China pharma dynamics

1
China pharma dynamics
PURSUING GROWTH IN A CHALLENGING ENVIRONMENT
RAYMOND HILL General Manager, IMS
Consulting PBIRG Annual General Meeting 7 May
2007
2
Agenda

• Market dynamics and challenges
• Overview of healthcare reform
• Key success factors for the next five years in
  China

3
The global pharma market will grow 5-6 to over
670bn in 2007
Global sales and growth 2003-2007
Source IMS Market Prognosis International, Mar
2007
4
By 2010, China will be the sixth largest
pharmaceutical market
Estimated market size for ethical and OTC drug at
ex-factory level, using variable exchange rate
excluding TCM (US Billions)
1997 Top 13
2006 Top 9
2010 Top 6
2000 Top 11
1. US 152 2. Japan 59 3. Germany 17 4.
France 16 5. UK 11 6. Italy 11 7. Spain
7.2 8. Brazil 6.7 9. Canada 6.6 10.
Mexico 6.4 11. China 5.0

• 1. US 103
• 2. Japan 47
• 3. Germany 18
• 4. France 17
• 5. Italy 10
• 6. UK 9.4
• 7. Brazil 9.3
• 8. Spain 5.7
• Canada 5.1
• India 4.2
• 11. Korea 4.1
• 12. Argentina 3.8
• 13 . China 3.7

• US 330-380
• Japan 67-77
• France 37-43
• Germany 37-43
• UK 25-29
• China 22-25

• US 275
• Japan 64
• France 34
• Germany 32
• Italy 21
• UK 21
• Spain 16
• Canada 16
• China 13

China CAGR 06-10 12-15
Source IMS Health Forecast updated as Sep 2006
5
Several macro-economic and social changes will
fuel growth
Robust GDP growth of 8-9 in the next 5 years
Rapidly ageing population 111 mn of 65 by 2010
Accelerated urbanization from 40 in 2005 to 60
in 2030
Growing incidence of chronic disease such as
diabetes
Changing consumer preferences and higher levels
of self-medication
6
GDP increase is a primary driver of growth
GDP per capita is a good predictor of healthcare
spend
Source WHO
7
Long-term forecasts predict China to surpass US
GDP by 2040
GDP FORECAST (USBN CONST)
2030
GDP USBN (CONST)
Source Economist Intelligence Unit, Goldman
Sachs, Global Economics Paper No. 99 Dreaming
with BRICs The Path to 2050 Oct 2003
8
Growth prospects have driven competitors to step
up their commitment to China
9
Companies are testing several business models to
drive growth in the next few years

• Government partnerships
• Low price, high volume strategies with government
  PR authorities to obtain immediate NRL
• Leveraging low value assets to enhance
  positioning

• Aggressive investment in disease awareness
• Invest at national/provincial level in disease
  awareness, early diagnosis and treatment
  guidelines
• Partner with medical associations, diagnostic
  suppliers and patient groups to capture growing
  patient base

• Rapidly grow the sales force
• Aggressive expansion of sales force
• Go from Tier 2 to Tier 3 and rural penetration

• Targeting new channels
• Profiling and targeting of retail pharmacies
  using similar rigor to that applied to hospitals
• Private clinics and hypermarkets
• National distributor and retail chains

• Peer to peer selling
• Implement a medical liaison program to encourage
  peer to peer selling
• Use KOLs in Tier 1 cities to drive uptake in Tier
  2 cities

10
Chronic diseases like diabetes are major
opportunities, forecast to reach 700mn by 2010
China diabetic market forecast
CAGR 07-10 18
CAGR 02-06 19
11
There has been a marked range in multinational
performance in China
The performance of top 10 MNCs in China market
12
Agenda

• Market dynamics and challenges
• Overview of healthcare reform
• Key success factors for the next five years in
  China

13
The Chinese healthcare reform agenda

• Clearly identified by central leadership as a
  pillar in building a harmonious society
• Affirm the public-good nature of healthcare and
  the governments financial and moral obligation
  to promote a just and equitable healthcare system
• Likely focus on the following areas
• Continuing high level investment in building the
  infrastructure to bridge the urban-rural divide
• Universal access to basic healthcare services
• Multi-tiered funding mechanism combining
  tax-based government fund, social insurance and
  private insurance
• Essential drugs and services list development
• Healthcare delivery system reform
• More transparent and efficient regulatory schemes
  and policies
• Better hospital mission clarification and
  management
• Separation of prescribing and dispensing
• Reduce inefficiencies in the supply channel

14
Healthcare reforms present opportunities for
innovative companies
Healthcare reforms
Opportunities for MNCs

• Funding increase will help fuel the market
  growth. Companies with the right portfolios will
  gain market share
• Portfolio strategy vis-à-vis payer structure
• Companies who are able to foster relationships
  and shape development with private insurance
  companies will prosper
• Favoured cheap local generics companies in the
  short term
• Innovative model to address the issue of bottom
  of the pyramid access differential pricing in
  Philippines

• Significant funding moves
• Expanding urban healthcare insurance
• Accelerate rural insurance coverage
• Universal basic healthcare provision
• Additional health funding sources, such as
  private insurance to emerge
• Development of community hospitals as primary
  care healthcare providers and emergence of a GP
  sector

15
Healthcare reforms present opportunities for
innovative companies
Healthcare reforms
Opportunities for MNCs

• Transforming large hospitals to medical centers
  for specialty care focusing on severe disease
  management
• Separation of prescribing and dispensing to come
  in the next 5 years
• More transparency in pricing reimbursement but
  closer scrutiny on drug prices by government

• Create opportunities for innovative drugs and
  companies who focus on disease management
• Creation of new sales interaction model with
  physicians, hospitals pharmacies
• First mover on value-based medicine

16
Agenda

• Market dynamics and challenges
• Overview of healthcare reform
• Key success factors for the next five years in
  China

17
Four Ps drive success in China
1. Picking the right portfolio
3. Price and policy advocacy
2. Penetrating the right cities and institutions
4. People, Leadership and Execution
18
1. To be on top, you need to be a dominant
player in a number of therapy areas
Market Share Rank of company in TC
Product exists in companys portfolio
19
1. Launch success is possible in China even with
all the complexities and challenges
Key Successful Factors for the success

• Pre-launch marketing
• Reasonable investment
• Pricing reimbursement strategy
• Segmentation targeting
• Single line team promotion
• Patient compliance
• Quarterly tracking

Source IMS CHPA 4Q06
20
2. City tier penetration 120 cities needed to
target 80 of the hospital market
of market value
of cities
21
2. Growth is beyond Tier 1 cities. Tier II
cities doubled in the past 4 years
Indexed sales of Tier 1 cities
Indexed sales of larger Tier 2 cities
Indexed sales of smaller Tier 2 cities
Source IMS CHPA 4Q06
22
2. Focusing on the right hospitals in cities is
key to defensible growth
23
3. Pricing and market access strategies for China

• Registration and listing under favorable
  conditions are a must for success. This has
  become a core competency for a successful
  company. However, the advocacy needs to be
  elevated to a much higher level
• Focus on overall healthcare quality and not
  exclusively on price evidence and valued based
  pricing i.e. compliance in CV
• As a defensive measure, companies must be on the
  leading edge of outcome-based health economics
• A healthy and innovation-driven pharmaceutical
  industry is important to China and her citizens.
  A strong advocacy must be made to strengthen the
  healthcare funding to ensure the industrys
  sustainable growth potential
• Help the government address major systemic issues
  such as
• Private payer structure
• Separation of prescribing and dispensing
• Improving regulatory efficiency and transparency
• Public health threats
• Access to healthcare at the Bottom of the Pyramid

24
3. CellCept is an example of a high-priced/high
value product driving market penetration
CellCepts fast growth resulted from substantial
investments

• Increased promotional coverage sales reps reach
  every transplant surgeon in China
• Strong physician relationships. Highly involved
  in CME (including educational trips)
• RD Center - Roche located its 5th Global RD
  Center in Shanghai
• Developing new indications with Aspreva
• Achieved highest overall price in an expensive
  and competitive categoryPrograf is a formidable
  competitor investing heavily in new indications
  (cirrhosis)

CELLCEPT (RS)
25
3. Glivec also demonstrates how high cost drugs
can be successful in China
COST (US)
EX-FACTORY SALES IN 2005 (US MN)
At 3X times the treatment costs Glivec generates
comparable sales as Iressa with 1/3 the patients
Increasing Treatment Cost
Source IMS primary research, IMS China Hospital
Audit 2005, US Redbook 2005 AWP prices
Retail sales is calculated from distribution
mark-up (56) to align with retail treatment
price to patient Sales for CML only
26
4. Proper execution and leadership is where it
all comes together

• The single biggest challenge in China is
  execution
• The challenge of running a business without the
  associated experience that is present in other
  large markets
• High level of turnover in the sales force
• Challenge in getting and keeping talent
• Many companies are struggling with building a
  profitable and reputable industry in a complex
  market. What is their raison detre?

27
Thank you
RHill_at_imshealth.com