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WORKING DRAFT

Building Bridges

to Innovation

Shanghai, November 12-13, 2014

CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited



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DISCLAIMER

1



McKinsey & Company | 2

Draftreimburse-

ment pricingpolicy

New R&Dmodels andcommitments

Signal orNoise?

Large scalemanufacturing

investments

2nd largestpharma market

本1 New regulatoryhurdles

Recordcompliance fine


http://slidepdf.com/reader/full/buildingbridgestoinnovationmckinseypresentation111814vf-141207100422-conversion 4/59McKinsey & Company | 3

Managing today

Today’s discussion

Framing the

possibilities

Bridging to

tomorrow



Framing the possibilities


http://slidepdf.com/reader/full/buildingbridgestoinnovationmckinseypresentation111814vf-141207100422-conversion 6/59McKinsey & Company | 5SOURCE: CPA; McKinsey analysis

Drivers of demand remain strong

1 At retail price (base case)

China’s Rx market1 , RMB TrillionKey growth drivers

Rising middle class

Massive urbanizationAging population

Universal insurancecoverage achieved

3.1

1.9

1.0

0.7

2013 2020

+14% p.a.

2015 2025

+10% p.a.



China’s pharma market in context

SOURCE: Euromonitor; Lit research; McKinsey analysis

31%

20%

24%

45%

8%

China market contribution to global sales

Percentage

Industries

Luxurygood

Electronics

Pharma

Auto

Mineralproducts

One-fifthof Apple’s

sales

One-fourthof Prada’s

sales

BMW’s

largestmarket



McKinsey & Company | 7SOURCE: Industry association; Evaluate; McKinsey analysis

China’s contribution to pharma MNCs continues to rise

China Rx sales in global Rx sales

Percentage

1.8

2.4

2.5

2.8

3.7

3.8

5.0

7.5

7.7

11.3

MNC5

MNC1

MNC8

MNC7

MNC6

MNC9

MNC4

MNC10

MNC3

MNC2

2013

Top 10 average 4.2%

Change since 2011

2.5

-0.2

3.4

2.11.2

1.0

0.4

0.9

0.1

-0.2




Incremental $1 billion committed to China by MNCsin last 12 months

SOURCE: Lit research

New R&D center co-located withShanghaiTech University

$130 million to expandpackaging and logisticsin Beijing

$300 million in newproduction base inXi'an; launching theAsia-Pacific InnovationCenter in Shanghai

$105 million for bulkproduction andpackaging in Nantong

5th Global R&D hub withplans for 1,400 staff inShanghai

$325 million in insulinplant in Suzhou

NOT-EXHAUSTIVE




Select recent trends impacting the market

Emergence of newcommercial models

Wave of entry into IThealthcare

Growing role forprivate capital

Rise of domesticplayers, in qualityand innovation Regulatory hurdles

Direction ofreimbursementpricing policy

Slowdown ofChina’s growth

Market accesschallenges




Emergence of new commercial models

SOURCE: Lit search

Distri-butor

CSO

Jan July Sept Oct2014

MSD contracted out selectedbrands to SMC for lower tiercities

Pfizer joined forces withSinopharm to penetratecounty hospitals

AZ outsourced sales ofBetaloc to Sinopharm

Ablynx signed exclusive licensewith Eddingpharm

Mallinckrodt outsourcedsales of Loversol toCRH




Wave of entry into IT healthcare

SOURCE: Lit research; Team analysis

Digital giants Entrepreneurs Healthcare IT

$100 MM

$170 MM

$70 MM

Onlinescheduling/EMR

E-commerce

pharmacies

Physicianand patient

networks

Personalhealthcare

Launch of“Jiangkangyun”




October : Ottawa - ShanghaiJoint School of Medicine

April: UCLA - Centre TestingInternational Corp

John Hopkins - Sun Yat-SenUniversity

Mayo Clinic - WuhanKindstar

August: Duke - KunshanUniversity

September : PartnersHealthcare Int’l - Shanghai

Jiahui Hospital

University of Cincinnati – Chongqing Hospital

Growing role for private capital

Global institutions Local & Asian players

SOURCE: McKinsey analysis; Literature search

1997 2010 2012 2013 2014 2015

United Family(Beijing)

Foshan ChanchengHospital

December : PekingUniversity InternationalHospital

Red Leaf

Kunming ChildrenHospital

March: Parkway – SHint’l Medical Centre

October : MGH – Hengqin Hospital




2 billion

10 billion

10 billion(To be

constructed)

Administration Building

Formulation R&D

Oncology

Rise in quality and innovation of domestic players

SOURCE: Literature search; McKinsey analysis

Quality

Innovation

5238

31

159

2009 2013121110

+55%

229

155146107

89

+27%

201412 13112010

Innovative pipeline by Chinese pharmacos2

US ANDAs by Chinese pharmacos

41 Chinese pharmacos FDA approved for FDF1

1 Final dosage form. Includes manufacturing outside of China2 New Class 1 drugs from preclinical, excluding biosimilars and reformulations

18 Class I drugs approved from 2008-2013

Huahai




Proposed pricing policy for reimbursed drugs

SOURCE: NHFPC; NDRC; Industry association; expert interviews; lit search; team analysis

42

42

34

11 53

76

Example: reimbursement-based pricing for statins (weekly price)RMB

61

42 11

15

Gx 53

MNC 76

Today

OOPReimbursed

Pricing Bureau Chief conference on October 27 suggested reimbursement –based pricing policy willbe implemented in 2015

▪ Implementation plan reviewed by State Council on November 2014

▪ Implementation to begin in January 2015

▪ Same set reimbursement amount will be applied for identical molecule and formulation,regardless of whether the drug comes from originator or generic

Proposed reimbursement pricing policy

Note: assumes Originator and Generic are currently both reimbursed at 80%, maintain current retail price are subject to same reimbursement amount inthe future




20092004 2015+

NRDL update delayed

SOURCE: Literature search; McKinsey analysis

Initial NRDLpublished byMoHRSS, ~900Western medicine,~ 600 TCM

Updates plannedevery two years

Broad upgradewith severalimportantmolecules added

List reaches2,150 molecules

Targetedtherapies notincluded

Plans to initiatenew NRDLadjustment

Officialannouncementyet to be made

2000

1,535 366 249

~43 ~125 ~220 ~275

Moleculesadded

UEBMIcovered, MN

?

n/a n/a ~182 ~300URBMIcovered, MN

Note: URBMI reimbursement scheme created in 2007; actual reimbursement varies by province and by scheme




Change of interpretation of CFDA regulatory review

New MRCT interpretation

SOURCE: Interviews, team analysis

Examples of therapies impacted

From “two

applications, two

approvals” to “three

applications, three

approvals”




Individual MNC position on China driven by various factors

Ambition

andobjectivesfor China

▪ Opportunities ex-China (e.g., Japan)

▪ Pipeline profile

▪ Size andpast

performanceof Chinabusiness

▪ PortfolioprofileversusChina needsand priorities

▪ Exposure torecent news(e.g. EDL,

NRDL)

▪ CEO’s core

beliefs on

China▪ Trust in

Chinateam’s

execution




Broken bridge3Narrow bridge2Broad bridge1

Bridging to innovation – potential scenarios by 2025

▪ Mature drugs havelasting staying powerand continue to growbeyond 2020

▪ China delivers

meaningful and broadstep-up to reward ofinnovation

▪ Mature drugs havestaying power, butcome under strongerpressure and plateaubeyond 2020

▪ China deliversmeaningful butnarrow reward forinnovation, closelyaligned with diseasepriorities

▪ Window for maturedrugs starts closingrapidly by 2020,earlier for some drugcategories

▪ Innovation remainsheavily constrained

▪ Self-pay marketbecomes main viablesegment

S l t d k i f t i ti i




Gx landscape

Pricing andreimbursement

Othermechanisms

Other fundingmechanisms

CFDA approvalprocess

RDL - updatefrequency andscope

Selected key swing factors impacting scenarios

▪ Fragmented landscapewith unproven qualitystandards (status quo)

▪ Fragmented landscapewith some proven qualityGx players

▪ Consolidated landscapewith large proven qualityGx players

▪ Moderate pricingpressure on maturebrands (status quo)

▪ Significant pricingpressure on maturebrands

▪ Heavy pricing pressureon mature brands

▪ No forced substitution ofGx (status quo)

▪ Forced substitution ofGx enforced for selectedTAs

▪ Forced substitution of Gxenforced broadly

▪ Large self-pay marketemerges, complementedby PHI, other schemes

▪ Strong self-pay marketemerges, complementedby PHI, other schemes

▪ Self-pay expands butwith limited support byPHI, other schemes

▪ Shorter delay versusglobal timelines appliedbroadly

▪ Shorter delay versusglobal timelines appliedfor select TAs

▪ Multi-year delay versusglobal launch (statusquo)

▪ Frequent, targeted RDLupdates

▪ Frequent, broad RDLupdates

▪ Infrequent and narrowRDL updates (statusquo)

M a t u

r e b r a n d s

I n n o v a t i v e d r u g s

B id i t i ti S i th h 2025 C O




Broken bridge3Narrow bridge2Broad bridge1

Bridging to innovation – Scenarios through 2025

MNC pharma – total sales

DIRECTIONAL

25201510 25201510 25201510

Innovative

Mature

Innovative

Mature

Innovative

Mature

SOURCE: Industry association; team analysis

Note: Curves are informed by high-level, but realistic assumptions

Regardless of final outcome two imperatives for MNCs




Regardless of final outcome, two imperatives for MNCs

Broken bridge

Narrow bridge

Broad bridge

Bridging to tomorrow’s innovation

Managing today’s mature portfolio




Managing today’s mature portfolio

A brief history of MNCs commercial performance in China




20,000

100,000

80,000

60,000

40,000

200620042002 201220102008 2014 E

Top 15 MNC companies sales

A brief history of MNCs commercial performance in China

SOURCE: Industry association; Team analysis

RMB millions

“Rebalancing era”

7.4 12.613.12.4

“Hyper -growth era”

7.2 8.0 11.7

“Relevance era”

Incre-mentalgrowthRMB bn

China pops up onthe map

Some invest aheadof the curve

19%

25%

13%

China’s economic boom Healthcare reform Large and rapid field

force expansion Access initiatives

Market turbulences Closer look at productivity Rebalancing

of investments

Seven observations on mature brands




Seven observations on mature brands

Leaders - Consistent growth performers emerging

Productivity - Productivity gains becoming key to performance

Alternative models - Accelerating adoption of alternative commercial models

Competition - Some mature brands facing strong pressure from Gx

Concentration - 3 brands account for ~55% of portfolio

Variance - Significant variance in mature brands performance

Growth - Mature brands launched 10+ years =70% of sales and growth

7

5

6

4

3

2

1

Mature brands launched over 10 years ago – ~70% of sales




Mature brands launched over 10 years ago – 70% of sales


Average composition of MNC portfolio in China today1

1 Based on 2014 H1 sales

▪ Under pressure from policy and industrytrends

– Gx competition

– EDL

– Potential pricing policy changes▫ Elimination of individual pricing

▫ International reference pricing

▫ Reimbursement-based pricing

▪ Critical importance of introducinginnovative brands

– Unmet medical needs

– Sustainability of business model

– Higher patient affordability (i.e., self-paymarket, PHI)

~8%

~72%

Off-patentLaunched >10 years

~20%

Off-patentLaunched <10 years

Patented

Mature portfolio

Innovative portfolio

Mature brands drive 70% of growth; 3 brands account for ~55% of portfolio




48

77

63

61

43

44

56

44

SOURCE: Industry association; McKinsey analysis

61%

77%

73%

41%

90%

37%

60%

37%

16%

7%

40%

53%

38%

19%

20%

8%

100% 0%

MNC 5 10%0%

MNC 2

2%

MNC 7 10%

MNC 6

MNC 4

MNC 3

MNC 8

MNC 1 2%

1 Measured by year of registration

2012-2013 growth breakdown by brands launch year 1RMB billions, Percent

2014H1 sales contribution of

top 3 brandsPercent

>10 years 5-10 years <5 years

55%

Mature brands drive 70% of growth; 3 brands account for 55% of portfolio

Significant variance in mature brands performance




3,5002,0001,500

100

0

15

2013 brand sizeRMB millons

2011-2013 CAGR Percent

Significant variance in mature brands performance


Note: Analysis for off-patent brands larger than RMB 250 mn

1,200

600

Rising stars Growth

engines

Laggards

Slowing

engines

30

20

BCG

Significant variance in mature brands performance - large brands can



McKinsey & Company | 28SOURCE: Industry association; McKinsey analysis

2011-2013 CAGR, Percent2013 brand size, RMB Billions

2.0

2.1

1.7

2.9

1.5

3.4

2.0

3.4

32

15

25

24

21

14

42

18

Significant variance in mature brands performance large brands candeliver above market average growth

15%Industry average

Some mature brands facing strong pressure from Gx competition



McKinsey & Company | 29SOURCE: SMEI; McKinsey analysis

177107

22

1124% 58

25%

24%

48%

26%

11

27%

30%

33%

34%29%

31%

Local 231%

24%+54% p.a. MNC

13

33% Local 1

1210

42%

09

Local 1:

▪ Tailoring approach based onphysician segmentation andengagement of non-clinicians

▪ Providing medical support

Local 2:

▪ Expanding through stagedhospital segmentation

▪ Leveraging clinical trialevidence

Market share for cancer drug, molecule X

Mn RMB, %

1 Among SMEI sample hospitals

Leading local Gx players

g g p p

Adoption of alternative commercial models accelerating NOT EXHAUSTIVE




Co-promotion

p g

SOURCE: McKinsey analysis

Partnership type

DistributorCSOJoint-Venture

Out-licensing

Distributorreps

In-directHybrid

Consistent growth leaders emerging despite market turbulence Average




g g g p YoY MNC revenue1 growthPercent


14%

23%

29%

9%

30%

-3%

11%

-10%

21%

-4%

21%

9%

-8%

-6%

1%

4%

5%

6%

Inconsistent growth performance

1 Rx only

MNC 6

MNC 7

MNC 8

MNC 9

MNC 10

MNC 11

g

MNC 1

MNC 2

MNC 3

MNC 4

MNC 5 23%

23%

29%

18%

17%

2013-2014H12012-20132011-2012

11%

25%

14%

13%

18%

16%

14%

17%

19%

20%

Consistent growth performance

Only 2 companies consistently outperformed average MNC market since 2011

21% 13% 12%

Seven commercial imperatives for mature portfolio




Clear and decisiveportfolio choices

Market developmentfor sustained growth

Rigorous SFE fundamentalsto drive productivity gain

“War game”

mindset to copewith Gxcompetition

1

2

4

3

5

6

7 Alternative

commercialmodels forflexibility andlower cost

New reimbursement-based pricingpreparation

Granular miningof data to informbetter decisions

Clear and decisive portfolio choices1



McKinsey & Company | 33SOURCE: McKinsey analysis

Hybrid

In addition to direct rep coverage

▪ Co-promotion with pharmaco

▪ 3rd party partnership withdistributor(s)

▪ Digital communication

Direct

▪ Dedicated field force

▪ Low cost reps

▪ Digital field support

Indirect

▪ Outsource to CSO

▪ Outsource to distributor

▪ Out-license to pharmaco

▪ 3rd party digital forums

▪ Business scale and growth potential

– Brand size

– Size and growth of defined market

▪ Strategic fit based on TA priority, andoverlap with key brands

▪ Opportunity to develop the market

Attract iveness

▪ Level of differentiation on efficacy,safety and formulation, other factors

▪ Market competitive intensity

– “Generics index”

– “Who are the competitors”

▪ Market access challenges, e.g., EDL,NRDL

Feasibi l i ty for suc cess

Prioritize portfolio Define coverage model

Prioritized

Deprioritized

Market development for sustained growth2




2001-2014E - Statin MNC salesRMB billions


2010-2014

CAGR

37%

2010-2014E - Modern insulin MNC salesRMB billions

2010-2014

CAGR

36%

▪ Shaping national guidelines withNHFPC

▪ Large-scale screening programs▪ Disease awareness programs

▪ Government training partnerships▪ Chinese Academy of Sciences

partnership for physician education▪ Patient education centers

6

8

4

2

0

060402 08 1210 14E 14E13121110

8

6

4

2

0

Alternative commercial models for flexibility and lower cost3




Growthexpectationsof portfolio

GTM model assessment

Indirect

Hybrid Co-promotion

Distributorreps

CSO

Mid-lowOut-licensing

Mid-lowDistributor

EffectivenessEconomicsOperationalcontrol Time to impact

Mid-low

High

Mid-low

JV High-mid

New reimbursement-based pricing preparation4




Multi-facetedapproach

SOURCE: McKinsey analysis

BrandPhysicians

▪ Raise levelof physicianinteractions

▪ Communi-cate brand

valueproposition,beyondqualitydifferentiation

▪ Communi-cate brandvaluepropositionbroadly,includingdigital andsocial media

▪ Define clearvalueproposition,beyond quality

differentiation▪ Review

pricingstrategy withpatient OOPrelative to value

▪ Clarify patient’s drivers of

brand choice and what theyvalue

▪ Assess patient OOP relative tobrand value

▪ Segment patients for behaviorsand attitudes

▪ Listen to social media sourcesand understand implicationsPatients

Rigorous SFE fundamentals to drive productivity gain5




▪ Develop robust

account-by-accountplanning with bettersegmentation tailoredfor competitivedynamics

▪ Seamlesslyintegrate internalsales data andexternal marketdata to providetimely assessmentof SFE

▪ Relentlessly driveon the groundexecution byimproving DSM’s

coachingeffectiveness

▪ Provide opportunityfor careerdevelopmentfor sales force

in mature portfolio▪ Build and maintaintrust between frontline reps and centralfunctions

Bettersegmenta-

tion

IntegratedCoE

On theground

execution

Talentdevelopment

and retention

Driveproductivity

increase

“War game” mindset to cope with Gx competition6




Tendering Hospital listingPhysicianprescription

Patient access

▪ Promote switch bygenerating head tohead clinicalevidence withoriginator

▪ Use channelmargin to claimshare in retailpharmacy chains

▪ Partner withonline retailers

▪ Large scalegovernmentcollaboration forgrass root market

▪ Leverage strongcommercialcapabilities andcollaborate withdistributors forlisting

ILLUSTRATIVE

Local companies are becoming more sophisticated – consider their point of view when crafting strategy

How a local company may approach the market

Granular mining of data to inform better decisions7




Call activity by rep

Listing by hospital and citySales and market share by city

Sales and market share by hospital

SOURCE: COMET by McKinsey

Bridging to tomorrow’s innovation




g g

Innovation – where we stand today




Innovation is a stated strategicpriority for China

However, reward of innovation remainsheavily constrained

The industry is broadening and deepeningits commitment to innovation

1

3

2

Innovation is a stated strategic priority for China



McKinsey & Company | 42SOURCE: Literature search; McKinsey analysis

Government support

Enabling infrastructureLocal innovation

MNC investment

Innovationecosystem

The industry is deepening and broadening its commitment to innovation

Industry investment in China biopharma R&D1



McKinsey & Company | 43SOURCE: New England Journal of Medicine; Patentscope; Pharmaproject; GBI; Literature search; McKinsey analysis

1 Including drugs and medical equipment, with the latter accounting for around 10%2 Patent filing after 2012 is not fully disclosed given the 18-month confidentiality period for patents

39

33

1821

119

201208 092007

+33% p.a.

1110

Number of international drug

patent filing filed by Chineseresidents2 doubled from 391 in2007 to 756 in 2011

Industry investment in China biopharma R&D1 RMB billions

▪ Announced: RMB3 billion investment tosource external innovation to China

▪ Aim to incubate: 90-100 startups within 3 yearsin China

March

June Opened up service platform and manufacturing

capacity Attracting overseas biotech companies to

develop innovative drugs in China

Established Asia-Pacific R&D center in

Shanghai to strengthen China R&D efforts

September

Opened Shanghai Innovation center to source

early stage innovation from China/Asia

October

Innovation remains heavily constrained - many drugs launched indeveloped markets not yet available in China




1.7

2.0

3.8

2.2

developed markets not yet available in China

Global sales$ Billions, 2013

SOURCE: EvaluatePharma; GBI

USlaunch

2009

2006

2011

2011

50% of the topselling globaldrugs launchedsince 2008 arenot yetaccessible to

Chinesepatients

Japanlaunch

2010

2011

2012

2014

Recently launched drugs not yet in China (examples)

NON-EXHAUSTIVEInnovation remains heavily constrained - significant historiclaunch lag relative to developed markets




0

0

0

0

0

0

0

2

0

0

1

2

MNC 4

MNC 3

MNC 2

MNC 6

MNC 9

MNC 8

MNC 10

MNC 12MNC 11

MNC 5

MNC 7

MNC 1

1

1

2

1

2

0

1

0

1

1

3

3

11

3

0

1

0

1

1

2

3

2

3

0

0

3

1

1

2

0

3

1

1

1

4

Distribution of new molecule launches by lag duration,2006-20121 # of drugs

<2 years 2~4 years 4~6 years >6 years

Total 5 16 18 17

1 New molecules that were registered for CFDA and were successfully launched from 2006 and 2012; vaccines and drugs with global launch datesbefore 1990 were excluded

SOURCE: GBI; lit research; team analysis

launch lag relative to developed markets

Innovation remains heavily constrained - latest pathwayinterpretation from the CFDA

Queue time



McKinsey & Company | 46SOURCE: CFDA; Interviews, team analysis

1 For chemical new drugs only, biologics timeline is longer due to additional sample testing and full phase 1-3 clinical trial requirement

After2014

China registration process for imported drugs1

CTA withMRCT data

IDL withlocal data

Localtrial, PK

CTA withMRCT data

~ 2 yrs

~ 4 yrs

2.5 yrs

2.5 yrs

PK, MRCTPhase 3

CTA

PK, MRCTPhase 3

CTA

Before2014

NDA,CPPPhase 2/3Phase I

~2 yrs

PK, MRCTPhase 3

CTA

4 mo 7 mo 1~2 yrs

Global development process

China IMCT process

IDL withMRCT data

IDL withMRCT data

Potentialadditional2-4 years

Scenario 2:Local trialrequired

Scenario 1:Local trialwaived

Innovation remains heavily constrained - on average, slow uptake atlaunch



McKinsey & Company | 47SOURCE: Industry association; McKinsey analysis

Leading new drug launches2008-2010

RMB millions

0

100

200

300

400

500

600

700

2013121110092008

Number of new launches

Average sales of new drug launches1 2008-2011

RMB millions

5 14 8 5

0

100

200

300

400

500

600

700

2011

2010

2009

2008

2013121110092008

1 Patented drugs from top 10 companies

Innovation remains heavily constrained - many therapies on market stillwaiting for reimbursement



McKinsey & Company | 48SOURCE: Team analysis

Ten Class 1drugs launchedsince 2008 byChinese

companies arestill not onNRDL

8NRDL

Non-NRDL 62

70

New drug launches2008-2013 Selected brand by launch year

2009

2010

2008

2011

Drugs

launchedbefore2008

waitingfor RDL

In summary – Constraints of innovation and root causesNON-EXHAUSTIVE




Long time to market

▪ Complex regulatoryframework

▪ Slow CTA timeline▪ Changing interpretation

of regulation

▪ Historic gaps in localMNC R&D capabilities

and role of China in

global R&D decisions

Slow uptake

▪ Fragmented andinefficient listing andtendering processes

▪ Infrequent and narrowRDL updates

▪ Slow adoption speed

of innovative therapies

▪ Mindset of MNCs?

Constrained peak sales

▪ Low awareness/diagnosis

▪ Gaps in physicianeducation

▪ Constrained patientaffordability

▪ Early development ofPHI and alternativefunding mechanisms

▪ Lack of market

development?

Sales

Time

Shifting the curve – What could be doneNON-EXHAUSTIVE




Reach peak sales potential▪ Develop the market

(e.g., earlier andbroader diagnosis,raising awareness oftherapy benefits,

greater adherence,alternative fundingmechanisms)

5Shorten time to market

▪ Prioritize your portfoliowithin existingregulatory framework

▪ Partner with locals

▪ Engage regulatorybodies as an industry todesign a newframework

1

2

Accelerate uptake▪ Develop the market,

including activating self-pay segment

▪ Demonstrate economicvalue of drug

▪ Explore price-volumetrade-offs

▪ Engage regulatorybodies as an industry todesign a new framework

3

4

Sales

Across the board critical need to engage regulators atcentral and provincial levels

How to do so individually and collectively as an industry?

Time

Prioritize portfolio within CFDA frameworkILLUSTRATIVE

1



McKinsey & Company | 51SOURCE: Interviews

1 If 'perfectly' simultaneous, otherwise 2-4 years of delay

>5 years‘Classic’ local trial3

<4-6 yearsChina as part of

global trials1

<4-6 years1 China in parallelregional trials

~4-9 yearsChina in sequentialregional trials

Comparisons of process and timeline of drug registration with CFDA Resulting lag

No lagChina local program4

CPP CTAChinatrials

Global Ph III trials NPA

CTA Chinatrials

CTA, withMRCT data

Global Ph III trials CPP

CPPGlobal Ph III trials

CTARegional

trials

CTA, withMRCT data

NPACTA

CPPGlobal Ph III trials

CTAFull

Chinatrials

NPA

NPA

NPA

CTA, withMRCT data

2A

2BRegional

trials

NOT EXHAUSTIVE2

MNC strategic objectives

Partner with locals




MNC strategic objectives

Co-developmentof local player’s

assets

Co-developmentof MNC assets

Collaborationbetween MNCand local player

Partnershiptype

Leverage local capabilitiesand strengthen local presence

Acquisitions

Capture local innovation Accelerate local registration

Joint-ventures

Venture capital

Explore price-volume trade-offs3



McKinsey & Company | 53SOURCE: Clin Microbiol Infect 2011; 17: 107 –115; Literature search

900

Egypt

55,000

84,000

Europe

1,900

India

US

▪ What areimplicationsfor the Chinamarket, acrossTAs?

Sovaldi treatment costper patientUSD

18

12

18

5

HCV patientsMillions

Engage regulators as an industry to address key challenges4




Market access

SOURCE: Expert interviews

MNCs Locals

▪ Lack of patent compensation system▪ Patent link system not functioning in practice

▪ Long and complicated tendering process; lack of standards acrossprovinces

▪ Lack of reimbursement mechanism for innovative drugs

Regulations ▪ Long IND process and requirements for IND document▪ Insufficient resource and capability from regulatory agency▪ Lack of MAH system and investment requirement for manufacturing

Common challenges faced by pharma industry – examples

Regulations

IPR

Develop the market – example potential collaboration on China cancerresearch

5




Private research funds and leadingpharmacos (MNC and locals)

SOURCE: McKinsey

Such a platformcould benefitthe industry asa whole by

promotinginnovation, andis beyondany individualpharmaco’s influence

Physicians

Evaluate protocoland distributefunding

Providecommunicationand education

Cancer multi-centerresearch platform

+

MoST+

NHFPC

Closing thoughts




China continues to be a huge growth opportunity,with significant unmet needs to address1

2We are at a critical juncture with threeplausible scenarios through 2025 – broad bridge,narrow bridge, broken bridge to innovation

3

The industry has a key role to play collectively and

individually in building a broader bridge to innovation▪ Prioritize China▪ Develop the market▪ Build trust across the ecosystem

For more on China healthcare

Industry insights Collaboration with CPA




Industry insights Collaboration with CPA

2014

2013

2012

www.mckinseychina.com

▪ Data driven periodic reports▪ TA specific deep-dive (e.g.,

oncology, immunology)

▪ How sick is China'spharmaceutical market?

▪ Will market forcesrevolutionize Chinesehealthcare?

▪ What healthcare systemcan China afford?

▪ Will the next medicalequipment championcome from China?

1

2

3

4

iTunes Store –

“McKinsey on China”

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Building Bridges

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Building Bridgesto Innovation

Shanghai, November 12-13, 2014

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