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SeizingChina’spharmaopportunityChina’spharmaceuticalmarketisgrowingbyupwardof20percentayear,butglobaldrugcompaniesstillmustcaptureitsfullpotential.FranckLeDeu,RajeshN.Parekh,andClaudiaSüssmuth-Dyckerhofffebruary2008DemandforpharmaceuticalsisrisingthroughoutChina,butmultinationalcompaniesfaceadauntingtaskiftheyaretocapturethisnewpotential.Themarket’smagnitudeandcomplexityarethemainchallenges.MultinationalswillbeabletoextendtheirfootprintinChinaonlyiftheybroadentheirproductrange,reachdeeperintothebigcitieswhileexploringnewterritory,andbuildlargersalesforcesinthefaceofintensecompetitionfortalent.healthcareArticleataglance1FewpeoplewoulddarecallChinathesickmanofAsia.Butasurgeofdiseasesofaffluence—includingdiabetes,breastcancer,andcardiovasculardisease—isamongtheunfortunatesideeffectsofaboomingeconomy.Demandfordrugstreatingtheseandotherhealthproblems,combinedwitharisinglevelofincome,isenlargingChina’spharmaceuticalmarketbymorethan20percentayearandcreatingattractiveopportunitiesforglobalpharmacompaniesatatimewhenratesofgrowthinkeyEuropeanandUSmarketsaredecelerating(Exhibit1).EXHIBIT1AgrowingdemandWhilesomemultinationalpharmacompaniesareprojectingnear-termrevenuegrowthofmorethan30percentayearinChina,nonehavecapturedthemarket’sfullpotential.Inarecentsurveyofalmost1,600Chinesehospitaldoctorsin38cities,wefoundevidencethatcompaniesarehavingtroubledealingwiththemagnitudeofthecountryandthefragmentationoftheindustryandthemarket.WhilealmostallmajorglobalcompanieshaveapresenceinChina’slargestandwealthiestcities,forinstance,fewhavecompletelypenetratedthem.Theimpactofthemultinationalsisespeciallypatchyinruralareasandsmallercities.What’smore,fewproductshaveachievedcriticalscale.Amongtheportfoliosoftheleadingpharmacompanies,weestimatethatonly12drugsachievedmorethan$50millioninsalesinChinain2007;about80percentofthemultinationals’productsgeneratedlessthan$10millioninrevenuesapiece.2ToserveChinaeffectively,multinationalpharmacompaniesmuststartthinkingbig.Theyshouldputmoreresourcesintotailoring(andprobablyexpanding)theirproductportfoliostomeetChina’sgrowingneedsanddevelopadistributionstrategythatdeepensandbroadenstheirreach.Andtocreatethebiggersalesforcesneededtosupportthiseffort,theywillhavetofindandnurturenewsourcesoftalent.AdoseofchangeTosomeextent,thefailureofmultinationalstopenetrateChina’spharmamarketishardlysurprising.Untilrecently,theyconsideredthecountryasecondarymarketbecauseofitsrelativelylowcommercialprospectsandconcernsovertheprotectionofintellectualproperty.Inthepast,manymultinationalpharmacompaniesbroughtprescriptionproductstoChinaonlyseveralyearsaftertheirlaunchinothermarkets.Thesetreatmentsoftencompetedagainstlocalgenericsthathadalreadywonregulatoryapproval.Competitionfromlocalplayersremainsfierceinthegenericandover-the-counter(OTC)segmentsalike.1ButwithChinaexpectedtorankamongthetopfiveglobalmarketsforpharmaceuticalsby2012—andwithdemandforinnovativepatenteddrugsgrowingfast—newopportunitiesbeckon(Exhibit2).EXHIBIT2Patentedgrowth3IntellectualpropertyprotectionisimprovingasboththeMinistryofPublicSecurityandtheStateFoodDrugAdministration(SFDA)clampdownonphonydrugmakersandevensomereputablecompaniesthatdon’trespectpatentrightsstrictly.In2006,theSFDAshutdownover1,200drugandmedical-equipmentmakersforproducingfakeorlow-qualitygoods.Thegovernment,meanwhile,increasinglysupportspatentprotectionandhasrefused,forexample,toapprovegenericproductsifpatentedmoleculesareonthemarket.EvenChina’scurrentlyinsufficientinsurancecoverage,anotherhindrancetocommercialsuccessintheprescriptiondrugmarket,maybeimproving.Salesofmanyprescriptiondrugsdependonwhethertheyarecoveredbythegovernment’sBasicMedicalInsurance(BMI)program,anurbaninsuranceschemefundedbycontributionsfromemployersandemployees.Todate,theprogramcoversroughly25percentoftheurbanpopulation,or160millionpeopleby2006estimates.2Thegovernmentplanstohaveuniversalcoverageby2020,however,andby2012,85percentofthepopulationshouldhavesomekindofhealthinsurance(Exhibit3).3EXHIBIT3Towarduniversalcoverage4Encouragedbytheprospectsofthelocalmarket,manyinternationalpharmacompaniesareincludingChinaintheirgloballaunches.BayerScheringPharmaandBristol-MyersSquibb(BMS),forexample,wentthatrouteintheirrecentgloballaunchesofNexavar(forrenalcellcarcinoma)andBaraclude(forhepatitisB),respectively.Yetmostglobalpharmacompanieshaveyettoaddresstheprincipalchallenge—understandingandmasteringChina’slargeandhighlyfragmentedmarket—atallseriously.Pharmasalesvarywidelyamongregions,andevenwithinthem,dependingnotjustontheincomelevelsandreimbursementstatusoftheirconsumersbutalsoonthetreatmentpracticesofphysiciansandtheleveloflocalcompetition.Companiesstruggletounderstandthesedifferencesinthedynamicsofmarkets,inpartbecausedataonthemislacking.Somecompanies,wefind,maydefinemarketsegmentsinconsistentlyandthereforehaveproductportfoliosthatoftenfailtomeetlocalneeds.AsuitableportfolioWhilesomecompanieshavecaptureddemandinthenicheprescriptionormass-marketOTCsegments,fewmanagetograbboth,andfewpharmaproductshaveachievedsignificantsca