Analysis: Factors Influencing the Development of the Pharmaceutical Industry Over the Next Decade
2025-07-08
The next decade will be a golden decade for China’s pharmaceutical industry. Why do we say so? Because industry history research shows that market, policy, capital, and technology are the four major factors influencing the development of the pharmaceutical industry. Let’s start by analyzing these four factors.
One of the factors influencing industrial development: the market.
Just how much room does this market have for future growth? This is the very first question we focus on whenever we conduct industry research.
We can analyze this issue from three perspectives: health concerns, consumer awareness, and affordability. First, let’s look at health concerns, which determine the future demand capacity of the pharmaceutical market. If people increasingly face more and more health problems in the future, the demand for medical products will also rise accordingly. We’ve observed that the prevalence of certain chronic diseases—such as hypertension and diabetes—is steadily increasing, with both the proportion of affected individuals and their total numbers growing. Earlier, I worked on a project related to diabetes and found that China alone has as many as 92 million diabetic patients. This figure has been verified multiple times and proven to be reliable; indeed, some experts even suggest that this number may be an underestimate. When I examined data from other countries, I found that as living standards improve, the incidence of chronic diseases like diabetes continues to rise. In the future, people may live longer and longer, but they’ll also suffer from an ever-growing array of health conditions.
The second perspective is consumer awareness. If a person has health issues but lacks consumer awareness—meaning they don’t seek medical attention even when ill—this doesn’t constitute market demand. Yet, consumer awareness is clearly on the rise, as people, with their living standards improving, are becoming increasingly focused on quality of life.
The third angle is affordability. This aspect is also crucial—whether the payment comes from the individual themselves, family members, or insurance coverage—all of these factors constitute essential components that ultimately shape demand. As per capita GDP continues to rise, individuals’ purchasing power is strengthening, and governments are increasing their investments in healthcare coverage. Meanwhile, insurance companies are paying ever greater attention to this sector. All these developments will enhance people’s ability to meet their healthcare needs.
These three perspectives ensure that market demand in the biopharmaceutical industry will only continue to grow. As early as 2009, we predicted that the next decade would be a golden decade for China’s biopharmaceutical industry—and today, the industry’s growth is just getting underway.
The second factor influencing industrial development: policies.
Healthcare is a matter of people's livelihood and is of great importance to any government. After taking office, President Obama made healthcare reform a top priority—this is the cornerstone of national stability, and China is no exception. Pharmaceuticals are a special kind of commodity. Companies like Jiuzhou Tong, which specialize in distribution and wholesale, have rapidly risen to prominence in the third-tier distribution channels by leveraging operational efficiency and cost-control capabilities, and they will continue to be a key force in the channel landscape of the future.
Next, let’s take a look at the pharmaceutical retail industry on the right side of ***. Retail pharmacies represent the final link in the pharmaceutical product distribution chain and currently account for about 25% of the overall pharmaceutical market. China’s retail pharmacy market is now in an era of fragmented competition: there are over 6,000 chain drugstores with more than 300,000 individual outlets. It seems as though you can find a pharmacy on almost every street corner. However, pharmacies differ significantly from one another—ranging from budget-friendly supermarkets to neighborhood stores and beauty-and-pharmacy shops. Because their customer bases differ, so too do the types of products and services they offer. Neighborhood stores prioritize convenience over low prices, while budget-oriented drugstores, often located in bustling urban areas, focus primarily on competitive pricing. Beyond business models, management capabilities will also be a key factor determining the future success of chain drugstores.
Another key end-user in the pharmaceutical industry is medical institutions, which currently account for approximately 75% of the pharmaceutical market. Due to their relatively low degree of marketization, investment in this sector remains subdued, limited mainly to certain privately-owned medical chains specializing in areas such as ophthalmology, dentistry, and health checkups. As public hospital reforms continue to deepen, we believe the healthcare sector will increasingly become a focal point of investor attention.
We’ve just looked at the production, distribution, and end-user sectors. Next, let’s take a closer look at the R&D sector.
Drug development is a complex process that involves a long cycle, high costs, and the integrated application of multiple disciplines. From preclinical studies through clinical trials to submitting applications for SFDA approval—each stage of drug development can give rise to an entire industry. Some companies specialize in drug screening, while others focus exclusively on using laboratory mice for animal experiments. Preclinical research requires numerous compounds, many of which may need to be outsourced for production; there are even publicly listed companies involved in this area, such as WuXi AppTec. Additionally, there are companies that provide outsourced clinical trial services—for example, TigerMed, which recently went public. The key factors behind these companies’ success are low costs and high-quality service.
Above, we have analyzed various segments of the pharmaceutical industry, including R&D, manufacturing, distribution, and the point-of-care. With the widespread adoption of IT technologies and the internet, the pharmaceutical industry has also given rise to several new areas—such as industry-specific portals and online pharmacies—which are now attracting increasing attention from investors.
Once we’ve outlined the contours of this industry map, it becomes remarkably easy to determine exactly where a pharmaceutical company stands—and what core competencies it needs to thrive in its current position. It also allows us to make highly accurate assessments of a company’s investment value. Moreover, if we continue to refine this industry map down to the micro-level—focusing on individual companies, entrepreneurs, and specific products—it essentially turns into a treasure map!
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