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21st Century Business Herald reporters Ji Yuanyuan and Han Liming report from ShanghaiIn recent years, the global pharmaceutical market has been undergoing profound changes.

On the one hand, with the development of the world economy, the growth of the total population, the increasing degree of population aging and the enhancement of people's health awareness, the advancement of urbanization in emerging countries and the continuous improvement of medical insurance systems in various countries, the global pharmaceutical market has shown a sustained growth trend; on the other hand, due to factors such as the patent cliff, cost control, strategic adjustments and the improvement of R&D efficiency, large-scale layoffs, pipeline cuts and suspension of clinical trials have become the "keywords" of major global pharmaceutical companies.

At present, the market layout strategies of some multinational pharmaceutical companies have been hovering between "expansion" and "contraction". Some choose to "reduce costs and increase efficiency", reorganize the organizational management structure, and optimize the product pipeline; others choose to expand the innovation layout both endogenously and exogenously. For example, Pfizer decided to disband its 13-valent pneumococcal vaccine team in China in November 2023 and transfer the marketing and distribution rights to Shanghai Pharma Science Park Xinhai Pharmaceutical. This year, Bristol-Myers Squibb (BMS) mentioned in its first quarter financial report that it would reorganize the organizational management structure and optimize the product pipeline, which would affect about 2,200 employees.

Talking about the current development status of multinational pharmaceutical companies in China, Yin Xiaofeng, general manager of Leo China, said in an exclusive interview with a reporter from 21st Century Business Herald, "In the past, the rapid growth of the Chinese market attracted many foreign pharmaceutical companies to invest in China. Today, the market is maturing and the growth rate is slowing down, which forces companies to re-examine and adjust their strategies. With the advancement of the two major policies of volume-based procurement and medical insurance negotiations, companies have more rational expectations for the market, and sustainable development and profitability have become more important topics. Therefore, in the face of market changes, multinational pharmaceutical companies are seeking a more sustainable development path through strategic adjustments and operational optimization. This includes not only the optimization of products and businesses, but also the continuous innovation of business models."

"A company can only do what it thinks is important and what it can do well. Although large multinational pharmaceutical companies have strong coverage capabilities, they have many product pipelines. Therefore, for non-core products, external cooperation has become one of the important choices for business models, which also brings new opportunities to domestic companies. In contrast, for small and medium-sized multinational pharmaceutical companies with limited resources, it is a common choice to conduct business through partners." Yin Xiaofeng analyzed.

As the world's second largest pharmaceutical market, my country has long since transformed from a "place" for selling drugs to a link in the global biopharmaceutical industry chain. A 2022 RDPAC survey showed that more than 90% of multinational pharmaceutical companies said that the strategic importance of the Chinese market in their global market will remain stable in the next 3-5 years. By solving R&D, access, market, and talent problems, the logic of multinational pharmaceutical companies' layout in China may become increasingly clear.

Investment decisions need to be rational

According to the data from the National Bureau of Statistics, by 2050, the proportion of people aged 65 and above in my country's total population will reach 27.9%. The large elderly population has put forward higher requirements for China's medical industry, which also indicates that my country's medical market has great potential. With the support of relevant policies, the Chinese market is still an important part of the layout of multinational pharmaceutical companies.

Unlike in the past, when the only purpose was to register new drugs for sale, more and more multinational pharmaceutical companies have incorporated China into their global R&D network. Public data shows that as of 2020, multinational pharmaceutical companies have established 25 R&D centers in China, with an annual R&D investment of more than 12 billion yuan and more than 130,000 employees in mainland China. This trend continues. In January this year, AstraZeneca announced that Shanghai will become its fifth global strategic center.

McKinsey Global Institute analysis predicts that by 2040, China's overall disease burden will reach 400 million DALYs (disability-adjusted life years). Through preventive measures, therapeutic measures and breakthrough technological research, it is expected to reduce the loss of healthy life years by up to 55%, or more than 200 million DALYs. These are all closely related to medical innovations led by multinational pharmaceutical companies.

Taking skin diseases as an example, Yin Xiaofeng introduced that most skin diseases with chronic characteristics are closely related to autoimmunity and are not easy to cure. In the past, domestic pharmaceutical companies' research and development in the field of skin diseases was mainly based on generic products, and there were a lot of unmet clinical needs. In the next few years, more and more biological preparations will be launched and some small molecule innovative products will be approved. Leo China will also introduce two new skin disease products in the next three years, which will bring new treatment options to Chinese patients, better meet clinical needs and further promote the development of the domestic skin disease market.

However, in terms of competition, judging from the current reality of the domestic market, the competition for the same target for innovative drugs is still very fierce. In Yin Xiaofeng's view, competition itself is not a bad thing, but excessive competition will bring pain to the industry. "When a new target is discovered, pharmaceutical companies rush to invest huge amounts of money in research and development, which leads to the rapid popularization of innovative products and rapid price drops. R&D investment cannot get a reasonable return or even losses, which will seriously affect the sustainable development of enterprises."

"This requires companies to be more rational when making product research and development decisions. At the same time, investors need to set long-term goals when evaluating projects, from early research and development to later commercialization." Yin Xiaofeng emphasized that from the perspective of healthy corporate development, on the one hand, how to make good decisions on research and development projects is the key, and on the other hand, the government also needs to provide appropriate policy guidance to avoid excessive concentration of social resources and waste.

With the establishment and upgrading of R&D centers, multinational pharmaceutical companies have frequently cooperated with universities, hospitals and other research institutions, injecting fresh blood into my country's health industry in terms of technology, management, talents, equipment, etc. At the same time, with the growth of China's local innovation and R&D capabilities, more and more multinational pharmaceutical companies such as AstraZeneca, GSK, BMS and Merck have chosen to build a R&D cooperation ecosystem with local innovation forces.

When selecting cooperation projects and companies, multinational pharmaceutical companies have their own set of standards. Yin Xiaofeng emphasized, "On the one hand, the selected cooperation projects must be in line with the global strategy, which is a consistent insistence. On the other hand, truly innovative products are needed to bring added value."

Transforming the commercialization model

It usually takes more than 10 years and costs $1 billion for an innovative drug to go through many challenges such as early research discovery, clinical research, and application for listing before it is successfully launched on the market. The patent period after listing also requires pharmaceutical companies to recover costs as soon as possible and realize more profits. Therefore, the story of new drug development will face the test of commercialization performance at the end.

The current domestic commercialization environment for innovative drugs is full of challenges. Competition from product homogeneity is increasing, and negotiations on medical insurance access and catalog updates have become normalized. This will undoubtedly bring greater uncertainty to market competition and will be a new challenge for Chinese Biotech, which lacks experience in the commercialization of innovative drugs.

Yin Xiaofeng bluntly stated that many innovative pharmaceutical companies in China currently concentrate their resources on research and development and do not yet have the commercialization capabilities. In the face of an increasingly mature market, commercialization through external cooperation will provide more cooperation possibilities for local companies with good commercial operation capabilities at a time when the biopharmaceutical investment environment is cooling.

R&D requires innovation, and so does the business model. The construction of commercialization capabilities often requires years of accumulation and building momentum. While multinational pharmaceutical companies maintain their core markets, it is a general trend to integrate and optimize business models in expanding new sales channels.

Yin Xiaofeng explained by example, "China is a vast country. We chose to build our own teams in core areas to ensure independent management of key projects such as scientific research and development, medical cooperation, and patient education. In non-core areas, we chose to cooperate with capable partners so that cutting-edge medical information and solutions can reach medical institutions and patients in many scattered remote areas."

"The boundaries between core and non-core areas are not static. We will gradually adjust the regional share based on the market share. When there are fewer people in some areas and we cannot form an effective team, we will give priority to converting the area into a partnership model. When the development capabilities of some scenarios in the core areas are limited, we will also look for partners to supplement the insufficient coverage of the core areas through innovative models such as virtual representatives." Yin Xiaofeng further explained that a very strict set of standards is also needed for screening commercial partners. In addition to judging the other party's influence in local markets, management capabilities including compliance are also a point of particular concern to Leo.

In the past two years, the construction of a pharmaceutical compliance system has become an important focus for Chinese and foreign pharmaceutical companies. In addition to routine tasks, such as formulating and implementing strict internal control systems, pharmaceutical companies also need to pay attention to the compliance of marketing and promotion methods, actively explore new business models and innovative paths to improve competitiveness, strengthen communication with regulatory authorities and make timely adjustments as needed. In addition, they need to seize the opportunity of industry reshuffles to reshape their sales systems and the strategic direction of sales personnel.

In Yin Xiaofeng's view, the establishment of a compliance culture is one of the key points for the sustainable development of an enterprise. "Building a commercialization team and a team with a compliance culture requires the accumulation of resources and time; for partners, Leo China extends the compliance system to their internal departments to ensure that compliance control can be carried out to the greatest extent possible."

Urgent need to increase hospital admission coverage

Data from the blue book "Promoting China's Pharmaceutical Innovation with High-Level Opening Up" shows that in terms of accessibility of innovative drugs, from 2011 to 2020, only about 23% of the 408 new drugs launched globally were launched in the Chinese market, while more than 50% were launched in mature markets such as the United States, Britain and Germany. In terms of drug expenditure structure, judging from the drug expenditure structure of G20 countries in 2020, patented drug expenditures accounted for only 11% in China, while mature markets generally accounted for more than 50%... Behind these gaps is the inability of the payment guarantee system to support the development of innovative drugs.

In recent years, my country has clearly defined the goal of "building a multi-level medical security system", and multi-party and diversified payment has become an important breakthrough in ensuring and improving the accessibility of innovative drugs. China's National Medical Insurance Drug List (NRDL) has been updated annually since 2019, which has also promoted the pace of multinational companies launching new drugs in China in recent years.

However, the entry of innovative drugs into medical insurance is only the first step. For pharmaceutical companies, the "last mile" problem of entering hospitals still plagues the entire industry. According to a report released by IQVIA at the end of 2022, among the 3,300 tertiary hospitals in China, only about 10% of hospitals have purchased innovative drugs included in the medical insurance reimbursement catalog in the past five years. Among them, only 5.4% of hospitals purchased innovative drugs included in the medical insurance reimbursement catalog in 2021. The situation of entering hospitals in 2023 is worse than that in 2022.

Yin Xiaofeng also pointed out, "In the past few years, with the advancement of medical reform, the speed of innovative drugs entering hospitals has increased, but the problem of the 'last mile' is still obvious. Although Leo's products have entered China for a long time, the coverage rate in hospitals is still limited. The biggest bottleneck lies in the listing of hospitals. Each hospital has its own requirements and timetable for listing, which brings many challenges to the operational efficiency of pharmaceutical companies. We look forward to the introduction of further implementation paths, accelerating the deep integration of medicine and industry, so that innovative drugs can benefit patients in a timely manner, and also provide stronger support for companies to shorten the R&D investment cycle."

The hospital pharmacy committee responsible for the management of new drug introduction has a great impact on the entry of drugs into hospitals in terms of frequency, rhythm, and information disclosure. At the same time, factors such as the degree of clinical demand for drugs, competition from similar drugs, and payment have also, to a certain extent, hindered the entry of innovative drugs into hospitals after the medical insurance reform.

In order to solve the problem of "difficulty in entering hospitals" for some drugs, my country's regulatory authorities have put forward requirements for the "dual-channel" management of negotiated drugs. That is, through the two channels of designated medical institutions and designated retail pharmacies, the reasonable needs of negotiated drugs in terms of supply guarantee and clinical use are met, and the mechanism of medical insurance payment is simultaneously included.

"From the current situation, the 'dual channel' can only solve some problems to a certain extent. Different hospitals have different attitudes towards the 'dual channel', including the trust problem between doctors and patients, which may also make doctors more concerned about the decision to outsource prescriptions." Yin Xiaofeng explained, "These problems cannot be solved in the short term. It requires the government, experts, enterprises and all parties in the industry to work together to truly make innovative drugs accessible and help patients solve the problem of purchasing and using drugs. As an enterprise, it also needs to start from its own business and expand the coverage of the population with innovative models to improve the accessibility of drugs. For example, in addition to the hospital end, online and offline retail business can be carried out simultaneously."

Only by adapting can we survive. Under the patient-centric market strategy, multinational pharmaceutical companies have increased their omni-channel layout in China and sold their products to multiple channels such as hospitals, pharmacies, and Internet e-commerce. Behind this is also the repositioning of multinational pharmaceutical companies in the current changes in the internal and external environment.