November 16, 2018 – – I have had the privilege of living in China for well over a decade. The healthcare market has changed dramatically during this time, and it has never been a dull experience to follow its development. I have come to the conclusion, though, that the China market has never been more exciting than it is today. Here are 8 reasons why.
1. The potential for patient and economic impact is gigantic
Healthy China 2030, China’s national healthcare strategy published in 2016, has set ambitious targets for improving health outcomes for the Chinese population. Progress has already been made. For example, life expectancy of Chinese women and men has improved from 68 to 77 in the last 30 years.
But so much more can be done, especially in the context of a rapidly aging society. By 2030, the hope of the Chinese government is to create a 16 trillion RMB broader healthcare ecosystem by continuously strengthening preventative care, optimizing healthcare management and services, and taking care of key segments of the population, such as women and children. Taken together, these initiatives could translate into billions of additional life years, and will have an enormous impact on productivity and economic development in China.
2. Chinese labs are starting to crank out innovation
The signs are all here: A wave of “sea turtles” returning to China to seek their fortunes, abundant sources of funding, direct support by central and local government, unprecedented speed of decision-making and execution by regulators, and a degree of freedom to operate not always seen even in the West.
These are all feeding a rapidly expanding petri dish of innovation that is starting to yield tangible scientific outcomes. New molecules for colorectal cancer (fruquintinib discovered by Chi-Med), CAR-T, PD-1, are just a few concrete examples. Beyond these cases, there’s the emergence of innovative MedTech companies (e.g., Venus MedTech in minimally invasive heart valves), next generation sequencing companies (e.g., Berry Genomics), or big data companies (e.g. LinkDoc, focused on oncology and already valued at $1 Billion, four years after it was started). Just a few years ago, developments such as these would have been unthinkable.
3. Fast and furious reform at the CFDA/NMPA
It’s fair to say that the reform initiated in late 2015 by the CFDA, now under NMPA, has been broader, deeper, and has moved faster than anyone could have anticipated. My McKinsey colleagues across sectors, would agree that this is largely unmatched by other sectors in China. The degree to which innovations that originate in China are being integrated into global drug trials and launches is unprecedented, and the success rate is tangible, with around 100 new drugs approved since 2016, setting a new record.
Achievements also include the publication of a rare disease list, creation of a fast track mechanism, acceptance of foreign data for registration, and the definition of a conditional approval pathway. “Any news from the SFDA/CFDA is bad news” has now become, “any news from the NMPA is positive.” Some multinationals have seen their new drug candidates attain such swift approval they’ve had to scramble to get them to market.
4. Renewed optimism at pharma MNCs
It may be cyclical, but we are clearly experiencing another period of “peak optimism” among MNCs, fueled by very strong commercial performance of their affiliates (many are growing at 15-20% this year and exceeding budget), “fast and furious” CFDA reform, and the realization that the Chinese market is at an inflection point when it comes to opportunities for partnership and innovation.
Some multinationals are becoming more China-centric in their global strategy, even placing a number of key global management positions in China. The contribution of China revenues to global businesses continues to rise, and now stands at over 10% for a handful of companies. Of course, companies are fully cognizant of the uncertainties they face. For example, increasing pressure on mature brands, particularly with the impending roll-out of the Generics Quality Consistency Evaluation initiative, and access bottlenecks that still constrain the uptake of new drugs.
5.The PAT are here to disrupt healthcare
The so-called “BAT” triumvirate of internet giants–Baidu, Alibaba, and Tencent–has recently morphed into “PAT”-PingAn, Alibaba, and Tencent. It’s a reflection of the rapid emergence of three high tech giants that are making a large bet on healthcare. In just a few years, they have developed complex ecosystems allowing them to impact the full patient care value chain. More recent entrants such as JD.com, which has deep logistics expertise and reach, are also well positioned to disrupt traditional models. Perhaps we’ll see more changes to that three-letter acronym in the future.
6. China cash is available and actively looking for opportunities, globally
We estimated that in 2017 more than $40 billion of cash was raised by healthcare focused funds, with over $10 billion deployed in funding deals. The trend has slowed down in 2018, but Chinese funds are playing an increasingly visible role supporting US based biotech (e.g., Grail, VielaBio, IDEAYA ), and are also starting to turn their eyes towards Europe, where many biotechs could benefit from access to new sources of cash. Leading Chinese funds such as Qiming Venture Partners, C-Bridge, 6 Dimensions Capital, 8 Roads Ventures, or Ally Bridge are building an ecosystem of innovation that has increasing global reach.
7. Make way for the HKEX train!
In just one year, we have moved from expressions of intent to open up the HKEX to high tech companies, to the reality of having four companies already listed– Ascletis, BeiGene, Hua Medicine, and Innovent–and with many more waiting to list, such as CStone, MicuRx, Frontage, AOBiome Therapeutics, and Stealth. The development of a true biotech cluster in Hong Kong will take time, however. Many elements of the ecosystem are still in an embryonic phase, and the pitfalls companies face are numerous, as evidenced by the poor stock performance of several early listers. But recent developments are providing a healthy dose of encouragement Chinese entrepreneurs dreaming of creating their own healthcare-focused game changer.
8. Chinese biotechs coming of age?
Beyond the HKEX trend, we are seeing the initial wave of Chinese biotechs getting close to reaching the market with new drugs. Sure, most fall into the “me too” category, but a few are truly innovative, proving that homegrown innovation in China is possible. The emergence of these innovative players is also serving as a wake-up call for MNCs, who have to respond by adapting their talent value proposition, as well as their operating model. In just a few months, we have seen leaders of companies such as Pfizer, AstraZeneca, Roche, and J&J, move from senior positions at their companies to pre-eminent roles at biotechs. This first wave is one thing. The next wave will be another one altogether.
I probably could have highlighted a few more exciting trends, such as the change in provider landscape and improvements in private healthcare insurance. But these eight reasons should prove why China is such an exciting place to witness the development of the healthcare industry.