Cracking the Chinese pharma market

Explosive growth in Chinas pharmaceutical market presents a huge opportunity but be prepared for a bumpy ride, Rajesh Chhabara reports.

Growth in multinational pharmaceutical companies markets in the US, Europe and Japan has slowed to single digits. Pharmerging marketsChina, India, Brazil, Russia, Turkey, Mexico and South Koreaon the other hand, are growing at explosive rates as increasing prosperity prompts more spending on healthcare. (See How to get ahead in pharmerging markets.)  China is the most lucrative market among the pharmerging nations.

While the global pharmaceutical industry is estimated to grow only 47% annually between 2010 and 2013, the market in China will see over 20% annual growth, according to IMS Health, a leading provider of market intelligence to the pharmaceutical and healthcare industries. IMS estimates that China will become the worlds third largest pharma market in 2013, up from number ten in 2006. IMS predicts China will contribute 21% of overall global growth through 2013. Not surprisingly, multinational drug makers are making a beeline to expand into China.

Chinese healthcare reform

The Chinese governments healthcare reform plan will be a key driver of pharma growth in the country. The government is spending $125 billion between 2009 and 2011 to provide 90% of its 1.3 billion people with healthcare coverage, creating a massive growth opportunity. Mandy Chui, senior principal for IMS Health, says the generics sector is one of the key growth opportunities for both domestic and multinational players in China.

The share of generics in total sales in China increased from 54 percent in 1999 to 62 percent in 2008, according to the IMS China Hospital Audit. Chui says that although generics are currently dominated by local companieslocal firms account for over 99 percent of the total generics sales, according to IMSmultinationals can grow their share by forging local alliances: Product differentiation and the establishment of strong brands will also help overcome some of the obstacles foreign players have encountered in penetrating the Chinese market.

Adds Robert Pollard, director of Synovate Healthcare China: There will be downward pressure on multinational companies to rein in price especially in the reimbursement market, says. Pollard believes opportunities exist for multinational companies in innovative drugs that offer substantial differential advantage, such as higher clinical efficacy, over existing products. Companies offering me-too products will find themselves struggling, he says.

Changing demographics

Chinas changing demographicsthe ageing population for examplealso offer new opportunities for pharmaceutical companies. Incidents associated with the elderly, such as Parkinsons disease, prostate cancer, osteoporosis and dementia, are extremely interesting areas where there are opportunities, says Pollard. Opportunities also exist, he suggests, for conditions that were previously kept hidden, such as depression and schizophrenia.

Lifestyle diseases also present an opportunity for drug manufacturers. For example, the number of people with diabetes is growing in China. Sensing the trend, Novo Nordiskthe worlds largest insulin manufacturer, with a market share of over 70 percent in the Chinese marketlast year announced an investment of $400 million to build a new insulin manufacturing plant in Tianjin.

Eli Lilly and Companyanother significant foreign player in the Chinese insulin market with 10% market sharehas said it will increase the number of products for diabetes treatment in China. The company is currently building its second insulin plant in Suzhou. Sanofi-Aventis launched an insulin pen in October 2008 in China.

Talior-made solutions

Multinational drug makers will also need to effectively communicate product benefits to stakeholders to be successful. Sharing the health economics benefits of their products with doctors and relevant ministries will help, says Pollard.

All this means studying Chinas healthcare needs more closely for tailor-made solutions. Intensifying R&D efforts as well as establishing local manufacturing can go a long way in terms of competitive advantage. In fact, over the past few months alone, a number of multinational drug companies have announced plans to set up research and development facilities in China.

Pfizer is collaborating with Crown Biosciences to develop novel therapeutics for cancer at Crown's new research facility in Taicang, near Shanghai. Pfizer has also entered into a research partnership with Peking University to develop new technologies for drug discovery.

Roche opened its Roche Pharma Partnering Asia office in China to focus on scientific research projects with local institutions. The company has already signed cooperation agreements with three Chinese universities.

Merck Serono plans to invest $200 million in building a global R&D center in Beijing for biomarker research, including pharmacogenomics and bioanalytics.

The importance of R&D

Establishing R&D activities in China can mean faster access to the Chinese market. GSK, which developed a flu vaccine for the Chinese market in partnership with Shenzhen Neptunus Interlong in June, received approval to sell the drug in September. GSK says it is also moving part of its flu vaccine manufacturing to China for better access.

Pollard of Synovate says that moving research and development to China could also reduce costs for multinational companies: The cost of hiring participating doctors, recruiting patients and hiring associates for clinical trials in China is 50% lower than in the US or Europe.

Though China promises huge growth, multinational companies also face a number of challenges, including hiring and retaining the right people as the talent pool in China is limited, offering innovative drugs at competitive prices to overcome local competition, establishing distribution and logistics networks, and developing a proper understanding of the healthcare reform process to make the right business decisions.

Regulations and healthcare needs vary from province to province in China, posing another complex challenge for planners. China is not one country. A strategy is needed for each of the regions and provinces in order to be successful, concludes Pollard.

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