Here's the big impact of China's health reforms on Singapore firms

Expect near-term pressure, warns analyst.

According to OCBC Investment Research, ongoing healthcare reforms in China to make healthcare costs more affordable and accessible to the public are expected to exert near-term pressure on the margins and profitability of certain medical device and pharmaceutical companies.

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This is because prices of essential drugs and medical devices such as coronary stents will continue to be regulated through provincial government tender exercises. Under our coverage, BIG experienced stent price cuts of ~15% as a result of these tenders.

Its competitors in China, Microport Scientific and Lepu Medical Technology, both faced declines in their drug-eluting stent (DES) sales due to lower ASPs arising from provincial tenders and intensifying competition from domestic manufacturers entering the DES market.

Mindray Medical, a medical device company which derived 45% of its revenue from China in 2012, highlighted during its 3Q13 analyst conference call that it experienced a slowdown in the healthcare industry in China in 3Q13. This was attributed to more tardy purchases by hospitals, which in turn was caused by aggressive anti-corruption activities in the industry recently.

Meanwhile, SGX-listed pharmaceutical companies such as Tianjin Zhongxin Pharmaceutical, Star Pharmaceutical and Pharmesis International all expressed caution due to regulatory and market uncertainties.