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March 1, 2019

3 Reasons Why Pharma is Heading to China

Commentary
Hanna Phelan
&



There is a modern day gold rush happening in China. The environment is prime for digital health and healthcare innovation, something pharma decision makers know well - an awareness that is now being explicitly demonstrated.

A recent World Health Organisation bulletin highlighted some of the key elements lending themselves to the innovation need and impending widespread adoption of digital:

Without optimized and innovative approaches to these demographic shifts China could be faced with a very costly and grossly overburdened healthcare system. The healthcare innovation and reform moves so far have been largely rooted in reducing fragmentation of healthcare services, decentralizing care from it’s traditionally hospital centered approach.

This week, we outline three reasons behind the growing opportunity for pharmaceutical stakeholders  , and other multinational healthcare players, to engage in the Chinese healthcare innovation push - from Big Tech buy in, startup development and policy reform, here is our take.  

1. Chinese Big Tech in Healthcare & The Pharma Opportunity

The Big Three Big Tech in China

Chinese Big Tech players Alibaba, Tencent and Baidu have been making steady moves into the healthcare space sending Pharma into a partnerships frenzy. These big tech players are naturally attractive for pharma who are now being forced to engage with their consumers like never before. With their pre-existing user pools, advanced technical capabilities, deep consumer understanding and even deeper pockets Chinese big tech are to be taken seriously - and not just within the borders of China...  

Tencent

Tencent is the conglomerate running China’s largest social network. It has reported billion users on it’s  WeChat messaging app alone, this app now sits at the epicenter of the country’s booming tech economy. We could go into great depth around the multifaceted development of cloud services, communication tools and AI systems that this giants has been developing over time but for now let's stick with a highlights reel.  

Alibaba

Alibaba is the world's largest e-commerce retailer, moving more than double the product volume of Amazon (AMZN) and eBay (EBAY) combined and has relatively recently championed health as an area of strategic interest. Here are a few examples of the Alibaba health activities:

Baidu

And finally Baidu, the dominating search engine service in China who have doubled down on their AI efforts from chatbots to advanced diagnostic support here are some of their highlights to get you upto speed:



2. The Chinese Digital Health Startup and Digital Health Solution Scene

Increased drug approvals, competing with generics and proving value to hospitals, all point to an opportunity to differentiate with the help of some of the impressive home-grown startups that have been sprouting up in China. Over the last few years, there has been a mounting presence of multinational big pharma who are launching their own innovation hubs in China in an effort to maintain engagement with local innovators and understanding on the ground stakeholders - one of the most recent additions being the 2018 launch of the Merck China Accelerator who have followed in the footsteps of Novartis, Bayer and others.

A number of key themes around startup and solution developments and partnerships have made their way to the forefront including artificial intelligence applications for drug discovery support and more, and value added services aimed at addressing the needs of population health. Some of these startups have already got their foot in the door with pharma and others will inevitably be a part of the future pharma consumer pathway.

A sample of AI Companies in China - Advanced imaging, genomics and a Unicorn
A sample of value added services for population health optimization

The above is just a brief representation of the leading edge of digital health startup evolution in China but from what we have seen so far there is a huge amount of promise for pharma and other healthcare stakeholders to learn from and engage with the technical expertise and industry know-how of these budding organisations.

3. Regulatory Reforms and Policy Buy-In

The multinational pharma sector is abuzz with the opportunity presenting itself in China due to a number of recent reforms and declarations on the commitment to healthcare innovation. The Chinese pharmaceutical market is forecast to grow at a CAGR of 5.5% between 2017 and 2022 according to a recent report from IQVIA. One area pushing this growth may be associated with increasing approvals of foreign drugs through a fast-track process. This is big as it gives multinational pharma organisations a new foothold in the region where approvals had been more laborious in the past. However, it is reported that while approximately 90% of the population is covered by public health insurance, many of the drugs produced by these incoming Big Pharma players are out of reach of this coverage for most of this population. For those who can access the drugs provided by Big Pharma there is a chance for them to prove themselves with value added services delivered digitally. While pharma have had to allocate significant discounts to make their way into the public insurance market they are willing to take the cut as many, such as Roche, are now reporting climbing profits in the region partly due to the sheer mass of patient volumes.

The Chinese Government has delineated digital efforts as key to their China 2030 plans aimed at providing more accessible and affordable healthcare to its citizens. This is of paramount importance as conditions such as diabetes flare, studies have shown increasing prevalence of diabetes in China which now has the world's largest diabetes epidemic. Roche and mySugr could be used as a good example of the opportunity in this case, particularly as mySugr are already approved for use in China which they view as a core market.

As flagged above there is a tangible link between growing affluence in China, increased lifespans and unfortunately increased chronic diseases. Public health and self-care will be very much at the core of this China 2030 healthcare push, encouraging patients and consumers to access services outside of hospitals and clinics and access support remotely in order to ease the growing HCP burden where possible. As we have seen in the US and Europe this will inevitably mean pharma providing bundles of value added services integrating digital means of patient education, electronic patient reported outcomes and beyond. One other example that could find its feet in this public health context would be the Sanofi Ventures expansion of their relationship with Click Therapeutics, who they contributed $17 Million to in a financing round last year. With a study in NEJM estimating that tobacco use may become the cause of death for about 33% of Chinese men in 2030 this would be a natural fit.

However, incoming big pharma are not alone, the generics market is also gaining speed in China with some help form China’s State Drug Administration (formerly the CFDA) who in 2018 rolled out reform which meant high quality generics would increasingly enjoy preferential treatment in public hospital and prescriptions. In addition to this there are emerging Chinese biopharma companies who are developing competitive products, particularly in the oncology and immuno-oncology space, such as Ascentage Pharma and Harbour BioMed.

Conclusion

Policy reforms, regulatory buy-in, soaring startups and booming big tech - it seems like it is prime time for pharma to set their sights on China. Here’s a quick recap:

We don’t know about you but the Chinese digital health market is something we will be watching with laser focus in 2019. Let us know what else you would like to see from our China landscape insights blogs, because this is clearly just the beginning.

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