China’s pharmaceutical market offers vast opportunity for multinationals as regulatory and other changes shift the landscape.
China is a highly attractive market for the global pharmaceutical industry. A vast aging population, burgeoning middle class and other factors have made it the fastest-emerging market for pharmaceuticals, and by most estimates the second-largest. Research firm IQVIA estimates its worth at more than $122 billion. The scale of opportunity is momentous. But China is also a daunting pharmaceutical market, known for its red tape and lumbering drug approvals. There are positive signs that this is changing as China takes steps to overhaul its pharmaceutical sector.
The transformation started in 2015, when Bi Jingquan took over the China Drug Administration (CDA). Along with a general easing of rules and restrictions, under Bi the CDA started allowing fast-track review for certain drugs, and abolished its more arduous requirements concerning clinical trials. The regulator has joined a global body for drug assessment and adopted international standards for clinical data. Additionally, the Chinese government is expanding public healthcare. This includes changing the national insurance scheme to extend coverage to more people and offer larger subsidies for expensive drugs.
One caveat is that Chinese authorities demand steep discounts on costlier treatments. Looking at 36 high-end drugs on the national reimbursement list last year, IQVIA found that producers had to cut prices by 44% on average, relative to the previous year. The discounts have not squeezed margins too much, however, as firms make up for them in volume. Deutsche Bank estimates that in Q1 2018, the top 20 global pharma firms saw Chinese sales grow by 18% compared with last year. The rise is owed mainly to newly approved drugs, The Economist reports.
On balance, recent changes in the Chinese pharmaceutical sector are a win for big pharma – but for smaller, local drug makers, they could spell trouble. Producers of low-quality generics in China are finding it tough to meet the CDA’s new manufacturing standards as well as the requirement to prove their drugs’ biological equivalence to the originals. The market could soon be flooded with competitors, domestic and foreign, who are more than ready to comply. Lu Xianping, CEO of Chinese biotech firm Chipscreen Biosciences, estimates that as a result, within five to 10 years half of China’s 4,000 pharma companies could fold.
It is likely that weeding out the weak and giving innovators room to thrive is the intent, as China’s pharmaceutical sector would emerge stronger. For the moment, there is still work to be done. Bi Jingquan, the regulator who pushed for better quality, was forced to resign in August after thousands of children were given ineffective vaccines. The CDA still has a long way to go in regards to harmonising its rules with those of foreign counterparts. Franck Le Deu, a senior partner with McKinsey, foresees a period of uncertainty. Reform will continue, but the pace or focus might change, he says. This in turn will determine the prospects for foreign drug makers in China.
