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Healthcare in China –
a McKinsey experience
Yinuo Li
May 2013
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited
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McKinsey & Company | 11SOURCE: Thomson Reuters
15%B.
15%A.
D. 3%
What’s the % Healthcare Expenditure in China’s
GDP?
5%C. 5%C.
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McKinsey & Company | 22
5.2
6.7
7.2
8.9
9.3
9.0
11.1
11.6
17.9
11.2
Developing countries
SOURCE: MoH; Worldbank; Euromonitor; China national and city statistical yearbook; team analysis
1,433
643555
490385
317428
20202010 2011 2012 2013 2014 2015
Healthcare spend as % of GDP1
5.0 5.2 5.3 5.4 5.4 5.5 6.5
xx
China Healthcare – a USD 600 billion market by 2015, trending
towards $1.4 trillion by 2020
Healthcare expenditure as percent
of GDP
Percent, 2011
China healthcare expenditure – projected spend
USD billions
1 projected after 2011
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McKinsey & Company | 3
Chinese cities are redefining the urbanization scale
SOURCE: Demographia; China-All-City Model; McKinsey Global Institute analysis
There will be more than 200 Chinese cities with more
than a million inhabitants …
… in Europe today there are only 35 cities of that size
There will be up to 50,000 new skyscrapers …
… the equivalent of building ten New York cities
There could be up to 170 new mass transit systems …
… in Europe today there are about 70
By 2025, two-thirds of China's citizens
will live in cities …
… that's nearly 1 billion people
Over the next 20 years, Chinese cities will add more
than 350 million people …
… the population of the entire United States
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McKinsey & Company | 44SOURCE: Thomson Reuters
2000C.
800A.
Totally 20K hospitals in China1200B.
D. 3000
How many Class III hospitals are there in China?
1200 B.
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McKinsey & Company | 55
China market is very diverse and dispersed
Disposable income/capita
Patient flow
>$2,000
>5 million
$1,500-2,000
>5 million
$1,500
<5 million
< $1,500
<5 million <5 million
< $1,500
Diverse account base of
~20,000 hospitals with distinct
patient flow and quality of care
Class III hospitals (~1,200)
Class II
hospitals
(~8,000)
Class I and
other small
hospitals (~15,000+)
Tianshui 5th
People Hospital
Tianshui Infection
Disease Hospital
Tier 1 Tier 2 Tier 3 Tier 4 Rural
In-patient building,
Handan 3rd
Hospital
Handan 5th
People Hospital
Chongzhou
People Hospital
Township Health
center
Modern lobby
> 600 geographically dispersed cities
Tianshui, Gansu
Chongzhou &
Honghe CountyHandan, HebeiWenzhouShanghai
Ruijin Hospital
Huashan Hospital
Wenzhou Jiande
Hospital
STRONG BUT DISPERSED DEMAND
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McKinsey & Company | 66SOURCE: Thomson Reuters
4thC.
2ndA.
Became No.3 in 20103rdB.
D. 5th
How big is China Pharma market if ranked
globally
3rdB.
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McKinsey & Company | 77
On the current trajectory, China will be the single largest growth
opportunity for the pharmaceutical industry
China Rx market sales
USD billions
2015
~$90b
2010
~$41b
2004
~$10bSales rank among world
pharma markets …
… and catching up to 8th 3rd 2nd
9th 3rd 3rd
SOURCE: Industry data
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McKinsey & Company | 88
Gx account for 70% of China pharma market
Gx 71%
21%
8%
100%
Originator w/o
exclusivity
Originator
07-11 CADR
35%
21%
24%
SOURCE: GBI; CPA; Team analysis
24%
China Rx market
Competition
▪ Major MNCs（ ~40-50）
▪ Local companies（~5000）
▪ MNC Gx players
▪ MNC/Local JV
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McKinsey & Company | 9
Distribution of new molecule launches bylag duration, 2006-20121, # of products
<2 years 2~4 years 4~6 years >6 years
Total 5 16 18 17
Historically, MNCs have not focused on China, resulting in
long launch gaps in the past
0
0
0
0
0
0
0
2
0
0
1
22
1
1
2
1
2
0
1
0
1
1
3
3
1
1
3
0
1
0
1
1
2
3
2
3
0
0
3
1
1
2
0
3
1
1
1
4
1 New molecules that were registered for SFDA and were successfully launched from 2006 and 2012; vaccines & drugs with global launch dates before
1990 were excluded 2. Xalkori was approved in Feb 2013
SOURCE: GBI, lit research; Team analysis
ProductCompany Lag Yrs
Biologics launch lag
Enbrel 12
Kogenate 14
Avastin 6
Cerezyme 14
Remicade 9
Victoza 3
Levemir 6
Benefix 15
Betaferon 16
NON-EXHAUSTIVE
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McKinsey & Company | 10
Going forward, companies expect to achieve shorter approval lag,
e.g., by better leveraging global programs
2.0
3.2
~ -40%
Future 5 yearsPast 5 years
PRELIMINARY RESULTS
Expected gaps of first major
market and China approval1
Years
1 Initial survey results (n=4); 3 decreasing timelines, 1 with constant timelines
2 n=2
Trial types to achieve registration in China2
As percentage of all trials
0
Past 5 years
Category 1
Local trials 25.0
Regional trials 65.0
Global trials 10.0
0
Next 5 years
5.0
50.0
45.0
Significant increase in China
participation in global trials expected
SOURCE: R&D head interview & survey
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McKinsey & Company | 1111SOURCE: Literature search
In this context, Bio-technology was identified as one of seven “new
strategic industries” in the overall FYP
Energy-saving and environment protection
Alternative energy
New-
Generation IT
Advanced materials
High-end equipment
manufacturing
Alternative-fuel
vehicles
Bio-technology
▪ Waste recycling
▪ Clean coal utilization
▪ Sea water desalination
▪ Smart grid
▪ Solar thermal electricity
▪ New generation of nuclear power
▪ Convergence
▪ Internet-of-things
▪ Value added services
▪ Rare earth functional materials
▪ Functional ceramics
▪ LED
▪ General aviation aircraft
▪ Railway-based communication system
▪ Off-shore engineering equipment
▪ Plug-in hybrid vehicle
▪ Pure electrical vehicle
▪ Fuel cell vehicles
▪ Biological medicine, small molecule medicines
▪ New generation vaccines
▪ Medical devices, diagnosis reagent
▪ Biological breeding seeds
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McKinsey & Company | 1212
1991
0.6
2000
2.1
2009
13.9
Automobile
production
volume in China
Million Units
Five year plan and
status of auto
industry
Global rank 12th 8th 1st
SOURCE: IHS Global Insight; literature search
Strategic industry impact – promoted 15 years ago, the Chinese auto-
mobile industry is now #1 in the world and taking the lead on several
key innovations
1991-2000
Introduce local
manufacturing
2001-05
Strengthen
local content
2005-2010
Build local champions
▪ 8th and 9th
▪ Emergence of auto
industry’s strategic
industry status
▪ 10th
▪ Continues to be
prioritized as
strategic industry
▪ 11th
▪ Continues to be
prioritized as
strategic industry
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McKinsey & Company | 1313
In short-term, government funding for biotech and pharmaceutical R&D
innovation has been substantially increased
1 At a constant exchange rate of $1 = 6.3 renminbi
2 Five-Year Plan
3 Refers to “Major New Drug Development” initiative
Source: Literature search; McKinsey analysis
$ mn
6,200
3,800
400100
8x
1.6x
4x
12th FYP
(2011-2015)3
11th FYP
(2006-2010)
10th FYP
(2001-2005)
9th FYP2
(1996‒2000)
Government funding for biotech and pharmaceutical
R&D innovation1
In the 12th FYP,2 China’s
government aims to achieve
the following:
▪ Almost double funding
for biomedical and
pharmaceutical R&D
innovation compared to
11th plan
▪ Launch 20+ innovative
drugs fueled by significant
investment on top of the
previous FYP
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McKinsey & Company | 14SOURCE: Literature search; company websites
Leading pharmaceutical companies have made significant R&D
investment in ChinaLocation Time Size Research focus
Shanghai 2004,
2007
▪ Initial investment $60 million ▪ Antiviral, oncology & metabolism drug initially
Shanghai 2002,
2006
▪ Initial investment $4mn,
additional $100 in 2006-2009
▪ Translational science and oncology clinical research
Shanghai 2006,
2009
▪ Initial investment $100 million.
Plan to invest $1 billion in 5
years
▪ Asian infectious diseases and oncology, especially
hepatitis and liver cancer
Shanghai 2004,
2005
▪ Investing $200 million ▪ Support regional and global trials
Wuhan 2010 ▪ Not disclosed ▪ Support regional and global trials
Shanghai 2007 ▪ Investing $100 million ▪ Focusing on neuro-degeneration initially
Shanghai 2005,
2010
▪ Not disclosed ▪ Focusing on the innovative therapies and integration
program of disease spectrum in Asia, and exploring the
emerging field of traditional Chinese medicine
Shanghai 2009 ▪ Not disclosed ▪ Focus on neurology, cardiovascular, metabolism,
immunology and oncology
Beijing 2002,
2010
▪ Initial investment not disclosed.
Expansion plan to invest $100
million by 2015
▪ Center with three research areas: molecular biology,
protein chemistry and cell biology
Beijing 2009 ▪ Investing $136 million for next 5
years
▪ China as the third country after Germany and the United
States to host a global R&D center for the company
Shanghai 2003,
2010
▪ Not disclosed ▪ R&D center focusing on Diabetes
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McKinsey & Company | 1515
20+ regional life-science or biotech industry parks have been set up
Chengdu
▪ TCM
▪ Innovative drugs
▪ Biomedical engineering
▪ Biopharmaceutical services
Kunming
▪ Biopharmaceutical
▪ Biopesticide
▪ Ecological industry
Chongqing
▪ Biomedical engineering
▪ TCM
▪ Veterinary medicine
▪ Organic agricultural products
Xi’an
▪ Bio-pharm
▪ Bio-agriculture
Nanning
▪ Bio-energy
▪ TCM
▪ Biopharm
▪ Bio-agriculture
Guangzhou
▪ Genetic engineering
▪ TCM
▪ Novel chemical drugs
▪ Marine-based therapies
Shenzhen
▪ Commercialization
platform
▪ Innovative drugs
▪ Biomedical engineering
Changsha
▪ TCM
Wuhan
▪ Bio-pharm
▪ Chemical synthesis
Shijiazhuang
▪ API (Antibiotic,
Semisynthetic Antibiotics,
vitamin)
▪ TCM
Zhengzhou
▪ Bio-agriculture
▪ Bio-pharma
Dezhou
▪ Functional
oligo-
saccharides
Nanchang
▪ TCM
▪ Bio-medical engineering
▪ Bio-agriculture
Hanzhou
▪ Bio-pharmaceutical
▪ TCM
▪ Chemical drugs
▪ Medical device
Shanghai
▪ Genetic engineering
▪ TCM
▪ Novel chemical drugs
▪ Biomedical engineering
Taizhou
▪ Stem cells
Qingdao
▪ Marine biotech
Harbin
▪ Bio-pharm
▪ Veterinary medicine
▪ Bio-agriculture
▪ Bio-energy
Changchun
▪ Vaccine
▪ Genetic engineering
▪ TCMBeijing
▪ Genetic engineering
▪ Biomedical engineering
Tianjin
▪ Bio-pharm
▪ Industrial Biotechnology
▪ Bio-agriculture
Tonghua
▪ TCM
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McKinsey & Company | 1616SOURCE: Literature search; McKinsey team analysis
Chinese government will provide significant funding
to support bio-industry innovation
Central government has increased funding to innovate bio industry …
6,070
936
12531
“12th Five”
2011-2015
“11th Five”
2006-2010
6.5X
8X4X
“9th Five”
1996-2000
“10th Five”
2001-2005
Healthcare related
11 programs emphasized
▪ DNA sequencing
▪ Synthetic biology tech.
▪ Bio-IT
▪ Stem cell and regenerative
medicine
▪ Gene therapy
▪ Molecule typing and
individualized treatment
▪ Biochips and Bio imaging tech.
▪ Bio-process engineering
▪ Biocatalysis engineering
▪ Biomedical engineering
▪ Biotech breeding
Central government Funding
Unit: USD Mn
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McKinsey & Company | 1717
Who are we?
Global firm with >8000 management consultants
More than 100 offices in over 57 countries
Serving the world’s leading institutions for over 80 years
Expertise in all industries: e.g., energy, pharmaceuticals,
telecommunications, health insurance, banking
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McKinsey & Company | 1818
…Creating a world-shaping impact
Our clients include most of the major
global institutions
93 70Plus over 2,000 private companies,
governments and non-profit
organizations
We help senior executives solve
their most important issues
“What steps can we take to
compete on a global scale?”
“How can we commercialize
our technology without raising
new capital?”
“How can we best respond to
increasing consumer and
government focus on climate
change?”
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McKinsey & Company | 1919
Problem solving
• Smart
• Practical
• Numerical
• Creative
Leadership
• Ownership
• Risk-taking
• Driving
Personal impact
• Presence
• Communication
• Empathy
• Coaching
Achieving
• Energetic
• Determined
• Self-driven
We look for individuals with 4 key qualities…
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McKinsey & Company | 20
My McKinsey journey
BusinessAnalyst
Associate
Engagement
Manager
Associate Principal
Partner
Leading your own
client project area
Building leadership skills Leading teams
Practicing to work as a Partner
Building relationship and
interpersonal skills
Counselor and
peer to CEOsMDsJDs PhDs
MBAs
Under-
grads
