Investment Focus in Pharmaceutical Sector

The pharmaceutical sector in China is shifting from chaotic to
standardized in order and hidden to evident in rule. The
production is getting more and more concentrated. Leading
companies still hold a strong position. Biological medicines and
famous-brand/modern Chinese medicines are sectors with
prominent comparative advantage and will remain to be investment
focuses in 2007 and 2008.

There is only development trend but no real performance in
conventional medicines

Conventional medicines refer to basic chemical medicines. The
conventional medicine sector has numerous producers, different
production levels and fierce competition. Large conventional
medicine companies have advantage in product quality, but their
comprehensive cost can by no mean compete with small companies.
In the long run, with the policy support of the state large
companies (such as companies designated by the state for the
production of basic medicines) will have an expanding market
share. Small companies will however also have a space for
existence for a considerable period of time. Listed companies
such as Harbin Pharmaceutical Group Co., Ltd., North China
Pharmaceutical Co., Ltd., Shandong Xinhua Pharmaceutical Co.,
Ltd., Shandong Lukang Pharmaceutical Co., Ltd., Livzon
Pharmaceutical Group Inc., Beijing Double-Crane Pharmaceutical
Co., Ltd. and Guangzhou Baiyunshan Pharmaceutical Stock Co., Ltd.
are all large producers of conventional medicines. None of them
have however been able to hold remarkable advantages in the
market. It is hard to improve performance by conventional
medicines alone.

Some leading companies of medium and low-end medical apparatuses
have emerged

The medical apparatus sector features great product variety,
technology crossing and scale difference. China has more than
10 thousand medical apparatus producers. Eighty percent of them
are small and medium companies with relatively weak technical
force but advantageous cost price. In medium and low-end medical
equipment with mechanical/electric integration, therefore,
domestic equipment still retain great advantage. Some leading
companies have already emerged. For example, Shinva Medical
Instrument Co., Ltd. holds more than 50% market share in the
sterilization equipment sector. Products in this company are
medium and low-end products, but they are products requested by
the state to be put in grassroots health organizations such as
township health stations. Medical apparatuses in basic health
organizations are usually purchased with orders using specific
funds allocated by the state. There is a possibility for a rapid
growth of the performance in the company. From a long-term
standpoint, therefore, such companies still have a considerable
investment value.

The pharmaceutical circulation sector will have reformation

The dispatching of medicines and related services are functions
the pharmaceutical circulation sector should perform. The
development orientation of pharmaceutical circulation is the
centralized dispatching of medicines. This has already been
achieved in the network purchase mode in Guangdong province. As
there are lots of grassroots stations, it is impossible for
medium and small companies to fulfill this task. The
pharmaceutical circulation sector will therefore have
reformation in future and small companies will be gradually
eliminated.