China’s $132 Billion Market Pushes Big Pharma Into Uncharted Territory

(Bloomberg Businessweek) -- On the second floor of a hospital in the eastern Chinese city of Wuxi, children sit in light green cubicles watching cartoons. Their mouths are covered by nebulizers, which administer medicines via a breathable mist. Nearby, their parents are engrossed in their smartphones, occasionally checking to see if their kids are inhaling properly through the mouthpiece.

An uncommonly serene place in Wuxi Children’s Hospital, which is teeming with agitated parents and crying toddlers, the room is one of roughly 15,000 pediatric nebulization centers that AstraZeneca Plc has built in China in partnership with local governments and medical device companies. The idea is to drive usage of the British drugmaker’s Pulmicort, an inhaled asthma drug, among Chinese kids whose families cannot afford to buy the device to use at home.

AstraZeneca’s push offers a look at some of the more unusual efforts by multinationals in China to improve patients’ access to medicine—and thereby ramp up sales—in the country’s $132 billion drug market. It’s the only nation outside the U.S. that generates more than $100 billion in annual revenue, a market projected to expand 3% to 6% next year, much faster than the five biggest European nations combined, according to researcher IQVIA Inc.

Even so, 2020 is poised to bring more pressure on Big Pharma in China as President Xi Jinping’s government extends a mammoth nationwide drive to lower the cost of medicines. Foreign drugmakers are betting they can keep growing by playing a more direct role in helping revamp the nation’s uneven health-care systems—and, by doing so, win themselves more customers.

AstraZeneca, which got about 18% of its total revenue of $22 billion from China in 2018 and is among the international drugmakers with the largest exposure to that market, plans to add more nebulization centers next year and is working on other diagnostic initiatives to reach more patients. Yet even Leon Wang, its executive vice president for international markets, acknowledges that uncertainties abound with such new initiatives in emerging markets. “We have a huge stake in China,” he says. “There are more opportunities, but it will be more difficult.”

China already boasts the world’s biggest patient population for diabetes and has almost 4 million people diagnosed with cancer each year, often at a late stage and with survival rates that can lag those of other countries. Almost one-fifth of all Chinese are in their 60s, and a growing number take medications to lower lipid levels, unclog blood vessels, and prevent heart attacks. And drugs for asthma and lung diseases are increasingly in demand after the pollution hikes of the past decade.

Beijing in 2016 announced a grand plan dubbed “Healthy China 2030” to increase cancer survival rates, improve management of chronic diseases, and lift public-health services to developed-country levels. The government has made it easier for foreign companies to bring new drugs to China by reducing approval times, but it’s also negotiating much lower prices with those who want their therapies eligible for reimbursements by the national insurance service.

Chinese biotech upstarts are quickly catching up with big foreign rivals by introducing their own therapies, sometimes at a fraction of the price.

“In a country like China, being at the historical juncture of a sweeping health-care reform means uncertainties and risks are inevitable,” says Sharry Wu, a Shanghai-based partner at EY. Foreign drugmakers have little choice but to test innovative strategies to tackle such challenges, she says.

International drugmakers are preparing to use the speedier approval process to bring in new drugs and drive up sales volumes. Swiss giant Roche Holding AG says it plans to release new drugs, including its lung cancer therapy, Tecentriq, in China next year if it gets approval from Chinese authorities. France’s Sanofi SA says it will introduce its eczema medicine Dupixent in China in 2020 or 2021. It will be among 30 new Sanofi products to be rolled out there over the next five years.

Others are using local tieups to improve drug access. Pfizer Inc., the largest U.S. drugmaker, said in a statement that it often works with the government and other stakeholders in China to address significant public-health risks and provide solutions. In recent years the company’s Navigator Project has supported Chinese government efforts to develop ways for patients on antibiotics to receive appropriate therapy while discouraging the growth of antimicrobial resistance.

GlaxoSmithKline Plc, the U.K.’s largest drugmaker, says it often works with the Chinese government and other health-care institutions on projects for disease prevention and control, and in 2019 agreed to team with the health commission in the central Chinese city of Yinchuan to manage the diagnosis and treatment of chronic respiratory diseases.

Such novel approaches to market development can produce results. For AstraZeneca, Pulmicort delivered 20% sales growth in the first half of this year in emerging markets, with China accounting for the “overwhelming majority,” the company said when announcing this year’s first-half results. The nebulization centers fueled a lot of that growth because families who can’t afford to buy the devices use them at the facilities. (A quality nebulizer for home use costs about $150, whereas each nebulizer treatment done at one of its facilities costs 8 yuan to 12 yuan—or about $1.10 to $1.70—the drugmaker estimates.)

About 20 minutes from the children’s hospital in Wuxi is the company’s China Healthcare IoT (internet of things) Centre. Among its latest inventions is a vending machine that can be placed in a hospital, from which patients can rent a nebulizer for treatment at home and then return the device at a storage locker nearby. Next year the company plans to increase the number of nebulizers available for rent and home use.

For early cancer detection, AstraZeneca, whose cancer drug Iressa is widely prescribed in China, is working on a plan to send trucks equipped with CT scanners to rural areas to screen populations for lung cancer.

Still, China’s significant regional differences and the unbalanced rates of development across the country could mean that innovative policies by drugmakers will be slow to take off, says Neil Wang, greater China president at market researcher Frost & Sullivan.

AstraZeneca’s Wang acknowledges that the payoffs on the investments the company is making are unlikely to come quickly. Yet by addressing China’s health priorities, which could redefine demand for health care and drugs for decades to come, “ultimately it will not be a bad thing for business,” he says. — With Drew Armstrong, John Lauerman, and James Paton

For more on the future of health care, go to Bloomberg.com/prognosis

To contact the editor responsible for this story: James Ellis at jellis27@bloomberg.net, Anjali Cordeiro

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