As profit margins in Western markets plummet, multinational pharmaceutical companies are targeting emerging markets like China for future revenue growth. China is set to become the world’s second-largest pharmaceutical market by 2016. It currently ranks third, with an estimated value of $70 billion and growth prospects as high as 20 percent annually.
Obviously, the first step for interested foreign pharmaceutical companies is to do some basic market research. Is there a national or a regional demand for your product? Who are your chief competitors, and what is the market price for your product?
Before jumping into China’s lengthy drug registration process, you should be aware of some unique dynamics for market access, and how best to understand them.
THE KEYS TO THE MIDDLE KINGDOM
Initial registration and approval in China can take about three years. But the average time from approval to prescription — effectively getting your product into the hands of patients — can easily take another full year. The first key to overcoming barriers to market access is to start early.
Entry into China’s pharmaceutical market involves four steps:
- Registration approval
- Retail price approval
- Provincial bidding
- Hospital listing
Because each step is regulated by different national and provincial bodies, foreign drug manufacturers must know the individuals at each agency with whom they will be dealing. China is still a relationship-based society, and the more key players you can have relationships with, the greater your chances of speeding up the process and entering the market on favorable terms.
To do this, you must build relationships with officials at China’s State Food and Drug Administration (SFDA), the National Development and Reform Council (NDRC), provincial-level pricing agencies and hospitals, and key opinion leaders in the medical field. By far, the most effective way to do this is to partner with a strong regulatory consultant or a local CRO. Their job is to impress regulators with your product and provide you with an “inside track” on all negotiations.
Despite reforms that have brought a lot of China’s regulatory process in line with international norms, drug approval and marketing is still a process of negotiation. You should grasp every opportunity to meet with regulators and experts. If you have concerns about particular drug classifications or retail prices, your consultant or CRO should meet with the appropriate regulatory bodies before you submit final paperwork. Turn uncertainties into opportunities, and use them to negotiate your position.
Finally, because it takes so long for product registration, price setting, bidding and listing, it pays to begin all processes at the same time. If you line up advocates within the NDRC and provincial offices before your drug is approved by the SFDA, they will be ready to give you a green light as soon as you clear the first regulatory hurdle. If you proceed in a linear, step-by-step fashion, you will be chasing provincial regulators long after other companies are prescribing their products to Chinese patients.
PRICING AND REIMBURSEMENT
Pricing and reimbursement are key factors that determine success in the Chinese marketplace. Once your product has been approved by the SFDA, it can take another 15 months for that product to reach prescribing physicians. An average timeline would be: 4 – 5 months to obtain retail price approval, 3 – 5 months to win provincial bidding and 3 – 5 months to attain hospital listing.
The first phase — retail price approval — is handled jointly by the NDRC and the Ministry of Health (MOH) or the Ministry of Human Resources and Social Security (MoHRSS). The ministries first determine which drugs will be nationally reimbursed, after which the NDRC is in charge of setting retail prices.
There are two main drug lists in China: the Essential Drug List (EDL), which consists of 307 drugs fully reimbursed by the national government; and the Nationally-Reimbursed Drug List (NDRL), parts A and B. List A overlaps with the EDL, and consists of drugs 100 percent reimbursed by the national government. List B includes premium, high-price drugs partially reimbursed by national and provincial governments.
Because the NDRC has lately instituted a series of significant retail price cuts, many multinationals are now questioning whether they want their drugs even included on these lists. Unlisted drugs are not priced by the NDRC, but neither are they eligible for reimbursement. Therefore, you should carefully consider the tradeoff between higher sales volume (for listed products) and higher per-unit price (for unlisted products) when developing your market entry strategy.
Pharmaceutical companies are not an official part of the price-setting process. Instead, key government officials and pharmaceutical experts meet once every four years to determine which drugs are included on the EDL and NDRL. Consultants are very important in reaching out to panel experts, who include top pharmacists, health economists, health insurance experts and opinion leaders in different disease areas. During the price-setting process, these experts are “quarantined,” so reaching out to them at least one year in advance of their group examination is crucial.
The second phase to market access — provincial bidding — is the process by which drugs enter Chinese distribution channels. Once or twice a year, each province calls for foreign and local manufacturers to submit bids on specific drugs. A tendering committee of pharmacists, local government officials and NDRC representatives then decides which manufacturers may distribute their products in the province.
Selection is largely dependent on wholesale price. But having an advocate who can “sing your song” to committee members will ensure that you have a strong negotiating position. The tendering and bidding process takes place on a province-by-province basis, so approval in one province does not automatically guarantee approval in other provinces.
For this reason, you should launch all bidding efforts simultaneously. At the same time, you should begin lobbying hospital physicians and administrators to list your product in their formularies.
Like the bidding process, the third phase — hospital listing — happens on an individual basis. Each large hospital forms a committee once or twice a year to approve new drugs for its formulary. These are the only products that the hospital purchases and prescribes to its patients. Therefore, you should target your efforts by knowing in advance which hospitals specialize in which disease areas. Awareness and acceptance of your product among physicians at these key hospitals is the key to getting it listed and later prescribed.
China is currently undergoing an historic expansion in its national healthcare coverage system. In three short years, the number of patients covered by China’s Basic Medical Insurance (BMI) rose from just 73 percent (2007) to nearly 99 percent (2010). BMI is most prevalent for Chinese who live in larger cities. By the end of 2013, the Chinese government has pledged to cover 95 percent of rural residents, who do not get BMI. Rural residents now are rarely able to afford any but the smallest of co-pays.
What these changes mean is that China’s government is under increasing pressure to bring down costs. In addition to instituting further rounds of retail price cuts, the NDRC may also begin setting prices for non-RDL drugs. Another possibility under discussion is setting drug prices based on profit-margin ratios. Finally, pharmaceutical companies may face mandatory price cuts of 25 percent as soon as their drugs go off patent. This is not now the case, but it may be in the future.
These possibilities, combined with a worldwide decline in pharmaceutical sales, mean that foreign drug manufacturers must be as strategic as possible when planning their China market access strategy. In China, it pays to start work early.