Chinese Pharma Market: Experienced and Evolving

I was in China for a brief assignment for a Major Pharma. It was Just the right opportunity to understand the Chinese Pharma market. At the onset let me tell all that the China Pharma Market is different when compared to the Matured US or European Market or Developing markets like India. Having said that, this does not by any way mean that the Chinese Market is “Novice”; the correct term to define this market is “experienced and evolving”.

I plan to write a series on this Market based on my experience and discussions with various individuals at various levels in the organization. This being the first in the series, I will focus on the broad highlights of the Pharma Market in China and follow that with much more details on each area.

Sales is Experience based and not Fact based: Having sales reps to promote Pharma products to doctors remains almost universal, but doing it in an organized and scientific manner is not what Chinese reps practice. Segmentation, targeting, territory Management, coverage and frequency are well understood concepts, but hardly practiced. Multinational Pharma companies face huge challenges in terms of leveraging their best practices and creating a fact based culture. To further worsen the problem, the industry is facing a whopping 27% attrition rate.

Availability of Data is a big concern: There are data providers in the market. Cegedim, IMS are available, but the Pharma companies are reluctant to subscribe. Pharma companies believe that such subscriptions are two ways hence the company might lose their competitive advantage by sharing their contacts with these data providers. Data will be important over long-term because the turnover of the sales representatives is still high, resulting in pharmaceutical companies losing important influences with their representatives.

 Lack of Basic IT Systems: Chinese Pharma market is growing at an average rate of 16-17% over the last few decades, and at this rate China will be the world’s largest market by 2020. But recently many Multi-National firms are facing challenges in achieving these numbers and are finding ways to work more efficiently and smartly, whereby saving cost and adding to bottom-line. This would need proper tools to support various business functions. Currently majority of the firms have either had a bad experience with IT systems or are exploring options to have one.

Selling Model is Tender Based: In order to bring the overall cost of healthcare, government has mandated a bidding process at province level. This bidding process is annual, and is mandatory for Pharma companies who wish to promote and sell their drugs in that province. This is an important function in the commercial space for Pharma, as pricing fixed at one province affects the pricing with other provinces and thus also impacts pricing at national level.

Ongoing Government Reforms: The Chinese government continues to invest in reforming its healthcare ecosystem. A key element of these reforms is the essential drug list (EDL), intended to reduce drug costs. The EDL environment has created challenges and opportunities for pharmaceutical companies, pharmaceutical distributors and hospitals, as well as trigger changes in how they operate and compete.

Distribution Network and Challenges: The distribution market in China today is still very fragmented. There were more than 9,000 qualified distributors in China in 2007, including numerous small- and mid-size operators with varying level of sophistication.  Although China distributors are consolidating, they still have much room for improvement compared with peers in developed countries. Huge demand from basic healthcare service providers in both urban communities and rural areas challenges distributors’ capabilities and in light of government regulations, distributors are facing an array of price and cost pressures.

Local Competition is stiff: Although half of the top ten pharmaceutical companies in China are multinationals, none command more than 2.5% of the total market share. Many of the most popular products in China are traditional Chinese medicines and they are growing faster than prescribed drugs. Multinationals are losing share — they’re growing nicely, but they’re consistently losing share.

The Pharma market in China is evolving and with the ongoing government reforms and governments commitment to expand the healthcare coverage to the large Chinese population, there are challenges and opportunities for various stakeholders. The overall environment is undoubtedly becoming more regulated and demanding for key stakeholders.

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