For life science companies building and executing a market access strategy in China, the question is rarely whether or not a big enough market exists to justify their efforts; rather, the most pressing question is what they will have to trade in order to open the market itself. The question of what the exchange is between market access and other factors like forced technology transfer and price-controls has historically been where some companies get stuck. Especially as the Central Government continues to elevate life sciences as part of , the push to get international companies who want access to China to be willing to trade technology or agree to major pricing concessions is likely to grow more forceful.
Multinationals (MNCs) are feverishly working on strategies that address these issues, one of which is to offer increasingly innovative drugs to the Chinese market earlier than they would have. Keep in mind that “conventional” market access thinking in China in the early 2000s emphasized taking more mature products and technologies to China first. The for new and costly drugs to be deployed in China. But as the China healthcare market has matured and grown, this strategy of tabling your most innovative offerings may be reaching its natural end. If so, the question of how to manage IP risks that have not gone away while also figuring out how to cost-effectively sell newer (and thereby often times more expensive drugs) is important to understand. Recently I stumbled across a BusinessWeek article that I felt illustrated a wonderfully creative and insightful approach taken by the international pharma company Roche to figure out how to access the China market even though the drugs in question were deemed too expensive for the domestic Chinese market.
One approach to getting more expensive drugs onto the market in China would be to convince the Chinese government to subsidize the prices and, obviously many MNC pharma companies are doing precisely that. But even though of all the governments in the world, China appears to have the deepest pockets at the moment, they also face some of the greatest inequities and chronic under-funding relative to national healthcare matters. Consequently, drug subsidies are going to be carefully selected. If you can craft your own market access strategy that somehow embraces the cost problem without relying on government subsidies, that is a powerful and extremely creative approach. It also happens to be precisely what Roche in conjunction with Swiss Re did. According to the BusinessWeek article: “Roche Holding (RHHBY) has found a way to sell its cancer drugs to millions of Chinese who couldn’t otherwise afford them: First, sell them insurance. The world’s biggest maker of cancer medicines is collaborating with Swiss Re (SSREY), the world’s second-largest reinsurer, to sell policies that are on track to bring in 10 million clients this year, says Harald Sprenger, Roche’s director of private insurance. They expect enrollment to jump 20 percent next year.” Roche wants to sell an expensive drug; Swiss Re wants to sell insurance. Very interesting approach. So interesting in fact that I reached out to , the Managing Director at Swiss Re in China.
Discussing the opportunity they saw, Robert noted, “The fundamental problem was and still is how to give a part of the population in China access to treatments which they just cannot afford at a certain development stage as a nation. This is typical problem for growing emerging economies. This gets exacerbated as you discuss more complicated and expensive drugs like cancer … Cancer and oncology was the topic for Roche because they are the market leader in this field … On the other side you have the insurance sector dealing with large numbers of people, so we have a statistical basis to work with the probability of how many people will get a particular type of cancer … Not all 1.3 billion people in China will develop cancer, but if you establish those two view points [that of the drug manufacturer and the insurance company] then you can effectively find a solution where you can have the drug provider on one hand and the contingent capital on the other providing treatment … these players can create a market – right now you have drugs but no one can buy.”
Given my own work in market access in China, I commented to Robert that I found the approach Roche and Swiss Re took to be very interesting, especially given the challenges Swiss Re faces given the regulatory hurdles that exist in China’s insurance industry. He was quick to add, “my clients are other insurance companies – I am a B2B (business-to-business) company. In order to create mass penetration I need an insurance company who has a fully fledged distribution network.” This point was touched on in the BusinessWeek article that pointed out, “Roche provides the Chinese insurers and Swiss Re with statistical data on various types of cancer, including how treatable they are. Swiss Re uses that data to calculate the risk and cost of treatment. The reinsurer designs and prices the policies for the Chinese insurers and then provides reinsurance so local firms don’t assume the full risk. ‘Swiss Re’s involvement made all the difference,’ says Sprenger. A Roche spokesperson says it has no financial arrangement with Swiss Re to share in revenues from the insurance policies and is doing this ‘free of any charge.’ The companies may eventually offer similar policies in Thailand and Indonesia.”
Regarding the partnership model pursued by Roche and Swiss Re, Robert pointed out, “It is innovative in the sense of the partnership model, which is important to note because going forward the complexities of the tasks in China to build up a functioning healthcare system are going to require more partnerships between industry and government.” I found his comments about the stage of China’s healthcare reforms interesting and on-point: “… if you look into the development of the healthcare industry in China it was pretty well spread out, even in the rural areas, but when economic reforms started they concentrated the healthcare system in the urban centers and reduced it in the rural areas. In a country like China with the structure it has being so centralized and delivered primarily by the government is the reality. That is not a problem if you are in a very low stage of development, but it becomes a very big problem once your middle class emerges … effectively it is not capable of providing the infrastructure to delve into the more complicated healthcare needs of the Chinese people.”
Given Robert’s role in China, he has a first-hand seat as the conversation about the role of private insurance evolves. He shared, “the conversation now is about the right role for the government and the private sector … once you define what your healthcare system should look like then you can start to see what you want subsidized, what you can fund yourself, and what you need others to pay. The latter is going to be out-of-pocket and insurance. In China, we are now in the development stages of seeing an insurance market emerge. This is why a lot of new players are entering China.”
Towards the end of our recent discussion, I wanted to ask Robert what the Chinese government could do to help the insurance industry build better solutions faster for the domestic market. He was quick to add, “Standardized data that starts with treatment processes, hospital codes, etc. … Fundamentally what happens now is you have huge amounts of patients going through the healthcare system, they produce tons of data, but if not like-for-like it is effectively useless.” His comment reminded me of a conversation with this past summer where Adam noted the challenges in China related to getting access to hospital data. As with anything in China, data has political implications, which can make it both hard to get and even harder to trust. For China to develop a cost effective healthcare system, it will need private insurance to play a role. For this to happen, the government must open itself to companies like Swiss Re and others who can develop custom insurance products to meet the needs of the Chinese population. Without adequate transparency, China may become too reliant on creative market access strategies like those designed by Roche and Swiss Re. While worthy of note and emulation, they are also more sophisticated and have risks attached to them that other smaller or more risk averse life science and insurance companies may not be willing to absorb.
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