OTC refers to those drugs that
can be acquired through hospital pharmacies
or retail pharmacies without prescriptions or
guidance from medical practitioners, and are
usually used to alleviate mild symptoms of diseases,
or in treating mild diseases.
OTC sales worldwide have seen
a dramatic rise since the early 1990s, with
an annual growth greater than 30 percent.
Some forecast that the world's average annual
growth for OTC in the first decades of the 21st
century will maintain 20 percent or above, with
the fastest growth rates to be seen in East
and Southeast Asia.
Current OTC sales in China represent
10-15 percent of the total synthetic drug market
(including imported, JV and domestic products).
The OTC proportion increases to around 30 percent
in some of the more affluent regions in China.
Based on the high growth rates over the past
decade, averaging at 25 percent a year, it is
projected that OTC sales will reach US$4 billion
A classification administrative
system was set up by the State Drug Administration
(SDA) in 1999 for prescription and OTC drugs.
Since then, the SDA has issued a series of guidelines
on interpretation of the new classification
system, on labelling, usage instructions, and
packaging of OTC products. The distinction
between the two classes of drugs - prescription
and OTC - is becoming clearer with time.
At present, there are about 700 OTC drugs classified
by the SDA. The second group of OTC drugs
is under consultation with the industry.
According to the SDA's plan, 70% of registered
drugs will be classified as OTC.
Economic and Social Development
Awareness is increasing about
health care and the importance of self-medication.
The rapid rise in living standards and disposable
income has made possible self-medication on
a continued basis for a large number of people.
Achievement of satisfactory results though such
easy self-health management is winning over
an incrasingly large number of people across
The domestic OTC market is also
expanding as a result of rapid growth in OTC
taret consumer populations. Currently,
the total number of non-SOE workers (Who aren't
covered by state health insurance) has overtaken
that of SOE employees. Increased levels
of international exchange and commercial activity
have greatly added to the number of tourists
and mobile populations, which, compared with
other populations, tend to have higher incomes.
Large increases in rural migrant
populations in urban areas have also contributed
to the rise in OTC consumption, despite their
relatively low earnings.
These migrant workers fall outside the public
health care insurance system, which is only
available to urban SOE employees, and thus have
to pay for hospital treatment and medication
ongoing and proposed future reforms to the healthcare
insurance system will invariably divert more
of the population to self-medication and OTC
Rural areas will become large
potential markets for OTC drugs. The good safety and low toxicity,
efficacy, ease of use, non-drug dependency,
plus reasonable pricing, make OTC drugs ideal
for the rural healthcare market where medical
services are scarce and virtually non-existent
in remote locations.
Adjustment in drug
usage patterns will also push the OTC market
forward. Traditionally, drugs for common diseases
and symptoms have been dominant in the total
drug consumption, thus underpinning stable growth
of the OTC market. In recent years, the conversion
from prescription to OTC medicines has become
more frequent, resulting in a widening range
of diseases and symptoms for which OTC drugs
are effective. The nutritional supplements and
medicated cosmetics in the OTC sector are increasing
all the time, further enlarging the scope of
Production and Price
Relatively simple off-patent
technology makes entry barriers low. Brand sensitivity is much stronger
than price sensitivity due to low price elasticity.
It is very important to build branding and consumer
awareness because of fragmentation of production
and low price elasticity.
Promotion and Advertising
Normally, promotion and advertising
expenditure account for 20-25% of the total
sales turnover of OTC drugs.
Advertising expenditure on TV dominates. Other promotion tools include POP
and medical magazines.
include chain pharmacies, hospitals, direct
sales and department stores and supermarkets. China抯 medicine distribution industry has been
controlled by the government for decades, and
chain pharmacies have appeared only in the past
five years. The
increase in OTC sales has led to rapid development
of chain pharmacies in Chinese cities. In 2000, there were about 200 intra-province
chain pharmacies with 5,000 outlets. Sales by chain pharmacies in coastal
cities increased by 45% in 2001.
Opportunities for Foreign Companies in OTC
According to China抯
WTO agreements, from 1st January
of 2003, foreign investment in wholesaling and
retailing of drugs will be allowed.
Prior to that date, trial run of foreign invested
joint venture drug trade companies will be implemented
under the control and guidance of the State
Economic and Trade Commission (SETC) and Ministry
of Foreign Trade and Economic Cooperation (MOFTEC).
The trial run is characterized as follows:
The two figures
on the same conditions for the Chinese side
shall be more than RMB50 million (US$6.02
million) and RMB300 million (US$36.14 million)
respectively. The requirements for domestic
companies in the western and central regions
are set at RMB30 million (US$3.61 million)
and RMB200 million (US$24.10 million) respectively. Furthermore, if the domestic
operator is a foreign trade enterprise,
its annual foreign trade volume shall exceed
US$50 million for three consecutive years
before the application, among which US$30
million should be gained from exports.
Moreover, if the Chinese partner is a pharmaceutical
wholesaler, the domestic equity for the
joint venture shall be more than 51 percent.