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How to approach China's biopharmaceutical market‘Do not show off superiority; just provide medical service Chinese people need’
  • By Nam Doo-hyun
  • Published 2017.04.12 09:41
  • Updated 2017.04.12 16:41
  • comments 0

China’s biopharmaceutical market, sized at larger than 130 trillion won ($113 billion), is about to change. The Chinese government has set up a plan to localize the production of 90 percent of original medicines whose patents expire by 2020 and begun to control the quality of generic drugs in earnest. Beijing is also actively expanding the separation of prescribing and dispensing drugs and has set about to streamline the country’s complicated drug distribution structure.

As the Korean pharmaceutical companies forecast significant changes in the Chinese market, it is also the time they take a new look at their corporate strategies. That won’t be easy, though. Not only are there wide gaps among related statistics and data released by local agencies resulting in doubts about their accuracy but also the Chinese-Korean relationship has frozen because of political issues.

It is against this backdrop that Korea Biomedical Review sat down with Sihn Young-jong신영종, CEO of Now Traditional Chinese Medicine (NOWTCM)나우중의컨설팅 and an expert in the Chinese healthcare market, to hear about the Chinese systems and policies the Korean drugmakers wanting to advance to China can ill afford to pass over. A graduate of Tianjin University of Traditional Chinese Medicine, Sihn spent 17 years in China. After experiencing consulting business in China, he came back to Korea to establish NOWTCM in December 2010.

Sihn Young-jong, CEO of NOWTCM, talks about China’s biopharmaceutical market and what Korean drugmakers should do to enter into China, during a recent interview with Korea Biomedical Review.

Q: What are the Chinese policies domestic companies should be aware of as they prepare to move into China?

A: They must keep in mind that China announced a new system regarding drug distribution last December, named “two (tax)-slip system,” and officially began to assess the bioequivalence of generics.

The two-slipt system calls for drastically reducing drug-distributing stages from the current seven or eight. Under the previous system, there were layers of distributors – on provincial and municipal levels and those for public hospitals and private institutions. The new regime, however, will cut them down to two -- from drugmakers to one distributor and hospitals or pharmacies. A tax slip is issued at each stage, and the new system issues only two tax slips per transaction.

When forging partnerships with local businesses, Korean companies need to take care not to tie up with distributors whose days may be numbered. Local reports said the new system would reduce the number of drug dealers from the present 135,000 to about 2,000. The government intends to lower drug prices by curtailing distributive phases.

The Beijing government has also begun to evaluate the bioequivalence of generic drugs in earnest, which it introduced as a pilot project in 2012. Now generic medicines produced in China have to pass through evaluations comparing their clinical effects with those of original drugs. If they fail to do so, the government cancels the registration of even licensed drugs. The government’s goal is to drastically toughen the quality control of generic medicines, which has much to do with their incomplete implementation of separating drug prescription and dispense. Chinese public hospitals often overprescribe drugs or inflate the prices of drugs with substandard quality that they earn 40 percent of their revenue from medicine. Government officials think the bioequivalence assessment will improve the quality of generics to lower the prices of original medicines as well, and help to strengthen their competitiveness in the global markets, too.

Q: Sounds like you’re saying entry into the Chinese biopharmaceutical market will become more difficult.

A: Maybe so but there are other factors as well. China has set up a goal to prepare facility and technology to localize the production of 90 percent of original drugs whose expire by 2020. Put simply, Beijing is set to produce at home most of the generics of original drugs with expired patents. To do so, there will likely be high demand for equipment and human resources, which means increased opportunities for Korean companies to advance to China in the form of indirect investment.

Korean businesses also can consider joint research as China has a relatively high-quality workforce in the biopharmaceutical sector. Nor will there be much sense of the difference between Korean and Chinese workers as many in the latter group have lived abroad and their working style is closer to American style than Chinese. They are fluent in English and have strong business minds. Koreans can also enjoy the advantage of creating networks through the exchange of researchers.

Q: What’s the state of the Chinese pharmaceutical industry and new drug development?

A: Although it remains primarily centered on generic medicines, there has been a gradual increase in investment into new drugs. Sometimes it 's hard to analyze their data concerning their concrete pipelines because the Chinese firms have changed compound names into their language. The Ministry of Health sometimes releases related contents, but correct information on developmental stages require separate probes into each drug. In general, they seem to have high interests in anticancer and antivirus treatments. There are significant researches into hepatitis as well.

Q: So it seems not easy to obtain data about the Chinese market.

A: It’s common even Chinese analysts put forth inaccurate analyses. Many of them are student-turned-analysts without business experiences, as the market’s rapid expansion resulted in some job openings. There are of course capable analysts, but some others’ analytical ability relatively fall short of expectations. You also have to be careful when you’re researching data about related information in Chinese search portals. There are quite a many distorted information as there are relatively few people familiar with the healthcare industry and fluent in the Chinese language. Also, some Chinese unveil misinformation in the first place. You have to be extra careful in conducting a market survey in China as statistics are incorrect in many cases.

Q: Some hospitals in China have begun telemedicine service. What changes have there been since?

A: Five regions are testing out telemedicine, and the participating hospitals are all big-name institutions in the major cities. If you look at their business policies, they all seem interested in similar topics of import distribution, personal privacy protection, and operational processes. They plan to gather experience in the testing regions and later introduce them to other areas, quite rapidly.

Telemedicine is being materialized in a variety of ways, and even some are practicing it. Hospitals build remote examination system at pharmacies, and patients visit them to receive diagnoses and prescriptions. The system started last year, and there are many such pharmacies now.

Q: People say connections are huge in the Chinese market. Does this affect expansion to China?

A: There is an influence of course. However, there have been some changes in the time-old practice called “guanxi” (relationship or connection). It’s no longer easy to expect to shorten permission period explicitly using guanxi. That being said, nine out of 10 Korean clients will look to take advantage of connections in seeking to consult. This shows they are trying to jump into the Chinese without adequate preparations.

So much so that one of the Big Five hospitals in Korea even wrote “hellish public healthcare” when it should have written “regional public healthcare,” in its brochure. Sometimes mistranslation turns neck into the back of the head. All these are real examples. Chinese translators were not meticulous enough, and Korean supervisors were not fluent in Chinese. People say the Chinese market is hard to crack, thinking it is because of their ignorance of policy issues and related laws. More often than not, however, real problems occur elsewhere. They should make thorough market analyses and preparations rather than blindly resorting to guanxi.

Q: What consulting services does your company provide?

A: We offer services across-the-board about the health care industry, encompassing topics ranging from market research to administrative processes and marketing. We prefer not to provide full-on translations ourselves. Sometimes, the thing goes awry at meetings between the Chinese side and out clients, and the former wash their hands under the pretext of mistranslation. As such, we’d rather translations come from the clients’ side and for us to only make sure it’s going accurately. I’ve seen cases where they are so lacking in knowledge about the field that the translations were absurdly wrong. I’ve found that if you correct them in Chinese in such situations, we can not only get them a lot more on guard but also improve the quality of translation.

Q: What kind of projects are you currently working on?

A: We currently have about seven official projects going on against deadlines. Half of our clients are hospitals, and the rest are mobile healthcare or bio companies. We also provide analytic data to the Ministry of Health and Welfare or the Korean Health Industry Development Institute.

Q: Many are concerned about pushback against THAAD.

A: Consulting companies’ turnovers rather rise on such occasions. To be fair we haven’t felt a huge impact from Terminal High Altitude Area Defense system, but we do acknowledge that Korean-Chinese businesses and partnerships that receive government funding have to stay wary of the government. This is why we re-designed it to more reflect the aspects of public interest — you can use the cover of public good to ease frictions stemming from political problems. Japanese companies, for instance, are good at this. To avoid diplomatic issues, medical equipment company Omron Health employed an increased amount of physically challenged workers in their factories and advocated education costs for low-income workers. And they marketed these things. This can be done to create a healthier society in China as well, following the Japanese examples.

Chinese hospitals have to learn this as well. Sure, there are complaints about THAAD, but people aren’t up in arms destroying hospitals because of it. We just have to keep in mind that China’s culture takes ethics very seriously. Regardless of money, it’s important that you can defend a real cause. That means, instead of only showing off the fact that you have cutting-age MRI technology, it’s important you can explain why you were had to introduce this technology and give the story behind it. At the end of the day, Korea can’t try to boast high- quality services; rather, it simply needs to shift its marketing to provide what China currently needs. Korean hospitals seem too focused solely on trying to “be better,” but I don’t think we can win out just with the quality of our medical staff.

Companies are obligated to think about social responsibilities as well. China releases white books on this every year. Samsung’s name comes up in these books quite often, which is a sign that they’re doing a good job.

Q: What’s the advice you want to give to companies planning to expand into China?

A: China is a growing country, and as a result, you can expect practically any sector to continue to develop. But that doesn’t mean success is guaranteed. There have been both success and failure stories, and this hasn’t necessarily changed the way companies are preparing themselves. The government releases analytical data on failed cases every year, and there are very consistent trends regarding administration, funding, and marketing. Companies aren’t learning from failures, and I wish they’d move more slowly and cautiously with the proper preparation. Instead of just going off of data, it’s important to gather real experience there as well.


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