Lei Jufang: Traditional Chinese medicine and ethnic medicines still have great potential for growth.

　　 http://www.dzzq.com.cn March 14, 2013, The Public Securities News

　　In recent years, pharmaceutical stocks have consistently been the focus of attention in the capital markets. On the one hand, their steady growth has been widely praised; on the other hand, their relatively high valuation levels have left investors somewhat hesitant. During the Two Sessions, a reporter from the Mass Securities Journal conducted an exclusive interview in Beijing with Lei Jufang, a member of the National Committee of the Chinese People's Political Consultative Conference and Chairwoman of Qizheng Tibetan Medicine.

　　The “3-7” ratio urgently needs to be changed.

　　“Currently, in the domestic pharmaceutical market, domestically produced drugs account for roughly 30 percent of the market share, while foreign brands hold about 70 percent—creating a reverse “30-70” situation,” Lei Jufang told reporters. She believes that the share of domestically produced drugs should reach around 70 percent—that would be both reasonable and entirely achievable. “Take us as an example: our products are commonly used in orthopedics and traumatology. There are roughly 8,000 hospitals nationwide rated Grade II or above, and we’ve currently entered about 4,000 of them—less than half. As we continue to expand our presence, our market share can keep growing. Moreover, the New Rural Cooperative Medical Scheme presents tremendous growth opportunities, and healthcare spending is steadily increasing. With the deepening of our distribution channels, there’s still plenty of room for further expansion.”

　　“In the past, people tended to think that once a drug’s sales reached a certain level, its market would become saturated. But now it seems that this isn’t necessarily true. Take, for example, Fufang Danshen Dropping Pills—this single product has grown to an enormous scale. In 2011, Qizheng Tibetan Medicine’s flagship product, Xiao Tong Tie Gao, generated sales revenue of 440 million yuan. By conventional standards, one might assume that this product no longer had much room for growth. However, Lei Jufang believes that this product still has considerable potential.”

　　The risk of secondary development for major varieties is low.

　　In Lei Jufang’s view, for traditional Chinese medicine and ethnic medicines to thrive, simply continuing to expand sales is only one aspect; research and development, along with innovation, are the real key. This time, at the Two Sessions, she has brought forth a proposal titled “On Establishing Special Funds for the Secondary Development of Major Traditional Chinese Medicine Products, Specifically Tailored for Ethnic Medicines.”

　　She believes that the ethnic medicine industry urgently needs to draw on the successful experiences from the development of traditional Chinese medicine. Guided by the state’s science and technology support policies that encourage secondary development of blockbuster products, more promising ethnic medicine varieties should be further developed and strengthened through secondary innovation, thereby boosting the growth of the ethnic medicine industry. She suggests that when formulating policies for the secondary development of blockbuster traditional Chinese medicine products, the national science and technology authorities should establish special programs specifically for ethnic medicines, appropriately lower the threshold for “blockbuster” status—setting the sales target at over 50 million yuan—and include in the scope of support those commonly used drugs for conditions where ethnic medicines have distinct advantages and there is substantial therapeutic demand across the national healthcare market, such as chronic degenerative diseases of the musculoskeletal system and skin disorders. At the same time, research on post-marketing evidence-based pharmacoeconomics, which has been a key constraint on the promotion and development of ethnic medicines, should also be given high priority for support. Furthermore, ethnic medicines should be encouraged to explore and develop new dosage forms.

　　Speaking of R&D, the reporter had a question. We know that R&D requires significant investment, but it doesn't necessarily guarantee success. Domestic pharmaceutical companies generally aren't very large in scale. If they put all their efforts into developing new drugs, the risks can be enormous—just one or two failed R&D projects could severely cripple the company. What does Lei Jufang think about this?

　　“Here’s the thing: Developing new drugs indeed carries relatively high risks. But secondary development of blockbuster drugs focuses on expanding the drug’s applications. Since the drug’s original pharmacological properties are already well understood, the investment required won’t be that substantial,” Lei Jufang replied.

　　“We say that history is a spiral that rises upward, and medicine and pharmacology are constantly evolving. Today, the limitations of antagonistic drugs like antibiotics have become increasingly apparent, while traditional Chinese medicine and ethnic medicines—those that take a holistic approach to treatment—are gradually demonstrating their advantages, making this an excellent time for their further development,” she said.

　　The layout of the greater health industry shouldn't be rushed.

　　Making medicines isn't the only focus—recently, the greater health sector has also become a major strategic direction for pharmaceutical companies. Qizheng Tibetan Medicine has joined this trend as well.

　　In 2010, Qizheng Tibetan Medicine formulated a three-year strategic plan centered on innovation in both strategy and business models, aiming to build a comprehensive health industry encompassing three major business segments: pharmaceuticals, medicinal herbs, and health & wellness products. In 2011, the medicinal herb business contributed gross profits of over 5 million yuan, and by 2012, its contribution had exceeded 10 million yuan. Currently, the company has completed the construction of medicinal herb bases in Tibetan areas including Tibet itself. Among these, the base in Linzhi, Tibet, covers 550 mu of cultivated land, while another 100,000 mu is dedicated to semi-wild cultivation and natural regeneration. Moreover, the company has expanded the variety of products it operates in the medicinal herb sector; in addition to cordyceps and goji berries, other herbs such as angelica and astragalus are now being developed on a large scale. After securing a stable supply of raw materials, the company has also made significant progress in processing the entire industrial chain, successfully mastering heat-pump drying technology for goji berries. This technology ensures that goji berries are processed without added sodium or sulfur, thereby guaranteeing the high quality of “medicinal-food” products. “The first workshop for pharmaceutical production lies right at the source—in the fields and farms. Our medicinal herb bases, located on the Qinghai-Tibet Plateau and the Loess Plateau, still hold considerable advantages,” said Lei Jufang.

　　However, there are quite a few domestic companies claiming to be entering the greater health sector, yet very few have achieved real success so far. What does Lei Jufang think about this?

　　“The construction cycle in this field is relatively long. Starting from establishing the base, there’s still a lot of work to be done, so we can’t afford to be too impatient,” she said.

　　Link URL: http://www.dzzq.com.cn/stock/2013314_B3kPBA.html