The China Imperative - Commercial Models to Achieve Sustained Growth

By Alok Kanti

Disclaimer

All views or opinions presented in this presentation are solely those of the

author and do not necessarily represent those of any other individual,

company or organization. This presentation is intended solely for use in

Pharma Future 2014 conclave.

China is an Important Market

The Economic Dominance of China is Inevitable

Source: ”Statistics on World Population, GDP and Per Capita GDP, 1-2008 AD”, Angus Maddison, University of Groningen.

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

1 1000 1500 1600 1700 1820 1850 1870 1900 1913 1940 1950 1960 1970 1980 1990 2000 2008

Non-Asian ancient

civilization (Grc, Egp,

Tur, Iran)

China

India

Japan

Russia

Germany

Italy

Spain

United Kingdom

France

United States

Economic history of China and other major powers Share of world GDP

In PPP, China is likely to overtake US as early as 2015

Source: FT World

China Healthcare market is already No. 2 in 2013

2005 Rank 2011 Rank 2013 Rank

1 United States 1 United States 1 United States

2 Japan 2 Japan 2 China

3 France 3 China 3 Japan

4 Germany 4 Germany 4 Germany

5 Italy 5 France 5 France

6 United Kingdom 6 Brazil 6 Brazil

7 Spain 7 Italy 7 Italy

8 Canada 8 Spain 8 United Kingdom

9 China 9 Canada 9 Canada

10 Mexico 10 United Kingdom 10 Spain

Note: Market size only calculate chemical medicines, not include traditional Chinese medicines

Source: IMS Health

High Prevalence & Improving Treatment of

Non-Communicable Diseases are Main Growth Drivers

Diabetes

Hypertension

• Prevalence: 11.6% (~113.9Mn patients), higher than US

• Treatment: China (25.8%), US (66%), Germany (62%) and Japan (57%)

• Prevalence: 33.5%, (~ 330Mn patients)

• Treatment: China (34.3%), US (77.3%), EU (47.9%)

• Prevalence: 28 Mn patients with chronic vascular disease (Secondary Prevention)

358 Mn patients with medium or high risk (Primary Prevention)

• Treatment using ASA: China (< 5%), US (>20%)

CVD

Prevalence & Treatment Disease Area

“The National Health and Family Planning Commission (NHFPC) has identified as its top priority to controlling the increasing

prevalence of non-communicable diseases, in particular cardiovascular diseases”

NHFPC Press Release; Nov 2013

Source: 1. JAMA 2013: 310(9); 2. BCG analysis 2012; 3. National Health and Nutrition Examination Survey; 4. Chinese Journal of Preventive Medicine 2012;

5. Chinese Journal of Hypertension 2013(4); 5. Cardiovascular Disease in China (2012); 6. Bayer internal Aspirin Cardio country clustering analysis conducted 2010

Significant Achievements in Healthcare reform

Increased basic health

insurance coverage

• Basic Insurance coverage

from 30% -95% in 2013

• Out of pocket health

expenditure from 60% in

2000 to 35% in 2012

Controlled cost and

availability of drugs

• Broadened NEDL from 307

to 520 molecules

• EDS to cover 30% of state-

run grass-roots hospitals

and clinics, and appx.

50%of primary healthcare

institutions

Improved access

• Balance between urban

and rural

• 63 billion RMB has been

invested to construct

33,000 county-level

hospitals, and township

and village clinics

Achievements

There are Challenges as in Other Markets

Policy Changes Create Challenges & Opportunities

Improve accessibility

Improve affordability

Improve affordability

Improve affordability

Cost containment

Impact to MNC

+

+

+

+ -

-

Gov’t Intention

Healthcare

reform

Others

Broaden coverage of basic medical

insurance

Improve healthcare infrastructure

Expand National Essential Drug List

Improve healthcare infrastructure

Improve Severe Disease Insurance

Scheme

Price cut, hospital budget control

Source: Literature research, MOH

RA

Central

Gov’t

Local pricing Local formulary and/or

adjustment Tender/Bidding Distribution

Hospital listing Budget control

• Regular price cut

• Increasing pressure on off-patent

originators

• Increasing power to

modify usage &

reimbursement lists

• Setting rules & organizing

tendering

• Further pressure on pricing

• Changes in process

• Unpredictable timeline

Registration

(CFDA approval)

Formulary

(NRDL)

Pricing

(Retail price cap)

• Low transparency in process

and uncertain schedule

• Limiting usage of top

selling & high price drugs

• Uncertainty in timing

Provincial

& City

Hospital

MA + GA MA + GA

GA GA Commercial

KA KA RA: Regulatory Affairs

MA: Market Access

GA: Gov’t Affairs

KA: Key Account

Market Access in China – Complex Set of Hurdles and Changing Requirement

Physician Dissatisfaction Physician in China are overworked, underpaid, and under threat

• In cities, a doctor earns around 5000 yuan (US$780) a month or less.

• Senior doctors earn consultation fees of just 7 yuan ($1·14) in most hospitals

According to 2010 World Bank

statistics, China had roughly 1.5

physicians for every 1,000 people as

compared to 2.4 doctors for every

1,000 Americans

• Physicians are among the ten

lowest paying jobs in China

• Medical graduate are paid around

2339 yaun whereas a computer

system engineer or designer are

paid around 4,111 yuan

The number of patient-doctor disputes

in China has been increasing at an

alarming rate of 11% per year since

2000 with 228,000 cases reported by

the Mediation Committee for Medical

Disputes between 2010-13

Overworked Underpaid Challenging Job

Importance of Compliance World corruption Index

In December 2013, China’s National Health and Family Planning Commission (NHFPC)

issued a Notice on “Nine Prohibitions” to Strengthen Healthcare Industry Compliance.

How Companies Respond

Innovative Products and Commercial Models are the

New Focus

*Source McKinsey Survey

Companies Response to the Challenges

Efficiency Improvement – shift from single to multiple products promotion

Marketing Approach – Increasing use of innovative marketing tools to differentiate

Portfolio – shift from primary care to oncology and specialty medicine

What is Multichannel Marketing?

Traditional Promotion Channels1

Customer

Facing

Service reps

CSOs

Key account management

Sample droppers

Part-time reps

Cross-TA2 reps

Alternative Promotion Channels2

Remote

Interactions

Inbound call center

Outbound call center

Web seminars

Digital

Self

service

Web portal

Email

E-detailing

Social media

Blogs

Third-party collaboration

1. Cegedim Strategic Data Global Promotion Database, Year 2011

2. Making Multichannel Happen by Mckinsey & Company

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Brazil Russia India China

Mailing/Others

Clinical Trials

Advertising

Meeting

Samples

Detailing

Total Spending

% Change Q3

2011/Q3 2010 $ 4316

+ 8.9%

$ 206

+ 7.2%

$ 62

+ 11.3%

$ 1309

+ 29.8%

Traditional Channels are Crowded

Meeting/deba

te without

dinner, 111 National

Congress, 82

Conference/s

ymposium,

943 Continuing

Medical

Education(C.

M.E.), 27

Dinner

without

debate, 425

Meeting/deba

te with

dinner, 135

Other, 83

In hospital

product

briefing, 350

Every year, at least 943 symposiums for cardiologists happened1

X5

28,000

5,000-6,000

Number of

FTEs

Dramatic increases of total field force size of the top

ten multinational prescription-drug companies2

2005 2011

1. CSD SOV Report 2013Q1 MAT, 13 cities

2. Mickinsey Analysis

TC: HTN & PAI

Email has become the Most Preferred Channel

for Content Enquiry

40%

21% 24%

11%

44% 45%

50%

36%

24% 21%

12%

16%

9% 5%

8%

2%

Conference/ Local or global seminar Other marketing activity• Email is the most preferred E-channels for drug information enquiry, conferences/ seminars information and product promotions

• However, it's observed that most physicians still more prefer person contact, face-to-face reps visit to deliver messages about

marketing activities invitation

(i.e. side effect/clinical study) (i.e. sponsorship outing, lunch or dinner)

40%

21% 24%

11%

44% 45%

50%

36%

24% 21%

12%

16%

9% 5%

8%

2%

Conference/ Local or global seminar Other marketing activity

(i.e. side effect/clinical study) (i.e. sponsorship outing, lunch or dinner)

Source: 2012 Physicians & Consumers Online Behaviour Survey, Ipsos Healthcare

Save up time and cost 73%

Quick response 66%

Easy to access 63%

E-channels provides more detailed/ accurate information 46%

Prefer e-channels over phone calls or face to face 31%

Keen on adopting new technology 25%

Would like to try using it 12%

2%

15%

83%

Increase

Remain the same

Decrease

• The intention of using E-channels in the future is notably high among China physicians (83%).

• The benefits of prompt response and efficiency through E-channels are expected by China physicians, which being the most

influential triggers of higher usage. Easy to access is also important factor to encourage physicians' usage of E-channels.

The Benefits of Prompt Response & Efficiency are the

Most Influential Triggers of Higher Usage

Source: 2012 Physicians & Consumers Online Behaviour Survey, Ipsos Healthcare

Reps invite physicians

to join the project on

behalf of medical

association

En

gag

em

en

t C

ycle

Step 1

Step 2

Physicians receive

SMS/Emails from

medical

association

Reps provide leaflet

with more information

on behalf of medical

association

Step 3

Physicians receive

calls from medical

association

Step 4

Step 5

Physicians visit

website designed

by medical

association

F2F meetings for

selected

physicians

Step 6

Traditional Channels New Channels

Combination of Traditional and

New Channels Is The Trend

Thank You