"In terms of spending on healthcare as a proportion of GDP in China, the figure is currently close to 6%. By comparison, in the U.S. the rate is closer to 17%, which reflects there is significant room for further growth."

Dr. Xu Jia

CONSULTING LEADER, PWC CHINA HEALTHCARE AND PHARMACEUTICALS

May 03, 2018

How important is the life sciences industry to PwC China at the moment?

The life sciences are a key strategic sector for the entire PwC network, though especially in China. The growth rate for the industry in the past decade has outperformed other sectors. The potential for the market is also a key factor. In terms of spending on healthcare as a proportion of GDP in China, the figure is currently close to 6%. By comparison, in the U.S. the rate is closer to 17%, which reflects there is significant room for further growth. As a service provider, PwC is committed to staying aligned with market trends and PwC China is well-equipped to serve the growing life sciences industry in China. We have a dynamic team here and can bring to bear resources from across our global network, tapping into a vast reservoir of knowledge, expertise and rich industry experience from established markets, to meet the challenges faced by our local clients.

What is the impact of the government’s attempt to refresh the regulatory framework by introducing the two-invoice system into the local market?

This is a very important initiative because China’s distribution market is currently fragmented. The government is trying to contain the costs incurred in the distribution process through consolidation, which will reduce the layers of cost and limit mark-up for prices so that drugs can move more directly from the manufacturer to the patients. The consolidation favours larger companies with adequate capital, coverage, and channels, whereas small and medium companies may find it difficult to continue operating. Nevertheless, as the initiative seeks to improve transparency and control pricing, the industry will benefit in the long-run.

In recent years, China’s life science space has experienced record-breaking activity in terms of IPOs and M&As. What is driving the recent flurry of activity?

China has developed a strong pharma ecosystem that encourages innovation. The recent trends in IPOs are inspired by activities in Hong Kong in this space. The current regulatory framework emphasises policies that motivate talent to open new businesses that apply the latest technology, thereby attracting investments and more cash inflows. As the majority of the players in the market are focused on manufacturing common generic drugs, the government introduced favourable policies that encourage local companies to produce different, innovative products, which has led to more acquisitions. We work with several clients that are targeting such companies — domestic and foreign — for acquisition. As taking the plunge into the global market requires navigating a complex legal environment, many of these companies have retained a primary focus on the local market, which is still characterised by strong growth. Still, such companies are looking at cost-effective ways to differentiate themselves from peers. One method we are increasingly seeing is to license products derived from new technology from overseas markets for local use.

Geographically speaking, much of the growth in China’s life sciences industry seems to be emanating from Shanghai. Do you see potential for this success to be replicated in any other key cities?

The life sciences are key to provincial governments around China today. Provinces have a range of facilities at their disposal, including special economic zones, science parks, and medical cities, which have a substantive positive impact to growth across the country. For example, Suzhou in Jiangsu province is home to many innovative companies that benefit from local policies that support the industry. Geographically close to Shanghai, Suzhou also very well developed in its own right, with an array of amenities such as international schools and local tax incentives. These and related attractions appeal to individuals and their families, helping attract the talent who underpin success at innovative companies.  

What is your outlook on the future of China’s pharmaceuticals industry and what role is PwC China going to play in its future?

The government has made immense efforts to benefit the Chinese people through three key objectives. The first is to ensure availability of new medical treatments and drugs, the second is the accessibility of these to the people, and the third is an emphasis on affordability to provide better coverage across China. It is no surprise then that Pharma is an important focus and responsibility for PwC China as well as the government. One area in China which we see a lot of potential in is in biopharma, which is well coordinated and advanced, while technology developed here is contributing to the formation of a robust local R&D ecosystem. Concurrent with sector development, PwC has also been making investments in this field, and we have already begun to bear the fruits of our hard work, having recently been awarded the ‘Best Business Transformation Partner’ in the Pharma industry in China. We will continue to play our role, contributing to the growing market and working with the government, multinationals and other key stakeholders.

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