China: Big Pharma's Long March to End? - Pharmaceutical Executive


China: Big Pharma's Long March to End?

Pharmaceutical Executive

Chinese Style Universal Healthcare: A dose of pragmatism

Howard Balloch (The Balloch Group)
As the Chinese economy has rebounded, global investors are hoping that Chinese consumption may make up for continued lackluster performance in Western markets. Unfortunately, a household savings rate at nearly 40% has kept a lid on consumption. Consumers' reticence to open their wallets is frequently attributed to shortcomings in the social safety net, particularly in education and healthcare. Thus the 2009 Chinese healthcare reform, an investment of USD 124 billion over the next three years, will not only directly impact the lives of tens of millions of rural Chinese, but may also have global implications. The reforms are not in response to a deficit in the quality of care. Eric Bouteiller, Chairman of the EU Chamber of Commerce in Tianjin, believes that "now, especially in the big cities and large hospitals, you have doctors on the same level as European or American specialists." The major problem is sharply unequal access to high level care and disseminating services to a large and impoverished rural and suburban population. There are a number of programs currently in place and they have been hastily extended in an attempt to cover China's 1.3 billion citizens by 2020.

David Ricks ( Eli Lilly)
However, conditions are far from perfect. Christian Grapow, General Manager of Solvay China, indicates that corruption, inefficiency and inequities in the system have even prompted cases of patients attacking doctors in hospitals. The government is certainly aware of poor patients' frustrations and has long been searching for an effective solution. Howard Balloch, former Canadian Ambassador to China and President of China's leading independent boutique investment bank, The Balloch Group, relates an encounter between a Canadian official and the Premier of China. "The Premier turned to the Canadian official and said, 'we would love to be as Socialist as Canada, but we can't afford it.'" Ambassador Balloch observes "Like many areas of reform, this country doesn't start from an ideological basis, but rather from a pragmatic viewpoint, recognizing that the provision of basic healthcare services to the people is a necessary component of social stability."

Pony Lu (Servier)
The mechanics of the health care reform are very much a pragmatic affair, emphasizing the construction of community health centers in rural and suburban areas to alleviate the pressure on this under served population. Yu Mingde, former member of the National Development and Reform Committee (NDRC), describes the highlights and implications of the health care reform. "There will be a general expansion of the total market affecting all companies across the country," predicts Mr. Yu. "The five policies adopted by the government include: new farmers and the health care system, the health care insurance system for urban residents, the 15 types of infectious diseases with the national free treatment policy, the planned 13 types of vaccine with nationwide free vaccination, and the State-aid system for poverty-stricken populations." Mr. Yu further estimates that reform policies will result in an "increase in drug consumption between 160-170 billion RMB." There will also be strong support for generics and the primary drug reimbursement list, under the auspices of the Basic Medical Insurance program (BMI), is undergoing a long awaited overhaul, the first since 2004. Dan Zhang, Chairman and Founder of Fountain Medical Development (FMD), a Contract Research Organization (CRO), outlines other structural reforms such as "new guidelines issued by the SFDA specifically saying they will speed up approval for four classes of drugs. First are New Chemical Entities (NCE), candidates that have never been approved anywhere. Second are unmet medical needs such as oncology or pandemic diseases. Third, orphan medications. Fourth, new uses or combination uses of Traditional Chinese Medicine (TCM)." Mr. Zhang believes that further changes are on the horizon. He points out that the State Food & Drug Administration (SFDA) "has begun to systematically translate US drug development guidelines into Chinese." This is a significant signal regarding the direction in which China wants to move.

Michel Vounatsos (MSD)
Big Pharma executives have not played a very vocal role in the Chinese health care debate. Many would probably agree with Merck Sharp and Dohme's GM Michel Vounatsos who advises, "One should not be in China to change China. One should come to this country to understand China and be here to support the policy priorities already established in the country." However, many multinational pharmaceutical firms view the short-term impact of the reforms with a certain level of caution. Pony Lu, General Manager of Servier, notes, "We are likely to see even stronger price controls by the government in order to manage its healthcare spending. The patient pool in these new areas is indeed huge, but consists mainly of people with very low income levels, who have little ability to pay for drugs themselves." These concerns have kept most MNCs on the sidelines, yet there can be little doubt that current infrastructure investments and structural reforms will significantly improve patient outcomes over the coming years.


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