Market 'will experience explosive growth', KPMG report predicts

BEIJING - China's drug market is primed for "explosive growth," making companies there attractive targets for drugmakers that will soon lose patents on their most popular treatments, according to KPMG LLP.

Products worth more than $30 billion will lose patent cover this year, leading more drugmakers to look into buying or joining with companies in China, the world's third-biggest drug market, according to a KPMG report released on Wednesday.

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The report said that large pharmaceutical companies are turning away from traditional mergers that boost margins and reduce costs, and are looking for unconventional acquisitions such as firms that have unique uses for drugs, according to the report.

"The pharmaceutical market will experience explosive growth in the coming years," KPMG said, adding that the expansion would be fueled by rapid environmental, economic and social changes that follow urbanization. "The industry now feels there is a better business model in zeroing in on the end customer rather than on bulk manufacturers of generics."

As an example, KPMG mentioned Nasdaq-listed SciClone Pharmaceuticals' purchase of NovaMed Pharmaceuticals Inc, a China-based specialty company, in April 2011.

NovaMed has a portfolio of 18 drug products spanning major therapeutic areas including oncology, cardiovascular disease and central nervous system disorders.

China's pharmaceutical market is predicted to grow at least 25 percent this year, according to US-based research firm IMS Health.

Pfizer Inc (PFE) unveiled plans on June 3 for a potential joint venture with Zhejiang Hisun Pharmaceutical Co Ltd to produce branded and low-cost generics, as it seeks revenue sources before it loses US patent protection in November for Lipitor, the cholesterol medication that was the world's best-selling drug last year, with $10.7 billion in sales.

KPMG also said that foreign companies investing in China risk running afoul of new Chinese laws, such as the 2008 PRC Anti-Monopoly Law, as well as other laws such as the US Foreign Corrupt Practices Act (FCPA) and the recently enacted UK Bribery Act (UKBA).

Compliance can be difficult in China due to a lack of transparency in business transactions and less than complete business records to support corporate payments, KPMG said.

"It becomes even more murky and ambiguous in the healthcare, medical device, and pharmaceutical sectors given the significant use of distributors, agents, and other third parties," the report said.

The law may see those groups as part of the company, but they don't typically "have the internal controls in place to adequately maintain their own books and records," KPMG said.

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