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Pharma trends in China

Barely a day goes by without major developments coming out from China, and an escalating trade dispute with the US and a slowing domestic economy are among the most recent headlines. For the pharma sector, the rapid roll-out of a massive centralized bidding scheme in major cities is adding to the growing list of operating uncertainties.

Although pharma companies have so far largely avoided the impact of the brewing trade war between the world’s two largest economies, China has vowed to retaliate with more tariffs. China imports finished drugs and medical devices from the US, and although medicines are far below aircraft and large machinery in total monetary value, some worry that the higher tariffs could expand to such products.

In the past, the Chinese government has actually lowered import tariffs for imported anticancer drugs, in a bid to make them more affordable to local patients.

Meanwhile, in the first three months of 2019, China continued to deliver as a growth engine for the multinational pharma industry, providing north of 20% growth for several firms including AstraZeneca PLCPfizer Inc. and SanofiMerck & Co. Inc. reported its sales in the country rose by a jaw-dropping 66% in the period 

Several underlying factors contributed to the strong growth, including increased uptake of new products, but there are looming challenges, the biggest of which is the “4+7” centralized procurement scheme for 11 major cities. (Also see "Drug Price Waterloo: China's New Bidding Process Hits MNCs Hard" - Scrip, 11 Dec, 2018.)

Against this fast-developing background, there are several needs and trends in China that pharma companies should pay close attention to, local analysts say.

New Product Launches 

Amid China’s positive regulatory reforms and higher numbers of new drugs gaining approvals, companies need to have a multi-channel strategy to generate the most "bang for the buck.”

“A lot of these [strong Q1 growth rates] were driven by newly launched innovative products, as a result of expedited regulatory processes to get products registered in China,” Justin Wang, a partner at consulting firm L.E.K.’s Shanghai office, told Scrip. Such products included AZ’s Tagrisso(osimertinib) for lung cancer, and Merck’s HPV vaccine Gardasil and PD-1 inhibitor Keytruda(pembrolizumab).

“These new products are able to address significant unmet clinical needs and have been long expected by the China market. Successful market education, as well as additional patient assistance programs, are also driving the rapid uptake,” Wang noted.

Oncology and vaccines are two areas that have seen significant growth in China in recent years. The new generation of immuno-oncology agents has also gained the spotlight and generated excitement in China, where cancer incidence and mortality rates are steadily increasing.

According to the China National Cancer Center's most recent data, 3.9 million people were diagnosed with cancer in the country in 2015, when there were 2.3 million deaths.

Access Issues

Given there is no immediate or automatic insurance coverage for new drugs in China, companies may need to craft patient assistance programs that enable expanded access and are also able to accumulate actual clinical use data following launch. These can take the form of provision of product or other effective subsidies to out-of-pocket costs.

But seeking reimbursement remains an important potential catalyst for sustaining growth. In 2019, China's Medical Insurance and Support Administration will expand the National Reimbursement Drug List (NRDL) to include selected drugs approved before 31 December 2018. For high-priced products, such inclusion will only come along with price negotiations, which in a previous case for 17 anticancer drugs led to prices being slashed by an average of 57%.

While NRDL coverage provides potential volume gains, the associated price reductions may also prompt manufacturers to weigh the risk of rapid and substantial price erosion. “Most MNC pharmas will certainly prioritize NRDL listing for their market access efforts, but there is certainly a subset of international pharmas that would prefer to stick to their global pricing band,” said L.E.K.’s Wang.

During Merck's quarterly earnings call, chief commercial officer Frank Clyburn noted that while the US firm hopes to have its newer products such as Gardasil, Keytruda and others covered by the list, strong market positioning was still possible without this. “A listing would open up an exciting opportunity to expand volumes. But even without that, we feel that we're very well positioned for Keytruda in China with the only PD-1 that has a first-line lung cancer indication," he commented.

Broad Market, Digital Health

Another important potential growth area for multinationals in China is the so-called "broad market" of smaller but still sizable cities, which has traditionally been defined as tier 3 cities but now extends down to tier 4 and 5 cities.

“Many also say that multinationals were able [in the first quarter] to exploit opportunities from new channels (eg, lower-tier cities, retail and direct-to-patient) that offset volume declines in their core markets,“ said L.E.K.'s Wang.

Known for being particularly price-sensitive, the lower-tier market will be hard for many to crack. To that end, many foreign companies are increasingly integrating digital technology into their commercial strategy, for products ranging from HPV vaccines to consumer health brands.

The latest example involves GlaxoSmithKline PLC and AliHealth, which on 2 April signed a joint business plan covering big data, and new sales models and services. Consumers will receive online information on respiratory and pain management products, plus web-based medical consultation and education, the aim being to improve medication awareness.

Novartis AG on 22 March also signed on with major Chinese e-commerce group Tencent to use artificial intelligence technology to provide heart failure solutions. The agreement is expanded on previous agreement on chronic diseases management. 

Other multinationals including Merck KGaA and Pfizer are also getting aboard the digital health train in China. (Also see "Merck KGaA, Pfizer Dance To China Digital Health Beat" - Scrip, 29 Jan, 2019.)

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