Plan D – Digital all the way - Roland Berger · think act beyond mainstream 2016 August How Modern Traditional Chinese Medicine (mTCM) Realize Sales & Marketing Transformation Proceeding

think actbeyond mainstream

2016

August

How Modern Traditional Chinese Medicine (mTCM) Realize Sales & Marketing TransformationProceeding with the Journey after twists and turns, modern tradi-tional Chinese medicine (mtCm) Companies tap into new market opportunities

Transfor-mationExperts

2 THINK ACTHow mTCM Companies Realize Sales & Marketing Transformation

3t h E B i g

challEnging growth prospEctsIn the context of nowadays integral policy environment, it is expected that the industry growth in the next few years will be in the range between 7%

to 10%. Page 3

urgEnt changE nEEds upon salEs & MarkEting sYstEM

Overly-simple marketing strategy, primitive marketing management sales & marketing system, weak marketing support system.

Page 9

mtcM plaYErs Must transforM salEs & MakEt-ing

mTCM players need to precisely position their products, roll out academic marketing, co-ordinate multi-channel development and prudently design

product package and practice Light-footprint management.Page 10

managed to maintain an annual growth rate of 15% for the last five years, and the terminal sales size of mTCM in 2015 reached 347.4 billion RMB, managing to maintain 25% share against the total pharmaceuti-cal market size. However, compared with double-digit market growth rates in the last couple of years, the re-spective growth rates of both the overall pharmaceuti-cal market and the mTCM segment declined signifi-cantly, to only ~7.5%; in the context of tightening controls of health insurance reimbursements and pricing pressure by government bidding, it is expected that the industry growth in the next few years will be in the range between 7% to 10%. a

mtcM has comparative advantages in certain therapeutic areas: despite the significantly smaller sales volume of mTCM compared to that of chemical medicines, for certain types of disease, the proportion of mTCM sales exceeds the average level. The primary cause for such difference lies in the fact that the pathogenetic com-plexities of such diseases lead to a lack of effective Western medicine intervention, hence the need for mTCM prescriptions rise; or, the comparatively serious side effects of Western medicine for some types of dis-ease result in patient preference for mTCM that tends to exhibit less severe side effects; or, the recuperation from certain diseases (e.g. cerebral apoplexy) requires the use of mTCM. These reasons contribute to the soar-ing growth of mTCM for certain types of disease. Take the example of tiered hospitals in cities as a form of sales channel, where mTCM accounts for 18%, with marked differences in mTCM proportions across dis-ease types: mTCM can take up 54% and 50% respective-

3THINK ACTHow mTCM Companies Realize Sales & Marketing Transformation

stable market size but challenging growth prospects: currently, chemical drugs still dominate China’s phar-maceutical market, and that physicians’ perception of modern Traditional Chinese Medicines (hereinafter shortened as ‘mTCM’) as subordinate drugs is still very much entrenched, therefore, chemical drugs are still the mainstream in China’s pharmaceutical mar-ket. However, mTCM has made significant headway, driven by academic innovations including ‘promoting Chinese medicine in 'Western Style’, the increasing consumer acceptance of mTCM, the preference for its relatively insignificant side effects, and a string of na-tional policies. Specifically, the mTCM market size

Current Status of the Mod-ern Traditional Chinese Med-icine (mTCM) Market

a

20112010 2020E20132012 20152014//

1,726 2,042 2,4132,840 3,236 3,474

5,595

CAGR=15% +7.3% CAGR = 10%

ForeCAsT oF CHINA’s MTCM MArKeT sIze1) [100 million RMB]

1) Calculated based on terminal retail prices

Sources: Sinohealth Intelligence; analysis by Roland Berger

ly for diseases of the urinary and respiratory systems; the figures for cardiovascular & cerebrovascular, der-matological and musculoskeletal diseases have reached 40%, 32% and 31% respectively; whereas the propor-tion of mTCM for other types of disease is below the average level of 18%. B

mtcM sales channels penetrate to lower tiers: regarding the structure of sales channels, mTCM is primarily sold at public hospitals in cities and retail drugstores, whose combined sales reach up to 69%. Compared with chemi-cal medicines, retail drug stores and grassroots medical institutions are more important in the mTCM sales channel structure; as for tiered hospitals in cities, which sell 60% of all chemical medicines, contribute to only 38% of mTCM sales. With the gradual separation of drug sales from hospitals, and the expansion of mTCM in the Essential Drug List going forward, the sales channels of mTCM will continue to transform from tiered hospitals

B

Diseases of the urological system

Diseases of the respiratory system

Cardiovascular & cerebrovascu-lar diseases

Diseases of dermatology system

Musculoskeletal diseases

Oncology drugs

Diseases of sensory system

Diseases of digestive system

Diseases of central nervous system

Diseases of hematology system

54% 46%

50% 50%

40% 60%

32% 68%

31% 69%

17% 83%

11% 89%

10% 90%

4% 96%

2% 98%

Chemical medicinemTCM

CoMpArIsoN IN CHANNel sTruCTure beTweeN CHeMICAl drugs ANd MTCM1) (2015) [%]

c

1) Excluding online drugstores


Chemical drugs mTCM

60.3%

18.9%

11.6%4.1%5.1%

38.0%

15.2%

30.8%

7.5%8.5%

County-level tiered hospitals

Grassroots medical services in cities

Grassroots medical services in rural areas

City-level tiered hospitals

Retail drugstores

proporTIoNs oF CHeMICAl drugs ANd MTCM For vArIous Types oF dIseAse AT TIered HospITAls IN CITIes (2013) [%]



maceutical Group follows right after, taking up a 1.86% slice from the market. Despite the current policy-in-duced setbacks of mTCM injectables, they are still in-dispensable adjuvants or the primary treatment for certain types of disease (cardiovascular and cerebro-vascular diseases, and anti-infections); moreover, pa-tients are less price-sensitive to injectables, and physi-cians’ recommendations for injectables are decisive on patients’ compliance on which drug to use, therefore, injectables will still be on the top of sales revenue for a host of leading mTCM manufacturers. d

in cities to lower level hospitals. c

injectables are still the main product sold via hospitals: Judging from the sales rankings of mTCM sold via pub-lic hospitals in cities in 2014, all products that rank among the top 10 are mTCM injectables, with an aggre-gate share of 17%; further, of the top 30 rankings, only 8 products are non- injectables. Product-wise, the Salvi-anolate Injectable by Greenvalley Pharmaceutical Co., Ltd., and the Kang’ai Injectable by Changbaishan Phar-maceutical Co., Ltd. each take up 2% of the market share; and the Xiyanping Injectable by Qingfeng Phar-

MArKeT sHAres oF leAdINg Types oF INjeCTAbles AT publIC HospITAls IN CITIes (2014) [%]

d

MArKeT sHAres oF leAdINg produCTs AT publIC HospITAls IN CITIes (2014) [%]

Ginkgo Leaf Injectable

Salvianolate Injectable

Kang’ai Injectable

Xiyanping Injectable

Danhong Injectable

Saffloryellow sodium chloride

Injectable

Danshen Chuanx-iongqin

Injectable

Shuxuetong Injectable

Xueshuan-tong

Injectable

Kanglaite Injectable

2.38% 2.20% 2.12%1.86%

1.57% 1.43% 1.38% 1.36% 1.27% 1.24%

Sources: Southern Institute of Pharmaceutical Economics; analysis by Roland Berger

∑ 10 = 17%

ranking

1Salvianolate

InjectableGreenvalley

2Kang’ai

Injectable

3Xiyanping Injectable

4Danhong Injectable

5Shuxuetong

Injectable

Changbaishan

Qingfeng

Buchang

Youbo

6 Xueshuantong Injectable Wuzhou

7Kanglaite Injectable

8 Bailing Capsule

9Danshen

ChuanxiongqinInjectable

10Xuebijing Injectable

Kanglaite

Zhongmeihuadong

Baite

Chase Sun

1.27%2.20%

1.24%2.12%

1.22%1.86%

1.18%1.57%

1.18%1.36%

rankingproduct Manufacturer Market share product Manufacturer Market share


good nEws - a host of favoraBlE policiEs havE BEEn EnactEd, But Most of such poli-ciEs arE vErY Macro in naturESince 2015, the State Council and relevant ministries and commissions released multiple policies, which created enabling conditions for the long-term develop-ment of the mTCM industry in terms of the healthcare system planning, health insurance listing and industry standards. The Outlines of the Plan of National Medi-cal and Healthcare Service System (2015-2020) provides that, in principle, county-level regions should establish one county-run traditional Chinese medicine hospital; for grassroots medical institutions, the 2020 goal is for all community health service institutions, county and township-level health centers, and 70% of village clin-ics to be equipped with traditional Chinese medicine services. With the same spirit, the Outlines of the Stra-tegic Plan on the Development of Traditional Chinese Medicine (2016-2030) released at the start of this year proposes that types of mTCM be expanded in the Es-sential Drug List; it also states that the traditional Chinese medicine system will be standardized, with respect to clinical diagnosis and treatment guides, treatment effectiveness evaluation, quality standards, etc.; Moreover, mTCM post-market re-assessment and secondary development as well as large-scale standard-ized clinical trials are also important measures to facilitate the transformation and upgrades of the Chi-nese medicine industry listed in the Outlines. In addition, the Law on Traditional Chinese Medicine, which has entered into legislative procedures, clarifies the strategy of placing equal importance on the devel-opment of both Chinese and Western medicine in China’s medical and healthcare system, and offers le-gal protections in terms of the inheritance and innovation of knowledge on Traditional Chinese Medi-cine, the development of the traditional Chinese medicine industry, traditional Chinese medicine ser-vices, and talent pools.

mTCM Regulatory Environ-ment

However, against the backdrop of control of health insurance reimbursements and restriction on adju-vants, the aforementioned favorable policies are large-ly macro in nature, and supporting implementation measures are yet to be released.

challEngE – quantitY liMit tightened review and approval procedures result in sharp declines of mtcM applications: review and approval of mTCM in recent years are becoming increasingly strin-gent, and shifting towards the standards of chemical medicines. Thus, drug manufacturers are taking an in-creasingly prudent approach to new drug applications, and that applications are declining in number in recent years; in 2015, the Center for Drug Evaluation (CDE) re-ceived only 66 applications for new mTCM (Types 1-6), a record low in recent years, and the overwhelming major-ity of them were applications of Type 6 compound drugs, subjecting the growth of new drugs to strict control. E

restrictions are placed upon the proportion of drug sales against hospital revenue, and on the use of adjuvants: the policy of separating drug sales from hospital is now en-tering critical implementation stage at the moment. The 13th Five-Year Plan requires the proportion of drug sales in hospital be brought down further, and the health and family planning authorities in various localities have for-mulated a series of plans to decrease the percentage of drug sales against total hospital revenue. Currently, such percentage stands at around 38%, which the National Health and Family Planning Commission require to be lowered to around 30% by 2017. Even though such per-centage can be brought down in the short run via an in-crease in the fees charged for the amount of diagnosis and treatment, without having to reduce drug sales reve-nue, but in the long run, drug sales will be reined in as the policy to ‘separate drug sales from hospital’ is imple-mented. In addition, in response to increasing pressures of health insurance reimbursements and the need to


New MTCM ApplICATIoNs reCeIved by THe Cde

Sources: Center for Drug Evaluation (CDE); analysis by Roland Berger

Type 1 Type 2-4

E

Type 5 Type 6

20132012 2014 2015

72

79

502

79

18

23102

75

1113

90

58

503

66

practice reasonable use of drugs in hospitals, State Council Circular No. 7 released in 2015 requires locali-ties to place a particular focus on the monitoring of adju-vants; subsequently, adjuvant catalogues or catalogues of major monitoring targets were issued by government authorities in Yunnan, Beijing, Anhui, Sichuan, Jiangsu, etc. Take the example of the Catalogue of Adjuvants as injectables in Yunnan Province, which was the first among the aforementioned localities to issue such docu-ments, 40% of the items in the Catalogue are mTCM. Despite a lack of clarified definition on adjuvants at the national level, considering practices from similar cata-logues by various localities, drugs that feature unclear pharmacological mechanisms, excessively large scope of indications, difficulty of proceeding into clinical path-ways, and a high dosage and a high price are more likely

to be included in the monitoring catalogue. Compared with chemical medicine, mTCM is even more disadvan-taged under such circumstances.

controls are imposed on the types and amounts of hospi-tal-listed drugs: Hospitals are tightening control on the amount of hospital-procured mTCMs, especially on ge-neric drugs and drugs that share the same indications. Some hospitals have put in place additional restrictions on prescribed mTCM, specifically, allowing only one type of mTCM within one prescription, thereby restrict-ing mTCM sales. f

restrictions are placed upon mtcM injectables: Medical disputes in recent years have caused physicians to be-come more conservative in using mTCM injectables; meanwhile, some hospitals even issued regulations that restrict or even forbid the use of mTCM injectables. The tightening of policies will bear heavily upon mTCM in-jectable sales at hospitals. In November 2015, Jiangsu Health and Family Planning Commission announced that by the end of 2016, other than children’s hospitals, IV drips will be forbidden to all outpatients at hospitals of the second tier and above across Jiangsu Province, thereby putting a complete and permanent stop to the practice of ‘putting the patient on an IV drip even for a small illness’. Going forward, once such policy measure is massively rolled out in the developed coastal region in East China, the sales of mTCM injectables will be further impacted.

challEngE – pricE liMitprice pressure placed by centralized government procure-ment: In the past couple of years, multiple provinces have deployed centralized government procurement for phar-maceutical products via a string of documents, which not only set a relatively low price ceiling, but also released a series of measures to encourage low-priced drugs to bid. Centralized government procurement has brought down tendering prices by 10%-20%, which led to a strate-gic reshuffling of the market players. In 2015, negotia-tions during centralized procurement projects in Hunan Province led to hard price reductions in the range of 10%-15%, thus certain large manufacturers dropped out of the bidding process, and some SMEs managed to win with low prices. However, Roland Berger believes that there will hardly be incoming relaxations to the tender-ing policies across localities in the long run. Particularly


in the context of the forthcoming nationwide rollout of anti-corruption measures in the pharmaceutical sector, local tendering process will likely be more transparent, and procurement tenders will continue to exert pres-sures on drug prices going forward.

2nd-round price negotiations are still prevalent: Despite ex-plicit prohibition by the National Health and Family Planning Commission, price re-negotiations are still a prevalent practice across China, and the average post-re-negotiation price reduction tends to be between 10%-15%, and the range could be extended to above 15% at Tier 2 Hospitals and in certain regions. Given the addi-tional cost reduction for hospitals, and the decrease of pressures on local government expenditures and on medical insurance reimbursements brought about by such renegotiations, local governments have given their implicit consent to re-negotiation practices. However, price renegotiations deviate from the state policy of ‘sep-arating drug sales from hospital’, thus this practices are likely to be subject to strict regulation going forward, but in the short-term it will still exist or will be conducted in a different form, such as GPO.

CoNTrols oN THe Types oF drugs THAT Are lIsTed by HospITAls ACross loCAlITIes [thousand]

f

Sources: desk research; analysis by Roland Berger

2012 2013 2014 2011

Guangdong

1.5

Chongqing Anhui

1.5 1.5

1.2 1.2 1.2

1.0

0.8

1.2

0.8 0.8

1.1

tendering decision-making is being delegated to lower lev-els, and in response, it is imperative to be familiarized with local rules and regulations, and to build up necessary re-sources: In 2015, the National Development and Reform Commission eliminated government pricing of drugs, and the power of pricing regulation was delegated from the Central Government to provinces, thereby forming a decision-making mechanism is formed where each prov-ince conducts its own tenders to set drug prices; further-more, Jiangsu initiated a tender plan where ‘the drug is granted access at the provincial level, and the ultimate price and bidding result are determined at the municipal level’, thereby further delegating the tendering power to municipal authorities. The relevance of this situation to drug manufacturers lies in that they not only have to confront the price pressures in local biddings, but also have to ensure familiarity with local rules and regula-tions and build up resources to conduct biddings in a proper manner.


strategies? How can corporate strategies be enforced at the level of sales representatives via targeted performance evaluation? These are all critical issues that need to be ur-gently addressed by mTCM manufacturers. In terms of marketing promotion, relationship-based marketing re-mains as the primary sales approach, and the transformation towards academic marketing still has a long way to go, especially relating to the design of differen-tiated marketing plans for target audiences of different sales channels. A powerful marketing department is indis-pensable in core functions including market analysis, product positioning, marketing plan and sales support. A large gap exists in mTCM players in terms of the structure and capacity of the marketing function when comparing to that of MNC pharma companies.

salEs & MarkEting support sYstEMthe marketing support system of drug manufacturers in-cludes government affairs, medical affairs, HR training departments, etc. In the context of tendering deci-sion-making being delegated to lower levels and increasing differentiation among local policies, the traditional ap-proach of centralizing the handling of government affairs at the headquarters is becoming increasingly inadequate in response to market. Relationship-based marketing training is hardly sufficient to meet the needs of the future transition towards academic marketing, thus it is a major challenge for medical and training departments to im-prove the medical knowledge of the sales and marketing forces, and effectively communicate the core messages of products.

salEs & MarkEting stratEgYEven for leading mTCM manufacturers, it is not rare for one star product to generate the majority of the revenue. Such over-reliance on a single product renders businesses ill-prepared to respond to policy and market risks; most of mTCM players lack sound concepts of product lifecycle management and product portfolio management, and most mTCM manufacturers are still stuck in troubles as to how secondary development of products should be con-ducted and how alternative drug types can be found, after the star drugs gradually enter the maturity phase. Tiered hospitals in cities are a traditional focal market for mTCM manufacturers, most of which are not fully equipped with a response to the increasing difficulties of development at tiered hospitals and the frequent limits imposed on price and quantity; their arrangements in emerging channels tend to be based on traditional channel management con-cepts, which can hardly accommodate the marketing needs with the new channels; in most circumstances, in-ter-channel co-ordination mechanisms are not put in place, hence it is difficult to maximize marketing resourc-es.

salEs & MarkEting ManagEMEnt sYstEMcurrently most mTCM manufacturers still practice tradi-tional approaches in sales management, where performance indicators tend to be rather primitive (usual-ly only on individual sales), and advanced Sales Force Effectiveness concepts are rarely applied. Is the sales rep-resentative’s product package (product volume and composition) reasonable? Are the expenditures sufficient to facilitate the effective implementation of the marketing

Current Status of mTCM Com-panies' Sales & Marketing Prac-tices


4) Sophisticated marketing is the trend. Drug manu-facturers should make scientific plans about their pro-ducts, and optimize sales via the concept of product package

5) Finally, as tendering decision-making is further de-legated to lower authoritative levels, drug manufacturers are presented with more stringent requirements in terms of public affairs and academic capacities in various re-gions and familiarity with local conditions. Unanticipa-ted events will keep sprouting up across regions, requi-ring drug manufacturers to establish multi-dimensional marketing organizational structures, and to adopt flexib-le regional organizations based on small business units, and to agily deal with a portfolio of matters including local tendering and hospital listing.

roland BErgEr insight 1Avoid 'pAnnAsEA', clEARly dEFinE pRoduct po-sitioningProduct positioning-wise, it is imperative to first define whether a product is a primary care drug or a specialty care drug, and position the product indications and manage the product according to the principle of tiered hospital departments.

Before a product is categorized as a primary care drug or a specialty care drug, it is necessary to clarify the definitions thereof first, as shown in Table G. After cate-gorization is completed, attention needs to be paid to the combination between primary and specialty care drugs for the product line, ensure the coverage of primary and specialty care drugs in target disease types, and estab-lish the company’s brand for physicians and patients in-

Given the characteristics of the mTCM market and the policy orientations in recent years, the mTCM market is confronted with the complex combination of favorable medium-to-long-term policies and short-to-medium-term downward pressures on price and volume. mTCM businesses need to adopt a proactive approach towards policy and market changes, formulate and implement targeted sales strategies, thereby seeking more sustain-able development. Roland Berger proposes the following five strategic recommendations:

1) First, mTCM is featured by substantially different levels of development for different types of disease, and approval procedures are being tightened for new drugs in recent years, hence there is a clear need for mTCM manufacturers to precisely position their products, and roll out targeted marketing efforts in line with product characteristics

2) Building on a clear product positioning, mTCM manufacturers need to increase sales in hospitals via aca-demic marketing efforts, adopt a ‘Western-style promoti-on of mTCM’ approach in response to the current domi-nance of Western medicine in tiered hospitals, and scientifically elaborate the core treatment advantages of mTCM product

3) The sales differences of mTCM at different sales terminals are fundamentally driven by the differences in positioning of the drug’s treatment and the differences in patient flow and buying behaviour, thus mTCM drug manufacturers should co-ordinate multi-channel de-velopment in line with the characteristics of their pro-ducts, properly plan sales channels, and conduct targeted marketing

mTCM companies must achieve sales and marketing transformation


volved in the disease treatment process. In addition, marketing strategies of primary care and specialty care drugs differ: given the substantial contributions by sales in primary care drugs, and the limited margin thereof, marketing efforts need to take into account of both phy-sician and patient education, and focus on building awareness of the brand; whereas specialty care drugs contribute merely a limited amount to the sales volume, but have a high margin, hence the need for the market-ing efforts to be focused on accumulating market influ-ence and positive physician impression, and building up the reputation of the brand and the innovation of high-end technologies. g

g

definitions & features

pCds

- Simpler pharmacology and less strict entry criteria;- For common diseases, various indications, and a wide range of patients;- Distributed through a wide range of channels and outlets including high-tiered hospitals, grassroots medical services, and drugstores;- Have many competing products and generic counterparts.

sCds

- Complex pharmacology and stricter entry criteria;- For rare diseases or specific indications, and a narrow range of patients;- Distributed mainly through high-tiered hospitals;- Have less competing products and usually exclusive/patented.

Source: analysis by Roland Berger

Indications are now too broad-based. More targeted indications would be better for us who studied Western medicine.Chief Physician,Pediatrics

Certain gynecological mTCM has too many indications, addressing enlarged thymus, menstrual disorder and fibroids, but not inflammation; drug instructions are exaggerated. I prefer those with clearer indication targets. Chief Physician,Gynecology

Many drugs share the same indications. Chinese medicine is not targeted enough, and we are not sure about which drugs to use.Chief Physician,Neurology

Personally, a drug targeting 2-3 indications is acceptable.Chief Physician,Respiratory Medicine

deFINITIoNs oF prIMAry CAre drugs (pCds) & speCIAlly CAre drugs (sCds)


Potential hospital departments can be further cate-gorized as: leading, potential and supplementary. Lead-ing departments refer to those which exhibit absolute advantage in terms of both hospital listing and sales in-crease. Such departments are backed up by solid existing clinical studies, and serve as the cornerstone for the long-term growth of the product; potential departments refer to those which can further facilitate sales volume boosts during the medium development phase of the product, when post-market medical evidence such as secondary assessment of the drug and comparative trials may be leveraged by the sales force to tap into these depart-ments; supplementary departments derive from the po-tential room for sales increase brought about by inciden-tal policy shifts and exceptional regional circumstances, and are incrementally developed by fully utilizing the product reputation after the product enters the maturity phase.

roland BErgEr insight 2shiFting towARds AcAdEMic MARkEting is thE top pRioRityHealthcare reform is gradually sifting fraudulent prac-tices out of the pharmaceutical market. A slew of cam-paigns to launch Western-style promotion of Chinese medicine, and a string of forceful measures to crack down upon corruption have all driven the attention on one solution – academic marketing. To truly practice ac-ademic marketing, drug manufacturers should develop a whole series of sales support departments, including marketing departments and training departments, to ensure the sales representatives’ in-depth understand-ing and practical execution of academic marketing.

Under such circumstances, development of mTCM will be more standardized, and requirements on new product approval and secondary assessment are more stringent, stressing the importance of clearly-defined pharmacological mechanisms and more sophisticated and larger clinical research. New mTCM drugs have six types, among which types 1 and 5 are all purities extract-ed from natural plants, animals and minerals, and are purer in nature, and more similar to the mechanisms of chemical drugs. Chart H shows that Types 1 and 5 ac-count for less than 20% of all types, and going forward, ‘panasea’ drugs that have unclearly-defined indications will be phased out, and the prospects of Types 1 and 5 are relatively bullish. For mTCM drugs yet to be launched, approval requirements will be tightened further, and

In the past, marketing strategies of a multitude of mTCM products were mainly geared towards expansion of indications, hoping to sell to a wider variety of disease types. However, such ‘pannasea’ tend to serve the oppo-site of the intended purpose, and dampen physician and patient confidence in the effectiveness of the drug. Inter-views with physicians show that they prefer drugs that have clearly-targeted indications (see ‘quotes’ in the above); especially as adjuvants will be subject to ever stricter regulation, clearly-defined indications will be of even greater importance.

In the meantime, the layering of target hospital de-partments is of equal importance, in that it dictates which departments should assume greater importance for the sales representatives, and that it renders drug manufacturers’ efforts more directional in terms of de-signing marketing strategies, preparing marketing ma-terials, and conducting supplementary clinical trials, thereby launching focused and targeted marketing, rath-er than staging clueless offenses.

MArKeT sTruCTure oF MTCM Types1)

h

1) Only including mTCM types that are applied for as new drugs (Types 1~6), other registration types ~12,000, of which most are Type 8 drugs, ~9,000

Sources: desk research; analysis by Roland Berger

∑ = 3006

Type 3 Type 4 Type 6 Type 2 Type 5 Type 1

3%8%

15%

7%

15%

52%


department needs to develop a series of training sessions that are highly operationable and easy to learn, ensure the support of academic materials from the marketing department could contribute to the enhancement of sales skills, and make sure that sales representatives at various levels and of various departments can truly un-derstand and grasp the academic marketing philoso-phies, and integrate them into routine sales practices.

Regarding the promotion terminals for academic marketing, mTCM players will be facing the change brought by digitalized marketing. In an age of mobile In-ternet, 81% of physicians have medical APPs on their phones, and 83% of physicians read professional articles via the Internet; plus, given that offline marketing is be-ing increasingly regulated on compliance, online aca-demic marketing will become the new channel for the marketing campaigns of leading drug manufacturers. Most foreign drug manufactures have already invested in online physician communities and other digital plat-forms targeting physicians, whereas their domestic counterparts are lagging behind in this respect; a dou-ble-pronged approach that integrates ‘online + offline’ is the direction of academic marketing going forward.

roland BErgEr insight 3co-oRdinAtE Multi-chAnnEl dEvElopMEnt, And pREss AhEAd At All FRonts mTCM manufacturers should take the initiative to devel-op multi-channel strategies, and design the sales force building on these strategies, instead of employing a lais-sez-faire approach to the growth of the sales force. Ro-land Berger recommends a two-step approach to mar-keting strategies: first, investigate the patient flows, and then, define regional differences, so as to coordinate multi-channel sales.

When patient flows are being investigated, it is im-perative to understand the habitual characteristics of patients with different indications during their first con-sultation, further consultation and prescription fillings, as the basis of formulating channel strategies. Take the example of gynecological chronical diseases: the majori-ty of patients consider the hospital as their first choice to seek medical intervention for the first time, particularly high-tiered hospitals, and only a small fraction of pa-tients choose self-diagnosis and purchase drugs from retail stores; the proportion of patients seeking subse-quent consultations to the hospital is high, but for the prescription procedures, pharmacies will become the

shift towards chemical drug standards; mTCM drugs that have been launched and sold in large quantities, on the other hand, have to be subject to strict secondary as-sessment, including phase IV clinical trials carried out on over 2000 sample size, requiring drug manufacturers to choose differentiated clinical factors in line with dif-fering indications. The aforementioned shifts in approv-al policies all point to a substantial elevation of mTCM product standards, which requires clear clarifications on the pharmacological components and mechanism of drugs, and enhancement of clinical trials and evi-dence-based medicine, and in the meantime, provides regulatory endorsement for the industry-wide effort to promote academic marketing. h

While the campaign of "promoting mTCM in a West-ern style" is being implemented gradually, anti-corrup-tion practices in the healthcare sector are pressing down relationship-based marketing, thereby becoming yet an-other contributor to the promotion of academic market-ing. Since the GlaxoSmithKline case in 2013, the govern-ment has been beefing up its efforts against healthcare corruption (as shown in Chart I). Judging from the cur-rent trend, anti-corruption campaigns will be on the rise, compliance requirements will become stricter, and the medical environment will become healthier and more orderly. In response, foreign drug manufacturers have taken a head-start move, and rolled out large-scale com-pliance efforts for the sales system; domestic mTCM manufacturers that rely on relationship marketing should make greater efforts to strictly execute marketing compliance requirements while progressing business development. i

As far as academic marketing is concerned, the mar-keting department and the training department, of the sales support system, are of particular importance. First, the marketing department needs to be able to provide academic resources all the way from product launch, to product maturity and to secondary development of the product, incorporate academic marketing consider-ations into the design of marketing strategies, facilitate the in-taking of academic resources by sales representa-tives, support the routine sales efforts of sales represen-tatives with detailed academic materials, ensure aca-demic marketing becomes the core for academic events ranging from department meetings at hospitals to na-tionwide conferences, detach drug manufacturers’ sales practices from a reliance on relationships, and facilitate the transition towards academic marketing. The training


Notified the public of crimes committed by 24 hospital presidents, 60% of whom were suspected of taking bribes and kickbacks.

TIMelINe oF ANTI-CorrupTIoN CAMpAIgNs IN CHINA’s HeAlTHCAre INdusTry

i

2015

2014

2013

Notified the public that police initiated and investigated a case of senior executives of GlaxoSmithKline (China), because there were suspected of crimes including serious commercial bribery. Later, a few other foreign companies were investigated.

Key Points of Heath Work 2013 requires a further crackdown on commercial briberies in sales and purchases of drugs

Notice on Issuing “Nine Bans” for Improving Ethics of the Healthcare Industry (Guo Wei Ban Fa [2013] No. 49)Notice on Issuing the Provisions on the Establishment of Commercial Bribery Records in the Purchase and Sale of Drugs

Notice on Issuing Implementation Opinions on Correcting Misconduct in the Purchase and Sale of Drugs and Medical Service (Guo Wei Yi Fa [2013] No. 47)

Would inspect 41 hospitals in the following three years with anti-corruption being the major aim.

(We will) continue to intensify anti-corruption campaigns in an all-around manner. We will have zero tolerance for and crack down upon corruption.

2014 NHFpC vIdeoCoNFereNCe oF dIsCIplINe INspeCTIoN ANd

supervIsIoN IN THe sysTeM oF HeAlTH ANd FAMIly plANNINg

NHFpC

CeNTrAl CoMMIssIoN For dIsCIplINe INspeCTIoN

NHFpC ANd oTHer 8 goverNMeNT AgeNCIes joINTly Issued

MINIsTry oF publIC seCurITyMINIsTry oF HeAlTH

NATIoNAl HeAlTH ANd FAMIly plANNINg CoMMIssIoN (NHFpC)

policy perspective

supervision perspective

Source: desk research; analysis by Roland Berger

ANTI-CorrupTIoN CAMpAIgNs IN HOSPI-

TALS WILL STEP uP. THERE WILL BE sTrIC-

Ter requIreMeNTs For CoMplIANCe.

IN THE FuTuRE, DRuG MAKERS WILL HAvE

TO TRANSFORM THEIR MARKETING FROM

relATIoNsHIp, 'guANxI', drIveN To ACA-

deMIC-drIveN


erly allocate the proportions of high-demand and low-de-mand drugs in the product package, thereby balancing the dual pressures of hospital listing and the increases in sales target of sales representatives.

The lifecycles within the product portfolio should also demand a proper balance. For products in the intro-duction phase, marketing pressures mainly come from hospital listing and expansion of sales channels to in-crease coverage; whereas for products in the maturity phase, the principle source of marketing pressures is ex-panding marketing efforts targeting other indications and hospital departments, thereby ultimately increasing sales. These two jobs entail different requirements for the sales representatives, and therefore the product pack-age tends to change with the shift of corporate market-ing strategy. If the product package of the sales force contains products of various lifecycles, then the sales representatives tend to rely on products in the maturity phase to boost aggregate performance, and neglect the input for products in the introduction phase. Therefore, the performance indicators of the product package need to consider the product lifecycle, formulate sophisticated performance indicators that reflect corporate strategy, rather than relying on the sales figures of the current pe-riod as the only input for performance evaluation.

The internal capacity of the sales force needs to con-sider two things: first, the sales output of the product package needs to support the livelihood needs of the sales representatives; second, the types of diseases ad-dressed by the product package should be concentrated on selective therapeutic area, thereby facilitating special-ized sales efforts. Product sales volume within the prod-uct package are the critical source of economic income for the sales representatives, therefore, the design of product package requires that the potential sales of all products need to provide sufficient income for the sales representatives; or else, the loss of such representatives due to financial stress would be unbearable for business-es. At the same time, modern medicine marketing ap-proaches are placing increasingly strict requirements on the specialization of the sales force. Sales responsibilities for drugs addressing multiple TAs are not productive to the development of specialized skills for sales represen-tatives. Thus, the types of TAs in the product package should be concentrated, which would thereby help on specialization of sales efforts.

choice for more patients. Through such patient analysis, a clear understanding may be arrived at on the patient’s treatment path and thus targeted channel coverage strat-egies can be formulated. For instance, equal emphasis should be placed upon hospital and pharmacy channels for gynecological drugs, but the education via the physi-cian for patents seeking consultation for the first time will be the principle driver to the increase in sales volume of pharmacies. J

The setting of regional development goals needs to comprehensively account for internal sales status and ex-ternal market potential, the former of which can be eval-uated via historical sales volume and terminal coverage ratio, and the latter can be based upon regional popula-tion size, per-capita income and level of medical expendi-tures, and categorized into tier-one, tier-two and tier-three regions based on the external market, thereby formulat-ing different expense policies and making the proper choice as to whether product line-based sales or integrat-ed sales should be conducted .

Attention needs to be paid to the balance of expense levels when multiples channels are being coordinated. For instance, if the pharmacy tends to incur less expenses than hospital does, then the marketing plans of the same region should facilitate the coordination of expenses.

roland BErgEr insight 4pRudEnt dEsign oF pRoduct pAckAgEIf sales channel strategy is the general’s pre-war plan, product package design is the soldiers’ ammunition and the key to winning the long and hard mTCM marketing battle. Prudence is needed at every step of the design process. Number and type of hospital terminals being covered, in addition to product portfolio, need to be tak-en into account. Product package design should consid-er three things: market demand of the product, product lifecycle, and the internal capacity of the sales force.

The market demand of products is primarily reflect-ed by the product characteristics that bear upon the aver-age sales amount on a per-hospital basis. For instance, statins address a wide variety of indications that corre-spond to a large population, have high patient compli-ance, and less competition from similar products, hence a stronger market demand than that of drugs for pelvic inflammatory diseases, and higher average per-hospital sales. Therefore, the major challenge for high-demand drugs lies in hospital listing, whereas that of low-demand drugs is in sales volume increase, hence the need to prop-


ANAlysIs oF pATIeNT Flow (e.g. gynecological patients)

J

1) the proportion to the total of patients who fill prescriptions

Sources: interviews with consumers; analysis by Roland Berger

gynecological patients

30-40% 60-70%

drug-stores Hospitals

Patients from cities on higher tiers go to the nearest level-3 hospitals; patients from cities on lower tiers usually go to local central hospitals.

Tiered hospitalsLevel-3/ Level-2

70-90%

Grassroots hospitals

10-30%

Mostly young/ middle-aged women patients, who are relatively insensitive to costs and believe grassroots doctors are not professional enough.

First consultation

50-70% 30-50%

Patients will not go to hospital for further consultation if their symptoms are not serious or are already relieved.

Patients with serious symptoms and those who are likely to follow the doctors’ advice will go to hospital for further consultation. Most of them (>90%) will go to the same hospitals where they go for first consultation.

Further consultations

40-70%1) 30-60%1)

After symptoms are identified, most patients will choose to fill prescriptions at drugstores instead, mainly because of lengthy processes in hospitals .

Patients going to hospital usually fill prescriptions at the same hospital.A smaller share of patients choose to fill prescriptions at grassroots/community hospitals, mainly because of a less diverse supply of medicines.

prescription filling

Patients will choose to go to hospital 1-2 months on average after the onset of non-acute diseases. During that period, some patients buy medicines directly from drugstores.


The speedy progression of China’s healthcare reform and the delegation of tender decision-making to lower levels will lead to rapidly changing and differentiated market environments of various localities across the country. Roland Berger believes that the future market requires drug manufacturers to establish flexible and professional marketing structure that is based on small operating units, and apply light-footprint management.

Light-footprint management advocates for enterpri-ses to adopt flexible management approaches that ac-commodate the ever-changing market environment, and to deal with the volatilities, uncertainties, complexities and obscurities of the current environment of commerci-al operations. As the Chinese economy takes off, uncont-rollable incidents will occur ever more frequently, fluctu-ations will keep sprouting up, development patterns will be increasingly difficult to summarize with specific fac-tors, the causality of events will likely become more obs-cure. All these trends will make the forecast and plan of long-term strategies a more difficult task, thus requiring business models that can address unanticipated external market changes in a flexible manner.

Light footprint is coming to the fore in the healthcare industry. To mTCM players, marketing efforts, at provin-cial and municipal level, both require small and agile operating units that can swiftly respond to the local mar-ket conditions, so as to deal with diversified local busi-ness requirements relating to local tendering rules, he-alth insurance rules, key hospital account management, etc., and also to address unanticipated business changes with a flexible approach. For instance, in terms of tend-ering, provincial and municipal level teams require tend-ering assistance, to respond to policy shifts of each regi-on; in terms of coordination, academic meetings in cities, centralized tendering, key account management, etc., all require coordination on expenses, hence the need for fle-xible expense managementthat is based on small opera-ting units, thereby facilitating flexible management and response to unanticipated events.

roland BErgEr insight 5Build A Multi-diMEnsionAl sAlEs & MARkEt-ing oRgAnizAtion stRuctuRE, And highlight FlExiBlE And light-FootpRint MAnAgEMEnt viA iMplEMEnting A sAlEs & MARkEting MEch-AnisM BAsEd on sMAll BusinEss unitsRegarding the organization structure of the sales force, categorizations by TA, region and channel are the three most important dimensions of sales management by mTCM manufacturers; and differences in nature of the product portfolio, regional and channel structures have generated different sales management models. For busi-nesses that mainly work on exclusive types of specialty care drugs, primary efforts go to target treatment areas and sales force management; businesses that have multi-ple-type primary care drugs manage their sales according to regions; whereas the channels for essential drugs, at the grassroots level and at tiered hospitals, also adopt dif-ferent approaches to sales management. In addition, co-ordination is called for among regions, channels and treatment areas, thus requiring businesses to adopt a ma-trix-style management structure; however, the priority level of each dimension needs to be adjusted and bal-anced by the business itself, so as to achieve the most appropriate management model. k

MulTI-dIMeNsIoNAl sAles & MArKeTINg orgANIzATIoNAl sTruCTure (example)

k

Source: analysis by Roland Berger

SALES REGIONS

THERAPEuTICAREAS Inter-

dimensionalmatrix-stylemanagement

SALES CHANNELS


The recent key trends in the healthcare industry - such as control on health insurance reimbursements, price limit on tenders, tightened drug review and approval, and elevation of quality standards - will continue as the healthcare reform begins to tackle some of the very toughest problems during the 13th Five-year Plan; for the mTCM industry in particular, restrictions on adju-vants, and on mTCM injectables, etc. have posed big challenges for industry growth. However, the tradition-al advantages of mTCM for certain types of disease still exist, and changes of the market landscape have creat-ed opportunities for the development of emerging channels; in addition, policy orientations suggest promising growth prospects for the mTCM industry in the long run. Roland Berger believes that if a mTCM manufacturer can clearly position its products, execute academic marketing strategies, properly coordinate the development of channels, prudently design product package, construct a multi-dimensional organizational structure, and practice light-footprint management, then it will secure the key to sales & marketing transfor-mation and achieve sustainable growth in the up-com-ing market environment.

Conclusion


furthEr rEading

"IMprove FINANCIAl perForMANCe, ACHIeve susTAINAble growTH" – CHINA publIC HospITAl INNovATIoN roAdMApin the context of healthcare reform, public hospitals should innovate patient base and business model, enhance specialty capability, improve medical service quality, innovate patient service model to expand revenue, while reduce operational cost by optimizing procurement processes, streamlining the logistics management, improving bed turnover rate, and improving overall operation-al efficiency, and thus to improve financial situation and achieve sustainable development.

CANCellATIoN oF drug sAle subsIdIzATIoN For MedICAl servICes ANd sepArATIoN oF drug sAles FroM HospITAls, 2015"cancellation of drug sale subsidization for medical services and separation of drug sales from hospitals," china's policy of separating drug sales from hospitals will finally be substantially and widely implemented over the course of its 13th Five year plan.

aBout usRoland Berger, founded in 1967, is the only leading global consultancy of german heritage and European origin. with 2,400 employees working from 36 countries, we have successful operations in all major international markets. our 50 offices are located in the key global business hubs. the consultancy is an independent partnership owned exclusively by 220 partners.

2015年5月

超 | 越 | 主 | 流

取消以药养医实现医药分家医改政策预判和影响分析

罗兰贝格管理咨询公司

“取消医院以药养医、

实现医药分家”，

将是破除现有

公立医院逐利机制，

回归医院医疗服务

本质的核心。

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