Despite the impact of the COVID-19 pandemic and the vagaries of the country’s restrictive ‘dynamic zero COVID’ policy, the Chinese pharmaceutical industry is expected to continue its remarkable trajectory up to 2025 with annual growth of 9.4 percent. Read on for five key trends to watch out for in the world’s second largest market.
Chinese Firms Stepping up Global Ambitions
Chinese and China-originated biotech companies are taking on an increasingly global role, as they look to emulate the success of Western pharma multinationals. A recent McKinsey study observes that biopharmas originating in China will likely have greater influence on the global industry by 2028 but cautions that regulatory developments and the quality of partnerships that are struck will determine their overall impact.
Notable Chinese firms that have expanded their international footprint in recent years include WuXi AppTec, an R&D and manufacturing service provider with wide-ranging operations across Asia, Europe, and North America, BeiGene, a commercial-stage biotech with a sizeable presence in the US and Europe, Legend Biotech, which recently signed a deal with Janssen for its cell therapies, and Jiangsu Hengrui which has opened R&D facilities in the US and Europe and even headquartered its Luzsana subsidiary in New Jersey.
Innovation Increase; From Quantity to Quality
National leadership is prioritising innovation like never before, which could have a significant impact on Chinese pharma. The country’s 14th Five-Year Plan, formally adopted on March 11 2021 and covering the 2021 to 2025 period, represents a shift from the focus on quantitative growth seen in previous plans and, according to Merics analysis, aims to usher in a more inward-looking “new developmental stage” that targets “quality development.” The plan, unlike its predecessors, does not include concrete targets for GDP growth.
For the pharma industry this means new development goals. The most important is an average annual increase of more than 10 percent in R&D investment across the industry, with innovative products representing a larger proportion of Chinese companies operating revenues by 2025.
COVID-19: A Different Path
China has endured a difficult 2022 in terms of fighting the COVID-19 pandemic. Unlike Western nations, many of which have now lifted travel restrictions and are attempting to live with the virus, China has chosen to pursue a ‘dynamic zero-COVID’ policy that has involved the rapid lockdowns of almost entire cities and millions of people.
Moreover, despite rapidly developing and rolling out two vaccines against COVID-19 – from domestic firms Sinopharm and Sinovac – China is yet to approve a vaccine that uses the more effective mRNA technology, either from a domestic firm or one of the two international products (Pfizer/BioNTech and Moderna) currently approved elsewhere.
While positive news stories – such as the first approval for an inhaled COVID vaccine, from Chinese firm CanSino – have emerged, the continuing situation around travel restrictions and lockdown threats is causing investor caution.
VBP: Continuing Impact
First announced in 2018, China’s volume-based procurement (VBP) policy dramatically cut the amount being paid for generic drugs, hitting both domestic generic firms and Big Pharmas with off-patent originators.
Only two of the 25 contracts initially offered were awarded to multinationals, showing the impact of the policy on these companies, who have been forced to drop their prices as low as local products to be successful.
VBP continues apace, with Rick Woo of InterChina asserting that its main impacts have been a shift of products that have been unsuccessful under VBP into retail channels, an increasing focus on innovative drug development, and the rapid development of service providers such as contract research organisations (CROs), contract manufacturing organisations (CMOs), and even contract sales organisations (CSOs). For companies to succeed against this backdrop, there is a need for optimisation of their go-to-market models as well as digital transformation.
China boasts the world’s largest – and by some measure most innovative – online shopping market. Advanced logistic networks utilising big data, cloud computing, smart robots and drone-based delivery ensure speedy delivery to almost anywhere in the country at minimum cost. Moreover, retail e-commerce sales in China are predicted to rise to USD 3.565 trillion by 2024, making up a full 58.1 percent of total retail sales, according to AdChina.io.
This is having a big impact in terms of pharmaceuticals, especially post-COVID where increasing numbers of Chinese customers are buying both prescription and non-prescription medicines on food delivery platforms such as Meituan and Ele.me. Daxue consulting reports that these platforms can deliver medicine within half an hour, compared to the one to two days taken by Jianke, the country’s leading pharma e-commerce platform pre-pandemic.