All Eyes on Chinese healthcare market
The overall compound annual growth rate of the pharmaceutical market (2009-2013), for its part, is projected to be 24%, with the market reaching an estimated $73 billion by 2013 (at constant exchange rates).
Jan-Willem Eleveld, David Twinberrow John Woo
There are 1.3 billion people in Chinaâ€”seeking healthcare in what has become one of the strongest economies in the world. Over the next three years, Chinaâ€™s GDP is expected to grow between 7-9% per annum. The overall compound annual growth rate of the pharmaceutical market (2009-2013), for its part, is projected to be 24%, with the market reaching an estimated $73 billion by 2013 (at constant exchange rates).
Already Chinaâ€™s economy is the third largest in the world. Its foreign exchange reserve stands second to none. The governmentâ€™s commitment to the health of its people is being demonstrated by a wide range of reform policies and an aggressive campaign to make smart use of new technologies. A close look at the forces at play argueâ€”definitivelyâ€”that now is the time for pharmaceutical companies to continue to accelerate the building of a sustainable presence in China.
Changing demographics and foundational growth
Consider, for example, the demographics of a population that is not only sizable but also aging and increasinglyâ€”perhaps due to more affluent, western-style lifestylesâ€”beset by chronic diseases. An estimated 10% of the total Chinese populationâ€”130 million peopleâ€”will be over 65 by 2015. More than 40 million are currently living with diabetes, while more than 100 million have been diagnosed with hypertension. New healthcare needs signal new treatment patterns, not to mention new opportunities for pharmaceutical companies to step in and make a difference.
The new demographics are fortunately happening at a time of economic prosperity. With demand for both quantity and quality of healthcare on the rise, rural and lower-tier cities are respondingâ€”using governmental support to ratchet up historically inadequate care centers with expanded services and capabilities.
Sustained economic development is foundational to growing healthcare expenditures; in China, healthcare spending CAGR (2006-2011) is expected to surge to 20%2. Rising levels of disposable income, meanwhile, are laying the groundwork for higher out-of-pocket expenditures for healthcare and pharmaceutical products.
Profound and fundamental healthcare reforms
Against the demographic and economic backdrop lie fundamental reforms that are rapidly changing the healthcare landscape. There is, for example, a concerted effort to expand the basic medical insurance system so that it might offer 90% of the population both insurance and increased medical benefits by 2011; over time, the system will be expanded to cover the whole of the population with even greater medical benefits.
A new National Essential Drug List (EDL) was published in August 2009 and is targeted to be enforced in 30% of Community Health Centers (CHCs) and rural areas by the end of 2009. The ultimate goal is to enforce the EDL across both urban and rural primary care facilities by 2020 and, in that way, to ensure affordable and good quality basic medicine is supplied for all.
At the same time, the pressure is on to build and upgrade the CHCs, the township health centers, and the county hospitalsâ€”and to train healthcare professionals to effectively staff the new environments. Much of this work is already under way, and more is planned throughout 2020.
The strengthening of the primary medical service is being driven by the roll out of numerous new programs designed to broaden access in rural areas and to build more primary care centers in urban areas to serve those with simple and basic diseases. Also on the agendaâ€”though still a work in progressâ€”are efforts to reform public hospitals to make them less reliant on profits from drugs.
Sizable investments are required to institute the kinds of reforms referenced here, and China has committed $125 billion over the next three years to finance the reform initiatives. Some 46% of that investment will go toward the provision of medical insurance and the implementation of the EDL in the primary health sector. Improving healthcare provision â€”the development of the rural infrastructure and the transformation of urban hospitals into secondary/tertiary care centersâ€”will consume 47% of that budget, while the public health initiatives focused on disease prevention and the control of infectious diseases will be funded by the final 7%.
Real opportunities, pressing decisions
China has been an area of potential interest for years. Today, however, the opportunities are very real and only likely to continue to improve in the future. As China extends medical insurance to the vast numbers of its people, it becomes increasingly important that pharmaceutical companies decide whether to get their drugs onto the EDL and NDRL, since this may significantly affect the price and volume equations. They also need to develop strategies that effectively capitalize on Chinaâ€™s established preference for cost-effective generics as well as address demand for more trusted, effective brands.
At the same time, the rapidly developing healthcare infrastructure requires MNCs to carefully weigh geographic expansion strategies and to become deeply informed about the overall marketing environment. While generics are encouraged by the EDL due to their price benefits, it is often more effective for MNCs to focus on evidence-based, rational prescribing that stands on the principles of ethical sales models.
Third, with Chinaâ€™s public health initiatives increasingly focused on disease prevention, pharmaceutical companies with vaccine and preventive medicine capabilities should be taking aggressive steps to act on emerging opportunities.
Broadly speaking, healthcare policies will drive generics (including branded generics) through 2014, while the rising affluence of the Chinese population and the accelerated launch of innovative products by MNCs will drive the innovative sectors in specialty care and biotech.
In every case, MNCs must develop their strategies with an understanding that China is not by any stretch a uniform market, for while the national government establishes guidelines for health care policies, reimbursement lists, and pricing and drug purchase mechanisms, the local governments of each province are charged with interpreting and implementing those policies. Thus, key account teams must focus on all potential constituencies as they build their strategies.
Another key shape-shifter is the recent implementation of Integrated Medical Information Systems (IMIS) designed to drive efficiency, capture new data, and to enable the tighter oversight of all providers.
The Resident Health Record, for example, made its appearance in early 2009â€”an electronic document comprising basic personal and family information. In August 2009, the MoH published the Basic Structure and Data Standards for the Electronic Medical Recordâ€”a national standard that creates the framework for individual patient records that include inpatient, outpatient, and emergency medical information. Finally, under the umbrella of the Urban Employee Basic Medical Insurance Scheme, plans are under way to expand insurance cards and reimbursement records, and to integrate and standardize data.
For MNCs, then, the situation calls for strategies concerning price transparency, vigilance regarding growing regulatory checks for both approval and safety issues, and a thoughtful approach to clinical trial design so that products are clearly differentiated from their competitors.
Gauging (and capitalizing on) the future
Chinaâ€™s dynamic environment represents a significant bright spot in an era otherwise saturated with global uncertainty. Success, however, is never guaranteed, and those who wish to capitalize on Chinaâ€™s evolving landscapeâ€”not just powerhouse MNCs but also local players and smaller entrantsâ€”must effectively plan for and execute in three critical areas.
The first is geographic coverage and adaptation. Going deeper and wider into those cities, provinces, channels, and hospitals previously considered beyond economical reach is now an imperative. Hand-in-hand with that imperative is the need to enhance the field force and account management in order to optimize relationships with both the central government and the various provincial policy makers. In addition, marketing efforts must be resourced in a fashion that adapts to the changing, heterogeneous dynamic. A couple of MNCs and local companies have started to put into play a model that effectively runs China as separate geographical units. Other companies are carefully monitoring the successâ€”or otherwiseâ€”of this approach.
The second key area concerns product portfolio strategyâ€”having, in other words, a portfolio that intelligently reflects the market and is flexible enough to reshape itself in the face of dramatic changes while also reflecting the widely variant policies seen at the governmental and provincial levels. Brand managers must be adept at positioning and targeting products. Launch strategies must be finely tuned to reflect the particular dynamics of particular cities and regions.
The third key area relates to market access and pricing. There will be no substitute for a comprehensive understanding of each drugâ€™s listing (and potential listing) on reimbursement drug lists; increased patient access will come at likely reduced prices, making the price-volume trade-offs a critical equation to master and to flex. Negotiation mechanisms, risk sharing programs that benchmarked developed markets are going to come into play for high priced drugs between local governments and the manufacturers. All of this means that optimizing product pricing strategies so as to align the portfolio with market conditions will likewise be a prerequisite to future success, as will the execution of sophisticated plans in negotiation mechanisms, support of tendering and supply chain management.
Jan-Willem Eleveld, VP Consulting & Services, APAC, Singapore
David Twinberrow, GM, Business Line Management, APAC, Singapore
John Woo, GM, IMS, China