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China Healthcare and Life Sciences 2020

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China Healthcare and Life Sciences 2020 …

China Healthcare and Life Sciences 2020
World’s Largest Transformation: How is Big-Pharma Leveraging the Opportunity?

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  • In state-owned hospitals, CEO is the key responsible person. So they are also the key decision-maker of the decision-making team in medical equipment purchase, instead of the expert who use the equipment as key person in western hospitals.Because CEO is not professional in techniques of the equipment to purchase, so in Chinese market, technical advantages are not as powerful as in western market. CEOs only recognize key parameter differences. So setting up industry standard and right positioning are the most important works to do in medical equipment marketing.The decision making team in China’s state-owned hospitals have a very complicated and even uncertain structure. Team members within hospital include CEO, vice CEOs, party secretary, equipment officer, user department director, related department directors, etc. Team members outside hospital include reference experts, healthcare bureau, government leader, related university dean, etc. To conquer such a big team, a sales dream-team is a must need
  • On April 6, 2009, the Central Committee of the Communist Party of China (“CCCPC”) and the State Council jointly endorsed and issued the Guidelines on Deepening the Reform of the Healthcare System (”Guidelines”)1, followed by the Implementation Plan on Focuses for Deepening the Reform of the Healthcare System 2009-2011 issued on April 7, 2009 (“Implementation Plan”)2. The Guidelines focus on directions, objectives and policy structure to reform the healthcare system in the long term, while the Implementation Plan details objectives in the coming three years. Priorities of China’s health reforms include:Expansion of health insurance programs, especially rural healthcare cooperatives• Building hospitals and clinics• Reducing government expenditures for drug costs• This memorandum addresses some of the efforts to control drug costs through the national essential drug system.Regulatory Frame work is improving: Guangdong Provincial FDA’s decision to revoke the licenses of 67 medical device manufactures and nearly three hundred distributors for producing and selling sub-standard goods. Meanwhile, the SFDA – China’s premier food, drug and medical device watchdog – recently completed the draft version of the revised regulations for the supervision and administration of medical devices. These two developments give a clear signal that quality is becoming increasing important, which is good news for the multinationals and also enlightened indigenous playersNational Essential Drug System – Program ChangesOne of the major reforms in the healthcare system in 2009-2011 will be the establishment of the National Essential Drug System, which covers three primary areas:1) Establishing the administrative system to adjust the National Essential Drug List. The National Essential Drug List will be renewed periodically. Ma Xiaowei, Vice Minister of Health, said in early April 2009 that the formulation of the National Essential Drug List is the first task to establish the National Essential Drug System, and it was intended to be issued in April3. As of early May, however, the List has not yet been published. 2) Establishing a bidding process for essential drugs. Both the producer and the supplier of essential drugs used by government affiliated medical institutions may be required to participate in public bidding held by institutions designated by the provincial-level government. Enterprises in various regions and in various ownerships shall be treated equal in the bidding. Purchase/pricing of essential drugs with small dosage, and certain designated production/suppliers will be structured through bidding. The central government will set guiding retail prices for essential drugs, while provincial-level governments may set unified prices of essential drugs in the corresponding regions within the price scope set by the central government. Government affiliated basic medical institutions shall sell drugs to patients at the purchase price without markup.3) Establishing a system that encourages the use of essential drugs. All government affiliated retail drug stores and medical institutions shall have and sell national essential drugs for patients’ needs. Urban and rural basic medical institutions shall all use national essential drugs, while other medical institutions shall give priority to the use of essential drugs and follow the requirement on utilization percentage of essential drugs which will be set by the health administrations later. All the essential drugs will be covered by the basic medical insurance system, and may see higher reimbursement rates than non-essential drugs in the insurance system. 2New drugs and patented drugs will be subject to an economic evaluation to help determine pricing. The economic evaluation is intended to provide an objective analysis of quality, curative effect, cost, safety, and other clinical and economic features. These evaluations will contribute not only to drug pricing, but also to the formulation of a drug reimbursement catalogue, formulation of national essential drug list, and prescription plans at medical institutions for patients. Further, in order to control costs, new generic drugs will be required to be sold at the current lowest market price. The markup percentage in the drug distribution will also be strictly regulated. Drug pricing in China currently is under the primary supervision of the National Development and Reform Commission (NDRC) and the State Food and Drug Administration (SFDA). Hospital Purchase/Sale of DrugsAnother major reform involves restrictions on public hospitals’ purchase and sale of drugs. More specifically, hospitals will no longer be able to markup the price on drugs in sales to patients. The percentage markups of drug prices will be gradually eliminated. To protect hospitals from significantly reduced revenues, patients’ payment to hospitals for medical services will be increased, and the government will also increase subsidies to public hospitals on infrastructure construction, purchase of capital equipment, public sanitary missions, etc.. Basic medical services of non-profit medical institutions shall follow the guiding price set by the government, and medical institutions are independent to price other medical services. The central government will work out the pricing policies and measures on medical services, and the provincial-level or the municipal-level pricing authorities will set the guiding prices jointly with the administration of health, human resources and social security. Observations and Implications:The Guidelines and the Implementation Plan are another step for the Chinese government to lower drug prices. Provincial-level governments will have the power to set drug prices of essential drugs in the corresponding jurisdictions through public bidding. Essential drugs will be sold in government affiliated basic medical institutions at the purchase price without markup, while in the future, both essential drugs and non-essential drugs will be sold without markup in more medical institutions including public hospitals. Official figures suggest that currently, about half the income of China’s general hospitals may come from price markups of the drugs sold to maintain operations. The government will reinforce the financial support to those institutions to maintain their daily operations. The unified procurement of essential drugs is intended to be fair to both domestic and foreign invested drug companies, as pursuant to the Implementation Plan, “enterprises in various regions and various ownerships are equal in taking part in the fair competition” in the bidding.To promote the reform, the State Council has established the Steering Team on Deepening the Reform of the Healthcare System, which is under the leadership of Vice Premier Li Keqiang and composed of officials from 16 ministries of the State Council including the National Development and Reform Commission, the Ministry of Health, the Ministry of Finance, the Ministry of Human Resources and Social Security, etc. The Steering Team will be responsible for formulating pilot program policies and principles. More affiliated documents and regulations on operations are expected to emerge soon.dk
  • In state-owned hospitals, CEO is the key responsible person. So they are also the key decision-maker of the decision-making team in medical equipment purchase, instead of the expert who use the equipment as key person in western hospitals.Because CEO is not professional in techniques of the equipment to purchase, so in Chinese market, technical advantages are not as powerful as in western market. CEOs only recognize key parameter differences. So setting up industry standard and right positioning are the most important works to do in medical equipment marketing.The decision making team in China’s state-owned hospitals have a very complicated and even uncertain structure. Team members within hospital include CEO, vice CEOs, party secretary, equipment officer, user department director, related department directors, etc. Team members outside hospital include reference experts, healthcare bureau, government leader, related university dean, etc. To conquer such a big team, a sales dream-team is a must need
  • In state-owned hospitals, CEO is the key responsible person. So they are also the key decision-maker of the decision-making team in medical equipment purchase, instead of the expert who use the equipment as key person in western hospitals.Because CEO is not professional in techniques of the equipment to purchase, so in Chinese market, technical advantages are not as powerful as in western market. CEOs only recognize key parameter differences. So setting up industry standard and right positioning are the most important works to do in medical equipment marketing.The decision making team in China’s state-owned hospitals have a very complicated and even uncertain structure. Team members within hospital include CEO, vice CEOs, party secretary, equipment officer, user department director, related department directors, etc. Team members outside hospital include reference experts, healthcare bureau, government leader, related university dean, etc. To conquer such a big team, a sales dream-team is a must need
  • In state-owned hospitals, CEO is the key responsible person. So they are also the key decision-maker of the decision-making team in medical equipment purchase, instead of the expert who use the equipment as key person in western hospitals.Because CEO is not professional in techniques of the equipment to purchase, so in Chinese market, technical advantages are not as powerful as in western market. CEOs only recognize key parameter differences. So setting up industry standard and right positioning are the most important works to do in medical equipment marketing.The decision making team in China’s state-owned hospitals have a very complicated and even uncertain structure. Team members within hospital include CEO, vice CEOs, party secretary, equipment officer, user department director, related department directors, etc. Team members outside hospital include reference experts, healthcare bureau, government leader, related university dean, etc. To conquer such a big team, a sales dream-team is a must need
  • In state-owned hospitals, CEO is the key responsible person. So they are also the key decision-maker of the decision-making team in medical equipment purchase, instead of the expert who use the equipment as key person in western hospitals.Because CEO is not professional in techniques of the equipment to purchase, so in Chinese market, technical advantages are not as powerful as in western market. CEOs only recognize key parameter differences. So setting up industry standard and right positioning are the most important works to do in medical equipment marketing.The decision making team in China’s state-owned hospitals have a very complicated and even uncertain structure. Team members within hospital include CEO, vice CEOs, party secretary, equipment officer, user department director, related department directors, etc. Team members outside hospital include reference experts, healthcare bureau, government leader, related university dean, etc. To conquer such a big team, a sales dream-team is a must need
  • On April 6, 2009, the Central Committee of the Communist Party of China (“CCCPC”) and the State Council jointly endorsed and issued the Guidelines on Deepening the Reform of the Healthcare System (”Guidelines”)1, followed by the Implementation Plan on Focuses for Deepening the Reform of the Healthcare System 2009-2011 issued on April 7, 2009 (“Implementation Plan”)2. The Guidelines focus on directions, objectives and policy structure to reform the healthcare system in the long term, while the Implementation Plan details objectives in the coming three years. Priorities of China’s health reforms include:Expansion of health insurance programs, especially rural healthcare cooperatives• Building hospitals and clinics• Reducing government expenditures for drug costs• This memorandum addresses some of the efforts to control drug costs through the national essential drug system.Regulatory Frame work is improving: Guangdong Provincial FDA’s decision to revoke the licenses of 67 medical device manufactures and nearly three hundred distributors for producing and selling sub-standard goods. Meanwhile, the SFDA – China’s premier food, drug and medical device watchdog – recently completed the draft version of the revised regulations for the supervision and administration of medical devices. These two developments give a clear signal that quality is becoming increasing important, which is good news for the multinationals and also enlightened indigenous playersNational Essential Drug System – Program ChangesOne of the major reforms in the healthcare system in 2009-2011 will be the establishment of the National Essential Drug System, which covers three primary areas:1) Establishing the administrative system to adjust the National Essential Drug List. The National Essential Drug List will be renewed periodically. Ma Xiaowei, Vice Minister of Health, said in early April 2009 that the formulation of the National Essential Drug List is the first task to establish the National Essential Drug System, and it was intended to be issued in April3. As of early May, however, the List has not yet been published. 2) Establishing a bidding process for essential drugs. Both the producer and the supplier of essential drugs used by government affiliated medical institutions may be required to participate in public bidding held by institutions designated by the provincial-level government. Enterprises in various regions and in various ownerships shall be treated equal in the bidding. Purchase/pricing of essential drugs with small dosage, and certain designated production/suppliers will be structured through bidding. The central government will set guiding retail prices for essential drugs, while provincial-level governments may set unified prices of essential drugs in the corresponding regions within the price scope set by the central government. Government affiliated basic medical institutions shall sell drugs to patients at the purchase price without markup.3) Establishing a system that encourages the use of essential drugs. All government affiliated retail drug stores and medical institutions shall have and sell national essential drugs for patients’ needs. Urban and rural basic medical institutions shall all use national essential drugs, while other medical institutions shall give priority to the use of essential drugs and follow the requirement on utilization percentage of essential drugs which will be set by the health administrations later. All the essential drugs will be covered by the basic medical insurance system, and may see higher reimbursement rates than non-essential drugs in the insurance system. 2New drugs and patented drugs will be subject to an economic evaluation to help determine pricing. The economic evaluation is intended to provide an objective analysis of quality, curative effect, cost, safety, and other clinical and economic features. These evaluations will contribute not only to drug pricing, but also to the formulation of a drug reimbursement catalogue, formulation of national essential drug list, and prescription plans at medical institutions for patients. Further, in order to control costs, new generic drugs will be required to be sold at the current lowest market price. The markup percentage in the drug distribution will also be strictly regulated. Drug pricing in China currently is under the primary supervision of the National Development and Reform Commission (NDRC) and the State Food and Drug Administration (SFDA). Hospital Purchase/Sale of DrugsAnother major reform involves restrictions on public hospitals’ purchase and sale of drugs. More specifically, hospitals will no longer be able to markup the price on drugs in sales to patients. The percentage markups of drug prices will be gradually eliminated. To protect hospitals from significantly reduced revenues, patients’ payment to hospitals for medical services will be increased, and the government will also increase subsidies to public hospitals on infrastructure construction, purchase of capital equipment, public sanitary missions, etc.. Basic medical services of non-profit medical institutions shall follow the guiding price set by the government, and medical institutions are independent to price other medical services. The central government will work out the pricing policies and measures on medical services, and the provincial-level or the municipal-level pricing authorities will set the guiding prices jointly with the administration of health, human resources and social security. Observations and Implications:The Guidelines and the Implementation Plan are another step for the Chinese government to lower drug prices. Provincial-level governments will have the power to set drug prices of essential drugs in the corresponding jurisdictions through public bidding. Essential drugs will be sold in government affiliated basic medical institutions at the purchase price without markup, while in the future, both essential drugs and non-essential drugs will be sold without markup in more medical institutions including public hospitals. Official figures suggest that currently, about half the income of China’s general hospitals may come from price markups of the drugs sold to maintain operations. The government will reinforce the financial support to those institutions to maintain their daily operations. The unified procurement of essential drugs is intended to be fair to both domestic and foreign invested drug companies, as pursuant to the Implementation Plan, “enterprises in various regions and various ownerships are equal in taking part in the fair competition” in the bidding.To promote the reform, the State Council has established the Steering Team on Deepening the Reform of the Healthcare System, which is under the leadership of Vice Premier Li Keqiang and composed of officials from 16 ministries of the State Council including the National Development and Reform Commission, the Ministry of Health, the Ministry of Finance, the Ministry of Human Resources and Social Security, etc. The Steering Team will be responsible for formulating pilot program policies and principles. More affiliated documents and regulations on operations are expected to emerge soon.dk
  • On April 6, 2009, the Central Committee of the Communist Party of China (“CCCPC”) and the State Council jointly endorsed and issued the Guidelines on Deepening the Reform of the Healthcare System (”Guidelines”)1, followed by the Implementation Plan on Focuses for Deepening the Reform of the Healthcare System 2009-2011 issued on April 7, 2009 (“Implementation Plan”)2. The Guidelines focus on directions, objectives and policy structure to reform the healthcare system in the long term, while the Implementation Plan details objectives in the coming three years. Priorities of China’s health reforms include:Expansion of health insurance programs, especially rural healthcare cooperatives• Building hospitals and clinics• Reducing government expenditures for drug costs• This memorandum addresses some of the efforts to control drug costs through the national essential drug system.Regulatory Frame work is improving: Guangdong Provincial FDA’s decision to revoke the licenses of 67 medical device manufactures and nearly three hundred distributors for producing and selling sub-standard goods. Meanwhile, the SFDA – China’s premier food, drug and medical device watchdog – recently completed the draft version of the revised regulations for the supervision and administration of medical devices. These two developments give a clear signal that quality is becoming increasing important, which is good news for the multinationals and also enlightened indigenous playersNational Essential Drug System – Program ChangesOne of the major reforms in the healthcare system in 2009-2011 will be the establishment of the National Essential Drug System, which covers three primary areas:1) Establishing the administrative system to adjust the National Essential Drug List. The National Essential Drug List will be renewed periodically. Ma Xiaowei, Vice Minister of Health, said in early April 2009 that the formulation of the National Essential Drug List is the first task to establish the National Essential Drug System, and it was intended to be issued in April3. As of early May, however, the List has not yet been published. 2) Establishing a bidding process for essential drugs. Both the producer and the supplier of essential drugs used by government affiliated medical institutions may be required to participate in public bidding held by institutions designated by the provincial-level government. Enterprises in various regions and in various ownerships shall be treated equal in the bidding. Purchase/pricing of essential drugs with small dosage, and certain designated production/suppliers will be structured through bidding. The central government will set guiding retail prices for essential drugs, while provincial-level governments may set unified prices of essential drugs in the corresponding regions within the price scope set by the central government. Government affiliated basic medical institutions shall sell drugs to patients at the purchase price without markup.3) Establishing a system that encourages the use of essential drugs. All government affiliated retail drug stores and medical institutions shall have and sell national essential drugs for patients’ needs. Urban and rural basic medical institutions shall all use national essential drugs, while other medical institutions shall give priority to the use of essential drugs and follow the requirement on utilization percentage of essential drugs which will be set by the health administrations later. All the essential drugs will be covered by the basic medical insurance system, and may see higher reimbursement rates than non-essential drugs in the insurance system. 2New drugs and patented drugs will be subject to an economic evaluation to help determine pricing. The economic evaluation is intended to provide an objective analysis of quality, curative effect, cost, safety, and other clinical and economic features. These evaluations will contribute not only to drug pricing, but also to the formulation of a drug reimbursement catalogue, formulation of national essential drug list, and prescription plans at medical institutions for patients. Further, in order to control costs, new generic drugs will be required to be sold at the current lowest market price. The markup percentage in the drug distribution will also be strictly regulated. Drug pricing in China currently is under the primary supervision of the National Development and Reform Commission (NDRC) and the State Food and Drug Administration (SFDA). Hospital Purchase/Sale of DrugsAnother major reform involves restrictions on public hospitals’ purchase and sale of drugs. More specifically, hospitals will no longer be able to markup the price on drugs in sales to patients. The percentage markups of drug prices will be gradually eliminated. To protect hospitals from significantly reduced revenues, patients’ payment to hospitals for medical services will be increased, and the government will also increase subsidies to public hospitals on infrastructure construction, purchase of capital equipment, public sanitary missions, etc.. Basic medical services of non-profit medical institutions shall follow the guiding price set by the government, and medical institutions are independent to price other medical services. The central government will work out the pricing policies and measures on medical services, and the provincial-level or the municipal-level pricing authorities will set the guiding prices jointly with the administration of health, human resources and social security. Observations and Implications:The Guidelines and the Implementation Plan are another step for the Chinese government to lower drug prices. Provincial-level governments will have the power to set drug prices of essential drugs in the corresponding jurisdictions through public bidding. Essential drugs will be sold in government affiliated basic medical institutions at the purchase price without markup, while in the future, both essential drugs and non-essential drugs will be sold without markup in more medical institutions including public hospitals. Official figures suggest that currently, about half the income of China’s general hospitals may come from price markups of the drugs sold to maintain operations. The government will reinforce the financial support to those institutions to maintain their daily operations. The unified procurement of essential drugs is intended to be fair to both domestic and foreign invested drug companies, as pursuant to the Implementation Plan, “enterprises in various regions and various ownerships are equal in taking part in the fair competition” in the bidding.To promote the reform, the State Council has established the Steering Team on Deepening the Reform of the Healthcare System, which is under the leadership of Vice Premier Li Keqiang and composed of officials from 16 ministries of the State Council including the National Development and Reform Commission, the Ministry of Health, the Ministry of Finance, the Ministry of Human Resources and Social Security, etc. The Steering Team will be responsible for formulating pilot program policies and principles. More affiliated documents and regulations on operations are expected to emerge soon.dk
  • In state-owned hospitals, CEO is the key responsible person. So they are also the key decision-maker of the decision-making team in medical equipment purchase, instead of the expert who use the equipment as key person in western hospitals.Because CEO is not professional in techniques of the equipment to purchase, so in Chinese market, technical advantages are not as powerful as in western market. CEOs only recognize key parameter differences. So setting up industry standard and right positioning are the most important works to do in medical equipment marketing.The decision making team in China’s state-owned hospitals have a very complicated and even uncertain structure. Team members within hospital include CEO, vice CEOs, party secretary, equipment officer, user department director, related department directors, etc. Team members outside hospital include reference experts, healthcare bureau, government leader, related university dean, etc. To conquer such a big team, a sales dream-team is a must need
  • In state-owned hospitals, CEO is the key responsible person. So they are also the key decision-maker of the decision-making team in medical equipment purchase, instead of the expert who use the equipment as key person in western hospitals.Because CEO is not professional in techniques of the equipment to purchase, so in Chinese market, technical advantages are not as powerful as in western market. CEOs only recognize key parameter differences. So setting up industry standard and right positioning are the most important works to do in medical equipment marketing.The decision making team in China’s state-owned hospitals have a very complicated and even uncertain structure. Team members within hospital include CEO, vice CEOs, party secretary, equipment officer, user department director, related department directors, etc. Team members outside hospital include reference experts, healthcare bureau, government leader, related university dean, etc. To conquer such a big team, a sales dream-team is a must need
  • In state-owned hospitals, CEO is the key responsible person. So they are also the key decision-maker of the decision-making team in medical equipment purchase, instead of the expert who use the equipment as key person in western hospitals.Because CEO is not professional in techniques of the equipment to purchase, so in Chinese market, technical advantages are not as powerful as in western market. CEOs only recognize key parameter differences. So setting up industry standard and right positioning are the most important works to do in medical equipment marketing.The decision making team in China’s state-owned hospitals have a very complicated and even uncertain structure. Team members within hospital include CEO, vice CEOs, party secretary, equipment officer, user department director, related department directors, etc. Team members outside hospital include reference experts, healthcare bureau, government leader, related university dean, etc. To conquer such a big team, a sales dream-team is a must need
  • In state-owned hospitals, CEO is the key responsible person. So they are also the key decision-maker of the decision-making team in medical equipment purchase, instead of the expert who use the equipment as key person in western hospitals.Because CEO is not professional in techniques of the equipment to purchase, so in Chinese market, technical advantages are not as powerful as in western market. CEOs only recognize key parameter differences. So setting up industry standard and right positioning are the most important works to do in medical equipment marketing.The decision making team in China’s state-owned hospitals have a very complicated and even uncertain structure. Team members within hospital include CEO, vice CEOs, party secretary, equipment officer, user department director, related department directors, etc. Team members outside hospital include reference experts, healthcare bureau, government leader, related university dean, etc. To conquer such a big team, a sales dream-team is a must need
  • In state-owned hospitals, CEO is the key responsible person. So they are also the key decision-maker of the decision-making team in medical equipment purchase, instead of the expert who use the equipment as key person in western hospitals.Because CEO is not professional in techniques of the equipment to purchase, so in Chinese market, technical advantages are not as powerful as in western market. CEOs only recognize key parameter differences. So setting up industry standard and right positioning are the most important works to do in medical equipment marketing.The decision making team in China’s state-owned hospitals have a very complicated and even uncertain structure. Team members within hospital include CEO, vice CEOs, party secretary, equipment officer, user department director, related department directors, etc. Team members outside hospital include reference experts, healthcare bureau, government leader, related university dean, etc. To conquer such a big team, a sales dream-team is a must need
  • In state-owned hospitals, CEO is the key responsible person. So they are also the key decision-maker of the decision-making team in medical equipment purchase, instead of the expert who use the equipment as key person in western hospitals.Because CEO is not professional in techniques of the equipment to purchase, so in Chinese market, technical advantages are not as powerful as in western market. CEOs only recognize key parameter differences. So setting up industry standard and right positioning are the most important works to do in medical equipment marketing.The decision making team in China’s state-owned hospitals have a very complicated and even uncertain structure. Team members within hospital include CEO, vice CEOs, party secretary, equipment officer, user department director, related department directors, etc. Team members outside hospital include reference experts, healthcare bureau, government leader, related university dean, etc. To conquer such a big team, a sales dream-team is a must need
  • In state-owned hospitals, CEO is the key responsible person. So they are also the key decision-maker of the decision-making team in medical equipment purchase, instead of the expert who use the equipment as key person in western hospitals.Because CEO is not professional in techniques of the equipment to purchase, so in Chinese market, technical advantages are not as powerful as in western market. CEOs only recognize key parameter differences. So setting up industry standard and right positioning are the most important works to do in medical equipment marketing.The decision making team in China’s state-owned hospitals have a very complicated and even uncertain structure. Team members within hospital include CEO, vice CEOs, party secretary, equipment officer, user department director, related department directors, etc. Team members outside hospital include reference experts, healthcare bureau, government leader, related university dean, etc. To conquer such a big team, a sales dream-team is a must need
  • In state-owned hospitals, CEO is the key responsible person. So they are also the key decision-maker of the decision-making team in medical equipment purchase, instead of the expert who use the equipment as key person in western hospitals.Because CEO is not professional in techniques of the equipment to purchase, so in Chinese market, technical advantages are not as powerful as in western market. CEOs only recognize key parameter differences. So setting up industry standard and right positioning are the most important works to do in medical equipment marketing.The decision making team in China’s state-owned hospitals have a very complicated and even uncertain structure. Team members within hospital include CEO, vice CEOs, party secretary, equipment officer, user department director, related department directors, etc. Team members outside hospital include reference experts, healthcare bureau, government leader, related university dean, etc. To conquer such a big team, a sales dream-team is a must need
  • In state-owned hospitals, CEO is the key responsible person. So they are also the key decision-maker of the decision-making team in medical equipment purchase, instead of the expert who use the equipment as key person in western hospitals.Because CEO is not professional in techniques of the equipment to purchase, so in Chinese market, technical advantages are not as powerful as in western market. CEOs only recognize key parameter differences. So setting up industry standard and right positioning are the most important works to do in medical equipment marketing.The decision making team in China’s state-owned hospitals have a very complicated and even uncertain structure. Team members within hospital include CEO, vice CEOs, party secretary, equipment officer, user department director, related department directors, etc. Team members outside hospital include reference experts, healthcare bureau, government leader, related university dean, etc. To conquer such a big team, a sales dream-team is a must need
  • On April 6, 2009, the Central Committee of the Communist Party of China (“CCCPC”) and the State Council jointly endorsed and issued the Guidelines on Deepening the Reform of the Healthcare System (”Guidelines”)1, followed by the Implementation Plan on Focuses for Deepening the Reform of the Healthcare System 2009-2011 issued on April 7, 2009 (“Implementation Plan”)2. The Guidelines focus on directions, objectives and policy structure to reform the healthcare system in the long term, while the Implementation Plan details objectives in the coming three years. Priorities of China’s health reforms include:Expansion of health insurance programs, especially rural healthcare cooperatives• Building hospitals and clinics• Reducing government expenditures for drug costs• This memorandum addresses some of the efforts to control drug costs through the national essential drug system.Regulatory Frame work is improving: Guangdong Provincial FDA’s decision to revoke the licenses of 67 medical device manufactures and nearly three hundred distributors for producing and selling sub-standard goods. Meanwhile, the SFDA – China’s premier food, drug and medical device watchdog – recently completed the draft version of the revised regulations for the supervision and administration of medical devices. These two developments give a clear signal that quality is becoming increasing important, which is good news for the multinationals and also enlightened indigenous playersNational Essential Drug System – Program ChangesOne of the major reforms in the healthcare system in 2009-2011 will be the establishment of the National Essential Drug System, which covers three primary areas:1) Establishing the administrative system to adjust the National Essential Drug List. The National Essential Drug List will be renewed periodically. Ma Xiaowei, Vice Minister of Health, said in early April 2009 that the formulation of the National Essential Drug List is the first task to establish the National Essential Drug System, and it was intended to be issued in April3. As of early May, however, the List has not yet been published. 2) Establishing a bidding process for essential drugs. Both the producer and the supplier of essential drugs used by government affiliated medical institutions may be required to participate in public bidding held by institutions designated by the provincial-level government. Enterprises in various regions and in various ownerships shall be treated equal in the bidding. Purchase/pricing of essential drugs with small dosage, and certain designated production/suppliers will be structured through bidding. The central government will set guiding retail prices for essential drugs, while provincial-level governments may set unified prices of essential drugs in the corresponding regions within the price scope set by the central government. Government affiliated basic medical institutions shall sell drugs to patients at the purchase price without markup.3) Establishing a system that encourages the use of essential drugs. All government affiliated retail drug stores and medical institutions shall have and sell national essential drugs for patients’ needs. Urban and rural basic medical institutions shall all use national essential drugs, while other medical institutions shall give priority to the use of essential drugs and follow the requirement on utilization percentage of essential drugs which will be set by the health administrations later. All the essential drugs will be covered by the basic medical insurance system, and may see higher reimbursement rates than non-essential drugs in the insurance system. 2New drugs and patented drugs will be subject to an economic evaluation to help determine pricing. The economic evaluation is intended to provide an objective analysis of quality, curative effect, cost, safety, and other clinical and economic features. These evaluations will contribute not only to drug pricing, but also to the formulation of a drug reimbursement catalogue, formulation of national essential drug list, and prescription plans at medical institutions for patients. Further, in order to control costs, new generic drugs will be required to be sold at the current lowest market price. The markup percentage in the drug distribution will also be strictly regulated. Drug pricing in China currently is under the primary supervision of the National Development and Reform Commission (NDRC) and the State Food and Drug Administration (SFDA). Hospital Purchase/Sale of DrugsAnother major reform involves restrictions on public hospitals’ purchase and sale of drugs. More specifically, hospitals will no longer be able to markup the price on drugs in sales to patients. The percentage markups of drug prices will be gradually eliminated. To protect hospitals from significantly reduced revenues, patients’ payment to hospitals for medical services will be increased, and the government will also increase subsidies to public hospitals on infrastructure construction, purchase of capital equipment, public sanitary missions, etc.. Basic medical services of non-profit medical institutions shall follow the guiding price set by the government, and medical institutions are independent to price other medical services. The central government will work out the pricing policies and measures on medical services, and the provincial-level or the municipal-level pricing authorities will set the guiding prices jointly with the administration of health, human resources and social security. Observations and Implications:The Guidelines and the Implementation Plan are another step for the Chinese government to lower drug prices. Provincial-level governments will have the power to set drug prices of essential drugs in the corresponding jurisdictions through public bidding. Essential drugs will be sold in government affiliated basic medical institutions at the purchase price without markup, while in the future, both essential drugs and non-essential drugs will be sold without markup in more medical institutions including public hospitals. Official figures suggest that currently, about half the income of China’s general hospitals may come from price markups of the drugs sold to maintain operations. The government will reinforce the financial support to those institutions to maintain their daily operations. The unified procurement of essential drugs is intended to be fair to both domestic and foreign invested drug companies, as pursuant to the Implementation Plan, “enterprises in various regions and various ownerships are equal in taking part in the fair competition” in the bidding.To promote the reform, the State Council has established the Steering Team on Deepening the Reform of the Healthcare System, which is under the leadership of Vice Premier Li Keqiang and composed of officials from 16 ministries of the State Council including the National Development and Reform Commission, the Ministry of Health, the Ministry of Finance, the Ministry of Human Resources and Social Security, etc. The Steering Team will be responsible for formulating pilot program policies and principles. More affiliated documents and regulations on operations are expected to emerge soon.dk
  • On April 6, 2009, the Central Committee of the Communist Party of China (“CCCPC”) and the State Council jointly endorsed and issued the Guidelines on Deepening the Reform of the Healthcare System (”Guidelines”)1, followed by the Implementation Plan on Focuses for Deepening the Reform of the Healthcare System 2009-2011 issued on April 7, 2009 (“Implementation Plan”)2. The Guidelines focus on directions, objectives and policy structure to reform the healthcare system in the long term, while the Implementation Plan details objectives in the coming three years. Priorities of China’s health reforms include:Expansion of health insurance programs, especially rural healthcare cooperatives• Building hospitals and clinics• Reducing government expenditures for drug costs• This memorandum addresses some of the efforts to control drug costs through the national essential drug system.Regulatory Frame work is improving: Guangdong Provincial FDA’s decision to revoke the licenses of 67 medical device manufactures and nearly three hundred distributors for producing and selling sub-standard goods. Meanwhile, the SFDA – China’s premier food, drug and medical device watchdog – recently completed the draft version of the revised regulations for the supervision and administration of medical devices. These two developments give a clear signal that quality is becoming increasing important, which is good news for the multinationals and also enlightened indigenous playersNational Essential Drug System – Program ChangesOne of the major reforms in the healthcare system in 2009-2011 will be the establishment of the National Essential Drug System, which covers three primary areas:1) Establishing the administrative system to adjust the National Essential Drug List. The National Essential Drug List will be renewed periodically. Ma Xiaowei, Vice Minister of Health, said in early April 2009 that the formulation of the National Essential Drug List is the first task to establish the National Essential Drug System, and it was intended to be issued in April3. As of early May, however, the List has not yet been published. 2) Establishing a bidding process for essential drugs. Both the producer and the supplier of essential drugs used by government affiliated medical institutions may be required to participate in public bidding held by institutions designated by the provincial-level government. Enterprises in various regions and in various ownerships shall be treated equal in the bidding. Purchase/pricing of essential drugs with small dosage, and certain designated production/suppliers will be structured through bidding. The central government will set guiding retail prices for essential drugs, while provincial-level governments may set unified prices of essential drugs in the corresponding regions within the price scope set by the central government. Government affiliated basic medical institutions shall sell drugs to patients at the purchase price without markup.3) Establishing a system that encourages the use of essential drugs. All government affiliated retail drug stores and medical institutions shall have and sell national essential drugs for patients’ needs. Urban and rural basic medical institutions shall all use national essential drugs, while other medical institutions shall give priority to the use of essential drugs and follow the requirement on utilization percentage of essential drugs which will be set by the health administrations later. All the essential drugs will be covered by the basic medical insurance system, and may see higher reimbursement rates than non-essential drugs in the insurance system. 2New drugs and patented drugs will be subject to an economic evaluation to help determine pricing. The economic evaluation is intended to provide an objective analysis of quality, curative effect, cost, safety, and other clinical and economic features. These evaluations will contribute not only to drug pricing, but also to the formulation of a drug reimbursement catalogue, formulation of national essential drug list, and prescription plans at medical institutions for patients. Further, in order to control costs, new generic drugs will be required to be sold at the current lowest market price. The markup percentage in the drug distribution will also be strictly regulated. Drug pricing in China currently is under the primary supervision of the National Development and Reform Commission (NDRC) and the State Food and Drug Administration (SFDA). Hospital Purchase/Sale of DrugsAnother major reform involves restrictions on public hospitals’ purchase and sale of drugs. More specifically, hospitals will no longer be able to markup the price on drugs in sales to patients. The percentage markups of drug prices will be gradually eliminated. To protect hospitals from significantly reduced revenues, patients’ payment to hospitals for medical services will be increased, and the government will also increase subsidies to public hospitals on infrastructure construction, purchase of capital equipment, public sanitary missions, etc.. Basic medical services of non-profit medical institutions shall follow the guiding price set by the government, and medical institutions are independent to price other medical services. The central government will work out the pricing policies and measures on medical services, and the provincial-level or the municipal-level pricing authorities will set the guiding prices jointly with the administration of health, human resources and social security. Observations and Implications:The Guidelines and the Implementation Plan are another step for the Chinese government to lower drug prices. Provincial-level governments will have the power to set drug prices of essential drugs in the corresponding jurisdictions through public bidding. Essential drugs will be sold in government affiliated basic medical institutions at the purchase price without markup, while in the future, both essential drugs and non-essential drugs will be sold without markup in more medical institutions including public hospitals. Official figures suggest that currently, about half the income of China’s general hospitals may come from price markups of the drugs sold to maintain operations. The government will reinforce the financial support to those institutions to maintain their daily operations. The unified procurement of essential drugs is intended to be fair to both domestic and foreign invested drug companies, as pursuant to the Implementation Plan, “enterprises in various regions and various ownerships are equal in taking part in the fair competition” in the bidding.To promote the reform, the State Council has established the Steering Team on Deepening the Reform of the Healthcare System, which is under the leadership of Vice Premier Li Keqiang and composed of officials from 16 ministries of the State Council including the National Development and Reform Commission, the Ministry of Health, the Ministry of Finance, the Ministry of Human Resources and Social Security, etc. The Steering Team will be responsible for formulating pilot program policies and principles. More affiliated documents and regulations on operations are expected to emerge soon.dk
  • On April 6, 2009, the Central Committee of the Communist Party of China (“CCCPC”) and the State Council jointly endorsed and issued the Guidelines on Deepening the Reform of the Healthcare System (”Guidelines”)1, followed by the Implementation Plan on Focuses for Deepening the Reform of the Healthcare System 2009-2011 issued on April 7, 2009 (“Implementation Plan”)2. The Guidelines focus on directions, objectives and policy structure to reform the healthcare system in the long term, while the Implementation Plan details objectives in the coming three years. Priorities of China’s health reforms include:Expansion of health insurance programs, especially rural healthcare cooperatives• Building hospitals and clinics• Reducing government expenditures for drug costs• This memorandum addresses some of the efforts to control drug costs through the national essential drug system.Regulatory Frame work is improving: Guangdong Provincial FDA’s decision to revoke the licenses of 67 medical device manufactures and nearly three hundred distributors for producing and selling sub-standard goods. Meanwhile, the SFDA – China’s premier food, drug and medical device watchdog – recently completed the draft version of the revised regulations for the supervision and administration of medical devices. These two developments give a clear signal that quality is becoming increasing important, which is good news for the multinationals and also enlightened indigenous playersNational Essential Drug System – Program ChangesOne of the major reforms in the healthcare system in 2009-2011 will be the establishment of the National Essential Drug System, which covers three primary areas:1) Establishing the administrative system to adjust the National Essential Drug List. The National Essential Drug List will be renewed periodically. Ma Xiaowei, Vice Minister of Health, said in early April 2009 that the formulation of the National Essential Drug List is the first task to establish the National Essential Drug System, and it was intended to be issued in April3. As of early May, however, the List has not yet been published. 2) Establishing a bidding process for essential drugs. Both the producer and the supplier of essential drugs used by government affiliated medical institutions may be required to participate in public bidding held by institutions designated by the provincial-level government. Enterprises in various regions and in various ownerships shall be treated equal in the bidding. Purchase/pricing of essential drugs with small dosage, and certain designated production/suppliers will be structured through bidding. The central government will set guiding retail prices for essential drugs, while provincial-level governments may set unified prices of essential drugs in the corresponding regions within the price scope set by the central government. Government affiliated basic medical institutions shall sell drugs to patients at the purchase price without markup.3) Establishing a system that encourages the use of essential drugs. All government affiliated retail drug stores and medical institutions shall have and sell national essential drugs for patients’ needs. Urban and rural basic medical institutions shall all use national essential drugs, while other medical institutions shall give priority to the use of essential drugs and follow the requirement on utilization percentage of essential drugs which will be set by the health administrations later. All the essential drugs will be covered by the basic medical insurance system, and may see higher reimbursement rates than non-essential drugs in the insurance system. 2New drugs and patented drugs will be subject to an economic evaluation to help determine pricing. The economic evaluation is intended to provide an objective analysis of quality, curative effect, cost, safety, and other clinical and economic features. These evaluations will contribute not only to drug pricing, but also to the formulation of a drug reimbursement catalogue, formulation of national essential drug list, and prescription plans at medical institutions for patients. Further, in order to control costs, new generic drugs will be required to be sold at the current lowest market price. The markup percentage in the drug distribution will also be strictly regulated. Drug pricing in China currently is under the primary supervision of the National Development and Reform Commission (NDRC) and the State Food and Drug Administration (SFDA). Hospital Purchase/Sale of DrugsAnother major reform involves restrictions on public hospitals’ purchase and sale of drugs. More specifically, hospitals will no longer be able to markup the price on drugs in sales to patients. The percentage markups of drug prices will be gradually eliminated. To protect hospitals from significantly reduced revenues, patients’ payment to hospitals for medical services will be increased, and the government will also increase subsidies to public hospitals on infrastructure construction, purchase of capital equipment, public sanitary missions, etc.. Basic medical services of non-profit medical institutions shall follow the guiding price set by the government, and medical institutions are independent to price other medical services. The central government will work out the pricing policies and measures on medical services, and the provincial-level or the municipal-level pricing authorities will set the guiding prices jointly with the administration of health, human resources and social security. Observations and Implications:The Guidelines and the Implementation Plan are another step for the Chinese government to lower drug prices. Provincial-level governments will have the power to set drug prices of essential drugs in the corresponding jurisdictions through public bidding. Essential drugs will be sold in government affiliated basic medical institutions at the purchase price without markup, while in the future, both essential drugs and non-essential drugs will be sold without markup in more medical institutions including public hospitals. Official figures suggest that currently, about half the income of China’s general hospitals may come from price markups of the drugs sold to maintain operations. The government will reinforce the financial support to those institutions to maintain their daily operations. The unified procurement of essential drugs is intended to be fair to both domestic and foreign invested drug companies, as pursuant to the Implementation Plan, “enterprises in various regions and various ownerships are equal in taking part in the fair competition” in the bidding.To promote the reform, the State Council has established the Steering Team on Deepening the Reform of the Healthcare System, which is under the leadership of Vice Premier Li Keqiang and composed of officials from 16 ministries of the State Council including the National Development and Reform Commission, the Ministry of Health, the Ministry of Finance, the Ministry of Human Resources and Social Security, etc. The Steering Team will be responsible for formulating pilot program policies and principles. More affiliated documents and regulations on operations are expected to emerge soon.dk
  • In state-owned hospitals, CEO is the key responsible person. So they are also the key decision-maker of the decision-making team in medical equipment purchase, instead of the expert who use the equipment as key person in western hospitals.Because CEO is not professional in techniques of the equipment to purchase, so in Chinese market, technical advantages are not as powerful as in western market. CEOs only recognize key parameter differences. So setting up industry standard and right positioning are the most important works to do in medical equipment marketing.The decision making team in China’s state-owned hospitals have a very complicated and even uncertain structure. Team members within hospital include CEO, vice CEOs, party secretary, equipment officer, user department director, related department directors, etc. Team members outside hospital include reference experts, healthcare bureau, government leader, related university dean, etc. To conquer such a big team, a sales dream-team is a must need
  • On April 6, 2009, the Central Committee of the Communist Party of China (“CCCPC”) and the State Council jointly endorsed and issued the Guidelines on Deepening the Reform of the Healthcare System (”Guidelines”)1, followed by the Implementation Plan on Focuses for Deepening the Reform of the Healthcare System 2009-2011 issued on April 7, 2009 (“Implementation Plan”)2. The Guidelines focus on directions, objectives and policy structure to reform the healthcare system in the long term, while the Implementation Plan details objectives in the coming three years. Priorities of China’s health reforms include:Expansion of health insurance programs, especially rural healthcare cooperatives• Building hospitals and clinics• Reducing government expenditures for drug costs• This memorandum addresses some of the efforts to control drug costs through the national essential drug system.Regulatory Frame work is improving: Guangdong Provincial FDA’s decision to revoke the licenses of 67 medical device manufactures and nearly three hundred distributors for producing and selling sub-standard goods. Meanwhile, the SFDA – China’s premier food, drug and medical device watchdog – recently completed the draft version of the revised regulations for the supervision and administration of medical devices. These two developments give a clear signal that quality is becoming increasing important, which is good news for the multinationals and also enlightened indigenous playersNational Essential Drug System – Program ChangesOne of the major reforms in the healthcare system in 2009-2011 will be the establishment of the National Essential Drug System, which covers three primary areas:1) Establishing the administrative system to adjust the National Essential Drug List. The National Essential Drug List will be renewed periodically. Ma Xiaowei, Vice Minister of Health, said in early April 2009 that the formulation of the National Essential Drug List is the first task to establish the National Essential Drug System, and it was intended to be issued in April3. As of early May, however, the List has not yet been published. 2) Establishing a bidding process for essential drugs. Both the producer and the supplier of essential drugs used by government affiliated medical institutions may be required to participate in public bidding held by institutions designated by the provincial-level government. Enterprises in various regions and in various ownerships shall be treated equal in the bidding. Purchase/pricing of essential drugs with small dosage, and certain designated production/suppliers will be structured through bidding. The central government will set guiding retail prices for essential drugs, while provincial-level governments may set unified prices of essential drugs in the corresponding regions within the price scope set by the central government. Government affiliated basic medical institutions shall sell drugs to patients at the purchase price without markup.3) Establishing a system that encourages the use of essential drugs. All government affiliated retail drug stores and medical institutions shall have and sell national essential drugs for patients’ needs. Urban and rural basic medical institutions shall all use national essential drugs, while other medical institutions shall give priority to the use of essential drugs and follow the requirement on utilization percentage of essential drugs which will be set by the health administrations later. All the essential drugs will be covered by the basic medical insurance system, and may see higher reimbursement rates than non-essential drugs in the insurance system. 2New drugs and patented drugs will be subject to an economic evaluation to help determine pricing. The economic evaluation is intended to provide an objective analysis of quality, curative effect, cost, safety, and other clinical and economic features. These evaluations will contribute not only to drug pricing, but also to the formulation of a drug reimbursement catalogue, formulation of national essential drug list, and prescription plans at medical institutions for patients. Further, in order to control costs, new generic drugs will be required to be sold at the current lowest market price. The markup percentage in the drug distribution will also be strictly regulated. Drug pricing in China currently is under the primary supervision of the National Development and Reform Commission (NDRC) and the State Food and Drug Administration (SFDA). Hospital Purchase/Sale of DrugsAnother major reform involves restrictions on public hospitals’ purchase and sale of drugs. More specifically, hospitals will no longer be able to markup the price on drugs in sales to patients. The percentage markups of drug prices will be gradually eliminated. To protect hospitals from significantly reduced revenues, patients’ payment to hospitals for medical services will be increased, and the government will also increase subsidies to public hospitals on infrastructure construction, purchase of capital equipment, public sanitary missions, etc.. Basic medical services of non-profit medical institutions shall follow the guiding price set by the government, and medical institutions are independent to price other medical services. The central government will work out the pricing policies and measures on medical services, and the provincial-level or the municipal-level pricing authorities will set the guiding prices jointly with the administration of health, human resources and social security. Observations and Implications:The Guidelines and the Implementation Plan are another step for the Chinese government to lower drug prices. Provincial-level governments will have the power to set drug prices of essential drugs in the corresponding jurisdictions through public bidding. Essential drugs will be sold in government affiliated basic medical institutions at the purchase price without markup, while in the future, both essential drugs and non-essential drugs will be sold without markup in more medical institutions including public hospitals. Official figures suggest that currently, about half the income of China’s general hospitals may come from price markups of the drugs sold to maintain operations. The government will reinforce the financial support to those institutions to maintain their daily operations. The unified procurement of essential drugs is intended to be fair to both domestic and foreign invested drug companies, as pursuant to the Implementation Plan, “enterprises in various regions and various ownerships are equal in taking part in the fair competition” in the bidding.To promote the reform, the State Council has established the Steering Team on Deepening the Reform of the Healthcare System, which is under the leadership of Vice Premier Li Keqiang and composed of officials from 16 ministries of the State Council including the National Development and Reform Commission, the Ministry of Health, the Ministry of Finance, the Ministry of Human Resources and Social Security, etc. The Steering Team will be responsible for formulating pilot program policies and principles. More affiliated documents and regulations on operations are expected to emerge soon.dk
  • On April 6, 2009, the Central Committee of the Communist Party of China (“CCCPC”) and the State Council jointly endorsed and issued the Guidelines on Deepening the Reform of the Healthcare System (”Guidelines”)1, followed by the Implementation Plan on Focuses for Deepening the Reform of the Healthcare System 2009-2011 issued on April 7, 2009 (“Implementation Plan”)2. The Guidelines focus on directions, objectives and policy structure to reform the healthcare system in the long term, while the Implementation Plan details objectives in the coming three years. Priorities of China’s health reforms include:Expansion of health insurance programs, especially rural healthcare cooperatives• Building hospitals and clinics• Reducing government expenditures for drug costs• This memorandum addresses some of the efforts to control drug costs through the national essential drug system.Regulatory Frame work is improving: Guangdong Provincial FDA’s decision to revoke the licenses of 67 medical device manufactures and nearly three hundred distributors for producing and selling sub-standard goods. Meanwhile, the SFDA – China’s premier food, drug and medical device watchdog – recently completed the draft version of the revised regulations for the supervision and administration of medical devices. These two developments give a clear signal that quality is becoming increasing important, which is good news for the multinationals and also enlightened indigenous playersNational Essential Drug System – Program ChangesOne of the major reforms in the healthcare system in 2009-2011 will be the establishment of the National Essential Drug System, which covers three primary areas:1) Establishing the administrative system to adjust the National Essential Drug List. The National Essential Drug List will be renewed periodically. Ma Xiaowei, Vice Minister of Health, said in early April 2009 that the formulation of the National Essential Drug List is the first task to establish the National Essential Drug System, and it was intended to be issued in April3. As of early May, however, the List has not yet been published. 2) Establishing a bidding process for essential drugs. Both the producer and the supplier of essential drugs used by government affiliated medical institutions may be required to participate in public bidding held by institutions designated by the provincial-level government. Enterprises in various regions and in various ownerships shall be treated equal in the bidding. Purchase/pricing of essential drugs with small dosage, and certain designated production/suppliers will be structured through bidding. The central government will set guiding retail prices for essential drugs, while provincial-level governments may set unified prices of essential drugs in the corresponding regions within the price scope set by the central government. Government affiliated basic medical institutions shall sell drugs to patients at the purchase price without markup.3) Establishing a system that encourages the use of essential drugs. All government affiliated retail drug stores and medical institutions shall have and sell national essential drugs for patients’ needs. Urban and rural basic medical institutions shall all use national essential drugs, while other medical institutions shall give priority to the use of essential drugs and follow the requirement on utilization percentage of essential drugs which will be set by the health administrations later. All the essential drugs will be covered by the basic medical insurance system, and may see higher reimbursement rates than non-essential drugs in the insurance system. 2New drugs and patented drugs will be subject to an economic evaluation to help determine pricing. The economic evaluation is intended to provide an objective analysis of quality, curative effect, cost, safety, and other clinical and economic features. These evaluations will contribute not only to drug pricing, but also to the formulation of a drug reimbursement catalogue, formulation of national essential drug list, and prescription plans at medical institutions for patients. Further, in order to control costs, new generic drugs will be required to be sold at the current lowest market price. The markup percentage in the drug distribution will also be strictly regulated. Drug pricing in China currently is under the primary supervision of the National Development and Reform Commission (NDRC) and the State Food and Drug Administration (SFDA). Hospital Purchase/Sale of DrugsAnother major reform involves restrictions on public hospitals’ purchase and sale of drugs. More specifically, hospitals will no longer be able to markup the price on drugs in sales to patients. The percentage markups of drug prices will be gradually eliminated. To protect hospitals from significantly reduced revenues, patients’ payment to hospitals for medical services will be increased, and the government will also increase subsidies to public hospitals on infrastructure construction, purchase of capital equipment, public sanitary missions, etc.. Basic medical services of non-profit medical institutions shall follow the guiding price set by the government, and medical institutions are independent to price other medical services. The central government will work out the pricing policies and measures on medical services, and the provincial-level or the municipal-level pricing authorities will set the guiding prices jointly with the administration of health, human resources and social security. Observations and Implications:The Guidelines and the Implementation Plan are another step for the Chinese government to lower drug prices. Provincial-level governments will have the power to set drug prices of essential drugs in the corresponding jurisdictions through public bidding. Essential drugs will be sold in government affiliated basic medical institutions at the purchase price without markup, while in the future, both essential drugs and non-essential drugs will be sold without markup in more medical institutions including public hospitals. Official figures suggest that currently, about half the income of China’s general hospitals may come from price markups of the drugs sold to maintain operations. The government will reinforce the financial support to those institutions to maintain their daily operations. The unified procurement of essential drugs is intended to be fair to both domestic and foreign invested drug companies, as pursuant to the Implementation Plan, “enterprises in various regions and various ownerships are equal in taking part in the fair competition” in the bidding.To promote the reform, the State Council has established the Steering Team on Deepening the Reform of the Healthcare System, which is under the leadership of Vice Premier Li Keqiang and composed of officials from 16 ministries of the State Council including the National Development and Reform Commission, the Ministry of Health, the Ministry of Finance, the Ministry of Human Resources and Social Security, etc. The Steering Team will be responsible for formulating pilot program policies and principles. More affiliated documents and regulations on operations are expected to emerge soon.dk
  • On April 6, 2009, the Central Committee of the Communist Party of China (“CCCPC”) and the State Council jointly endorsed and issued the Guidelines on Deepening the Reform of the Healthcare System (”Guidelines”)1, followed by the Implementation Plan on Focuses for Deepening the Reform of the Healthcare System 2009-2011 issued on April 7, 2009 (“Implementation Plan”)2. The Guidelines focus on directions, objectives and policy structure to reform the healthcare system in the long term, while the Implementation Plan details objectives in the coming three years. Priorities of China’s health reforms include:Expansion of health insurance programs, especially rural healthcare cooperatives• Building hospitals and clinics• Reducing government expenditures for drug costs• This memorandum addresses some of the efforts to control drug costs through the national essential drug system.Regulatory Frame work is improving: Guangdong Provincial FDA’s decision to revoke the licenses of 67 medical device manufactures and nearly three hundred distributors for producing and selling sub-standard goods. Meanwhile, the SFDA – China’s premier food, drug and medical device watchdog – recently completed the draft version of the revised regulations for the supervision and administration of medical devices. These two developments give a clear signal that quality is becoming increasing important, which is good news for the multinationals and also enlightened indigenous playersNational Essential Drug System – Program ChangesOne of the major reforms in the healthcare system in 2009-2011 will be the establishment of the National Essential Drug System, which covers three primary areas:1) Establishing the administrative system to adjust the National Essential Drug List. The National Essential Drug List will be renewed periodically. Ma Xiaowei, Vice Minister of Health, said in early April 2009 that the formulation of the National Essential Drug List is the first task to establish the National Essential Drug System, and it was intended to be issued in April3. As of early May, however, the List has not yet been published. 2) Establishing a bidding process for essential drugs. Both the producer and the supplier of essential drugs used by government affiliated medical institutions may be required to participate in public bidding held by institutions designated by the provincial-level government. Enterprises in various regions and in various ownerships shall be treated equal in the bidding. Purchase/pricing of essential drugs with small dosage, and certain designated production/suppliers will be structured through bidding. The central government will set guiding retail prices for essential drugs, while provincial-level governments may set unified prices of essential drugs in the corresponding regions within the price scope set by the central government. Government affiliated basic medical institutions shall sell drugs to patients at the purchase price without markup.3) Establishing a system that encourages the use of essential drugs. All government affiliated retail drug stores and medical institutions shall have and sell national essential drugs for patients’ needs. Urban and rural basic medical institutions shall all use national essential drugs, while other medical institutions shall give priority to the use of essential drugs and follow the requirement on utilization percentage of essential drugs which will be set by the health administrations later. All the essential drugs will be covered by the basic medical insurance system, and may see higher reimbursement rates than non-essential drugs in the insurance system. 2New drugs and patented drugs will be subject to an economic evaluation to help determine pricing. The economic evaluation is intended to provide an objective analysis of quality, curative effect, cost, safety, and other clinical and economic features. These evaluations will contribute not only to drug pricing, but also to the formulation of a drug reimbursement catalogue, formulation of national essential drug list, and prescription plans at medical institutions for patients. Further, in order to control costs, new generic drugs will be required to be sold at the current lowest market price. The markup percentage in the drug distribution will also be strictly regulated. Drug pricing in China currently is under the primary supervision of the National Development and Reform Commission (NDRC) and the State Food and Drug Administration (SFDA). Hospital Purchase/Sale of DrugsAnother major reform involves restrictions on public hospitals’ purchase and sale of drugs. More specifically, hospitals will no longer be able to markup the price on drugs in sales to patients. The percentage markups of drug prices will be gradually eliminated. To protect hospitals from significantly reduced revenues, patients’ payment to hospitals for medical services will be increased, and the government will also increase subsidies to public hospitals on infrastructure construction, purchase of capital equipment, public sanitary missions, etc.. Basic medical services of non-profit medical institutions shall follow the guiding price set by the government, and medical institutions are independent to price other medical services. The central government will work out the pricing policies and measures on medical services, and the provincial-level or the municipal-level pricing authorities will set the guiding prices jointly with the administration of health, human resources and social security. Observations and Implications:The Guidelines and the Implementation Plan are another step for the Chinese government to lower drug prices. Provincial-level governments will have the power to set drug prices of essential drugs in the corresponding jurisdictions through public bidding. Essential drugs will be sold in government affiliated basic medical institutions at the purchase price without markup, while in the future, both essential drugs and non-essential drugs will be sold without markup in more medical institutions including public hospitals. Official figures suggest that currently, about half the income of China’s general hospitals may come from price markups of the drugs sold to maintain operations. The government will reinforce the financial support to those institutions to maintain their daily operations. The unified procurement of essential drugs is intended to be fair to both domestic and foreign invested drug companies, as pursuant to the Implementation Plan, “enterprises in various regions and various ownerships are equal in taking part in the fair competition” in the bidding.To promote the reform, the State Council has established the Steering Team on Deepening the Reform of the Healthcare System, which is under the leadership of Vice Premier Li Keqiang and composed of officials from 16 ministries of the State Council including the National Development and Reform Commission, the Ministry of Health, the Ministry of Finance, the Ministry of Human Resources and Social Security, etc. The Steering Team will be responsible for formulating pilot program policies and principles. More affiliated documents and regulations on operations are expected to emerge soon.dk

Transcript

  • 1. China Life Sciences 2020 Your Corporate Platform – Globally Competitive or Obsolete for Tomorrow’s World? Global Strategy Global Challenges Executable Solutions France Houdard Managing Partner Phone US: 1 (917) 285.6528 Phone China: (00 86) 135.8591.0838 france.houdard@exolus.com September 2014 -- UPDATED --
  • 2. 2 Copyright © 2014 Exolus. All rights reserved.. This Report is about Opportunities and Challenges around … Revenues … Costs … Efficiency 2. Supply Chain COSTS Sales Engineering R&D Sourcing Production Distribution Marketing Shared Services IT HR F&A Procure 1. Market 3. Innovation DRIVING Shareholder Value Research & Development Shared Service Centers Virtually Integrated Models Production / Sourcing Sales / Marketing
  • 3. 3 Copyright © 2014 Exolus. All rights reserved.. As well as Next Generation Operating Models … Virtually Integrated Models + Shared Service Centers (SSC) Supply Chain Sales Engineering R&D Sourcing Production Distribution Marketing Market Innovation Sales / Marketing DRIVING Shareholder Value Production / Sourcing Research & Development Shared Service Centers (SSC) Virtual Integration SSC IT HR F&A Pro’c
  • 4. 4 Copyright © 2014 Exolus. All rights reserved.. China Market 2020
  • 5. 5 Copyright © 2014 Exolus. All rights reserved.. Source: World Bank GDP* 2013 6,4 trillions de $ 3,6 trillions de $ $6.8 tr $4.2 tr $16.2 tr $17.3 tr US China India $16.8 tr India Japan GDP* 2020 $30.0 tr $13.4 tr $28.8 tr $6.8 tr $29.6 tr US India China Japan EU-27 France UK Germany GDP* PPP-adjusted GDP* PPP-adjusted EU-27 France UK Germany 1. Future Market: Projected to be #1 Largest Economy in World by 2020
  • 6. 6 Copyright © 2014 Exolus. All rights reserved.. Already World’s 2nd Largest Pharma Market Pharmaceutical Market Size Country Ranking (USD billion) Sources: IMS Health Market Prognosis, 2013; Exolus 1. Future Market: Tracking to be US$ 245 bn Market by 2015 2000 Top 7 USA 150 Japan 58 Germany 17 France 17 UK 11 Italy 11 China 6.8 Brazil 6.7 Canada 6.3 Spain 6.2 2005 Top 7 USA 262 Japan 65 Germany 24 France 21 UK 16 Italy 15 China 13 Brazil 10 Canada 10 Spain 9.8 2010 Top 5 USA 441 Japan 75 Germany 48 France 39 China 34 UK 32 Italy 28 Brazil 24 Canada 22 Spain 21 2015f Top 2 USA 506 China 245 Japan 130 Germany 82 Brazil 64 France 49 UK 38 Russia 35 India 33 Italy 32
  • 7. 7 Copyright © 2014 Exolus. All rights reserved.. 15% 39% 24% 32% 10% 2011 China North America Europe Japan& South Korea Others 25% 33% 19% 13% 10% 2015 China North America Europe Japan& South Korea Others Source: SFDA (State Food and Drug Administration of China) China a MUST for Future Competitiveness 1. Future Market: China Tracking to 25% of Global Drug Sales by 2015 Pharmaceutical Sales by Geography
  • 8. 8 Copyright © 2014 Exolus. All rights reserved.. 1. Market Drivers: Explosive Growth in Middle Class China’s Middle Class: 400 million (2010) … 756 million (2020) Middle Class Income Bands (Measured against Urban Population) Urban Population (millions) Urban Household Income (US$ – PPP-Adjusted) Global > US$107,800 Affluent US$3,800 - 107,800 Upper Middle US$21,501 – 53,900 Lower Middle US$13,500 – 21,500 Poor < US$13,500 607 684 822 239 255 157 106 73 53 170 355 461 525 90 99 0 100 200 300 400 500 600 700 800 900 2005 2010 2015F 2020F 2025F 531 756 Upper Middle Class Lower Middle Class Sources: Urbanization Rates, Population based on UN, World Urbanization Prospects 2007; MGI Consumer Demand 2008
  • 9. 9 Copyright © 2014 Exolus. All rights reserved.. 1. Market Drivers: Driven by an Explosion in Urbanization China’s Urban Population: 600 million (2010) … 822 million (2025) China’s Urban Population (Measured against Total Population) 1.4 billion 1.3 billion 1.2 billion 1 billion 245 381 531 684 822 822 833 782 705 624 0 200 400 600 800 1,000 1,200 1,400 1,600 1985 1995 2005 2015 2025 1.45 billion Urban Population (million) Rural Population (million) Source: World Urbanization Prospects 2007 Urban Population (millions)
  • 10. 10 Copyright © 2014 Exolus. All rights reserved.. 1. Market Drivers: Changes in the Demographics and Economic-Geography Mega-City Profile: 60 Million Population + World-Class Infrastructure Heilongjiang Jilin Liaoning Hebei Beijing Inner Mongolia Shandong Jiangsu Shanghai Zhejiang Fujian Guangdong Guangxi Hunan Jiangxi Anhui Hubei Henan Guizhou Yunnan Sichuan Chongqing Gansu Ningxia Shaanxi Shanxi Qinghai Xinjiang Tibet Tianjin Mountains China’s Emerging MEGA-CITIES Mega-Cities Mega-Corridors
  • 11. 11 Copyright © 2014 Exolus. All rights reserved.. 1. Market Drivers: Disease Acceleration through Lifestyle Changes Disease Acceleration Lifestyle Changes Lifestyle-related disease accelerating -- e.g., obesity, diabetes, cardiovascular, chronic respiratory diseases China will have 38 million diabetic patients by 2025, almost double projections of diabetes for the US 840,000 known AIDS/HIV victims largely between 20 and 39 years of age 1/3 of world’s smokers are Chinese Source: Dr. Jean-Paul Rodrigue
  • 12. 12 Copyright © 2014 Exolus. All rights reserved.. 1. Market Drivers: Aging Population and Unique Demographic Structure 87 MM 65+Year Old in 2000 … 112 MM in 2010 … 340 MM in 2050 Source: Dr. Jean-Paul Rodrigue; Exolus Population over 65 Years Old (% of Total Population) Population under 14 Years Old (% of Total Population) 36% 28% 25% 21% 19% 18% 17% 16% 0% 5% 10% 15% 20% 25% 30% 35% 40% 1980 1990 2000 2010 2020 2030 2040 2050 5% 5% 7% 9% 12% 15% 19% 23% 0% 5% 10% 15% 20% 25% 30% 35% 40% 1980 1990 2000 2010 2020 2030 2040 2050
  • 13. 13 Copyright © 2014 Exolus. All rights reserved.. Production / Supply Chain: Opportunities and Challenges
  • 14. 14 Copyright © 2014 Exolus. All rights reserved.. 2. Supply Chain: Big Pharma Aggressively Expanding in China Investment focused in Yangtze River Delta, Bohai Rim, Pearl River Delta Heilongjiang Jilin Liaoning Hebei Beijing Inner Mongolia Shandong Jiangsu Shanghai Zhejiang Fujian Guangdong Guangxi Hunan Jiangxi Anhui Hubei Henan Guizhou Yunnan Sichuan Chongqing Gansu Ningxia Shaanxi Shanxi Qinghai Xinjiang Tibet Tianjin Pharma Manufacturing Operations Mountains Mega-Cities Mega-Corridors Sources: Company Websites, Publically Available Information
  • 15. 15 Copyright © 2014 Exolus. All rights reserved.. Production Operations 2. Supply Chain: What is Big Pharma Producing in China? AstraZeneca •Four business units in China: cardiovascular, diabetes and metabolism, cancer and central nervous and digestive / respiratory / anesthesia. •AstraZeneca (China) supply base in Suzhou provides cardiovascular, digestive, respiratory, central nervous system, cancer and anti-infective products. •Taizhou supply base produces OST for hypertension and asthma, i.e. Metoprolol and Bricanyl. Source: All Publically Available Information, Company Websites Bristol-Myers Squibb •Sino-American Shanghai Squibb Pharmaceuticals Ltd., (SASS) manufactures: Antibiotics, Cardiovascular, Multi-vitamin Supplements, Analgesics, Metabolics and Topicals. •Joint Venture with 3 product lines : Ostomy care, skin care and advanced wound care. Eli Lilly •Plant focused on a wide range of products such as cancer, mental disorders and diabetes. •Production aside, Eli Lilly has set up a sourcing center in China, which it uses to actively source products from China and as part of a broader strategy to increasingly “outsource” active pharmaceutical ingredient (API). GSK •Shanghai plant engaged in producing prescription drugs and vaccines •Suzhou plant focused on compounding, filling and packaging Drugs for Hepatitis B. •Shenzhen plant focused on the development and production of seasonal influenza and pandemic influenza vaccines. •Nanjing plant engaged in the diagnosis and treatment of urinary system diseases related products.
  • 16. 16 Copyright © 2014 Exolus. All rights reserved.. Production Operations 2. Supply Chain: What is Big Pharma Producing in China? Source: All Publically Available Information, Company Websites Wyeth •First plant set up in 1991 for OTC and ethical products such as antibiotics, woman healthcare, multi-vitamin & calcium supplements. •Two nutrition plants produce infant formula. Novo Nordisk •Tianjin plant supplies diabetes products to China as well as global market. •It is the only insulin injections durable equipment suppliers for Novo Nordisk, as well as the world's largest insulin formulation and filling production base except Denmark. Roche •Two Business Units in China: Roche Pharmaceutical and Roche Diagnostics •Shanghai plant focused on anti-tumor, anti-viral, transplantation and other key areas •Diagnostics product portfolio : Blood glucose meter, bedside diagnostic devices, high- throughput analyzer. Advanced life science research instruments and reagents. Pfizer •Established four manufacturing bases since1980‟s, with total investment nearly USD 1 billion. •Put into China‟s market over 50 products, covering prescription drugs, vaccines and health care products. •Dalian Pfizer Pharmaceuticals is the first facility that received GMP certificate in China. •Hisun Pfizer Pharmaceutical, established in 2012, serves both Chinese and international markets. Novartis •Novartis Beijing focuses on cardiovascular diseases, immunology and transplantation, rheumatism/bone metabolism, oncology, central nervous system, dermatology, and ophthalmology. •Novartis Suzhou produces intermediate products for exports -- drugs for leukemia, epilepsy, hypertension and other diseases. •Sandoz Guangdong, a subsidiary of Novartis China, mainly produces tablets and capsules.
  • 17. 17 Copyright © 2014 Exolus. All rights reserved.. 2. Supply Chain: China Still Provides Major Labor Arbitrage Opportunity Major Labor Cost Differential Manufacturing Labor Costs (2003 - 2012) Source: National Bureau of Statistic of China; U.S. Bureau of Labor Statistics, International Labor Comparisons, August 2013 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 China United States Singapore Brazil Philippines China USA US$ per month
  • 18. 18 Copyright © 2014 Exolus. All rights reserved.. 2. Supply Chain: Labor Costs Significantly Lower in West (35%) Intersection: Low Cost Bands + Emerging Mega-Cities Heilongjiang Jilin Liaoning Hebei Beijing Inner Mongolia Shandong Jiangsu Shanghai Zhejiang Fujian Guangdong Guangxi Hunan Jiangxi Anhui Hubei Henan Guizhou Yunnan Sichuan Chongqing Gansu Ningxia Shaanxi Shanxi Qinghai Xinjiang Tibet Tianjin Mountains Wage Bands / Mega-City Overlay (Normalized to Highest Wages) Wage Bands Mega-Cities Mega-Corridors 1.0 1.0 1.0
  • 19. 19 Copyright © 2014 Exolus. All rights reserved.. 2. Supply Chain: Where are Pareto Optimal Deployment Envelopes? Low Cost Bands + Emerging Mega-Cities + High-Income Geographies Heilongjiang Jilin Liaoning Hebei Beijing Inner Mongolia Shandong Jiangsu Shanghai Zhejiang Fujian Guangdong Guangxi Hunan Jiangxi Anhui Hubei Henan Guizhou Yunnan Sichuan Chongqing Gansu Ningxia Shaanxi Shanxi Qinghai Xinjiang Tibet Tianjin Per Capita Income / Wage Band Overlay 1 1 1 Mountains Per Capita Annual Income (USD, PPP-Adjusted) > 40,000 30,000 - 40,000 25,000 - 30,000 20,000 -25,000 17,500 - 20,000 0 - 17,500 Wage Bands Mega-City Mega-Corridors
  • 20. 20 Copyright © 2014 Exolus. All rights reserved.. 2. Supply Chain: Major Opportunities, but Significant Risks China Investment Process – Key Challenges Strategy Transaction Execution Investment Strategy Development Zone Screening High Level Due Diligence Zone & Site Evaluation & Ranking Negotiate Investment Agreement Detailed Due Diligence Business Registration Land Auction/ Construction Contracts Zone Screening Challenges: Given that China has 8,000 zones, the process of filtering through to a suitable zone and site represents significant complexity, time commitment and high risks rooted in: wide-ranging and ambiguous regulations, hidden land quotas, unclear ownership/ zoning, investment hurdles, utility infrastructure, tax regimes, etc. Due Diligence: Most information presented during DD unreliable as representations tend to be made by (promotion) officials pushing to hit their quotas, rather than by the broad array of officials with actual authority and responsibility for all aspects of planning, land ownership, utility availability/extensions/upgrades, geotech and so forth. Negotiations: Negotiations involve significant counterparty risk, as representations tend to be made by those without actual authority to implement agreements. Further, there is a tendency for legal advisors to lack engineering expertise; agreements thus often lack relevant contractual terms – exposing projects to significant potential costs, delays and even failure.
  • 21. 21 Copyright © 2014 Exolus. All rights reserved.. R&D / Innovation: Opportunities and Challenges
  • 22. 22 Copyright © 2014 Exolus. All rights reserved.. 3. Innovation: Where is Big Pharma Migrating R&D Functions in China? “R” of R&D Seeks Universities … “D” Seeks Markets & Production Heilongjiang Jilin Liaoning Hebei Beijing Inner Mongolia Shandong Jiangsu Shanghai Zhejiang Fujian Guangdong Guangxi Hunan Jiangxi Anhui Hubei Henan Guizhou Yunnan Sichuan Chongqing Gansu Ningxia Shaanxi Shanxi Qinghai Xinjiang Tibet Tianjin 1 1 1 Mountains Wage Bands Mega-Cities Mega-Corridors > 800 > 1,500 > 2,000 R&D Centers (# Operations) Pharma R&D Operations Source: Company Websites; Exolus Research
  • 23. 23 Copyright © 2014 Exolus. All rights reserved.. R&D Operations 3. Innovation: Companies Migrating up R&D Value Chain? For What? AstraZeneca •Shanghai Innovation Centre China (ICC) focuses on the value of innovative medicines for Chinese patients, initially concentrating on cancer through the development of knowledge about Chinese patients, biomarkers and genetics (translational medicine). •AstraZeneca Asia and Emerging Markets Innovative Pharmaceutical R&D Department is committed to the development of drug candidates in areas of oncology. •Zhangjiang Park R&D center actively develops new drugs for the treatment of liver and stomach / esophagus disease. Amgen •Amgen has signed a contract with Shanghai University of Science and Technology in 2013 to set up Amgen China R & D Center next to the university‟s two major life science research institutes. The new R&D center aims to become a world leading R&D center for of bio-pharmaceuticals. Bristol-Myers Squibb •Bristol-Myers Squibb China R&D Center focuses on three major areas: liver disease, cardiovascular and diabetes, cancers (stomach, esophagus). Eli Lilly •Lilly‟s China R&D operation, its largest overseas operation, focuses on neuropathy, diabetes, and cancer. •Eli Lilly partnered with ChemExplorer and PharmExplorer, who provide for pharmaceutical and biology early-stage development services. Eli Lilly also has a partnership with China‟s Hutchinson MediPharma for pre-clinical targeting work in oncology and inflammation. Source: All Publically Available Information, Company Websites, genengnews
  • 24. 24 Copyright © 2014 Exolus. All rights reserved.. R&D Operations 3. Innovation: Companies Migrating up R&D Value Chain? For What? Pfizer •R&D center responsible for biological and chemical research and development and clinical trials for its global business. •Total investment in R&D is over USD150 million. Novartis •Novartis is building a $100 million R&D center in the Zhangjiang Hi-Tech Park in Shanghai. The center will initially focus its research on diseases particularly common in China (e.g., esophageal and liver cancer, hepatitis B and C). •Suzhou R&D center focuses on biochemistry R&D for drugs used to treat leukemia, epilepsy, hypertension and other diseases. Novo Nordisk •First R&D center established in China by international bio-pharmaceutical companies with the focus on biotech. Currently, the center has three research departments: Molecular Biology, Protein Chemistry, and Cell Biology. The center is strongly focused on research within therapeutic proteins. •Beijing R&D center focused on diabetes, a serious and growing problem in China. Roche •Set up first fully functional China clinical drug R&D center (RRDCC) in 2004. •The R&D center focused on oncology, metabolic drugs, medicinal chemistry and genetic epidemiology in the Chinese population. GSK •R&D center in Shanghai focused on the areas of neurodegeneration and neuroinflamation with the objective of creating new medicines for such severe disorders as multiple sclerosis, Parkinson‟s disease, and Alzheimer‟s disease. The center will eventually direct the global discovery and development activities within its therapeutic area from drug-target identification to late-stage clinical studies. Source: All Publically Available Information, Company Websites, genengnews
  • 25. 25 Copyright © 2014 Exolus. All rights reserved.. 3. Innovation: Driven by Rapid Increase in Educated Workforce China Science and Engineering: 1.2 Million Graduates per Year Thousands University Natural Sciences & Engineering Degrees (1985 – 2010) Sources: National Science Board, Science & Engineering Indicators 2014 0 200 400 600 800 1,000 1,200 1,400 U.S. China UK Japan South Korea Germany China USA
  • 26. 26 Copyright © 2014 Exolus. All rights reserved.. 3. Innovation: Organization Models for Foreign R&D in China Satellite Laboratories (Bottom-up Approach to R&D) Mostly “adaptive” – adapting existing products to better fit local market conditions Usually do not work on “innovation” as part of global teams That is, they act more as listening posts for parent company/ business unit -- helping detect new ideas and product innovations based on the unique characteristics of the local market Vulnerable to budget cuts Contract R&D (Top-Down Approach to R&D) More focused on “innovative” research Usually support global team in carrying out specific module as part of global research project -- closely interacts with R&D teams at headquarters & other affiliates Used to exploit lower cost engineers, capabilities and infrastructure Has dense information flows, but unequal knowledge exchange -- Requires tight mechanisms to control IPR leakage Integrated Global Partnerships (Balanced/Integrated Approach to R&D) The China R&D Center has regional and/or global product innovation mandate Equal participant in all corporate decisions, R&D work, & other global corporate activities No barriers to full-fledged knowledge exchange between China R&D center and the company‟s headquarters and the company‟s other global R&D centers Models Vary Considerably in China Sources: National Science Board, Science & Engineering Indicators 2014
  • 27. 27 Copyright © 2014 Exolus. All rights reserved.. 3. Innovation: Migrating Upstream to Innovative and Global Models China-Adaptive Focus  Global-Innovative Focus Sources: National Science Board, Science & Engineering Indicators 2014 R&D centers designed to support production and adapt technologies; be near customers; cooperate with local partners; access markets; improve the local “image” of a company; launch a product simultaneously; facilitate rapid scale-up in manufacturing; and overcome protectionist barriers against imports. As national markets become regionally more integrated, some countries may become the preferred base for adaptation, not only for the local market but for the region as a whole. Adaptive R&D has evolved into more advanced forms of innovation, with the local market serving as a test-bed for new products for regional or even global markets. Facilities able to do both R&D with output aimed at global exploitation by parent company. May evolve out of locally integrated laboratories & retain tight links with production in host economy, or Set up independently of local production to tap local innovation clusters and skills CHINA FOCUS ADAPTIVE REGIONAL / GLOBAL FOCUS INNOVATIVE
  • 28. 28 Copyright © 2014 Exolus. All rights reserved.. 3. Innovation: Footprint Drivers Vary for Innovative and Adaptive R&D Functional Objectives Drive Platform Decisions for R&D Sources: National Science Board, Science & Engineering Indicators 2014 Adaptive R&D Center Primary Drivers Customer Locations & Business Opportunities Proximity to Inter-Company Production Operations Skills Availability Fresh graduates and mid-level engineers Experienced management (secondary) Local Government Support Local Resources at Universities Secondary Drivers Living Environment Facilities Utilities Transportation Incentives Innovative R&D Center Primary Drivers Skills Availability (experienced engineers) Local Resources at Universities Low Labor Costs Secondary Drivers Living Environment Facilities Utilities Transportation Incentives
  • 29. 29 Copyright © 2014 Exolus. All rights reserved.. 3. Innovation: Where are Key Nodes for Structuring R&D Platforms? “R” of R&D Seeks Universities … “D” Seeks Markets & Production Heilongjiang Jilin Liaoning Hebei Beijing Inner Mongolia Shandong Jiangsu Shanghai Zhejiang Fujian Guangdong Guangxi Hunan Jiangxi Anhui Hubei Henan Guizhou Yunnan Sichuan Chongqing Gansu Ningxia Shaanxi Shanxi Qinghai Xinjiang Tibet Tianjin Mountains Wage Bands Mega-Cities Mega-Corridors > 800 > 1,500 > 2,000 R&D Centers (# Operations) Research & Development Centers (Number of Operations in Select Cities) Source: National Bureau of Statistics, 2nd R&D Census, 2009 1 1 1
  • 30. 30 Copyright © 2014 Exolus. All rights reserved.. Platform Structuring: Where are Pareto Optimal Deployment Envelopes? Spatial Framework for Platform Optimization Decisions Heilongjiang Jilin Liaoning Hebei Beijing Inner Mongolia Shandong Jiangsu Shanghai Zhejiang Fujian Guangdong Guangxi Hunan Jiangxi Anhui Hubei Henan Guizhou Yunnan Sichuan Chongqing Gansu Ningxia Shaanxi Shanxi Qinghai Xinjiang Tibet Tianjin Spatial Framework for Platform Optimization Decisions 1 1 1 Mountains Per Capita Annual Income (USD, PPP-Adjusted) > 40,000 30,000 - 40,000 25,000 - 30,000 20,000 -25,000 17,500 - 20,000 0 - 17,500 Wage Bands Mega-Cities Mega-Corridors > 800 > 1,500 > 2,000 R&D Centers (# Operations)
  • 31. 31 Copyright © 2014 Exolus. All rights reserved.. Contract Outsourcing Models & Shared Service Centers
  • 32. 32 Copyright © 2014 Exolus. All rights reserved.. This Section is about Next Generation Operating Models … Virtually Integrated Models + Shared Service Centers (SSC) Supply Chain Sales Engineering R&D Sourcing Production Distribution Marketing Market Innovation Sales / Marketing DRIVING Shareholder Value Production / Sourcing Research & Development Shared Service Centers (SSC) Virtual Integration SSC IT HR F&A Pro’c
  • 33. 33 Copyright © 2014 Exolus. All rights reserved.. FIPCO MODEL  VIPCO MODEL (CSO, CMO, CRO, PC-CRO, INSTITUTIONS) 4. Virtual Integration Models: Outsourcing Core Functions FIPCO (Fully Integrated Pharma Co.) Research Technology Manufacturing Clinical & Regulatory Sales & Distribution CSOs CMOs CROs Partnerships Academia, Scientific, Institutions R&D Preclinical Support Clinical Development Manufacturing Sales & Distribution Preclinical CROs VIPCO (Virtually Integrated Pharma Co.) Source: G. S. Burrill, „Biotech 2008: A 20/20 Vision to 2020‟, The Burrill Indiana Life Sciences Meeting, October 2008.
  • 34. 34 Copyright © 2014 Exolus. All rights reserved.. MIGRATION to ADVANCED OPERATING MODELS in CHINA: CSO, CMO, CRO 4. Virtual Integration Models: Big Pharma Adoption in China Sources: Goldman Sachs: Healthcare Services: CROs, December 2007; Exolus Research Boehringer Ingelheim (CSO) First Big Pharma to have entrusted a sole distributor for all of its products in China: Sinopharm. Sinopharm is China‟s largest pharmaceutical distributor by sales and the only China distributor to cover the entire PRC. Boehringer Ingelheim‟s sales spiked upward by 45% from 2006 to 2007; Sinopharm saw an annual growth rate of 32%. AstraZeneca (CSO) In a recent move, AZ licensed Cubicin, an antibiotic for skin infections, for development and commercialization on the Chinese market. Pfizer (CRO) Outsources to Wuxi PharmaTech: synthetic chemistry, parallel medicinal chemistry, and bio-analytical services. It also has a 3-year CRO contract with Wuxi PharmaTech to provide services in the areas of: in-vitro Absorption, Distribution, Metabolism and Excretion (ADME) services. GSK (CRO) Outsources to Shanghai Institute of Materia Medica (SIMM) chemistry requirements. AstraZeneca (CRO) Invested USD14 million in Wuxi Pharma Tech for the synthesis of 150,000 compounds. AZ has contracted WuXi Pharmatech, a Chinese CRO, for the synthesis of collections of drug candidates, and signed an agreement with Shanghai‟s Jiao Tong University for research on the genetics of schizophrenia. CSO/CRO Extended Cases China’s CRO Market 0 2 4 6 8 10 12 14 16 18 Clinical Development Preclinical Development US$ billion
  • 35. 35 Copyright © 2014 Exolus. All rights reserved.. 4. Shared Service Centers: Opportunity Map for China Efficiencies … Economies of Scale … Knowledge Sharing … Standardization Source: KPMG “A new Dawn: China‟s Emerging Role in Global Outsourcing”, 2009 Heilongjiang Jilin Liaoning Hebei Beijing Inner Mongolia Shandong Jiangsu Shanghai Zhejiang Fujian Guangdong Guangxi Hunan Jiangxi Anhui Hubei Henan Guizhou Yunnan Sichuan Chongqing Gansu Ningxia Shaanxi Shanxi Qinghai Xinjiang Tibet Tianjin Mountains 1 1 1 Shared Service Center Hubs Wage Bands Mega-City Mega-Corridors Shared Services
  • 36. 36 Copyright © 2014 Exolus. All rights reserved.. Platform Structuring: Where are Pareto Optimal Deployment Envelopes? Spatial Framework for the Range of Platform Optimization Decisions Heilongjiang Jilin Liaoning Hebei Beijing Inner Mongolia Shandong Jiangsu Shanghai Zhejiang Fujian Guangdong Guangxi Hunan Jiangxi Anhui Hubei Henan Guizhou Yunnan Sichuan Chongqing Gansu Ningxia Shaanxi Shanxi Qinghai Xinjiang Tibet Tianjin Spatial Framework for Platform Optimization Decisions 1 1 1 Mountains Per Capita Annual Income (USD, PPP-Adjusted) > 40,000 30,000 - 40,000 25,000 - 30,000 20,000 -25,000 17,500 - 20,000 0 - 17,500 Wage Bands Mega-Cities Mega-Corridors > 800 > 1,500 > 2,000 R&D Centers (# Operations) Shared Services
  • 37. 37 Copyright © 2014 Exolus. All rights reserved.. China Economic Health Report
  • 38. 38 Copyright © 2014 Exolus. All rights reserved.. 5. Health: Senior Executives Select China as Most Attractive in World Investor Confidence in China #1 in World Source: World Investment Prospects Survey 2013 - 2015 Top 14 Most Attractive Destinations for Future Investment (2013 – 2015) Percent of Responses 0 10 20 30 40 50 60 70 %
  • 39. 39 Copyright © 2014 Exolus. All rights reserved.. Source: China Statistical Yearbook Record FDI of USD118 billion in 2013 0 20 40 60 80 100 120 140 USD billion Foreign Direct Investment Inflows (1990 – 2013) 5. Health: Foreign Direct Investment Continues to Soar in China
  • 40. 40 Copyright © 2014 Exolus. All rights reserved.. Source: World Investment Report 2014 by UNCTAD China Ranks #2 for Inbound FDI … or #1 when HK Included USD billion Foreign Direct Investment Inflows (2013) 0 20 40 60 80 100 120 140 160 180 200 220 Hong Kong Portion of FDI 5. Health: China and US Top Global Destinations for FDI
  • 41. 41 Copyright © 2014 Exolus. All rights reserved.. 5. Health: Balance Sheets – Banks, Enterprises, Households USD4 trillion in Foreign Reserves … Insulation of Financial System … Clean Balance Sheets China’s Financial System Healthy, Benefits from Insulation, Abundant Liquidity China banks cleaned up in 1990s: Non-performing loans in 1997 averaged 40 – 50%; only 1% in 2014. Financial institutions extended approximately USD1.44 tr in new loans in 2013; and USD1.32 tr in 2012, USD 1.21 tr in 2011. Forex Reserves Achieve Record High in 2013 The Central Bank has accumulated over USD 4 trillion in foreign reserves. The accumulation of large external surpluses means financial system enjoys abundant liquidity. Clean Balance Sheets for Enterprises and Households State Owned Enterprise net profits as share of GDP has grown from (-1%) in 1997 to (+3.34%) in 2013. Record corporate profit growth over past 5 years (industrial profits rose 100%); liability ratios declined. Urban incomes have quadrupled in past 10 years. Source: Deutsche Bank; Standard Chartered; UBS; IMF; Other
  • 42. Exolus Group Overview
  • 43. 43 Copyright © 2014 Exolus. All rights reserved.. About Us: Leading Transaction Advisory Firm Global Scale: Established in 1931 • 3,000 Employees • 250 Offices Worldwide Leading Expertise: Acquisitions • Dispositions • RE Funds • Agency • Structuring Real Estate Advisory: Industrial, Office, Residential, Retail Business Advisory: Strategy, Targeting, Due Diligence, Structuring, Negotiations Investment Formats: Greenfield, JV's, Acquisitions, Dispositions, Outsourcing Multi-Disciplinary Expertise: Legal-Tax, Supply Chain, Engineering, HR, Real Estate Investment Advisory: Financial Advisory, Capital Raising, Fund Structuring Investment Sectors: Automotive, Life Sciences, Manufacturing, Technology, Real Estate Geographic Focus: Greater China and US Leading Global Investment Advisory Firm
  • 44. 44 Copyright © 2014 Exolus. All rights reserved.. Services: Align Directly with China (M&A) Investment Process Strategy Client Approval LOI Term Sheet Purchase Agreement Ownership Transfer Transaction Execution Acquisition Strategy Development Target Screening High Level Due Diligence Evaluation & Ranking Negotiate LOI Detailed Due Diligence Structure & Negotiate Transaction Transaction Closing Exolus Group China Expertise Life Sciences Expertise Facility & Engineering Expertise Structuring & Negotiating Expertise Due Diligence Expertise Client Involvement Targets & Counterparties Mergers & Acquisitions Acquisitions & JV’s
  • 45. 45 Copyright © 2014 Exolus. All rights reserved.. Exolus Group China Expertise Life Sciences Expertise Facility & Engineering Expertise Structuring & Negotiating Expertise Due Diligence Expertise Services: Align Directly with China (Greenfield) Investment Process Strategy Client Approval Investment Agreement DD Findings Legal Entity Land/Facility Ownership Transaction Execution Investment Strategy Development Zone Screening High Level Due Diligence Zone & Site Evaluation & Ranking Negotiate Investment Agreement Detailed Due Diligence Business Registration Land Auction/ Construction Contracts Client Involvement Targets & Counterparties Direct Investment Greenfield Investment
  • 46. 46 Copyright © 2014 Exolus. All rights reserved.. Philosophy: Provide Holistic Solutions that Benefit Entire Organization Establish Manufacturing Operations Research & Development (R&D) - Marketing, Sales & Distribution Sales & Marketing Shared Services Solutions Rooted in Multi-Disciplinary Expertise:  Real Estate, Facilities, Engineering -Facilities, construction, geotechnical, environmental, utilities, critical paths, permitting  Supply Chain, Sourcing, Distribution, Transportation - Logistics, distribution, taxes, modes, physical transportation, rates, providers  Labor-Force Dynamics - Structure, laws, trends, skills, costs, quality, scalability, sustainability  Financial Analysis & Structuring (Tax, Legal) -Legal structures, tax structures, financial analysis, feasibility, business case, incentives Corporate Stakeholders Corporate Real Estate, Engineering, Manufacturing Supply Chain, Logistics Human Resources Finance, Tax, Legal Exolus Client China Solutions Require a Multi-Disciplinary Approach New Entity
  • 47. 47 Copyright © 2014 Exolus. All rights reserved.. Exceeding our Clients’ Expectations Representative Clients: Serving World’s Leading Companies
  • 48. 2014 48 Copyright © 2011 Exolus. All rights reserved.. For a Comparative Perspective with the other BRIC Countries Please Refer to the Following Research Reports Found on Slideshare @ http://www.slideshare.net/Exolus/india-2020-what-india-will-look-like-in-the-future http://www.slideshare.net/Exolus/brazil-2020-what-will-brazil-look-like-in-the-future http://www.slideshare.net/Exolus/russia-2020-what-will-russia-look-like-in-the-future http://www.slideshare.net/Exolus/bric-2020-what-will-the-brics-look-like-in-the-future Download Reports @ www.exolus.com/en/knowledge/research.html Brazil 2020 Russia 2020 India 2020 BRIC 2020