1、Pharmaceuticals on the other hand, regulatory reform and broadening of market access provide a brighter outlook for innovative and patented products, although real uncertainties remain. Some observers say digital advances will have a major impact on the industry, while others believe true digital tr
2、ansformations are still years away. Critically, companies find it harder than ever to identify, recruit, and retain the talent they need to compete. We seek to shed light on an inflection point in the development of Chinas biopharma market. It draws both on our own observations and on a series of in
3、-depth conversations with senior leaders of multinational pharma companies in China. Through our research, we identified five key insights into the industrys prospects for the next few years. We hope they will encourage debate, broaden stakeholders thinking across the industry, and help companies pl
4、an wisely. Insight 1: Generic-quality consistency evalua- tion and reimbursement reform exert pricing pressure on off-patent originator products, but they potentially release more funding for innovation and shift China toward a developed- market profile. Mature products registered ten or more years
5、ago are estimated to contribute to more than 85 percent of pharma multinationals total revenues in China, and volumes continue to grow. But many executives are concerned about the impact of the rollout of generic-quality consistency evaluation (GQCE) and new tendering rules, which are likely to exer
6、t pricing pressure on mature portfolios. By the fourth quarter of 2018, fewer than 10 percent of the 289 oral solid drugs on the original list published by the National Medical Products Administration (NMPA) had passed GQCE,2 for reasons ranging from lack of bioequivalence testing sites to manufactu
7、ring capability gaps. Many generics manufacturers are now pursuing molecules outside this list that have strong market potential. Overall, we estimate that some 60 percent of the top approximately 150 oral solid drugs by revenue will face GQCE competition in the near future, putting around $9 billio
8、n of revenue at risk for multinationals.3 When the GQCE policy was first published, pharma executives had mixed views on its likely impact. Today, almost every industry leader we spoke to believes that the policy will trigger convergence toward a developed-market profile for mature and off-patent br
9、andsand that this will happen sooner than was expected just a few years ago. Were seriously considering whether to drop prices to capture volume or just retreat. For mature products, were more pessimistic. We face significant challenges and were under a lot of pressure. Were being forced to rethink
10、investments and returns. Pricing will be an issue, especially as the refer- ence pricing model comes to China. Some multinationals will restructure to raise profitability. Senior executives at multinational biopharma companies The eventual impact of the GQCE will be shaped by how quickly the new ten
11、dering rules are applied and 1 IMS Market Prognosis 2017-2021: China, QuintilesIMS, March 2017. 2 GBI Source database, October 2018, . 3 Ibid. 2Biopharma in China: Insights into a market at a crossroads 4 In November 2018, a new drug-tendering rule was officially piloted in 11 cities, called 4+7. Th
12、e new rule stipulates that off-patent originator products will compete with GQCE-qualified generics in the same tendering group. The manufacturer with the lowest bidding price will win the tender for each molecule, with a guaranteed purchase volume in these 11 cities estimated at 6070 percent of the
13、 molecules volume from the previous year. 5 The price discount was calculated by comparing the 2018 tendering price for a molecule with the lowest purchasing price in pilot cities in 2017. See Shanghai Medical Procurement All-In-One, . the approach that is followed. The “4+7” tendering results publi
14、shed in late 2018 created anxiety in the industry.4 They revealed much lower tendering prices than companies had expected, with the highest discount exceeding 90 percent and an average discount of 55 percent across 25 molecules.5 Implementing the GQCE and new tendering rules will have implications f
15、or the whole industry. With generics passing GQCE, arguments for the quality of multinationals off-patent originators will erode. Pricing pressures could spread to other cities and provinces, leading to intensified volume competition for off-patent originators as well as market leaders in generics.
16、Some executives from local as well as multinational pharma companies are concerned that implementing 4+7 more widely may reduce incentives for the industry to invest in GQCE and hit funding needed to support innovation. That said, a volume guarantee gives the winner of a bid an opportunity to captur
17、e market share at speed. It could also enable the manufacturer to cut its distribution and commercial costs, reducing the impact of discounting on the bottom line. What is more, pockets of opportunity still exist outside guaranteed volumes, including the private and out- of-pocket market. The mounti
18、ng pressures on mature portfolios are prompting multinationals to reevaluate their returns on investment. As well as transforming their business models to improve productivity and sustain profitability, they are looking for additional opportunities to drive volume growth. Some multi- nationals are p
19、artnering with local companies not only to improve efficiency and sustain mature products but also to broaden their commercial reach, extend their market access, and allow the pursuit of a “second launch” strategy after national reimbursement inclusion, especially in lower-tier markets. They are als
20、o moving away from homogenous growth models to adopt more diversified strategies for different parts of their portfolios. In the near future, we expect to see more outsourc- ing of off-patent originators from multinationals to partners, as exemplified in the recent Roche partnership with Ascletis fo
21、r Pegasys and Eli Lilly and Company with 3SBio for human insulin. Companies will also reevaluate bottom lines and productivity, adopt innovative tools to drive sales- force efficiency, and shift investments in their portfolio more quickly. Insight 2: Many multinationals are reorienting their portfol
22、ios toward innovative products, but the value of innovation could be undermined by access constraints and aggressive reimbursement negotiations. The external environment for innovation in China has never been more supportive. Having achieved a series of milestones since the implementation of NMPA re
23、form (Exhibit 1), industry participants are optimistic that the reform will stay on course for the coming years and that its scope may expand to bring it into closer alignment with global regulatory practices and standards in pragmatic ways. Meanwhile, market access has also improved significantly i
24、n the past few years: 181 drugs were added to the national reimbursement drug list (NRDL) in two rounds of updates since 2017; in addition, 187 were added to the essential drug list (EDL) in 2018, six years after the previous update. Drugs added to the EDL include important medicines for treating ca
25、ncer and metabolic disorders such as Herceptin and Januvia. The leaders we spoke to were optimistic about the possibility of more frequent NRDL updates every year or two, and even more frequently at the level of patient groups or therapeutic areas, such as pediatrics or rare diseases. 3Biopharma in
26、China: Insights into a market at a crossroads In this increasingly favorable environment, multinationals are shifting the focus of their China portfolios from mature to innovative products. However, success is far from guaranteed, and expectations may be running ahead of reality. Despite recent prog
27、ress, access conditions are still constrained, and companies may take time to develop the mind-set and capabilities needed for innovative product launches tailored to the China market context. Further, the number of innovative products to “absorb” by the market is staggering. We estimate that about
28、100 new molecules have been approved in the 201618 period, with many more to come in the next few years. This creates challenges around funding capacity, access to hospitals, adaptation of clinical guidelines, and so on. How smooth the transition will be from mature to innovative product portfolios
29、will depend partly on the speed and scale of the rollout of GQCE and new tendering rules, and whether some of the savings for public payers will be shifted to reimbursement of innovative molecules. Another important factor will be company-specific strategy and portfolio considerations, such as the n
30、umber of new assets to be launched in the next three years, the concentration of mature brands in the business, and exposure to GQCE. Some of the senior leaders we spoke to identified challenges that may slow this portfolio shift toward innovative products. One is the difficulty of understanding and
31、 predicting the direction of government policy, which has a critical impact on innovation. Another open question is whether government reimbursement negotiations will recognize the value of innovation, given the price cuts seen in recent rounds. Whether a value- based approach will be adopted in rei
32、mbursement assessments remains a key uncertaintyfor instance, through the integration of independent clinical evaluations into price negotiations. Exhibit 1 National Medical Products Administration (NMPA) reform has chalked up a series of achievements since implementation three years ago. A timeline
33、 of NMPA milestones Source: National Medical Products Administration; press search; McKinsey analysis 20016 Initiation of generic-quality consistency evaluation (GQCE) policy to promote Gx industry upgrade: 55 molecules GQCE qualifed by end of 2018 Pilot marketing- authorization holder in
34、 10 provinces to encourage innovation Introduce conditional approval for early new-drug-approval fling to fulflled unmet clinical needs: 5+ new drugs gained early approval Implementation of faster clinical trial initiation with 60-day notifcation-based clinical-trial agreement, in line with global b
35、est practice Launch of priority review mechanism to accelerate regulatory approval: benefted 774 applications by end of 2018 Revision of registration restrictions for imported drugs enable multinational corporations to include China in simultaneous development as early as Phase I Acceptance of over-
36、 seas clinical data to accelerate launch of imported novel therapies Continuous regulatory acceleration: between 2016 to 2018 enabled 100 new launch approvals (87 for imported, 13 for local) 4Biopharma in China: Insights into a market at a crossroads 6 What science can do: AstraZeneca Annual Report
37、and Form 20-F Information 2018, AstraZeneca, February 2019, . 7 “Outline for Healthy China 2030,” Central Committee of Communist Party of China and State Council, October 25, 2016. In a complex and rapidly developing environment for innovation, some companies are pushing to play a role in broader he
38、althcare ecosystems. AstraZeneca has set up centers for chest pain, metabolic management, and pulmonary care, for example. By joining forces with government stakeholders, academic institutions, digital and tech companies, device manufactures, hospitals, and key opinion leaders, AstraZeneca is able t
39、o provide better integrated solutions for patients and clearer value propositions for hospitals and clinicians. In 2018, AstraZeneca achieved 25 percent growth in China, reaching some $3.8 billion in total sales.6 Insight 3: China is becoming more central to multinationals strategies. In recent year
40、s multinationals have made a number of major organizational moves in China. In 2019, Pfizer plans to reorganize into three businesses and base its leadership team for established medicines in China, while Sanofi is expected to establish a “China and emerging markets” business unit. The rising import
41、ance of the Chinese market to many, but not all, pharmaceutical multinational companies can also be seen by its rising contribution to global pharma revenues, which ranges between about 4 and 18 percent for top ten global multinationals, at an average of 8 percent. Though there is concern over the t
42、ransition from a mature brands portfolio to an innovative oneand the shape of profits and losses associated with thatit is becoming clear that moving forward, the importance of Chinas market will not only be based on sales contribution but also on a series of other strategic considerations. Everyone
43、 is looking at China right now. China is so large and diverse; its not just one country. We need to bring every CEO to China to see for themselves. Senior executives at multinational biopharma companies In the future, as broadening of access accelerates, we expect to see increasing evidence of China
44、 becoming a “wave one” country for innovative product launches with companies pivoting toward an innovation-driven portfolio. In recognition of its overall strategic importance and the business opportunity, China needs to be elevated within pharmaceutical multinational companies global development f
45、rameworks and strategic agenda. Whether it be including China in early-stage product development, inclusion of Chinese patients in global pivotal trails for simultaneous development, including China as part of global strategic branding team, or doubling down on strategic investments in the country,
46、a significant amount needs to be done to fully capture Chinas 1.3 billion patient opportunity. Another reason for Chinas increasing strategic importance is because it is becoming the proving ground for transformations involving healthcare analytics and ecosystem partnerships, driven by a few key fac
47、tors. The current healthcare system is under significant pressure, with high levels of inefficiency, access inequality, and quality gapsits lagging in the establishment of modern medical practices. Just “scaling up” the current model will not work, and new solutions are acutely needed. Policy- wise,
48、 the government has laid out a road map7 for transformation, in particular identifying the Internet of Things and digital as a strategic way to make significant advances and develop a sustainable model that can help fulfill the vision of universal access to quality healthcare at affordable cost. Pri
49、vate digital players have accordingly prioritized healthcare in their long-term strategies, as seen in an explosion of new offerings and partnerships across the ecosystem over the past few years. At the same time, an innovation ecosystem has started to emerge, facilitated by reform from the China Food and Drug Administration and the opening up of capital markets to biotech start-ups in Hong Kong, with Shanghai to follow. Though still at an early stage, China could take a lead in these areas, providing opportunities and a testing ground for multina
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