BioCentury BayHelix China healthcare Summit 2016 - McKinsey report _building bridges to innovation

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  • Shanghai, October 18-19 2016

    CONFIDENTIAL AND PROPRIETARY

    Any use of this material without specific permission of McKinsey & Company

    is strictly prohibited

    Building Bridges to Innovation

  • 2McKinsey & Company

    Over the last 2 years, we have helped to frame and understand this

    fundamental transition period for the industry

    2015 BioCentury BayHelix Summit

    1. 2015 in the mirror

    2. Decoding the big slowdown

    3. Assessing progress on

    innovation

    2014 BioCentury BayHelix Summit

    1. Framing the possibilities

    Bridges to

    innovation

    2. Managing today driving growth of

    mature brands

    3. Bridging to tomorrows

    innovation

    Reports are available for download at:

    http://www.biocentury.com/elearning/Whitepapers/formChinaMcKinseyReport2015/download

    s?file=McKinseyBioCenturyHealthcareSummit2015.pdf&message=1#.V7Ztsfl97JJ

    http://www.biocentury.com/elearning/Whitepapers/formChinaMcKinseyReport/downloads?fil

    e=BuildingBridgestoInnovation_McKinseyPresentation_11_18_14.pdf&message=1#.VPtlwuG

    ErwA

    http://www.biocentury.com/elearning/Whitepapers/formChinaMcKinseyReport2015/downloads?file=McKinseyBioCenturyHealthcareSummit2015.pdf&message=1#.V7Ztsfl97JJhttp://www.biocentury.com/elearning/Whitepapers/formChinaMcKinseyReport/downloads?file=BuildingBridgestoInnovation_McKinseyPresentation_11_18_14.pdf&message=1#.VPtlwuGErwA

  • 3McKinsey & Company

    2016 in the mirror 9 significant themes shaping the market evolution

    Economic reform productivity and innovation imperatives

    CFDA reform - full speed aheadAccelerating pricing and access reform

    Private healthcare taking off

    Tsunami of Healthcare outbound deals on the way

    Emergence of more creative business models

    Forceful push for localizationAmbitious restructuring of Gxindustry

    Shift towards tiered diagnostic and treatment

    1 2 3

    4 5 6

    7 98

  • 4McKinsey & Company

    Economic restructuring Productivity imperative for China to

    realize its potential

    SOURCE: McKinsey Global Institute

    Text

    1

  • 5McKinsey & CompanySOURCE: IDC, CPAT, annual reports, WIS, Global Insights, iSuppli

    1 This is the ratio of a country's share in the global revenue pool by industry over a country's share of global GDP

    2

    345

    CUSTOMER-

    FOCUSED

    SCIENCE-

    BASED

    1

    Commercial aviation

    Medical devices

    Oil and gas engineering and equipment manufacturing

    Application and system software

    Automotives (OEM and parts)

    Communication equipment

    Wind turbines

    Railroad equipment

    Steel

    Textiles Construction materials

    Construction machinery

    Electrical equipment

    Commodity chemicals

    Oil and gas upstream and downstream

    Industrial machinery

    Semiconductor foundry

    And back-end engineering

    Paper and forestry

    Generic pharmaceutical

    Solar panels

    Consumer packaged goods

    Home entertainment software

    Consumer electronics

    Smartphones

    Internet retailing

    Internet software and services

    Household appliances

    Biotechnology

    Semiconductor design

    Specialty chemicals

    Branded pharmaceutical

    ENGINEERING-

    BASED

    EFFICIENCY-

    DRIVEN

    0 of 4

    above GDP

    share

    3 of 7 above

    GDP share

    3 of 8 above

    GDP share

    9 of 12

    above GDP

    share

    Economic reform glaring gap in science-based R&D1

    Revenue fair share of Chinese companies, 2013

    Fair share = 1

  • 6McKinsey & Company

    Profound restructuring of Gx industry kicking in high gear

    Latest statusWhat it is

    Gx registration

    Clinical data self-inspection: CFDA request pharmacos to conduct self-inspection on data

    integrity

    Accelerated approval for queuing applications: CFDA No. 230 Announcement

    set new rules to accelerate Gx application, BE

    test changed from application to notification

    CFDA reform, including clear goals to accelerate registration timeline

    As of Jan, 2016 when the self-inspection window closed, 1,150 out of a total of 1,622

    applications retracted (70% retraction rate).

    Another 34 rejected by CFDA

    On Feb 26, 2016, CFDA No.19 document added priority approval for the following

    situations: new application of Gx that has been

    previously self-retracted but is now with QCE

    against off-patent originator

    4

    Quality

    consideration

    in tendering

    15 provinces explicitly put Gx which passed quality consistency evaluation and off-patent

    originators in the same tendering group

    Encourage favorable consideration in provincial tendering for those who passed

    QCE

    Government launched a set of initiatives to further screen out low-quality pharmacos. E.g.,

    unannounced inspections, CFDA inspection

    capacity expansion, and preparation to join

    PIC/S

    By end of 2015, 25% of pharmacos licenses revoked due to new GMP implementation

    GMP

    implement-

    ation/

    inspection

    Quality

    consistency

    evaluation

    (QCE)

    In Mar, 2016, announcement of State Council No. 8 document marked the official start of

    implementation of QCE

    NIFDC released a set of technical guidelines (or drafts) for QCE, including choice of reference

    listed drug for oral solids and waiver policy of

    bioequivalence studies for immediate release

    oral solids dosage form

    2015 CFDA No. 231 document, requesting all Gx approved without quality

    consistency evaluation vs. off-patent

    originators to conduct QCE

    Evaluation for oral solids in 2012 EDL to be completed by end of 2018

    Registration to be revoked if pharmaco fails to complete QCE before the next registration

    renewal

    4

    3

    2

    1

  • 7McKinsey & Company

    Gx restructuring: self-inspection has filtered out ~65%

    applications with low quality registration data

    4

    NOT EXHAUSTIVE

    Source: CDFA, GBI, DXY, lit research, team analysis

    1 Including 1,960 applications required for self-inspection by CFDA's 2015-117 Notification (1,622), 2016-81 Notification (256) and 2016-142 Notification (82); all information on this page is as

    of October 17, 2016; 2 In total 1,231 applications are withdrawn as of Oct 2016; 3 Include 839 withdrawn applications with disclosed information and 34 rejected applications; 4 Including

    chem 1.1, 1.2, 1.3 category and bio 1 category; 5 Most are generics, others including chem-1.4 to 1.6, TCM; 6 Equal to # of applications withdrawn & rejected in each category divided

    by total # of application required for self-inspection (1960)

    1,960

    839

    392

    CFDA rejected

    Not withdrawn

    (in review or

    review finished)

    Withdrawn with

    information disclosure

    Withdrawn

    while no

    information disclosed2

    695

    Total for

    self-inspection

    34

    36

    Others

    (local)5

    Innovative

    (local)4

    Imported

    817

    20

    837 local

    applications

    withdrawn/

    rejected belong to

    446 local

    sponsors, e.g.,:

    Withdrawn &

    rejection6# of applications

    1%

    42%

    2%

    Scope of self-inspection1 Breakdown of withdrawn & rejected applications3

  • 8McKinsey & Company

    Private healthcare taking off multiple entry models for players7

    Source: McKinsey analysis

    Integrator: Aim to establish a payor-provider integrated

    model in the longer term, with

    pilots of mini-system at

    hospital/city level

    Healthcare insurance

    1

    Healthcare services

    Primary careMainstream

    hospitalElderly care

    Gatekeeper platform:

    Create online

    and/or offline

    platform to

    fundamentally

    shape patient

    flow of primary

    care

    2

    White space seeker: Target specific opportunities to address unmet patient

    needs (typically in specialty care and

    high-end services) and provide

    differentiated services

    4

    Resource acquirer: Privatize public hospitals and acquire

    mainstream assets

    3

    Greenfield builder: Build new hospitals, sometimes in partnership

    with public hospitals

    5

    Adjacency player: Enter

    elderly care /

    nursing home

    first and

    develop

    capabilities and

    experiences

    that could be

    relevant to

    hosptials

    6

  • 9McKinsey & Company

    Number of deals, $ bn

    M&A activity in China is heating up in particular, outbound

    activity

    SOURCE: Dealogic; McKinsey analysis

    Number of deals

    Inflow Outflow

    1 Inflow: local target acquired by foreign companies; outflow: local companies acquiring targets abroad. Includes both cross-border M&A within Asia Pacific and cross-regional M&A

    2 Announced deals (not withdrawn), includes deals of more than $25 mn only. Chinese targets

    M&A activity in China

    Value2, number of deals, $ Value2, $

    M&A inflow1 (positive) and outflow1

    (negative) in China

    Chinese M&A volume increased

    during 2015, and

    reached its highest

    level in the last 3

    years; 2016

    quarters witnessed

    comparatively

    lower activity, still

    at high levels

    historically

    Outbound M&amp