China healthcare reforms up the stakes for big pharma: Datamonitor

With the Chinese government set to spend $US125 billion on healthcare by the end of next year, the scale of new market opportunities is expected to result in an unprecedented level of investment by foreign pharmaceutical companies, according to a report by industry analysts Datamonitor.

But it warns that they will be subject to strict price controls, the likes of which they have probably never encountered before.

“China’s healthcare reform package is aiming to improve the country’s healthcare system with regards to medical insurance and access to essential medications,” said Datamonitor healthcare analyst and author of the report Ling Sun.

Key to doing this will be keeping costs down.

Currently many essential medications are beyond the reach of a large proportion of China’s almost 1.4 billion people, with around 50 percent of all healthcare costs borne by individuals themselves.

Among the key reforms being undertaken in China is the restructure of the National Reimbursement Drug List (NRDL) as well as the formation of the new Essential Drug List (EDL).

Together they are expected to result in better access to healthcare services and products for around 90 percent of China’s population.

The downside for foreign companies wanting access to this enormous market is that they must first agree to have their drugs listed in the NDRL, therefore exposing them to government pricing regulations and further price cuts.

“This revised reimbursement scheme therefore brings mixed messages for big pharma operating in China,” said Sun.

“Foreign companies operating in China face a trade-off between a low price/high volume strategy by agreeing to include its innovative drugs in the NRDL, versus a high price/low volume approach by refusing to do so.”

On the upside however, foreign pharmaceutical companies are generally finding it easier to do business in China thanks to improvements in the intellectual property environment while the introduction of an accelerated approval process for certain types of drugs is expected to encourage the opening of more foreign run R&D centres in China.

“The growing reputation of the Chinese research capabilities has prompted many foreign companies to open R&D centres and also encouraged them to look for R&D collaborations with local players in China,” explained Sun. What’s more, operating costs remain significantly lower than they are in the west.

The potential opportunities for foreign pharmaceutical companies in China was underscored earlier this year when the Chinese National Diabetes and Metabolic Disorders Study reported that some 10 percent of people in China suffer some form of diabetes, making the country the world’s most diabetes-affected nation.

But the real picture could be even more alarming as generally low awareness of diabetes combined with poorly resourced and educated healthcare professionals mean that there are currently very low rate of diagnoses.