Medical reforms spell out profit for pharma giants

Drug manufacturer Sanofi's headquarters in Paris. It is already expanding its manufacturing capability in China. Provided to China Daily

Within just a few days in late March, more than 10 international healthcare companies launched new medicines and medical devices aimed at the Chinese market.

In 2012, the government's spending on healthcare rose 27.1 percent, and 20 serious illnesses were included in the medical insurance system.

During the annual two sessions of the nation's top legislature and political advisory body in early March, the government announced it will invest more in the prevention and treatment of chronic diseases as well as expand the reimbursement medical system with more medicines added to the essential drugs list.

The announcements sparked many of the world's leading multinationals into action.

Sanofi SA, the French multinational pharmaceutical company considered the world's fourth-largest by prescription sales, was quick to announce that its injectable diabetes treatment Lyxumia - which has just gained approval from the European Union - would be introduced to the Chinese market soon.

The company is already expanding its manufacturing capability in China.

Its $90 million Beijing plant is producing Lantus, its once-a-day, long-acting insulin treatment, and the company plans to open a new production line to start making the injection device needed for the drug.

Lantus is insulin for treatment of both type-1 and type-2 diabetes.

The former is one of the diseases newly included in China's medical insurance system. The treatment is also listed in China's reimbursement medicine list now.

Sanofi is cooperating with academic institutes and universities to carry out type-1 diabetes studies in China, looking at morbidity, medical costs and daily care of the disease.

"There has been no specific national survey carried out on the disease in China, so we hope our survey can help our medicines be more targeted at local patients," said Kelvin Lam, vice-president of Sanofi China's diabetes division.

US-based biopharmaceutical company Bristol-Myers Squibb is also focusing on type-2 diabetes. It plans to launch at least four medications for treatment by 2015.

China now has 148 million people with pre-diabetes on top of an existing 92.4 million diabetes patients.

The number of patients is forecast to reach 130 million by 2030, creating medical costs related to type-2 diabetes of $47.2 billion, according to International Diabetes Federation.

In the China National Plan for Chronic Diseases Prevention and Treatment (2012-2015), diabetes has been given specific importance.

"Our advantage is in early-stage diabetes treatment. Our Glucophage (an oral diabetes medicine that helps control blood sugar levels) is recommended as initial treatment within national guidelines," said Jean-Christophe Pointeau, president of Bristol-Myers China.

The medicine is on China's essential drug list and Pointeau said he expects another Bristol-Myers product - Onglyza, a prescription type 2 diabetes medicine - also to be included.

Another major international name, Boston Scientific Co, has just announced clinical results of a trial evaluating the safety and effectiveness of a cardiovascular stent system in China.

Clinical trials are the prerequisite of new product introduction.

The US company is also working to introduce more specialist treatment to the Chinese market, including those involved in cardiology and endoscopy, especially in the treatment of chronic conditions, said Michael F. Mahoney, Boston Scientific's CEO.

Since entering China in 1997, the company's average annual growth by sales has kept at 30 percent and it expects to exceed that figure in coming years.

The company is also building a research and development, training and head office complex in Shanghai, which is expected to be completed in September.

China expects to increase its medical spending by 27 percent this year, and to more than double the number of drugs in its national reimbursement medicine list from 205 to 520.

China's medical insurance will cover an additional 20 serious illnesses, including lung and gastric cancers, chronic myelocytic leukemia, hemophilia, type-1 diabetes and cerebral infarction.

These are also other serious diseases seeing increased occurrence in China, which lack high-quality diagnosis and treatment equipment being produced by domestic companies, according to a recent report from Bank of China International (China) Ltd.

Sanofi's Lam added that so far the company cannot assess how successful its investment in the Chinese market has been, "but we believe in the long run, it will be absolutely positive to us".

Sanofi's diabetes business increased 25 percent year-on-year in 2012, compared with the average growth of the sector at 15 percent.

Bristol-Myers is focusing on diabetes, hepatitis, tumors and cardiovascular diseases in China, which all fall under the chronic and serious illness umbrella.

"For rare diseases, multinational companies have their unique products, such as Bayer HealthCare's medicine for hemophilia.

"And in the chronic disease sector, their medications and devices are more diversified and innovative," said Guo Fanli, an analyst from domestic research company China Investment Consulting.

But multinational companies still face one significant challenge - how to lower prices, which is also one of the most crucial goals the Chinese government hopes to achieve in the coming years.

Lam said that localization is one solution.

"Localization of insulin and injection device production will help us save cost and then reduce price of Lantus," he said.

However, Pointeau from Bristol-Myers insisted his company's prices remain reasonable, given its 10 years of R&D investment, estimated at $1 billion.

"The daily spending required to use Onglyza is about 10 yuan ($1.6). If it enters the reimbursement list, the price should drop 5 to 10 percent each two years - do you think that's expensive?" he said.

Boston's Mahoney said its new R&D center in China is designed to develop new products and solutions with high cost-performance ratios.

Those with "high quality and affordability" are expected to emerge from its R&D center, and they will then be used around the world, he said.

To reduce R&D and distribution costs and expand market access, foreigners are actively seeking cooperation with Chinese companies, said Guo.

Bristol-Myers follows a "selective integration" strategy, when partnering with local companies.

It has cooperation agreements with Zhejiang-based Simcere Pharmaceutical Group on development and commercialization of cancer therapy, and with Wuxi PharmaTec Co Ltd on lab and data research.

Medtronic Inc, the founder and the world's largest producer of pacemakers, based in Minneapolis in the US, has announced two merger and acquisition deals with Chinese companies that have created trading volumes worth nearly $900 million.

It acquired China Kanghui Holdings, a Jiangsu-based orthopedic devices manufacturer, for $816 million.

It also spent nearly $66 million buying Shenzhen-based LifeTech Scientific Corp, which is engaged in developing, producing and marketing treatments for cardiovascular disorders.

The world's largest drugmaker by sales Pfizer Inc and Zhejiang Hisun Pharmaceuticals set up a $295 million joint venture last September, which focuses on the development, manufacture and commercialization of off-patent products.

All of these companies have underlined their plans to continue looking for M&A and cooperation opportunities in China.

"So far, the government's policies are positive news to healthcare companies," said Li Qiushi, an analyst at Guotai Junan Securities.

He said international companies with long-term vision will be the ones which succeed.