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How COVID-19 changes the game for biopharma in China

McKinsey 24 Apr 2020 12:00

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The COVID-19 crisis is fundamentally changing how biopharmas operate in China. It has put short-term pressure on budgets, reduced treatment of non-COVID-19 patients, and undermined market fundamentals. Equally, it has revealed a number of new focus areas, amid expectations for rising investment and a supportive policy agenda as the economy recovers. The urgent task for biopharmas is to mitigate the short-term impacts of the outbreak and prepare for a reformed landscape once normality returns.

China is the world’s second largest pharmaceutical market and a strategic priority for most global players. The market is complex, and has become more so as the crisis has played out. Expectations for economic growth and healthcare spending have been revised downward and companies have struggled to deliver normal levels of patient impact. Product approvals have continued, but launches have faced challenges, reflecting fewer diagnoses as hospitals have seen constrained capacity and fewer patients. Chronic therapies have been affected to a lesser extent, with patients able to secure longer prescriptions and obtain medicines through retail pharmacies and online platforms.

There is a consensus that COVID-19 will have a negative impact on the economy and therefore healthcare expenditure. McKinsey Global Institute estimated before the COVID-19 outbreak that spending would grow to 6.6 percent of GDP in 2020, and that the economy would expand by 5.9 percent. Those numbers produced a baseline value for expenditure of RMB 6,930 billion. Given the impact of COVID-19 on the global economy, China’s GDP growth is now more likely to be in the range of 1 percent to 2.3 percent. (In the first quarter of 2020, China’s GDP dropped 6.8 percent compared to a year earlier, according to government statistics.) To maintain the predicted absolute value of spending, the government would need to raise spending as a proportion of GDP to between 6.8 percent and 6.9 percent, according to McKinsey analysis. Conversely, maintenance of 2019’s 6.5 percent of GDP in healthcare spending would lead to a decline of RMB 340 billion—420 billion in spending this year.

After the crisis, demand for healthcare will inevitably normalize (over a period of about two years, based on the experience of the SARS crisis) but patient flows may continue to shift toward mid- and lower-tier hospitals, online platforms (internet hospitals and online pharmacies), and retail pharmacies as dispensing channels.

Biopharma companies and healthtech players have worked to enhance the digital healthcare environment. When MNC biopharmas launched new products during the crisis, they deployed significant virtual support resources. Local healthtech companies, meanwhile, worked to tailor their services to COVID-19-related needs. Baidu offered free access to its “Ask a Doctor” mobile app and JD Health enabled free consultations around the clock on a global basis. Ali Health launched a free online diagnosis service, again available to use from China or international locations, and provided home delivery of drugs for some chronic diseases. Tencent launched its “COVID-19 Epidemic Service Platform,” offering an integrated prevention and control solution with a range of commercial partners. Haodf.com collaborated with 210,000 public hospital doctors to launch a free online diagnosis campaign.

Conversely, there were disruptions to clinical trials, a reflection of strict quarantine measures and a lack of clinician capacity, with most disruptions occurring in Hubei-based facilities. Before the outbreak, nearly half of trials in provincial capital Wuhan were conducted by multinational biopharmas. As the impact of the outbreak abates, trials are slowly picking up steam, based on anecdotal reports from clinical operations directors.

Healthcare policy, already in flux ahead of the crisis, continued to evolve during the outbreak. In January, the National Healthcare Security Administration (NHSA) published new rules relating to how retail pharmacies should handle basic medical insurance (BMI). It included provisions mandating the hiring of full-time pharmacists and dedicated areas for drugs covered by BMI. On April 7, Shanghai published guidelines on the creation of a new public health emergency management system by 2025 (see sidebar). 4 4. Shanghai aims to become one of the world’s safest cities in public health by 2025, SHINE, April 8, 2020. The system will bolster the city’s ability to cope with spikes in healthcare activity. It will use an emergency command information framework and smart decision making to support insight, coordination, and resource management. On digital, China’s National Health Commission (NHC) released a notification in relation to online diagnosis and treatment of COVID-19 that aimed to:

Looking to the future

Adapt to new dynamics in patient flows

With these dynamics in mind, companies may consider doubling down on technology investment and developing strategies for online engagement. Digital share of voice will be a vital source of differentiation, with companies lifting investment in omnichannel customer engagement models to compete on content, responsiveness, channel, messaging, “fun,” and quality of advice, both in respect of customers and in facilitating interactions between patients and physicians. Finally, while new launches fell dramatically over the past couple of months, the innovation space will likely continue to thrive. The NMPA has demonstrated its commitment to supporting innovation with high numbers of approvals and has explored use of real world evidence to support the approval process.

The COVID-19 outbreak has been a defining moment for biopharma in China, leading to short-term challenges and dynamics that may permanently change the face of healthcare. The good news is that the market remains fundamentally strong and is likely to be an important driver of growth as the country emerges from the crisis faster than elsewhere. Indeed, the net impact of recent events will likely be to bolster China’s commitment to healthcare. Given the acute challenges in other geographies, the country could be relatively more attractive that it was before the outbreak.

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ChinaShanghaiMcKinsey Global Institute
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