By Dr. Andrée K Bates, December 2011
In Part 1 of this article (Are You Worried About China? Part 1) we examined some of the barriers to doing business in China that our Clients have found. These included attempting to apply a global business model to China, attempting to apply a country wide approach to China, lack of good market segmentation, ignoring cluster segmentation and not knowing where to find good Chinese data to use. The list of barriers and recommendations continues here from the previous article. Click here to read Part 1 before reading Part 2 of this article - Are You Worried About China? Part 1.
1. Intellectual Property protection
A decade ago, intellectual property and patent protection was a really BIG problem. Even as recently as 2006 Pfizer took some local manufacturers to court for producing and selling counterfeits of Viagra and won. This was a better outcome than their previous attempt in 2004 when the Chinese courts invalidated a previously approved patent for Viagra in 2001 retroactively. So, things are improving on this front. It is still not perfect but progressing in the right direction as the Ministry of Public Security and the State Food Drug Administration (SFDA) clamp down on these infringements. In 2006, over 1,200 drug and medical equipment makers were shut down for producing fake drugs and equipment, and the government is increasingly supporting patent protection.
2. Pricing
Affordability of medicines and vaccines is a significant issue. However, the populations are large and continuing to grow dramatically. China, for example, adds in population the equivalent of the entire Australia to its population annually. China is a partially, rather than fully, reimbursed country so part of the population is covered, but not all. This means that some people may have to pay for medicines themselves rather than get reimbursed. The question then becomes one of volume versus pricing and how to get the balance right. This is also part of the reason why the branded generics market is so strong in China – drugs need to be affordable for the general population. [Note: The other reasons, of course, are that they have a strong brand which conveys a trust and familiarity, as well as large field forces aggressively promoting the products.] In our 94.8 Analytics, the team can move pricing sliders to see what kind of impact varying price points will have on the brand sales; you can also examine different approaches against each other and their results. Companies have several options of what to do. For example, GSK has adopted a flexible pricing approach to improve the affordability of their medicines and increase access for lower income patients while remaining profitable.
3. Reimbursement and coverage
The current system is clearly insufficient but improving. Many local drugs are covered by the government’s Basic Medical Insurance (BMI), which is contributed to by employers and workers. This covered around 25% of the population in 2006, although I am not certain what the level is currently. This should be something to investigate as there is a strong correlation in our analytics with that kind of coverage and a physician’s willingness to prescribe innovative drugs. The government policies are still being changed, so estimating the current percentage covered by this insurance is a challenge! However, there is data that can be used. The Ministry of Health annually updates their database of all hospitals in the country and includes items such as hospital beds and consumption of Western drugs. Commercial health insurance companies do operate in China also. It is predicted that by 2012, 85% of workers will have some kind of insurance coverage but whether that comes to pass, I cannot confirm.
4. Cultural
Abbas Hussain from GSK has written a lovely list of Golden Rules for China for foreign companies. These are reproduced here for fun although they should not be seen as frivolous as anyone doing business in China will know. In fact, I know another country these rules could also be applied to.
- 1. Everything is possible in China.
- 2. Nothing is easy.
- 3. Patience is the key to success.
- 4. The answer ‘yes’ is not necessarily an indication of agreement or confirmation.
- 5. You don’t understand China’ means disagreement.
- 6. ‘Provisional regulations’ means rules can change at any time – even retroactively.
- 7. ‘Basically no problem’ means a BIG problem.
- 8. Signing a contract means the beginning of the real negotiation.
- 9. When you are optimistic, think about rule number 2.
- 10. When you are pessimistic, think about rule number 1.
5. Local competition and relationships
Local players have built up relationships over decades, and relationships are critical in China. When I first worked with China it was 1995, and I was looking at pricing for a drug in China. I received a faxed answer that confused me detailing the relationships of the CEO and his wife, and the competitor company explaining the pricing. I believe I still have that fax today as it was so indicative of the importance of relationships to business in China and how much they underlay business - even pricing. When we apply 94.8 Analytics in China we can see the specific elements of the relationships are the stronger drivers for our foreign Pharmaceutical Clients in China to focus on for faster development of the aspects needed.
6. Lack of a strong brand in China
China is a country, like Japan, that is brand focused. Having a strong, well-known brand is critical to success in China. The importance of the brand is critical as the belief is that well-known brands are of higher quality. The first thing to consider is approval as Chinese regulators are not keen on brand names that have some kind of use of characters that imply a cure, efficacy, intended use or target audience. LabBrand in Shanghai has compiled some thoughts on Pharmaceutical brand name rules in China here which are of interest if you are in the process of branding a drug for China: http://www.labbrand.com/brand-source/difficulty-selling-drug-find-top-notch-chinese-name-it-first. These things should be kept in mind when naming a Pharmaceutical brand in this market. Our analytics show that strong brand awareness always correlates with increased prescribing and sales in China. In fact, our analytics have uncovered a few other things related to this that yield a competitive advantage in many of the segments in China.
7. Level of local competition including branded generic competition
If your competitors have strong local relationships built up over many decades, and they have strong brands (see previous point), then they are in a strong position. Branded generics are big business in China. An example is liver cancer - treated mainly by generic drugs - and 50% of all liver cancer in the world is in China. For companies with an innovative drug in this market, it is important to grow the brand name and awareness and also to potentially examined partnerships with local companies.
8. Lack of focus on a wider portfolio of products in the Chinese market (innovative patent protected drugs, branded generics and OTC)
The former are always popular by Pharmaceutical companies but, although a growing segment, they do not make up the bulk of a market dominated by branded generics. There are several ways to plug the gaps in your portfolio. The obvious ones being acquiring a local company, possibly ones with niche OTC products given that many Chinese self-medicate and they also are very brand driven, which is a big thing in China in general. Other options would be to in-license products for China from local Chinese companies or perhaps foreign companies that have little or no presence in China but offer some advantage, such as the example we saw with Bayer. They purchased the rights to Insugen for China.
Conclusions
There is not a simple ‘one-size-fits-all’ approach for China, and the traditional strategies do not account for the huge variability within the country, nor the constant and rapid changes taking place. To have a stronger chance of winning companies, we need to examine the barriers they face and then access strong analytics data at a more granular level in order to be able to make better-informed decisions.
For any questions, or if you would like to see a demo of the tools discussed in this article, please contact Dr Andree Bates of Eularis - http://www.eularis.com - or contact your closest Eularis office - http://www.eularis.com/about-us/contact-us - and the message will be passed on to her or a local team member to speak with you.