Most China pharma experts agree that in the wake of the China Food and Drug Administration (CFDA) reform, a wave of new drugs will obtain approval by Chinese authorities in the next few years. By 2020, new drugs approved in the US, EU or Japan could reach Chinese patients with a much shortened delay. Finally, a wave of ”invented in China” drugs should start to materialize.
But, once on the market, will these drugs actually reach the Chinese patients that most need them?
Today, the stark reality for most Chinese patients is that many important treatments are not available. Several hurdles to access stand in the way:
- First, due to lengthy regulatory requirements, many innovative drugs are not approved for commercialization in China.
- Second, once on the market, drugs are often too expensive for most patients to initiate treatment, or to comply with desired treatments to achieve medical outcomes.
- Third, drugs are still physically hard to access for a large share of the population (e.g., not listed/available in some urban hospitals, difficult to stock in remote areas).
- Fourth, healthcare cost containment measures enforced at the hospital level have most recently introduced new hurdles, including turning patients away as a hospital exceeds its annual drugs spending quota.
- And fifth, China still has to make significant progress on providing more consistent standards of quality for drugs actually available to patients.
A few facts can help to measure the magnitude of this access challenge:
- As of 2015, over half of the world’s most important drugs launched after 2008, as measured by global sales, where not yet approved in China. Several of those included breakthrough treatments, representing a new standard of care with significant impact on patient outcomes, including for diseases such as certain types of cancer. The situation is so acute that travel agencies have popped up to offer medical tourism services to Chinese patients looking for those drugs in Hong Kong, Macau, or even the US.
- Critically, most drugs launched in China since 2008 are still waiting for national level reimbursement on the Reimbursement Drug List (RDL). The RDL is linked to the three main insurance schemes covering the Chinese population. In the absence of RDL listing, a drug must essentially be paid out of pocket by the patient. Despite the rapid rise of China’s middle class, this means that treatments are out of financial reach for many patients. As of today, we estimate that over 50 innovative molecules, approved since 2009, are stuck in this “no man’s land” – available but effectively constrained to a more affluent subset of the population. As another indicator of access constraints, drugs launched by multinationals since 2008 accounted for only 3% of their total sales in 2015.
- Rural populations, still representing close to half of China’s total population, struggle to access drugs, given limitations in infrastructure, facilities and healthcare professionals ranging from surgeons, to general practitioners, to nurses and lab assistants.
- Countless patients still ingest or inject drugs that have poor quality standards and that therefore will lead to poor medical outcomes. The landscape of manufacturers, more than 4,000, is so fragmented that it is difficult to identify quality ones, worthy of trust. Real efforts to raise manufacturing standards are underway, but will take time to have broader impact.
How is the situation likely to evolve? Do we believe that a positive access discontinuity is in the cards for Chinese patients?
Overall, we see cause for optimism, but recognize that the journey could be long and bumpy. No “magic bullet” exists, and achieving broader access to modern medicines for Chinese patients will require the convergence of “several rivers into one mainstream”. Let’s review what those access rivers might be.
- First, economic forces continue to provide additional funding for the healthcare system. GDP growth and income growth are disproportionately channeled towards healthcare – a trend observed in any modern country’s development. As an example, the McKinsey Global Institute projects that by 2025, 589 million people will reach the middle/upper class groups, with household income in excess of USD 17K. That’s double today’s base. Beyond economic power, GDP development brings higher education and awareness, with patients likely to take increasingly active roles in the management of their diseases, including lobbying actions to ensure more timely availability of best-in-class treatments.
- Second, the push by China to promote biopharma innovation will not be successful unless better conditions are in place to reward innovation once on the market. Faster access to market must go hand in hand with access to a broader population, if the government is to achieve its mid-term objectives. We should anticipate additional access measures to be promulgated in the mid-term, including a push to expand Critical Disease Insurance (CDI) to help cover expenses related to selected catastrophic diseases.
- Third, at local levels, examples of local reimbursement schemes being hashed out between local manufacturers and pharmacos continue to emerge. In fact, the trend started in 2012 in Qingdao is accelerating. As a recent example, Shenzhen agreed to provide coverage of a list of innovative drugs, covering oncology, immunology, and CNS, with an annual individual cap of USD23K. Shenzhen has a population of 12 million people, equivalent to a mid-size European country. Implementation details remain to be worked out, including increasing awareness of patients of the existence of those schemes, but the trend is clear and positive.
- Fourth, the push to “clean up” the industry is now in full swing, with higher GMP standards set and a push for consolidation. In the short to mid-term, this should provide much stronger assurance to the Chinese population that safe and effective drugs are prescribed to them (this was one the key objectives of the China 2020 Healthcare reform, launched in 2009).
- Fifth, the development of the private healthcare market is clearly on an accelerating path, with several large investors jumping in to build greenfield hospitals. Private insurers are also increasing their commitment, although real policy changes are still needed to support uptake of the industry on a visible scale.
- Sixth, the convergence of IT solutions and healthcare is opening new solutions for patient management, including delivery of drugs at lower cost and increased efficiency in hospital management that ultimately should help to lower the bill for patients, thereby increasing affordability.
None of those trends is in itself sufficient to address the access challenges. Collectively, they indicate the potential for meaningful improvement. A bullish view would conclude that by 2025, the population able to access innovative drugs could be several times what it is today, turning China into the 2nd largest market for innovative drugs (China has already overtaken Japan in the global rankings, but mostly through generics and mature brands).
One wild card – the willingness of Pharma MNCs to compete in China with “China price” and the ability of the central government to structure guaranteed volume and price schemes. Over the long term, volume potential in China, coupled with an increasing ability to produce quality drugs – both small and large molecules – at competitive rates, could well help rewrite the rules of the access game.
To listen to a recent podcast conversation Franck recorded with colleagues on this topic, please click here. (link: http://www.mckinseychina.com/podcast/how-patient-do-chinese-patients-need-to-be/)
Franck Le Deu a Senior Partner with McKinsey & Company, based in Shanghai for the last 11 years. He leads our Healthcare Practice in Greater China. Please reach out to connect or follow him here on LinkedIn. He’s also on Twitter @fle864