vaccines more affordable, the market is expected to grow at a CAGR of 11.7% to RMB106.5bn (US$15.48bn) in the same period.

Improving quality, government-run awareness programmes and marketing efforts by the private sector are also driving up demand for vaccines in a market with a quickly ageing population where the proportion of people over 65 is forecast to reach 16.6% by 2030.

Opening it up

Until the 1990s, China’s vaccine market was tightly controlled by the government. Since then, administrative regulations have been gradually relaxed and citizens are allowed to purchase vaccines not covered by national guidelines in the private market.

Now, vaccines in China are categorised into two categories. The first type is typically supplied by state-owned enterprises (SOEs) to the national immunisation scheme, which entitles citizens to free shots, and is subject to a highly competitive bidding process that hurts profit margins. On the other hand, the second category of vaccines, sold to those covered by insurers and self-paying individuals, do not face significant price controls, which in turn helps boost the bottom line.

This has prompted multinationals and domestic pharmaceutical firms to enter the market even as the government’s immunisation programme has expanded. Now, there are seven SOEs and over 30 private sector players currently operating in the country’s vaccine industry.

Raising the bar

The system especially benefits fast-moving enterprises willing to embrace new technologies, further enhancing consumer access to an improved range of products and driving demand. And innovative private operators with deep pockets are particularly well-placed as entry barriers remain high.

Developing and bringing new vaccines to market is a complex, research-intensive process that can costs millions and take several years. Success in the industry also calls for access to integrated manufacturing facilities and highly experienced talent in cutting-edge genomic technology, as well as a robust quality management system. This discourages new entrants and ensures higher profitability for existing players.

Companies that can afford this investment and place a premium on innovation stand to gain the most. In 2017, SOEs accounted for over 40% of sales volume but only 14% of revenue. Additionally, CLSA analysis shows five domestic players that mainly manufacture and sell category-2 vaccines had an average gross profit margin (GPM) of over 70% and a net profit margin (NPM) of about 30% in the 2015-18 period. Indeed, both domestic and international private sector players that supply new-generation vaccines are expected to rake in 95.7% of industry revenues by 2030, up from 85.8% in 2017.

These trends clearly indicate that private enterprises open to innovation stand to benefit the most from the growth of China’s vaccine market.

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