I recently attended the fourth BioCentury China Healthcare Summit in Shanghai, which is organized by BioCentury and BayHelix with McKinsey as Insights partner. It has quickly become a must for executives in the biopharma community, from PE/VC to R&D, local biotechs or multinationals..
The mood at the gathering was buoyant with optimism fueled by several factors: the State Council’ renewed push of “healthy China 2030”; breakthrough progress seen in the CFDA reform; successful IPOs by several Chinese Biotech firms (e.g., Zai Lab, Wuxi Biologics); meaningful steps taken by regulators to expand access to innovative drugs (in particular, the updated national reimbursement list and national level pricing negotiations); strong commercial performance in 2017 across the biopharma industry - back to double digit growth; and an attractive pipeline of important assets to launch in the next few years, many of which are already seeing success in the US and EU.
But, as always, the mood is tempered with caution and it’s critical in China to maintain a balanced view on the outlook. Yes, progress has been made. At the same time, a lot remains to be done before patients, on a broad scale, can gain timely access to innovative drugs, at a cost manageable for the healthcare system.
Let’s look at progress and the challenges ahead.
Consider first that access to innovative drugs can be unlocked only when the “two sides of access” come together. On one side, you need an ecosystem that approves innovative molecules with timelines and requirements aligned with global standards set by the US FDA and the EU EMA. On the other side, and just as critical, you need a pricing and reimbursement system that balances the interests of the manufacturers and investors – properly rewarding investments in innovation – with the challenges of serving a large population with acute medical needs, and disparate income levels. Let’s look at each side in more detail.
1. Innovation ecosystem – fast and furious reform
Since late 2015, it could be argued that the CFDA regulatory reform has moved at an unprecedented pace across all industries in China. Not only have key mechanisms, such as priority reviews, been implemented, the CDE reviewers capacity tripled from 200 to 600, or China been admitted to ICH in June, structurally, the nature of the conversation between biopharma and the regulators has shifted. No longer vague and relationship-based, it is now clearly anchored in joint problem solving and constructive dialogue.
While progress should be celebrated, a lot remains to be done. We believe the reform, having addressed critical gaps the last couple of years, is now entering a critical second phase of development that will pave the way for integration with global innovation.
This ambitious new phase (e.g., early trials, patent linkage, Orange book, rare diseases registry) requires a step up on multiple dimensions. Four critical steps need to be taken to move the reform forward:
- drive effective and timely implementation of CFDA policies;
- strengthen clinical trial capability and infrastructure;
- accelerate talent development in critical areas;
- properly reward innovation.
2) Pricing and Reimbursement –positive momentum
Here, after years of unremarkable progress, the following positive developments should be noted.
- Update of the national reimbursement list – this long awaited update, since 2009, will allow many important molecules from the last decade to benefit from national reimbursement. Multinationals are big beneficiary; over 70 of their molecules have been added
- Creation of a national negotiation based reimbursement list – the government has negotiated with manufacturers for a new national pricing for high price treatments developed for major diseases, cancer in particular. Forty-four drugs were identified, largely from multinationals, with 36 reaching an agreement on an average price discount of 45 percent
- Consideration of a dynamic reimbursement system. In the near future, one could imagine that any drug launched in a given year would have the opportunity to apply for reimbursement within a two-year period ·
- A willingness to consider specific funding mechanisms to pay for innovative drugs, which effectively shields those drugs from the hospital levels budget cap considerations
- Expansion of private health insurance, with some creative models emerging. For example, the recently launched WeSure platform, based on a strategic collaboration between Taikang and Tencent
At the same time, several key challenges persist that could limit the actual ability of many Chinese patients to access the approved drugs
- Protection of IP – Meaningful progress has been made to protect and uphold patents. However, the current dynamic in the Hepatitis C market, for example, serves as a cautionary tale. Several important treatments from multinationals were approved in 2017. Given the severity of the disease, and the long delay between global launch and China launch, combined with high therapy costs, many Chinese patients flew to India for treatment, where generics are available for a fraction of the price. More concerning from an IP stand-point, however, is that Indian generics have been imported into the China market to treat a large number of warehoused HepC patients. Should this practice spread to other diseases categories, multinationals could take a more negative view of China’s risk profile.
- Streamlining of reimbursement process – inclusion on the NRDL is a great step. But to impact patients the NRDL has to be translated at the provincial level as well. Provinces move at different paces, and impose different requirements on manufacturers. In practice, it will take a couple of years to sort this out, and have the coverage expansion match the broader reimbursement status.
- Adaptation of coverage and go-to market models to tap in to the pricing/volume elasticity potential - by reducing price of drugs between 40-60 percent, a biopharma can hope to capture a bounce in volume, given the low patient pool penetration of most therapies. However, this requires the ability to cover new patients that have become “affordable”, particularly in lower tier cities. Economic consideration around cost of coverage could derail plans for deeper penetration, curtailing access for patients.
- Tsunami of new drugs competing for scarce resources - taking into account the update to the NRDL, triggering a “relaunch” of many products, and the pipeline of new in the next few years, we estimate that over 200 innovative drugs will hit the market within a very short time. This will put tremendous pressure on the system, from several angles: access to clinical trials sites, to public funding resources, to talent who can plan for creative launch strategies, to hospital listing spots, and obviously to KOLs.
This year was certainly a milestone year for biopharma innovation in China, and for patients. The next three to five years will determine whether or not China is capable of becoming a biopharma innovation powerhouse, or whether a big opportunity has been wasted.