Navigating China’s pharmaceutical industry landscape
What should pharmaceutical companies consider when crafting a winning strategy in China?
The pharmaceutical market in China remains strategically important with its predicted growth and market size. It is projected to reach $332Bn by 2022, with a CAGR of ~7% from 2022-25 and the main driving forces behind this growth - aging population and prevalent chronic diseases, wealthy middle-class with higher healthcare demands, and expansion of insurance coverage - still remain.
However, the business environment within China will likely continue to change and shift due to geopolitical tensions, macroeconomic and policy changes. To help build a successful pharmaceutical business in China, there are three key questions that companies should answer:
- What legal entity structure and operating model would be best suited to the companies’ objectives (e.g., buy vs. build vs. partner), and why?
- Which regulatory and data privacy factors do multinational corporations need to monitor and comply with?
- What go-to-market considerations are most important as you craft your winning strategy in response to China’s health reforms?
Different companies face different choices. But the stakes are high for everyone in an industry that must, above all, stay focused on the core mission of improving and saving lives of patients in China and around the world.
What is the current state of US/China relations?
Historically the relationship between the US and China has oscillated, and the future remains uncertain. With this uncertainty, many multinational corporations have already begun scenario planning for resilience. A holistic business resilience approach is critical to confirm companies can weather market uncertainties while capturing value in the market.
The approach should include:
- Maintaining a state of informed preparedness to forestall the compromise of mission critical functions;
Continuing essential mission critical functions and executing response procedures to restore functions despite disruptions; and
Leveraging knowledge from previous disruptions to enhance the resilience process continuously.
Considerations across functional areas
China’s healthcare system is undergoing a structural transformation that will likely have critical implications on the go-to-market strategy for pharma companies.
| Key Developments | Implications for MNCs |
“Ways to Play” |
|---|---|---|
Volume-Based Procurement (VBP) |
Large category drugs and medical devices may be targeted for VBP, which limits margin and pricing |
Create less reliance upon hospital channel and pivot towards retail Target high margin, innovative product (excluded from VBP) |
Rural and community treatment centers |
Rural revitalization, part of the government’s 2020-25 work plan, involves shifting investment from top hospital providers to rural and community health centers |
Go beyond Tier 1 cities with go-to-market efforts Dedicate greater sales and marketing resources towards lower tier cities and broad market Shift focus from traditional hospital-affiliated pharmacy to retail / online pharmacy channel |
National Reimbursement Drug List (NRDL) |
Inclusion is needed for public reimbursement, which covers ~98% of the population |
Leverage newly released submissions to identify successful applications Cater to China’s increased interest in innovation with novel product |
Pharma companies should consider the overall role of its Chinese operation before designing its operating model. Innovation is also accelerating as the National Medical Products Administration (NMPA) is reshaping its policies and regulations to accelerate new drug approval in China.
| Key Developments | Implications for MNCs |
“Ways to Play” |
|---|---|---|
“In China, For China” |
US firms are increasingly redirecting their focus to primarily sell to the Chinese market |
Shift to local produce or repackaging Explore foreign-domestic partnership |
NMPA streamlined new drug application approval procedures |
China has growing interest in innovative drugs with breakthrough design |
Source Chinese assets for global market Establish on-the-ground incubators |
Proliferation of CRO & CDMO Infrastructure |
China’s value chain capabilities are steadily improving |
Consider partnerships with Chinese CROs to close internal development gaps |
China’s cybersecurity and privacy regulations collectively have the potential to transform how pharmaceutical and life sciences companies conduct business in China. The Chinese government has set out a tighter regulatory regime around data collection, use and storage, as well as around cross-border data transfers.
| Key Developments | Implications for MNCs |
“Ways to Play” |
|---|---|---|
China Security Law / Multilayer Protection Scheme 2.0 |
Requirements for business systems hosted in China |
Assess operations model resource impacts and process changes, given the cross border data transfer risks Confirm compliance across R&D, medical affairs, pharmacovigilance and back-office systems |
| Personal Information Protection Law | Additional requirements for personal data of persons in PRC | Localize or ring-fence certain data systems in China |
| Data Security Law | Opens all company data to Chinese authorities | Consider alliances or joint venture with local CROs and firms to leverage pre-existing data infrastructure |
Both international and domestic players are utilizing M&A and partnerships to drive growth and market entries. International companies can acquire regional capabilities to receive domestic benefits and quickly enter the market segment in China as a local player, providing timely service to Chinese customers.
| Key Developments | Implications for MNCs |
“Ways to Play” |
|---|---|---|
Record volume of out-licensing |
Peaking out-licensing signal maturity of Chinese biotech portfolios |
Expand China deal sourcing capabilities |
Multifaceted partnerships |
Chinese firms seek to leverage established US & European capabilities, and vice versa |
Gain access to local development and commercialization |
Increasing number of deals blocked by CFIUS |
The US increasingly views pharma as equal to data and tech |
Companies need to prepare for more sector-specific protectionism |
The time to act is now.
Taking time to consider your companies’ strategy in China holistically - starting with the three questions above - is critical for a successful global strategy in China.
Let’s talk. We can help.
PwC’s global pharmaceutical industry team helps companies from strategy to execution and through to value capture and/or exit. We execute locally with global coordination including more than 22,000 professionals in China. Our specialists have experience in the local operating environment and government interactions and deep experience across a pharma company's functional areas. Contact us to have a conversation tailored to your pharmaceutical business needs.
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