Big pharma ups ante as China appeal grows

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With the government making key moves that pose both opportunities and risks for big pharma, the Chinese market is clearly in flux. But that does not seem to be putting off groups looking to tap the biggest of the emerging economies.

This week the government announced that it wanted to ensure universal coverage, but coupled the expansion with pricing cuts for cancer and immunotherapies. However, joint ventures and scouting operations by players like Johnson & Johnson, AstraZeneca and Pfizer are shifting into gear, a sign that big pharma increasingly sees China as a pipeline filler as well as an end user.

Discovery and development

While big pharma is cutting jobs in the developed markets, the last fortnight has seen a flurry of activity in China (Pharma’s hatchet men ask, are you local?, September 19, 2012). This was rounded out yesterday by J&J’s announcement that China would be home to one of four new global discovery centres aimed at finding new candidates and signing deals in “innovation hotspots”.

On Monday, AstraZeneca announced that it would speed development of the MedImmune-originated antibody MEDI5117 in rheumatoid arthritis through its joint venture with the contract research organisation WuXi Pharmatech. Pfizer, meanwhile, last week said its joint venture with Xhejiang Hisun Pharmaceutical would add 600 employees this year and another 500 by the end of 2013 to make up a workforce of 1,500 in manufacturing, R&D and commercial and support functions.

Emerging markets have been seen as the answer for many big pharma players as sales have slowed under the twin pressures of reimbursement and patent expiries. Success has not always been guaranteed: GlaxoSmithKline reported that its first quarter emerging markets sales had been disappointing owing to political instability in the Middle East, for example.

China continues to be a sought-after market, however. Analysts from McKinsey & Co are forecasting a near tripling of healthcare spending by 2020, to $1tn. Certainly, the announcement this week that the country will be expanding health insurance coverage and adding new drugs covered under insurance plans will not discourage entry.

That the three companies are walking three distinctly different roads in China is a sign that nobody has developed the right model for such a huge market – and that there might be no single right model. Indeed, Pfizer is taking on risk by taking on in-country personnel who would add significantly to the cost base of its near 50-50 joint venture.

On the other hand, outsourcing to its Chinese joint venture the clinical work of the MedImmune anti-interleukin-6 antibody – which has only one phase I trial under way in the US and Europe – spreads AstraZeneca's development risk. In the middle, the J&J discovery centre will take on some of the developmental costs through dealmaking and collaboration and as such is increasing the risk of failure.

Now the bad news

The flipside of the expansions appear to be cuts to drug prices effective in two weeks in the key oncology, immunotherapeutic and blood categories. The average price cut was 17%, focused on products with high daily costs.

The Chinese National Development and Reform Commission stated that the price cuts would reduce the cost burden on patients but would also encourage production of lower-priced drugs.

Few markets are immune from cost pressures as nations and payers contend with capped or reduced budgets, and even with its relatively roaring economic growth China is experiencing some blowback from global economic conditions. Thus such cost-cutting measures are not too surprising, and could give pause to any company pondering market entry.

However, the promise of widely expanded healthcare coverage in the world’s most populous nation still makes China an enticing target. A pause to absorb the latest developments may be in order, but it will probably not dampen China’s appeal.

To contact the writer of this story email Jonathan Gardner in London at jonathang@epvantage.com

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