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WORKING DRAFT
Building Bridges
to Innovation
Shanghai, November 12-13, 2014
CONFIDENTIAL AND PROPRIETARY
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DISCLAIMER
1
McKinsey & Company | 2
Draft
reimburse-
ment pricing
policy
New R&D
models and
commitments
Signal or
Noise?
Large scale
manufacturing
investments
2nd largest
pharma market 文本1
New regulatory
hurdles
Record
compliance fine
McKinsey & Company | 3
Managing today
Today’s discussion
Framing the
possibilities
Bridging to
tomorrow
McKinsey & Company | 4
Framing the possibilities
McKinsey & Company | 5 SOURCE: CPA; McKinsey analysis
Drivers of demand remain strong
1 At retail price (base case)
China’s Rx market1 , RMB Trillion Key growth drivers
Rising middle class
Massive urbanization Aging population
Universal insurance
coverage achieved
3.1
1.9
1.0
0.7
2013 2020
+14% p.a.
2015 2025
+10% p.a.
McKinsey & Company | 6
China’s pharma market in context
SOURCE: Euromonitor; Lit research; McKinsey analysis
31%
20%
24%
45%
8%
China market contribution to global sales
Percentage
Industries
Luxury
good
Electronics
Pharma
Auto
Mineral
products
One-fifth
of Apple’s
sales
One-fourth
of Prada’s
sales
BMW’s
largest
market
McKinsey & Company | 7 SOURCE: Industry association; Evaluate; McKinsey analysis
China’s contribution to pharma MNCs continues to rise
China Rx sales in global Rx sales
Percentage
1.8
2.4
2.5
2.8
3.7
3.8
5.0
7.5
7.7
11.3
MNC5
MNC1
MNC8
MNC7
MNC6
MNC9
MNC4
MNC10
MNC3
MNC2
2013
Top 10 average:4.2%
Change since 2011
2.5
-0.2
3.4
2.1
1.2
1.0
0.4
0.9
0.1
-0.2
McKinsey & Company | 8
Incremental $1 billion committed to China by MNCs
in last 12 months
SOURCE: Lit research
New R&D center co-
located with
ShanghaiTech University
$130 million to expand
packaging and logistics
in Beijing
$300 million in new
production base in
Xi'an; launching the
Asia-Pacific Innovation
Center in Shanghai
$105 million for bulk
production and
packaging in Nantong
5th Global R&D hub with
plans for 1,400 staff in
Shanghai
$325 million in insulin
plant in Suzhou
NOT-EXHAUSTIVE
McKinsey & Company | 9
Select recent trends impacting the market
Emergence of new
commercial models
Wave of entry into IT
healthcare
Growing role for
private capital
Rise of domestic
players, in quality
and innovation Regulatory hurdles
Direction of
reimbursement
pricing policy
Slowdown of
China’s growth
Market access
challenges
McKinsey & Company | 10
Emergence of new commercial models
SOURCE: Lit search
Distri-
butor
CSO
Jan July Sept Oct 2014
MSD contracted out selected
brands to SMC for lower tier
cities
Pfizer joined forces with
Sinopharm to penetrate
county hospitals
AZ outsourced sales of
Betaloc to Sinopharm
Ablynx signed exclusive license
with Eddingpharm
Mallinckrodt outsourced
sales of Loversol to
CRH
McKinsey & Company | 11
Wave of entry into IT healthcare
SOURCE: Lit research; Team analysis
Digital giants Entrepreneurs Healthcare IT
$100 MM
$170 MM
$70 MM
Online
scheduling/
EMR
E-commerce
pharmacies
Physician
and patient
networks
Personal
healthcare
Launch of
“Jiangkangyun”
McKinsey & Company | 12
October: Ottawa - Shanghai
Joint School of Medicine
April: UCLA - Centre Testing
International Corp
John Hopkins - Sun Yat-Sen
University
Mayo Clinic - Wuhan
Kindstar
August: Duke - Kunshan
University
September: Partners Healthcare Int’l - Shanghai Jiahui Hospital
University of Cincinnati – Chongqing Hospital
Growing role for private capital
Global institutions Local & Asian players
SOURCE: McKinsey analysis; Literature search
1997 2010 2012 2013 2014 2015
United Family
(Beijing)
Foshan Chancheng
Hospital
December: Peking
University International
Hospital
Red Leaf
Kunming Children
Hospital
March: Parkway – SH
int’l Medical Centre
October: MGH –
Hengqin Hospital
McKinsey & Company | 13
2 billion
10 billion
10 billion
(To be
constructed)
Administration Building
Formulation R&D
Oncology
Rise in quality and innovation of domestic players
SOURCE: Literature search; McKinsey analysis
Quality
Innovation
5238
31159
2009 2013 12 11 10
+55%
229
15514610789
+27%
2014 12 13 11 2010
Innovative pipeline by Chinese pharmacos2
US ANDAs by Chinese pharmacos
41 Chinese pharmacos FDA approved for FDF1
1 Final dosage form. Includes manufacturing outside of China
2 New Class 1 drugs from preclinical, excluding biosimilars and reformulations 18 Class I drugs approved from 2008-2013
Huahai
McKinsey & Company | 14
Proposed pricing policy for reimbursed drugs
SOURCE: NHFPC; NDRC; Industry association; expert interviews; lit search; team analysis
42
42
34
11 53
76
Example: reimbursement-based pricing for statins (weekly price)
RMB
61
42 11
15
Gx 53
MNC 76
Today
OOP Reimbursed
Pricing Bureau Chief conference on October 27 suggested reimbursement –based pricing policy will
be implemented in 2015
▪ Implementation plan reviewed by State Council on November 2014
▪ Implementation to begin in January 2015
▪ Same set reimbursement amount will be applied for identical molecule and formulation,
regardless of whether the drug comes from originator or generic
Proposed reimbursement pricing policy
Note: assumes Originator and Generic are currently both reimbursed at 80%, maintain current retail price are subject to same reimbursement amount in
the future
McKinsey & Company | 15
2009 2004 2015+
NRDL update delayed
SOURCE: Literature search; McKinsey analysis
Initial NRDL
published by
MoHRSS, ~900
Western medicine,
~ 600 TCM
Updates planned
every two years
Broad upgrade
with several
important
molecules added
List reaches
2,150 molecules
Targeted
therapies not
included
Plans to initiate
new NRDL
adjustment
Official
announcement
yet to be made
2000
1,535 366 249
~43 ~125 ~220 ~275
Molecules
added
UEBMI
covered, MN
?
n/a n/a ~182 ~300 URBMI
covered, MN
Note: URBMI reimbursement scheme created in 2007; actual reimbursement varies by province and by scheme
McKinsey & Company | 16
Change of interpretation of CFDA regulatory review
New MRCT interpretation
SOURCE: Interviews, team analysis
Examples of therapies impacted
From “two
applications, two
approvals” to “three
applications, three
approvals”
McKinsey & Company | 17
Individual MNC position on China driven by various factors
Ambition
and
objectives
for China
▪ Opportunities ex-
China (e.g., Japan)
▪ Pipeline profile
▪ Size and
past
performance
of China
business
▪ Portfolio
profile
versus
China needs
and priorities
▪ Exposure to
recent news
(e.g. EDL,
NRDL)
▪ CEO’s core
beliefs on
China
▪ Trust in
China
team’s
execution
McKinsey & Company | 18
Broken bridge 3 Narrow bridge 2 Broad bridge 1
Bridging to innovation – potential scenarios by 2025
▪ Mature drugs have
lasting staying power
and continue to grow
beyond 2020
▪ China delivers
meaningful and broad
step-up to reward of
innovation
▪ Mature drugs have
staying power, but
come under stronger
pressure and plateau
beyond 2020
▪ China delivers
meaningful but
narrow reward for
innovation, closely
aligned with disease
priorities
▪ Window for mature
drugs starts closing
rapidly by 2020,
earlier for some drug
categories
▪ Innovation remains
heavily constrained
▪ Self-pay market
becomes main viable
segment
McKinsey & Company | 19
Gx landscape
Pricing and
reimbursement
Other
mechanisms
Other funding
mechanisms
CFDA approval process
RDL - update frequency and scope
Selected key swing factors impacting scenarios
▪ Fragmented landscape with unproven quality standards (status quo)
▪ Fragmented landscape with some proven quality Gx players
▪ Consolidated landscape with large proven quality Gx players
▪ Moderate pricing pressure on mature brands (status quo)
▪ Significant pricing pressure on mature brands
▪ Heavy pricing pressure on mature brands
▪ No forced substitution of Gx (status quo)
▪ Forced substitution of Gx enforced for selected TAs
▪ Forced substitution of Gx enforced broadly
▪ Large self-pay market emerges, complemented by PHI, other schemes
▪ Strong self-pay market emerges, complemented by PHI, other schemes
▪ Self-pay expands but with limited support by PHI, other schemes
▪ Shorter delay versus global timelines applied broadly
▪ Shorter delay versus global timelines applied for select TAs
▪ Multi-year delay versus global launch (status quo)
▪ Frequent, targeted RDL updates
▪ Frequent, broad RDL updates
▪ Infrequent and narrow RDL updates (status quo)
Ma
ture
bra
nd
s
Inn
ova
tive
dru
gs
McKinsey & Company | 20
Broken bridge 3 Narrow bridge 2 Broad bridge 1
Bridging to innovation – Scenarios through 2025
MNC pharma – total sales
DIRECTIONAL
25 20 15 10 25 20 15 10 25 20 15 10
Innovative
Mature
Innovative
Mature
Innovative
Mature
SOURCE: Industry association; team analysis
Note: Curves are informed by high-level, but realistic assumptions
McKinsey & Company | 21
Regardless of final outcome, two imperatives for MNCs
Broken bridge
Narrow bridge
Broad bridge
Bridging to tomorrow’s innovation
Managing today’s mature portfolio
McKinsey & Company | 22
Managing today’s mature portfolio
McKinsey & Company | 23
20,000
100,000
80,000
60,000
40,000
2006 2004 2002 2012 2010 2008 2014 E
Top 15 MNC companies sales
A brief history of MNCs commercial performance in China
SOURCE: Industry association; Team analysis
RMB millions
“Rebalancing era”
7.4 12.6 13.1 2.4
“Hyper-growth era”
7.2 8.0 11.7
“Relevance era”
Incre-
mental
growth
RMB bn
China pops up on
the map
Some invest ahead
of the curve
19%
25%
13%
China’s economic boom
Healthcare reform
Large and rapid field
force expansion
Access initiatives
Market turbulences
Closer look at productivity
Rebalancing
of investments
McKinsey & Company | 24
Seven observations on mature brands
Leaders - Consistent growth performers emerging
Productivity - Productivity gains becoming key to performance
Alternative models - Accelerating adoption of alternative commercial models
Competition - Some mature brands facing strong pressure from Gx
Concentration - 3 brands account for ~55% of portfolio
Variance - Significant variance in mature brands performance
Growth - Mature brands launched 10+ years =70% of sales and growth
7
5
6
4
3
2
1
McKinsey & Company | 25
Mature brands launched over 10 years ago – ~70% of sales
SOURCE: Industry association; Team analysis
Average composition of MNC portfolio in China today1
1 Based on 2014 H1 sales
▪ Under pressure from policy and industry
trends
– Gx competition
– EDL
– Potential pricing policy changes
▫ Elimination of individual pricing
▫ International reference pricing
▫ Reimbursement-based pricing
▪ Critical importance of introducing
innovative brands
– Unmet medical needs
– Sustainability of business model
– Higher patient affordability (i.e., self-pay
market, PHI)
~8%
~72%
Off-patent
Launched >10 years
~20%
Off-patent
Launched <10 years
Patented
Mature portfolio
Innovative portfolio
McKinsey & Company | 26
48
77
63
61
43
44
56
44
SOURCE: Industry association; McKinsey analysis
61%
77%
73%
41%
90%
37%
60%
37%
16%
7%
40%
53%
38%
19%
20%
8%
100% 0%
MNC 5 10% 0%
MNC 2
2%
MNC 7 10%
MNC 6
MNC 4
MNC 3
MNC 8
MNC 1 2%
1 Measured by year of registration
2012-2013 growth breakdown by brands launch year1
RMB billions, Percent
2014H1 sales contribution of
top 3 brands
Percent
>10 years 5-10 years <5 years
55%
Mature brands drive 70% of growth; 3 brands account for ~55% of portfolio
McKinsey & Company | 27
3,500 2,000 1,500
100
0
15
2013 brand size RMB millons
2011-2013 CAGR Percent
Significant variance in mature brands performance
SOURCE: Industry association; McKinsey analysis
Note: Analysis for off-patent brands larger than RMB 250 mn
1,200
600
Rising stars Growth
engines
Laggards
Slowing
engines
30
20
BCG
McKinsey & Company | 28 SOURCE: Industry association; McKinsey analysis
2011-2013 CAGR, Percent 2013 brand size, RMB Billions
2.0
2.1
1.7
2.9
1.5
3.4
2.0
3.4
32
15
25
24
21
14
42
18
Significant variance in mature brands performance - large brands can
deliver above market average growth
15% Industry average
McKinsey & Company | 29 SOURCE: SMEI; McKinsey analysis
177107
22
1124% 58
25%
24%
48%
26%
11
27%
30%
33%
34% 29%
31%
Local 2 31%
24% +54% p.a. MNC
13
33% Local 1
12 10
42%
09
Local 1:
▪ Tailoring approach based on
physician segmentation and
engagement of non-
clinicians
▪ Providing medical support
Local 2:
▪ Expanding through staged
hospital segmentation
▪ Leveraging clinical trial
evidence
Market share for cancer drug, molecule X
Mn RMB, %
1 Among SMEI sample hospitals
Leading local Gx players
Some mature brands facing strong pressure from Gx competition
McKinsey & Company | 30
Co-
promotion
Adoption of alternative commercial models accelerating
SOURCE: McKinsey analysis
NOT EXHAUSTIVE
Partnership type
Distributor CSO Joint-
Venture
Out-
licensing Distributor
reps
In-direct Hybrid
McKinsey & Company | 31
Consistent growth leaders emerging despite market turbulence YoY MNC revenue1 growth
Percent
SOURCE: Industry association; Team analysis
14%
23%
29%
9%
30%
-3%
11%
-10%
21%
-4%
21%
9%
-8%
-6%
1%
4%
5%
6%
Inconsistent growth performance
1 Rx only
MNC 6
MNC 7
MNC 8
MNC 9
MNC 10
MNC 11
Average
MNC 1
MNC 2
MNC 3
MNC 4
MNC 5 23%
23%
29%
18%
17%
2013-2014H1 2012-2013 2011-2012
11%
25%
14%
13%
18%
16%
14%
17%
19%
20%
Consistent growth performance
Only 2 companies consistently outperformed average MNC market since 2011
21% 13% 12%
McKinsey & Company | 32
Seven commercial imperatives for mature portfolio
Clear and decisive
portfolio choices
Market development
for sustained growth
Rigorous SFE fundamentals
to drive productivity gain
“War game”
mindset to cope
with Gx
competition
1
2
4
3
5
6
7 Alternative
commercial
models for
flexibility and
lower cost
New reimbursement-
based pricing
preparation
Granular mining
of data to inform
better decisions
McKinsey & Company | 33
Clear and decisive portfolio choices
SOURCE: McKinsey analysis
1
Hybrid
In addition to direct rep coverage
▪ Co-promotion with pharmaco
▪ 3rd party partnership with
distributor(s)
▪ Digital communication
Direct
▪ Dedicated field force
▪ Low cost reps
▪ Digital field support
Indirect
▪ Outsource to CSO
▪ Outsource to distributor
▪ Out-license to pharmaco
▪ 3rd party digital forums
▪ Business scale and growth potential
– Brand size
– Size and growth of defined market
▪ Strategic fit based on TA priority, and
overlap with key brands
▪ Opportunity to develop the market
Attractiveness
▪ Level of differentiation on efficacy,
safety and formulation, other factors
▪ Market competitive intensity
– “Generics index”
– “Who are the competitors”
▪ Market access challenges, e.g., EDL,
NRDL
Feasibility for success
Prioritize portfolio Define coverage model
Prioritized
Deprioritized
McKinsey & Company | 34
2001-2014E - Statin MNC sales
RMB billions
SOURCE: Industry association; McKinsey analysis
2010-2014
CAGR
37%
2010-2014E - Modern insulin MNC sales
RMB billions
2010-2014
CAGR
36%
Market development for sustained growth 2
▪ Shaping national guidelines with
NHFPC
▪ Large-scale screening programs
▪ Disease awareness programs
▪ Government training partnerships
▪ Chinese Academy of Sciences
partnership for physician education
▪ Patient education centers
6
8
4
2
0
06 04 02 08 12 10 14E 14E 13 12 11 10
8
6
4
2
0
McKinsey & Company | 35
Alternative commercial models for flexibility and lower cost
SOURCE: McKinsey analysis
Growth
expectations
of portfolio
GTM model assessment
3
Indirect
Hybrid Co-
promotion
Distributor
reps
CSO
Mid-low Out-
licensing
Mid-low Distributor
Effectiveness Economics
Operational
control Time to impact
Mid-low
High
Mid-low
JV High-mid
McKinsey & Company | 36
Multi-faceted
approach
New reimbursement-based pricing preparation
SOURCE: McKinsey analysis
4
Brand Physicians
▪ Raise level
of physician
interactions
▪ Communi-
cate brand
value
proposition,
beyond
quality
differentiation
▪ Communi-
cate brand
value
proposition
broadly,
including
digital and
social media
▪ Define clear
value
proposition,
beyond quality
differentiation
▪ Review
pricing
strategy with
patient OOP
relative to value
▪ Clarify patient’s drivers of
brand choice and what they
value
▪ Assess patient OOP relative to
brand value
▪ Segment patients for behaviors
and attitudes
▪ Listen to social media sources
and understand implications
Patients
McKinsey & Company | 37
▪ Develop robust
account-by-account
planning with better
segmentation tailored
for competitive
dynamics
Rigorous SFE fundamentals to drive productivity gain 5
▪ Seamlessly
integrate internal
sales data and
external market
data to provide
timely assessment
of SFE
▪ Relentlessly drive
on the ground
execution by
improving DSM’s
coaching
effectiveness
▪ Provide opportunity
for career
development
for sales force
in mature portfolio
▪ Build and maintain
trust between front
line reps and central
functions
Better
segmenta-
tion
Integrated
CoE
On the
ground
execution
Talent
development
and retention
Drive
productivity
increase
McKinsey & Company | 38
“War game” mindset to cope with Gx competition 6
Tendering Hospital listing Physician
prescription Patient access
▪ Promote switch by
generating head to
head clinical
evidence with
originator
▪ Use channel
margin to claim
share in retail
pharmacy chains
▪ Partner with
online retailers
▪ Large scale
government
collaboration for
grass root market
▪ Leverage strong
commercial
capabilities and
collaborate with
distributors for
listing
ILLUSTRATIVE
Local companies are becoming more sophisticated –
consider their point of view when crafting strategy
How a local company may approach the market
McKinsey & Company | 39
Granular mining of data to inform better decisions 7
Call activity by rep
Listing by hospital and city Sales and market share by city
Sales and market share by hospital
SOURCE: COMET by McKinsey
McKinsey & Company | 40
Bridging to tomorrow’s innovation
McKinsey & Company | 41
Innovation – where we stand today
Innovation is a stated strategic
priority for China
However, reward of innovation remains
heavily constrained
The industry is broadening and deepening
its commitment to innovation
1
3
2
McKinsey & Company | 42
Innovation is a stated strategic priority for China
SOURCE: Literature search; McKinsey analysis
Government support
Enabling infrastructure Local innovation
MNC investment
Innovation
ecosystem
McKinsey & Company | 43 SOURCE: New England Journal of Medicine; Patentscope; Pharmaproject; GBI; Literature search; McKinsey analysis
1 Including drugs and medical equipment, with the latter accounting for around 10%
2 Patent filing after 2012 is not fully disclosed given the 18-month confidentiality period for patents
The industry is deepening and broadening its commitment to innovation
39
33
1821
119
2012 08 09 2007
+33% p.a.
11 10
Number of international drug
patent filing filed by Chinese
residents2 doubled from 391 in
2007 to 756 in 2011
Industry investment in China biopharma R&D1
RMB billions
▪ Announced: RMB3 billion investment to
source external innovation to China
▪ Aim to incubate: 90-100 startups within 3 years
in China
March
June Opened up service platform and manufacturing
capacity
Attracting overseas biotech companies to
develop innovative drugs in China
Established Asia-Pacific R&D center in
Shanghai to strengthen China R&D efforts
September
Opened Shanghai Innovation center to source
early stage innovation from China/Asia
October
McKinsey & Company | 44
1.7
2.0
3.8
2.2
Innovation remains heavily constrained - many drugs launched in
developed markets not yet available in China
Global sales
$ Billions, 2013
SOURCE: EvaluatePharma; GBI
US
launch
2009
2006
2011
2011
50% of the top
selling global
drugs launched
since 2008 are
not yet
accessible to
Chinese
patients
Japan
launch
2010
2011
2012
2014
Recently launched drugs not yet in China (examples)
McKinsey & Company | 45
0
0
0
0
0
0
0
2
0
0
1
2
MNC 4
MNC 3
MNC 2
MNC 6
MNC 9
MNC 8
MNC 10
MNC 12
MNC 11
MNC 5
MNC 7
MNC 1
1
1
2
1
2
0
1
0
1
1
3
3
1
1
3
0
1
0
1
1
2
3
2
3
0
0
3
1
1
2
0
3
1
1
1
4
Distribution of new molecule launches by lag duration,
2006-20121 # of drugs
<2 years 2~4 years 4~6 years >6 years
Total 5 16 18 17
1 New molecules that were registered for CFDA and were successfully launched from 2006 and 2012; vaccines and drugs with global launch dates
before 1990 were excluded
SOURCE: GBI; lit research; team analysis
NON-EXHAUSTIVE Innovation remains heavily constrained - significant historic
launch lag relative to developed markets
McKinsey & Company | 46
Innovation remains heavily constrained - latest pathway
interpretation from the CFDA
SOURCE: CFDA; Interviews, team analysis
1 For chemical new drugs only, biologics timeline is longer due to additional sample testing and full phase 1-3 clinical trial requirement
Queue time
After
2014
China registration process for imported drugs1
CTA with
MRCT data
IDL with
local data
Local
trial, PK
CTA with
MRCT data
~ 2 yrs
~ 4 yrs
2.5 yrs
2.5 yrs
PK, MRCT
Phase 3 CTA
PK, MRCT
Phase 3 CTA
Before
2014
NDA,
CPP Phase 2/3 Phase I
~2 yrs
PK, MRCT
Phase 3 CTA
4 mo 7 mo 1~2 yrs
Global development process
China IMCT process
IDL with
MRCT data
IDL with
MRCT data
Potential
additional
2-4 years
Scenario 2: Local trial required
Scenario 1: Local trial waived
McKinsey & Company | 47
Innovation remains heavily constrained - on average, slow uptake at
launch
SOURCE: Industry association; McKinsey analysis
Leading new drug launches
2008-2010
RMB millions
0
100
200
300
400
500
600
700
2013 12 11 10 09 2008
Number of new launches
Average sales of new drug launches1
2008-2011
RMB millions
5 14 8 5
0
100
200
300
400
500
600
700
2011
2010
2009
2008
2013 12 11 10 09 2008
1 Patented drugs from top 10 companies
McKinsey & Company | 48
Innovation remains heavily constrained - many therapies on market still
waiting for reimbursement
SOURCE: Team analysis
Ten Class 1
drugs launched
since 2008 by
Chinese
companies are
still not on
NRDL
8 NRDL
Non-NRDL 62
70
New drug launches
2008-2013 Selected brand by launch year
2009
2010
2008
2011
Drugs
launched
before
2008
waiting
for RDL
McKinsey & Company | 49
Long time to market
▪ Complex regulatory
framework
▪ Slow CTA timeline
▪ Changing interpretation
of regulation
▪ Historic gaps in local
MNC R&D capabilities
and role of China in
global R&D decisions
Slow uptake
▪ Fragmented and
inefficient listing and
tendering processes
▪ Infrequent and narrow
RDL updates
▪ Slow adoption speed
of innovative therapies
▪ Mindset of MNCs?
Constrained peak sales
▪ Low awareness/
diagnosis
▪ Gaps in physician
education
▪ Constrained patient
affordability
▪ Early development of
PHI and alternative
funding mechanisms
▪ Lack of market
development?
In summary – Constraints of innovation and root causes
Sales
Time
NON-EXHAUSTIVE
McKinsey & Company | 50
Reach peak sales potential
▪ Develop the market
(e.g., earlier and
broader diagnosis,
raising awareness of
therapy benefits,
greater adherence,
alternative funding
mechanisms)
5
Shorten time to market
▪ Prioritize your portfolio
within existing
regulatory framework
▪ Partner with locals
▪ Engage regulatory
bodies as an industry to
design a new
framework
1
2
Accelerate uptake
▪ Develop the market,
including activating self-
pay segment
▪ Demonstrate economic
value of drug
▪ Explore price-volume
trade-offs
▪ Engage regulatory
bodies as an industry to
design a new framework
3
4
Sales
Shifting the curve – What could be done NON-EXHAUSTIVE
Across the board critical need to engage regulators at
central and provincial levels
How to do so individually and collectively as an industry?
Time
McKinsey & Company | 51
Prioritize portfolio within CFDA framework
SOURCE: Interviews
ILLUSTRATIVE
1 If 'perfectly' simultaneous, otherwise 2-4 years of delay
>5 years ‘Classic’ local trial 3
<4-6 years China as part of
global trials 1
<4-6 years1 China in parallel
regional trials
~4-9 years China in sequential
regional trials
Comparisons of process and timeline of drug registration with CFDA Resulting lag
1
No lag China local program 4
CPP CTA China
trials Global Ph III trials NPA
CTA China
trials
CTA, with
MRCT data
Global Ph III trials CPP
CPP Global Ph III trials
CTA Regional
trials
CTA, with
MRCT data
NPA CTA
CPP Global Ph III trials
CTA
Full
China
trials
NPA
NPA
NPA
CTA, with
MRCT data
2A
2B Regional
trials
McKinsey & Company | 52 SOURCE: McKinsey analysis
NOT EXHAUSTIVE 2
MNC strategic objectives
Co-development
of local player’s
assets
Co-development
of MNC assets
Collaboration
between MNC
and local player
Partnership
type Leverage local capabilities
and strengthen local presence
Acquisitions
Partner with locals
Capture local innovation Accelerate local registration
Joint-ventures
Venture capital
McKinsey & Company | 53
Explore price-volume trade-offs
SOURCE: Clin Microbiol Infect 2011; 17: 107–115; Literature search
900
Egypt
55,000
84,000
Europe
1,900
India
US
3
▪ What are
implications
for the China
market, across
TAs?
Sovaldi treatment cost
per patient
USD
18
12
18
5
HCV patients
Millions
McKinsey & Company | 54
Market access
Engage regulators as an industry to address key challenges
SOURCE: Expert interviews
4
MNCs Locals
▪ Lack of patent compensation system
▪ Patent link system not functioning in practice
▪ Long and complicated tendering process; lack of standards across
provinces
▪ Lack of reimbursement mechanism for innovative drugs
Regulations
▪ Long IND process and requirements for IND document
▪ Insufficient resource and capability from regulatory agency
▪ Lack of MAH system and investment requirement for manufacturing
Common challenges faced by pharma industry – examples
Regulations
IPR
McKinsey & Company | 55
Private research funds and leading
pharmacos (MNC and locals)
Develop the market – example potential collaboration on China cancer
research
SOURCE: McKinsey
5
Such a platform
could benefit
the industry as
a whole by
promoting
innovation, and
is beyond
any individual
pharmaco’s
influence
Physicians
Evaluate protocol
and distribute
funding
Provide
communication
and education
Cancer multi-center
research platform +
MoST +
NHFPC
McKinsey & Company | 56
Closing thoughts
China continues to be a huge growth opportunity,
with significant unmet needs to address 1
2 We are at a critical juncture with three
plausible scenarios through 2025 – broad bridge,
narrow bridge, broken bridge to innovation
3
The industry has a key role to play collectively and
individually in building a broader bridge to innovation ▪ Prioritize China
▪ Develop the market
▪ Build trust across the ecosystem
McKinsey & Company | 57
For more on China healthcare
Industry insights Collaboration with CPA
2014
2013
2012
www.mckinseychina.com
▪ Data driven periodic reports
▪ TA specific deep-dive (e.g.,
oncology, immunology)
▪ How sick is China's
pharmaceutical market?
▪ Will market forces
revolutionize Chinese
healthcare?
▪ What healthcare system
can China afford?
▪ Will the next medical
equipment champion
come from China?
1
2
3
4
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WORKING DRAFT
Building Bridges
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Shanghai, November 12-13, 2014
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