Contemporary Trends and Developments in the Chinese Pharma Industry and Market 2012/2013 James Shen

Transcription

1 Contemporary Trends and Developments in the Chinese Pharma Industry and Market 2012/2013 James Shen Publisher and Chief Editor, Pharma China President, WiCON International Group LLC

2 Hot Topics: Market Overview Industry Structure and Performance Broad Business Trends in 2012/2013 Developments in Drug Regulation Healthcare Reform Intellectual Property and Legal Issues Contemporary Issues and Opportunities Outlook and High Growth Spots

3 Market Overview

4 The Chinese Pharmaceutical Market Drug Market Size CNY bln 16.72% 17.31% 18.23% 16.52% 15.50% 13.36% 13.80% 13.52% 13.77% % % % E 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Sales Value Growth +/- (%) Source: SMEI Note: Market size at retail price level and covers Western medicines, formulated TCMs, biological & biochemical drugs and herbal preparations

5 The Chinese Pharmaceutical Market SMEI Estimate: Chinese drug market was up 20% to CNY 1,093.1B (US$174B) in 2012 including: Hospital market +21.0% (IMS) Retail pharmacy +10.0% (CMH) Market growth expected to be slower to 15%-20% in the next five years Drug Market Size Unit: CNY billion Retail Pharmacy 19% rd Terminal 19% Hospital 62% Note: Market size at retail price level and covers Western medicines, formulated TCMs, biological & biochemical drugs and crude drugs Overall Drug Hospital Retail 3rd Terminal Source: CMH

6 The Chinese Pharmaceutical Market Chinese Hospital Market Growth , , , , , , , ,000 50, Value CNY Mln 151, , , , , ,000 Growth 25.2% 34.3% 26.1% 21.90% 17.10% 21.00% 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Hospital market with over 100 beds Source: IMS

7 General Overview The Chinese Pharmaceutical Market Chinese Hospital Market Shares Annual Growth MNC Share Local Share 33% 26% 22% 17% 21% 25% 26% 74% 26% 74% 26% 74% 26% 74% 75% Source: IMS

8 The Chinese Pharmaceutical Market Retail Market Size % Retail Pharmacy Sales (CNY billion) Growth % % % % % 30.00% % 20.10% % 17.70% % 15.90% 14.83% 14.30% 14.19% 1, % % % 20.00% 10.00% * 2012E* 2019E 0.00% Source: SMEI * CMH

9 The Chinese Pharmaceutical Market Online B2C Retail Drug Sales 16,000 15, , , ,000 8,000 6, , ,000 1, E Value CNY Mln 400 1,665 15,000 Annual Growth % 108.8% 0 Source: COPS

10 The Chinese Pharmaceutical Market OTC Market Size Chinese OTC drug market rose 8.4% to US$16.0B in 2011 and 7.4% in 2012 (NH) Includes sales in all retail channels, prescription sales of OTC-registered brands plus packaged herbal medicines (including branded TCMs) at ex-manufacturer price (NH) Share of medical institutions and retail channels in OTC drug sales: 41% vs. 59% (2011)(SMEI) US$ millon Chinese OTC Drug Market % 7.7% % % % Source: Nicholas Hall 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

11 The Chinese Pharmaceutical Market Composition of Retail Pharmacy Drug Related Sales in China Since % 90% 80% 5.02% 5.44% 6.11% 6.85% 7.31% 6.10% 6.07% 6.40% 5.37% 5.42% 6.10% 6.66% 6.90% 7.58% 8.06% 8.40% 5.36% 4.48% 4.87% 4.68% 4.88% 5.07% 4.63% 4.50% 11.28% 10.17% 9.85% 9.93% 9.81% 9.25% 8.76% 8.80% 70% 60% 50% 32.26% 33.77% 32.33% 30.56% 29.74% 29.60% 28.01% 27.50% 40% 30% 20% 40.71% 40.72% 40.74% 41.32% 41.36% 42.40% 44.47% 44.30% 10% 0% Others Crude Drugs Medical Devices Health Foods TCMs Chemical Drugs Source: SMEI

12 The Chinese Pharmaceutical Market Chinese 3 rd Terminal Drug Market Share Estimate * % Market Share 26.80% 25.00% CNY billion 12.52% 18.70% 19.05% 16.42% 17.17% 16.40% 20.00% 15.00% 10.00% 5.00% * Third terminal market includes drug sales through THCs, CHCs, village clinics, private clinics, rural pharmacies, etc. Source: SMEI (2011 growth figure is from CMH) 0.00%

13 The Chinese Pharmaceutical Market Drug Consumption by THCs and CHCs in China THC = Township health centers CHC = Community health centers Source: SMEI/MOH

14 The Chinese Pharmaceutical Market Drug Consumption by Chinese Primary Medical Sector Source: SMEI/MOH

15 Industry Structure and Performance

16 The Chinese Pharmaceutical Industry Rising Revenues of the Chinese Pharma Industry CNY bln 21.82% 15.14% % % % % % 24.50% % % % % % 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% -5.00% Source: SMEI

17 The Chinese Pharmaceutical Industry Sales Revenues of Six Chinese Pharma Sub-sectors 2012 CNY bln % % 18.8% 21.4% 21.4% 24.2% 25.0% 20.0% % % % % % % 0 APIs Pharma Formulations Biologicals Medical Devices Formulated TCMs Crude Drugs -10.0% Sales Revenues (CNY bln) Growth (%) Source: SMEI

18 The Chinese Pharmaceutical Industry Chinese Pharma Industry Net Profit in CNY bln % 60.0% 50.0% % % % % % % 40.0% 30.0% 20.0% 10.0% 0.0% Net Profit (CNY bln) Growth (%) -10.0% Source: SMEI

19 The Chinese Pharmaceutical Industry Sales Margin Trend of the Chinese Pharma Industry % 14.00% 12.00% Sales Margins 10.00% 8.00% 6.00% 4.00% Pharm Formulations % 10.00% 9.40% 8.20% 10.20% 11.10% 10.29% 11.50% 11.20% 11.10% APIs % 5.50% 5.50% 5.80% 7.20% 8.47% 8.31% 8.07% 8.70% 7.40% Biologicals % 11.60% 10.60% 12.40% 12.51% 13.82% 14.49% 13.80% 13.00% Formulated TCMs 10.60% 10.70% 10.60% 10.20% 9.20% 11.70% 10.22% 10.65% 10.40% 11.60% 10.70% Overall Pharma 6.20% 8.17% 8.75% 8.37% 8.00% 9.83% 10.69% 11.03% 10.40% 10.43% 10.20% Source: SMEI

20 The Chinese Pharmaceutical Industry Revenue and Profit Composition of the Chinese Pharma 2012 Revenue* Net Pretax Profit Medical Devices, 8.6% Others, 6.29% Medical Devices, 9.3% Others, 6.5% Crude Drugs, 5.6% APIs, 18.1% Crude Drugs, 3.9% APIs, 13.3% Formulated TCMs, 22.7% Pharma Formulations, 27.9% Formulated TCMs, 23.9% Biological Products, 10.2% Biological Products, 12.6% Pharma Formulations 30.5% Source: SMEI

21 The Chinese Pharmaceutical Industry Net ProfitabilityTrend of the Chinese Pharma Industry % Net Pretax Margins 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% * ** Pharm Formulations 0.00% 8.40% 9.90% 10.00% 9.40% 8.20% 10.20% 11.10% 10.29% 11.50% 10.78% 10.72% APIs 0.00% 5.40% 7.10% 5.50% 5.50% 5.80% 7.20% 8.47% 8.31% 8.07% 8.13% 6.91% Biologicals 0.00% 0.00% 11.10% 10.10% 11.60% 10.60% 12.40% 12.51% 13.82% 14.49% 13.64% 12.87% Formulated TCMs 10.60% 10.70% 11.10% 10.60% 10.20% 9.20% 11.70% 10.22% 10.65% 10.40% 11.02% 10.20% Overall Pharma 6.20% 8.17% 9.31% 8.75% 8.37% 8.00% 9.83% 10.69% 11.03% 10.40% 10.29% 9.80% Source: SMEI/NBS (* Months 1-11, 2010; ** Months 1-10, 2012)

22 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 The Chinese Pharmaceutical Industry Import and Export (Medicines & Health Products) Export (US$ mln) Import (US$ mln) 47,600 44,516 39,733 31,970 32,910 33,350 24,590 28,768 19,670 16,720 20,236 20,464 13,800 11,840 11,060 14,000 7,370 5, Source: SMEI/Chinese Customs Sustained trade growth: 7% and 16% Drug formulations led growth: 18% and 24% API slows: export and +3% Biochemicals/biologicals: export -2% and import +34%

23 Broad Business Trends

24 The Chinese Pharmaceutical Industry Broad Business Trends Pharma industry and market growth slows in 2012, as broad economy weakens further and uncertainties grow. Output value and revenue growth were off 8.15 and percentage points In the China healthcare space, the divine 7.5% GDP growth may be the defining line to sustain growth at the same level last year. Cost/revenue ratio of the Chinese pharma industry remains high at above 70%, sales and marketing expenditures rose fast and net profit margins continued to fall. Hospital market growth recovers, while OTC/retail pharmacy market growth dip. Online retail (B2C) drug sales took off. Leading players continued to reposition themselves through M&As, diversification drives, alliances and partnerships, and capacity building for both manufacturing and R&D. Recent price cuts targeted originator drugs and affected bottom lines of MNCs in China.

25 The Chinese Pharmaceutical Industry MNCs remain committed to China RDPAC/PhRMA pleaded for a better drug innovation environment. Planned R&D annual investment of RDPAC members account for >50% of 2010 China's large and mid-size pharma industry R&D spend. During 2012, MNCs engaged in a variety of strategies, including strengthening local R&D and product launch; business diversification into vaccines, generic drugs and consumer healthcare; geographic expansion into lower tier markets; restructure of their business organizations; co-marketing and M&As in order to maintain high growth in China. Joint venture continued to be a preferred route to diversification MNCs face challenges in healthcare reform despite lobbying efforts pricing, reimbursement, essential drugs, etc. Cross-border licensing and R&D partnerships continue to uptick MNCs continued to underperformed domestic companies on the hospital market.

26 The Chinese Pharmaceutical Industry M&A space keeps heating up Pharma China recorded 38 major M&A deals in 2012 including 18 between Chinese and foreign companies, up slightly yoy. The Chinese government continued to push forward its never-ending dream of "industrial giants, thus spurring industry consolidation, especially among state-owned companies. Government issued a joint notice containing seven new measures designed to push forward implementation of the 2010 GMP and to eliminate outdated production capacities. Large private companies (e.g. Fosun and Kelun) were also active M&A players last year, as MNCs spend record amounts for M&A in emerging markets including China (but they executed more JV deals). Chinese pharma cos began to buy up or acquiring a stakes in foreign drug firms for intl market access or as a part of R&D partnerships. The trend is led by mid-size domestic players, but large conglomerates like SinoPharma and Shanghai Pharma are all planning their own moves.

27 The Chinese Pharmaceutical Industry Cross-border licensing and R&D partnerships on the rise Pharma China recorded a total of 30 Sino-foreign and foreignforeign China-related licensing deals in 2012, up from 22 in PhRMA expects R&D cooperation between its member companies and Chinese counterparts to increase in the coming years. Nig pharma companies, including Sanofi, J&J, AstraZeneca, Bayer, Novo Nordisk, GSK, Eli Lilly and Takeda, made plans for or executed R&D expansion projects or reached major partnership deals last year. There were also a total of 29 contract research/collaborative R&D deals recorded last year, up slightly from 23 such transactions in Among the total, 25 were between domestic Chinese and foreign companies.

28 Intellectual Property / Legal Issues

29 Intellectual Property / Legal Issues Old dilemmas Patent linkage Patent term restoration Data exclusivity Delays in approving innovative drug products Poor enforcements and penalties fail to deter crimes Rampant counterfeit drugs Growing liabilities and legal risks following introduction of the Tort Law and other measures designed to protect patients. Physician incentives, commercial bribery and FCPA compliance issues Led by local governments like Shenzhen, China steps up efforts to crackdown on corruption in the healthcare sector

30 Developments in Drug Regulation 2011/2012

31 Looming government reorganization Merger of MOH and NFPC into NHFPC Responsibilities include 1) overall resource allocation planning for healthcare and family planning services; 2) organization and development of the national essential drug system; 3) formulation of the family planning policies; 4) regulation of public health and medical services; and 5) administration of family planning services. The existing functions of the NFPC for population-related strategic development, planning and policies will be moved to the NDRC. Governs State Administration of Traditional Chinese Medicine Expanded and upgrade CFDA Developments in Drug Regulation Spin off from MOH Responsible for overall and uniform regulation of food and drug quality, safety and efficacy in the country. Expanded food regulatory role/taking over relevant departments from various agencies

32 Developments in Drug Regulation Drug safety/quality remains a top priority New plan for bioequivalence study on all generic drugs (starting with essential drugs) Central government agencies issued joint notice to encourage cgmp and drug innovation MOH issues new regulation on antibiotic use, while SFDA and other agencies introduced new regulations on electronic regulation of drugs, credit rating/blacklisting, management of pharmaceutical excipients and rules for OTC switches. OTC advertising regulation may be revised to ban advertising on mass media SFDA stepped up efforts to improve drug evaluation/approval efficiency A new policy was introduced to improve drug registration regime and support innovation CDE introduced various rules to streamline the drug evaluation process Delegation of certain responsibilities to local drug administrative agencies the experiment is ongoing in Guangdong province Human resources for drug evaluation may be boosted soon. While the overall drug price reform is paused, NDRC resorted to more price cuts Recent cuts target high prices of off-patent originator drugs. The cut in January 2013 completes the latest round of price cut on all Western medicines and TCMs are likely to be the target next. Pricing preference to be offered to first-to-copy generic drugs and those produced under cgmp NDRC may have revived its plan to strengthen government grip on drug distribution margins NDRC supported experiment of differential pricing was modified and continued in Guangdong.

33 Developments in Drug Regulation New regulations on the horizon Provisions for Drug Prices (postponed) Interim Rules for Control of Drug Pricing in the Distribution Process (postponed) Three stem cell research regulations SFDA guidelines for biosimilar drugs The Provisions for Drug Standards The Provisions for Supervision of Drug Clinical Research Guidelines for Research of New Natural Medicines Rules for Food and Drug Safety Interviews Administrative Measures for the Inspection of Overseas Drug Manufacturers and the Notice on Issues Related to Electronic Regulation of Imported Drugs Provisions for Drug Distribution Licenses The new edition of the Provisions for Evaluation of Drug Advertisements Guidelines for Prevention and Control of Corruption Risks in Public Hospitals Basic Medical Insurance Rules and Basic Healthcare Law of PRC Fourth Amendment to the Chinese Patent Law

34 Developments in Drug Regulation Draft of Rules for Control of Drug Pricing in the Distribution Process Original target date for introduction of the regulation is July 1, It regulates and sets drug sales margins in the drug wholesale distribution process and the medical institution sales process Higher margins allowed for low-priced products and lower margins for highpriced products Postponed!!! Draft of Provisions for Drug Prices (2 nd draft issued in late 2010) Combining government regulation and market mechanism Supporting both innovation and essential drugs Integrating cost-basis and efficacy evaluation in drug price-setting; Strengthening price regulation in the distribution process Exploring uniform pricing for some product groups Eliminating innovative category but keeping individual pricing Consideration of pharmaco-economics in price-setting More price cuts on formulated TCMs anticipated

35 Developments in Drug Regulation Draft of Provisions for Drug Prices Qualified drug products for individual pricing include: Patented drugs and TCMs with state secretive recipes First-to-copy generic drugs Drugs with higher quality certified by the national drug regulatory authority or other designated institutions Formulated TCMs with higher quality which are certified by the national drug regulatory authority Drug products with national level awards from the State Council Drugs produced in China but exported to international mainstream markets Government sets differential expenditure, sales and distribution margins for different categories of products Drug prices are reviewed every two to three years with no less than 6% cut for patented drugs and no less than 15% cut for off patent drugs

36 Healthcare Reform in 2011/2012

37 Healthcare Reform Growth of Healthcare Expenditures in China Since CNY bln 30.00% 25.59% % % 15.28% 13.71% 14.09% 13.67% % % % 11.75% 25.00% 20.00% 15.00% 10.00% 5.00% E Sales Value +/- (%) 0.00% Source: SMEI Note: Share of healthcare expenditures in GDP recovered to 5.10% in 2011 from 4.98% in Government plans to raise it to 6.5%-7.0% by The share of drugs in medical expenditures per outpatient visit and inpatient fell to 51.5% and 42.0% in 2011 from 52.2% and 43.4% in 2010.

38 Healthcare Reform Growth of Per Capita Healthcare Expenditures in China CNY 6.0% 6.2% 6.4% % % % 8.2% % % 10.7% % % Source: SMEI PC Health Expenditure % in disposal income

39 Healthcare Reform Healthcare Spending by Funding Source (CNY bln) ,454 1,998 36% 25% 15% 15% 17% 18% 25% 29% 26% 27% 29% 33% 39% 35% 36% 43% 21% 36% 59% 58% 54% 49% 40% 35% Gov't Spending Social Spending Personal Spending Source: MOH Statistical Yearbook 2010

40 Healthcare Reform New healthcare reform plan approved in 01/2009 Experiments to replace arguments Strengthened government leadership and funding Reduced personal burden for healthcare Universal basic medical insurance by end of 2011 Improve medical access and affordability in rural areas Healthcare financing / public hospital system reform Essential drug system and list Strengthening primary healthcare institutions in urban communities and rural areas Separating hospitals from drug sales Drug pricing reform CNY 850 bln government funding for reform , which was directed primarily at rural areas and community healthcare

41 Healthcare Reform Reform progress in 2012/2013: Universal basic medical insurance and broader BMI coverage/reimbursement Slow but growing government share (28.6%) in total healthcare expenditures, while that of out of pocket expenditures dropped considerably to 35.5% Rapid growth of healthcare expenditures contained successfully Public hospital reform trials in 17 national and 31 provincial level trial cities Implementation of the essential drug system in primary healthcare and county hospitals BMI payment/reimbursement reform on the forefront (e.g. new payment schemes, clinical pathway, DRGs, hospital formulary) New policy on major medical coverage by NRCMS and urban resident BMI New policy on overall cap BMI healthcare expenditures But reform lost steam and direction on many fronts, including: Drug pricing Tender purchase system of medical institutions Various essential drug policies/nedl/local EDL issues Public hospital reform/revamp of financial model/separating medicine from drug sales Combating widespread corruption in drug sales No progress on the front of negotiation mechanism under NDRL Under government funding of healthcare reform

42 Healthcare Reform Local healthcare reform implementations Reform progress and policies vary in different provinces Many local governments plan to introduce zero drug sales margin experiment in hospitals Fiscal affordability and government funding remain a central issue at the local level Local essential drug supplements vary dependent on local economic situations Some local governments eye the drug exchange model of Chongqing as a way to reform the existing drug purchase tender system BMI reimbursement of expensive new drugs through negotiation began in Jiangsu and Zhejiang Future direction Rising government healthcare investment/expanded BMI coverage/major medical coverage Government subsidy of BMI to reach CNY 360 per capita in 2015 from CNY 200 in Expanding NEDL for both primary healthcare and medical institutions new edition issued in March with vague and flexible requirements on inventory/use of essential drugs in all hospitals Public hospital reform refocused on county level hospitals and to be expanded Separating medicine from drug sales = BMI payment/reimbursement system reform + zero drug sales margin + adjustment of medical service prices? Improving hospital tender purchase system: balancing quality or price or drug exchange model Commercial health insurance involvement/private investment in medical sector encouraged

43 Contemporary Trends and Issues

44 Contemporary Issues and Opportunities Continued contradictions in government policies Healthcare reform will create temporary turbulences but hopefully long term stability for the pharma industry Healthcare reform will present opportunities in generics, rural & community healthcare markets and vaccines, but will trigger fundamental changes in market dynamics and the way how businesses are done now Traditional Chinese medicines blessed by the government and stronger in certain therapeutic areas Future of OTC/retail pharmacy drug market uncertain under healthcare reform. Different approaches by MOFCOM and MOH. Existing healthcare reform is excessively dependent on cost containment Reform failed to boost visits to primary healthcare facilities as planned Renewed drug quality/safety issues despite higher standards

45 Contemporary Issues and Opportunities Irrational cost containment and BMI payment system reform may lead to fallen healthcare quality Opening up medical sector and BMI system to private and foreign capital and participation of more global IT players leaders will facilitate faster transformation of the Chinese healthcare system. Drug pricing issues are likely to hurt MNC prospects Essential drugs and CHCs a pie in the sky for MNCs? New GMP/Drug Safety FYP/Bioequivalence Plan presents opportunities it will push out irregular players and align cost structures of MNCs & local players Product registration regime is becoming more favorable for innovative or R&Dbased companies. New policies to deepen reform of its drug evaluation system in order to increase review efficiency, strengthen support for innovation and raise quality of generic drugs. Continued pharma industry consolidation and government support of large state-owned enterprises

46 Market Outlook and High Growth Spots

47 Market Forecasts Share of health expenditures in China's GDP will reach 6.5%-7.0% by 2020 from 5.1% in 2011 (MOH), but China's health protection gap could hit US$12.2 billion in 2014 and may further widen to US$73 billion in 2020 (Swiss Re) Commonly agreed - Chinese pharma to grow continuously but slower in the next five years (at least 15%-20% CAGR) Pharma output value growth (SMEI) around 20% CAGR between 2011 and 2019 and 20.45% for 2013 to CNY 2,270 billion Chinese pharma market to grow at an average annual rate of 12% to CNY 2.3 trillion (US$369.2 billion) by 2020 (CASS) 19% annual pharmaceutical market growth in China is projected between 2009 and 2016 due mostly to rising incomes and an ageing population (EIU). Strong but modest growth between 2011 and 2015 at around 15%. But the CAGR of patented drug sales in China will sustain at 25% in the next five years (Deloitte) Hospital market grow by 15% to 18% annually to between US$155 billion and US$165 billion by 2016 (IMS) and that for county level hospitals to reach CNY 280 billion by 2015 (BCG ) Online drug retail sales to take off and reach CNY 15 bln from CNY 1.7 bln in 2012 Sales of OTC medicines will hit US$22bn in 2017 vs. US$11bn in 2010 (McKinsey) >15% growth for urban Chinese retail pharmacy market in next few years (IMS) The Chinese market for type I vaccines and type II vaccines will rise at compound annual growth rates (CAGR) of 15% and 20% respectively in the next few years, reaching CNY 10 billion and CNY 23 billion annual by 2014.

48 Market Outlook: Drivers and Risks Growth Drivers Aging population, rising demands and healthcare system transformation Expanding government investment into healthcare Chinese government remains committed to an R&D-based drug industry Continued industry consolidation may lead to higher market shares and profitability of larger companies Higher regulatory standards for drug manufacturing, safety and quality New product launches, M&As and diversifications of drug companies Risk factors Continued uncertainties in Chinese and global economy Instabilities and turbulences caused by healthcare reform experiments and regulatory/policy swings, and overemphasis on cost containment Business environment not yet sufficiently favorable for drug innovation Drug pricing uncertainties may affect bottom lines of MNCs More sophisticated government cost containment measures Government favor of large state-owned enterprises

49 High Growth Spots Potentially High Growth Market Segments: Chronic diseases: oncology, diabetes, cardiovascular, etc. Vaccines (both preventative and therapeutic) and biopharmaceuticals High quality generics and biosimilars OTC medicines and consumer healthcare Orphan and pediatric drugs Online retail (B2C) drug sales Innovative drugs targeting the Chinese and Asian population Strategic Opportunity Areas: China as a global R&D center China as a part of global supply chain New drug leads and R&D partnership/licensing opportunities Finding new drug leads from traditional Chinese medicines

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