Advice You - Business

China’s banking sector has traditionally served as a party-controlled feeding trough for its inefficient, unprofitable state-owned enterprises (SOEs), most of which were technic

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

ally insolvent. The process was simple – extend a loan to an unqualified SOE applicant, then write off the loan as a bad debt when it failed to repay. This situation is beginnin

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

to change, and Chinese banks are attracting the attention of foreign banks that are beginning to view them as investment opportunities rather than potential competitors. Nevert

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

eless, China’s banking industry is beset by several problems.

1. SOE Lending: The importance of the Chinese banking sector as a source of domestic capital is hard to overstate.

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

Mainland China’s stock markets are anemic compared to the behemoths of Hong Kong, Tokyo and New York, and China’s bond market is virtually nonexistent. That leaves banks as the

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

nly major source of over-the-table domestic funding for private enterprises. Yet SOE lending continues to siphon off a good part of banking capital, notwithstanding that China’s

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

stock markets were largely designed to provide SOEs with an alternative source of funding. Many domestic companies have resorted to the underground institutional loan sharks wi

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

h their high interest rates, or relying solely on retained earnings for funding. Even though SOE loan defaults have declined dramatically at some banks for recent loans, the ind

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

stry as a whole is still experiencing a hangover from imprudent lending under earlier, more politicized lending policies.

2. Corruption: There is a crackdown underway, but corr

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

ption is rampant in many sectors of the Chinese economy, and the government is always cracking down on corruption in this or that industry. Meanwhile, the cycle continues. It is

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

tempting to predict that only the threat of bankruptcy due to foreign competition will ever be enough to create the political will necessary for consistent enforcement of the la

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

w.

3. Decentralization: China’s banking sector looks fairly centralized on paper, but the hidden problem is the de facto independence of far-flung branches from headquarters. C

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

ina’s branch banks have been used to operating with a much greater independence than is the rule in the West (thus contributing greatly to the corruption problem), and any attem

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

t to assert control from HQ is bound to be met with spirited local resistance.

The moment of truth is coming up fast, however, as China’s WTO commitments require it to fully op

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

n its banking and insurance markets to foreign competition next year. The government is responding introducing a host of new regulations to rationalize lending practices and by

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

racking down on internal corruption (whether the new regulations will actually be followed by the branch banks is a question that only time can answer). Banks are responding by

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

listing with IPOs on overseas markets and with American-style “downsizing”, closing branches and laying off staff.

Foreign banks are responding by investing billions of dollars

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

into Chinese banks, surprising in light of the above problems. Furthermore, they are acquiring minority stakes that are unlikely to ever offer them operational control, in some

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

ases mainly for the purpose of securing access to distribution networks for insurance, credit cards, and investment products after 2007.

Nobody wants to see China’s banks withe

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

in the wake of foreign competition - not even their foreign “competitors”, because a Chinese banking crisis would have a significant negative effect on the entire world economy

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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