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December 10, 2018updated 27 Oct 2021 1:49pm

Is China the next great hope for the pharma industry?

Many top pharma firms have been forced to drop prices to get a slice of the Chinese market, but that hasn’t dampened spirits one bit – on the contrary, CEOs from companies like AstraZeneca and Pfizer have been celebrating dramatic Chinese sales increases in 2018. So how is China’s pharmaceutical market growing and is it really a clean bill of health for any internationals lining up to profit?

By Chris Lo

For many industries in the 21st century, it’s hard to escape the feeling that all roads lead to China. The country’s steady rise as a global economic powerhouse has seen it transform into one of the world’s foremost drivers of both production and demand, to the extent that even relatively small economic fluctuations in China can have ripple effects that are felt across sectors around the world.

As China continues its economic transition from a heavy manufacturing focus towards a more service-based model, its healthcare provision is being assigned an increasingly high priority. China’s healthcare market is experiencing double-digit growth, but the relatively low healthcare spending as a portion of GDP in China (around 6% in China, compared to a range between 10% and 17% in the US, Europe and Japan) suggests that the market is still primed for further expansion. With the healthcare market expected to reach $2tn in value by 2030, the Chinese health pie is only becoming more enticing for the companies aiming to take the largest slice possible.

“Every health sector – from pharmaceuticals to medical devices – will have more opportunities,” wrote pan-Asia professional services firm Dezan Shira & Associates in a briefing earlier this year.

In pharmaceuticals specifically, China is comfortably the second-largest national market in the world, with healthcare analytics firm Iqvia putting its value at $122.6bn in 2017 and projecting growth to as much as $175bn by 2022, as reported by CNBC. Multinational pharma firms are starting to make China a major priority for drug sales, as the potential for profit is now widely seen as a decisive counterbalance against the risks of operating under the Chinese regime.

The government’s Healthy China 2030 policy places public health at the heart of its decision-making, and the acknowledgement that foreign innovators have a large role to play in meeting the country’s health objectives is another signal that there’s never been a better time for the pharma industry to invest in China.

So what does China mean to the international pharma industry, and what opportunities and challenges are drug manufacturers encountering as they attempt to crack this lucrative market?

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Demographic changes bring opportunities

Beyond pharma regulatory reforms – on which more below – the changing health and demographics of China’s population after decades of economic growth and state-enforced limits on birth and family size are driving significant growth in the pharmaceutical market.

“China has a sizable elderly population that in increasing,” says GlobalData director of epidemiology Kasey Fu. “The population aged 65 years and older will increase from 90.6 million people in 2017 to 143 million in 2027, almost a 60% increase. Compare that to the US, where population ages 65 and older will only reach 48.9 million in 2027, you can see that just the sheer size of the elderly population is a tremendous opportunity for pharma companies.”

As the Chinese economy has developed, it has also inherited many of the public health issues that plague higher-income countries – from cardiovascular disease and hypertension to diabetes – while also dealing with a high prevalence of infectious diseases, such as tuberculosis, that typically affect emerging nations. This is alongside a high rate of smoking, especially in men.

“A study in the NEJM [New England Journal of Medicine] estimated tobacco may become the cause of death for about 33% of Chinese men in 2030,” says Fu. “This is an opportunity for both smoking cessation drugs as well as pharmaceuticals to treat tobacco-related diseases.”

Foreign firms are making big bets on China

Multinational pharma firms have been making decent returns in China for years with the sale of branded generics, but as China continues to widen the door for foreign drugmakers to get market access, the opportunities are growing in step.

One of the Chinese Government’s greatest successes since the turn of the century has been the extension of public health insurance schemes to the vast majority of the population. According to the World Health Organization, less than a third of Chinese citizens had access to health insurance at the turn of the 21st century, while today virtually the entire population is covered.

The government has insisted on significant price reductions for many drugs to consider their inclusion and reimbursement by state-funded insurance programmes, but many manufacturers are finding that lower prices are far outweighed by the volume of sales that comes from state reimbursement.

China’s hard-ball negotiations on 36 drugs such as Roche’s Avastin (bevacizumab) and Janssen’s Zytiga (abiraterone) to qualify for reimbursement in 2017 has turned out to be a win-win; while the move reduced the cost of the qualifying drugs by an average of more than 50%, saving $428m in drug spending, sales of these drugs increased by an average of 40% last year.

“Because of the high patient volume, many companies are willing to compromise on the price per patient in order to gain access to China’s pharmaceutical market,” says GlobalData director of infectious diseases Christopher J. Pace. “On the flip side, Chinese authorities recognise this and can leverage it in negotiations.”

Sales such as these, as well as the impressive growth announced this year in China by the likes of Pfizer and AstraZeneca – both of which recorded 24% year-on-year sales growth in the second quarter of this year – are spurring the industry’s optimism about the Chinese market, which is riding high according to survey data from the American and European chambers of commerce in China.    

Regulatory reform opens China to foreign innovators

On top of the epidemiological and market dynamics of China becoming more favourable for foreign drugmakers, regulatory reforms in the last few years have significantly decreased the time it takes to get a new drug approved in China, particularly if central authorities deem it essential to improve public health.

Change has been afoot in Chinese drug regulation since around August 2015, when the China State Council backed reform efforts at the Center for Drug Evaluation (CDE) and the China Food and Drug Administration (CFDA) to accelerate review timelines for investigational new drug (IND) and new drug approval (NDA) applications, cut drug lag and clear the backlog of existing applications.

Significant improvements have included a massive intake of drug reviewers at the CDE, up from 70 in 2015 to more than 800 by the end of 2017, according to a report published in the May 2018 edition of Regulatory Focus. The country has also introduced a Priority Review pathway for drugs that meet urgent unmet needs, and in October last year removed a requirement to conduct new clinical trials in China for drugs that have already been approved in other countries, which may have been the most important signal for foreign pharma firms to step up their activities in China.

“China has indeed taken steps to reform its regulatory process to be more friendly towards foreign drug developers, with a particular focus on streamlining the approval process for products that have been licensed outside China in developed market such as the US and EU,” says Pace.

“A recent example would be China’s announcement of a list of 48 drugs approved outside China for Priority Review back in August, which came only eight months after the introduction of the CDE’s Priority Review pathway. Personally, I feel that not requiring additional trials for products already approved outside China will definitely have a positive impact on the number of companies looking to enter the Chinese market, as this eliminates some of the upfront risk and investment.”

Today the fruits of this reform work are plain to see. Compare, for example, the first licensed human papillomavirus (HPV) vaccine in China, GlaxoSmithKline’s Cervarix, which was approved in 2016 a full decade after its US approval, with Merck’s Gardasil 9 HPV vaccine, which got the go-ahead from the CFDA just nine days into the review process, with overseas trial data taken into consideration.

Chinese competition and policy uncertainty remain a challenge

Of course, while regulatory reform has prompted an uptick in pharma investment in China, a number of uncertainties remain that will continue to give the industry pause. Domestic competition is a concern, especially as the country’s centralised control over drug policy and its history of protectionism and stimulation of domestic industries.

For a start, the Chinese drug manufacturing industry is growing fast on its own steam, especially in generics. The country’s drug firms won 38 generic approvals from the US Food and Drug Administration in 2017, up from 22 the year before. China’s pharma and biotech sector is one of the main focuses of President Xi Jinping’s ‘Made in China 2025’ strategy, and business is booming.

In June the Financial Times reported on the trend of executives from multinational pharma firms leaving for new positions at Chinese biotechs. Larger pharma firms such as Sino Biopharmaceutical and Jiangsu Hengrui are rapidly expanding their innovative capabilities, with Sino’s proprietary lung cancer drug Focus V (anlotinib) approved by the CFDA for third-line treatment of advanced non-small cell lung cancer this year.

Meanwhile, some regulations continue to leave pharma firms in the dark about the long-term stability of their Chinese operations. And with central authorities likely to favour domestic manufacturing over foreign competitors, Pace cites being “forced to compete against domestic firms that are given an unfair advantage by the Chinese government” as one of the key concerns for foreign companies.

“Pharmaceutical companies are still required to maintain drug import licenses in China, which need to be renewed every five years,” says Pace. “Pfizer faced this issue when its Prevenar 7 [pneumococcal 7-valent conjugate], the only pneumococcal vaccine available in China at that time, was up for license renewal in 2015. The government did not approve the renewal, resulting in Pfizer abruptly ceasing their vaccine sales in China. Pfizer did not comment on why its license was not renewed, but the Beijing-based finance magazine CaiJin reported on an anonymous source who suggested that the license was not renewed in order to give domestic pneumococcal vaccine development more time free from competition.”

While China may become the prime consideration for the pharma industry in the long-term as other markets continue to stagnate, for now the US is likely to maintain its position at the top of the pile in drug markets, not only because of the high prices achievable – the US spent $466.6bn on pharmaceuticals in 2017, to China’s $122.6bn – but also because of the relative stability of the market and its regulation.

“In the short-term, I don’t see China overtaking the US as the industry’s primary focus,” says Pace. “High drug prices help to drive investment in the US, but it is also a market with a relatively predictable regulatory environment, compared with China. Companies understand the US market, so it will take a long time for China to overtake the US.”

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