With the Chinese government planning to raise spending on healthcare significantly over the next five years, there are opportunities for pharmaceutical manufacturers in catering for the expanding mass market for good quality, value-based medicines
The pharmaceuticals sector has not emerged unscathed from last year’s anti-trust investigations of multinational companies in China, but with healthcare spending rising, there are plenty of opportunities for the industry. The powerful National Development and Reform Commission (NDRC), which investigates alleged price fixing in China, claimed that GlaxoSmithKline (GSK) charged Chinese consumers seven times its average global prices. Such crackdowns look set to become the norm and have refocused minds on the potential for sales in China, where the government plans to increase pharma spending by 18% a year between 2014 and 2018.
The value segment doesn’t have low requirements, rather different requirements
Big Pharma, meanwhile, is finding ways to drive sales at the burgeoning mass end of the market. For example, providing training and education to medical staff in diseases and disease management is proving a key way for Pfizer to build market share for cheaper medicines. ‘The value segment doesn’t have low requirements, rather different requirements,’ said Shao Xianghong, Head of Business Development and Director of Generics and Biosimilar Business Strategy and Business Development at Pfizer China. ‘You have to ask yourself: “How am I going to help doctors in lower-end hospitals?”’
In lower tier cities ‘the level of patient awareness and the treatment rate are still very low’ for some key diseases such as hypertension and cholesterol problems. Shao described how Pfizer gives trial ‘blood fat tests’ to patients and informs them of the results. ‘Medical education adds value, improving processes and treatment rates,’ she explained.
Shao also recommends that pharma firms seek out sales in China’s regions, given the regional nature of China’s drug market in terms of demand and regulation. ‘Pick a province and then a city and focus on that,’ she suggested.
Pfizer wants to concentrate on developing original drugs, but the market also needs quality drugs at moderate prices. Hence partnerships will be key, especially in the generic market: Pfizer’s controlling stake in local player Haizheng Pharmaceutical Co is a case in point, allowing the US company to sell high-quality, low-cost medicines in the branded generics segment in China.
The local competitors have been getting better at engaging customers in China, many of whom are very savvy
Some experts think there has been too much focus by pharma firms on the premium segment in China. ‘So-called class 2 hospitals are also doing increasingly complex procedures,’ explained Chee Hew, Principal for Greater China at Clearstate, a consultancy, and part of the Economist Intelligence Unit group. She said the middle segment of the market accounts for 55% of overall sales and is growing at 30% a year – as compared with 30% for the premium market which is growing at 12–15% a year.
China’s move to boost health insurance coverage and a build out of community and primary care means there is obvious demand, but rising incomes also mean more Chinese can afford healthcare. Yet this market is also price sensitive and savvy about value, stressed Chee. ‘Pharma companies have to react quicker; the local competitors have been getting better at engaging customers in China, many of whom are very savvy – for example in using social media,’ she said.
In lower tier cities ‘the level of patient awareness and the treatment rate are still very low’ for some key diseases such as hypertension and cholesterol problems
Chee added that she foresees a ramp up in mergers and acquisitions and research and development, as well as an increasingly competitive domestic pharma sector. She also predicts continued investment by pharma firms in diseases more commonly found in the Asia Pacific region.
Certain cancers, such as nasal and liver, occur predominantly in Asians, while common diseases like diabetes and obesity behave differently, requiring drug companies to customise drugs, according to Dr Benjamin Seet, Director of Biomedical Sciences at Singapore’s Agency for Science and Technology.
Furthermore, Chee foresees innovative business models such as collaboration between pharma firms and hospitals in China – a policy piloted by Swiss firm Roche. According to speakers on a panel called ‘Value Based Healthcare in China’, hosted by the Economic Intelligence Unit, Roche is co-operating with hospitals and surgical units in those hospitals to boost the effective use of medicine.
Ultimately, the future will mean doing more with less
Even as China lifts its overall spending on drugs, however, generic sales are set to soar with tighter budgetary controls being imposed on China’s healthcare system. The trend is toward tighter control over medical bills – if the quota is used up there will be more focus on reducing costs. Ultimately, the future will mean doing more with less, said Pfizer executive Shao, who expects ‘a lot of changes in policy’ in China in terms of drugs licensing and pricing, ‘though there is as yet no clear path on this’.
A reference price for reimbursement is currently being piloted in China. The regulatory timeline is unclear but the introduction of a diagnosis-related group (DRG) system measuring costs according to disease and treatment categories is potentially ‘a big game changer’, said Shao.
As Chinese pharma firms seek to increase their market share at home and abroad they will have to understand that these markets are changing with demand for health services and cost pressures both increasing globally, explained Vivek Murthu, Chief Executive of Bazian, a health-focused research arm of the Economist Intelligence Unit. He explained that although the ‘value segment’ includes lower-tiered hospitals in smaller Chinese cities, it also requires ‘innovation which goes beyond simple cost reduction, requiring new products, services and business models’.
Chee added: ‘China is becoming a more typical market, more granular, whereas historically it was a market where high growth was relatively easy.’