China’s healthcare industry is now the second largest after the US and forecasters predict that China will surpass the US within three years. Pharmaceutical spending in China totalled $137bn in 2018 and will reach $140bn-$170bn by 2023, according to data provider IQVIA. As a sub-segment of the overall pharmaceutical market, biologics are booming.
There are a range of factors driving the overall growth and evolution of this dynamic market. In this blog, we’ll outline some of these growth drivers behind China’s exponential biologics growth.
By 2040, an estimated 402 million (28% of the Chinese population) people will be over the age of 60. This huge demographic shift, and the expected increase in age related illnesses, will present a challenge to the healthcare system and the ability of the Chinese healthcare system to provide equality in access to care. The biopharmaceutical industry has been gearing up for this challenge for sometime now.
Made in China 2025
The Chinese Government is making a major push towards self-reliance and growing the biopharmaceuticals industry is one of the country’s national priorities. The Made in China strategy has increased investment in smart manufacturing, industrial IoT and cloud platforms.
The Government has supported the development of science parks, hubs for innovation and invested in centres of excellence including the Institute of Synthetic Biology in Shenzhen and the Beijing Genomics Institute (BGI). Today, there are approximately 600 biotech science parks driving the innovation agenda.
In addition to investment, the Government has actively moved to streamline the drug approval process. In 2011, it took 31 months to get a clinical trial application approved in China; in 2018 it took just two months according to BCG consulting.
In 2017, the Government enacted the National Reimbursement Drug list (NRDL). The number of biologics drugs on this list is increasing and now includes multiple mAbs, especially for cancer treatment. International (and local) companies can dramatically increase the penetration for their drugs through inclusion on this list. To be included on the list, the Government will also stipulate a maximum price for the drug. This price cap, and the subsequent margin erosion, may be a deterrent for many firms but the market share gains typically outweigh the downsides.
Moving on from ‘me too’
The initial focus for China’s biopharmaceuticals market was on biosimilars and on rapidly developing alternatives to patented biologics drugs. China’s biosimilars market continues to grow exponentially with the sector valued at $2.45 billion in 2019 (Forst & Sullivan). The landscape today has changed however, with a major focus now on developing ‘new to world’ biologics drugs.
Indigenous innovation, encouraged by Government policy and turbo-charged with nearly $15 billion in private investment in 2019, has led to a vibrant start-up ecosystem. Local companies such as Wuxi and CStone pharmaceuticals and smaller start-ups now have the confidence and plans to become world-beaters. Today, we see the rapid international expansion of Chinese pharmaceutical companies like the aforementioned Wuxi.
Despite trade tensions between China and the US, investments and partnerships continue to be forged between Multi-National Corporations (MNCs) and indigenous firms. Collaborations take may forms and include clinical trials, development and commercialisation. In 2020, Pfizer paid $200 million for a 9.9% share of Hong-Kong listed CStone and a further $280 million for the exclusive licence to commercialise CStone’s cancer treatment drug Sugemalimab.
Also in 2020, Eli Lilly agreed a $255m deal with Shanghai-listed biotechnology business Junshi Biosciences to collaborate on a Covid-19 antibody treatment and Sanofi have formed a partnership with JHL Biotech.
All roads lead to China?
Almost all businesses involved in the biotechnology ecosystem must invest time and resources in assessing the Chinese opportunity. The market is too large and dynamic to ignore. There are a wide number of challenges to navigate however, some of which we will briefly touch on here:
Intellectual property protection:
The perceived lack of protection for brand and technology IP has always been problematic for MNCs. Many MNCs were of the view that local Chinese players could copy and replicate products and technology and face little rebuke from Government authorities. The current reality is that IP protection has been significantly strengthened since changes to the law in 2020. Enforcement remains the on-going challenge however and companies entering China must ensure that their IP is registered and protected within the market.
Selecting a partner to distribute your products or technology can be fraught with challenges. Do they have relationships with the right end-client? What is the technical competence of their team? Will your products receive the attention it needs among the plethora of other products the distributor manages? These questions are typical concerns for any distributor assessment but in China, suppliers or MNCs must also include the sheer scale of China where ‘Tier 2’ cities have populations of between 3 and 15 million people.
Prior to Covid-19, if a supplier or MNC did not have a local office, in-market visits would typically be scheduled once a quarter. Even with this frequency, there is a major challenge to ‘understand’ the market and end clients needs. Today, Covid-19 has at least temporarily, required a complete re-think on how markets and partners must be managed. A supplier into China must place their trust in their distribution or brand partner. Frequent calls with clear KPIs and progress reports will build trust and customer demonstrations can be facilitated via Zoom or Microsoft teams.
China is among our most exciting market opportunities, there is so much more we can achieve. Our relationship with our in-market distributor continues to build and their national distribution is yielding positive sales results. For now, we’ll continue to drive momentum by offering support remotely, but when the Chinese Government begins to loosen travel restrictions, we’ll be joining the queue to get back in the field.