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Competition and Development Momentum of Chinese Vaccine Industry

By Monica Chen , Zero2IPO Capital
Updated: 2009-12-31 10:44:58

Vaccine, as the most effective weapon in disease prevention, has attracted more attention due to the resurgence of flu throughout the world. It was estimated that the output value of vaccine production stood at US$19.2B worldwide in 2008. And this figure is expected to soar to US$39B in 2013. China is the world's largest vaccine producer and has the most vaccine manufacturers, but merely accounts for less than 0.73% of the total proceeds of the pharmaceutical industry. This means huge growth room for enterprises and investment institutions targeting this sector.

Development Stages and Trend of Vaccines

Vaccines can be classified into several types in different ways, but generally they can be divided into two types according to their R&D technologies: traditional and new.

Traditional vaccines refer to those that reduce the toxicity of the virus to the minimum level and stimulate the human immune system to produce antibody against the intrusion of one virus with another virus. Traditional vaccines fall into three types: attenuated live vaccines, inactivated vaccines and subunit vaccines. Capable of providing comprehensive immunity and at a low cost, traditional vaccines still account for a relatively huge market share.

New vaccines or high-tech vaccines mainly refer to gene engineered ones, including gene engineered vaccines (including genetic engineering subunit vaccines, gene engineered vectored vaccines,  nucleic acid vaccines, gene deleted live vaccines and genetic engineering protein vaccines), genetic recombinant vaccines, synthetic peptide vaccines, anti-idiotype antibody vaccines and micro-capsulated controlled-releasing vaccines.

New vaccines feature high safety performance, strong specific functions and high purity, and are seeing rapid development for the time being.

Competition in Global Vaccine Market

1. Market Absorption Capacity

In 2008, the production scale of vaccines worldwide reached US$19.2B, which is expected to hit US$39B in 2013. The annual compound growth rate of vaccine industry reached 25.1% between 2004 and 2008. In 2008, China's domestic vaccine industry recorded a market scale of RMB6B, surging from RMB3.1B in 2006 at an annual compound growth rate of 39.0%. The proceeds from vaccines in China accounted for merely 0.73% of the total income of the pharmaceutical industry in 2008, indicating great growth potential in the future.(Source:Citic Securities)

2. Major Producers Worldwide

People tend to care more about the security and side or toxic effect of vaccines because vaccines are inoculated in healthy people to improve their immunity. Generally, the vaccine producers are under rigid supervision of government and special organizations and feature high market concentration. At present, there are 20-plus enterprises certified by the WHO as vaccine producers worldwide. In fact, the five bellwethers in this filed, GlaxoSmithKline (with pertussis-diphtheria-tetanus triple vaccine, etc.), Merck (with Gardasil, a cervical carcinoma vaccine, etc.), Wyeth(with Pnu-Imune 23, etc.), Sanofi-Aventis(with poliomyelitis, etc.)and Novatis, have secured over 80.0% of the market share worldwide.

3. Chinese Vaccine Producers and Competition

Producing 1B vaccines annually, China boasts the greatest output and richest variety of vaccines in the world as well as the most enterprises specializing in vaccine production. The number of vaccines for the commonly encountered diseases of children, such as hepatitis B, poliomyelitis, measles, whooping cough, diphtheria and tetanus, has reached 5B and all have been included under national planned immunization.

China's vaccine market is divided into planned immunization vaccine and paid vaccine, or planned and outside-plan ones, which account for 70.0% and 30.0% of the total respectively. Planned immunization vaccines, mainly supplied by domestic producers, are purchased by the government via tender invitation at a low price, enjoying a stable market but garnering thin profit. Paid vaccines refer to those not included under national planned immunization and inoculated on people's own will and at their own expense at a higher price, generating fat profit. Both the children and adult vaccines widely utilized in recent years and the vaccines specific for such diseases as rabies and epidemic hemor-rhagic fever belong to paid vaccines which are dominated by some international magnets, such as GlaxoSmithKline, Sanofi-Aventis and Novartis. The domestic vaccine market was dominated by China National Biotec Group (consisting of Beijing, Lanzhou, Changchun, Wuhan, Shanghai and Chengdu Institute) and Institute of Medical Biology of Chinese Academy of Medical Sciences, and also shared by other enterprises in the industry.

Vaccine Industry Facing Challenges While Marching forward

1.Production Supervision Policies Unveiled in Succession

2. National Planned Immunization Vaccines Have Grown in Types

3. Related M&A Deals

4.Some Views about VC/PE Investment in Vaccine Industry

The consecutive outbreaks of bird flu and swine flu in recent years have naturally directed investors' attention to vaccine industry. It is true that vaccine industry boasts appealing profit margin and bright prospect, but some preconditions have to be met in the first place.   

What is the most important thing in the vaccine industry? Safety is the surest answer. The batch release policy and the control measures on production flow, storage and transportation of vaccines released by the government are intended to ensure safety to the largest extent. And also for safety reasons, vaccine manufacturing and transporting enterprises breaking relevant rules are getting increasingly harsh punishment. Some vaccines were regarded as counterfeit drugs merely for inadequate package, and some producers even were suspended and deprived of manufacturing licenses due to adverse events. An adverse event may drag down the sales of an enterprise for one or several years, and some enterprises may fail to recover forever.

It is a widely acknowledged in the health care investment sector that the legality of a vaccine manufacturer's products has to be verified before investment is made. The variety and quality of its vaccine products also count. My point is: you have got to see whether a vaccine manufacturing enterprise has an experienced and professional team before making a commitment. In fact, a professional R&D team provides a guarantee for the future upgrading of existing products and the development of new products. Also, an experienced professional manufacturing and supervising team can ensure the products are good and safe, and professional managers can never take their place. Owning such a team constitutes the foundation of a company as well as a prerequisite for a fund to commit an investment. 

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