High treatment costs, insufficient insurance coverage, and lack of awareness may hinder patients’ ability to receive better cancer treatments in China.China is a primary focus for many pharmaceutical companies because of its large population, changing demographics, rapid economic development, and evolving healthcare system. according to the PRC State Food and Drug Administration (SFDA), China’s pharmaceutical industry has expanded more than 20 percent annually in the last five years, and the trend is expected to continue. But how should pharmaceutical companies stake their claim in China? Many companies may wish to focus on oncology, which has been a major driver of growth for drug companies worldwide in the last 10 years. It is the largest therapeutic area globally and the second-largest therapy class in China.
Many sources have reported an alarming increase in China’s cancer rates over the last 30 years. A February 2009 CBS Broadcasting, Inc. news report stated that “many Chinese urban areas have adopted a Western lifestyle and diet, which [among other factors] has led to a massive increase in the number of people diagnosed with cancer” (see Table 1). In the last decade, incidences of many malignant cancers have steadily risen in China, including those of the country’s most common cancers, such as colorectal, gastric, liver, and lung cancers. An aging population, increased pollution from overheated economic development, a more sedentary lifestyle, and a high volume of tobacco and alcohol use all contribute to the increase. Oncology is thus a key business development area for pharmaceutical companies in China.
What must foreign drug companies understand to form an effective oncology-focused business strategy? Most notably, marketing cancer drugs in China requires understanding the market. Companies must consider China’s evolving healthcare system, regional economic development gaps, differences between the Chinese market and the company’s home market, treatment costs and the patient’s financial capabilities, and medical standards of care by tumor type.
China’s healthcare system and relevance for cancer patients
The well-known slogan kan bing nan, kan bing gui, which means “it is difficult and expensive to seek medical treatment,” aptly describes China’s healthcare situation. The PRC government has aimed to improve the healthcare system and provide affordable care to the country’s large population in recent years. In 2009, the central government announced a ¥850 billion ($128 billion) three-year healthcare reform plan, which focuses on making healthcare more affordable and universally available by 2020—including by expanding the medical insurance system, reimbursing essential therapies, and upgrading community and rural healthcare facilities (see China’s Healthcare Reform: How Far Has It Come?).
China aims to provide healthcare coverage to at least 90 percent of the population by the end of 2011 by extending three main medical insurance schemes: new rural cooperative medical insurance (NRCMI), urban employed basic medical insurance (BMI), and urban resident BMI (see the CBR, July-August 2009, China’s Healthcare Reform). The insurance reimburses pharmaceutical costs for inpatients, provided the drugs are included in the national or local Reimbursement Drug list (RDL). (The RDL, which lists basic drugs that are reimbursed by public medical insurance plans, is issued by the central government and then adjusted by regional governments based on local conditions.) Outpatients’ prescriptions are generally paid by personal healthcare accounts established through an individual’s premium payments, though some regions in China are starting to expand coverage of outpatient drugs for chronic diseases. Despite ongoing healthcare reforms, 40 percent of China’s healthcare expenditures were personal out-of-pocket expenses in 2008.
Healthcare coverage for cancer patients
China’s public health insurance provides several levels of coverage for cancer patients based on severity and expected cost burden. These levels usually include the following (in order of highest to lowest amount of reimbursement):
- Inpatient treatment;
- Outpatient severe disease treatment;
- Outpatient chronic disease treatment; and
- Outpatient common disease treatment.
Given that cancer treatments most likely fit under inpatient treatment or outpatient severe disease treatment, cancer treatments are usually costly and require substantial insurance coverage. For example, for cancer treatment drugs listed in the local RDL, patients covered by urban employed BMI in Shanghai have a co-pay of 8-15 percent of the treatment cost; those with urban resident BMI must pay a 30-50 percent co-pay; and the NRCMI co-pay level is about 50 percent. Other regions across the country generally have similar cancer treatment coverage, with a co-pay cap of six times the patient’s annual salary, disposable income, or income for urban employed BMI, urban resident BMI, and NRCMI, respectively. (The national average annual salary was ¥29,229 [$4,386] in 2008; annual urban per capita disposable income was ¥17,175 [$2,577] in 2009; and annual rural per capita net income was ¥5,153 [$773] in 2009.)
Cancer treatment is a focus of private health insurance companies in China. Though China’s private insurance sector is dominated by domestic companies, foreign insurers will likely increase their market share as more companies respond to the growing demand for private health coverage. Foreign companies that have already established a presence in China’s health insurance market include American International Group, Inc.; CITIC Prudential; and DKV Group.
Private insurance providers have limited ability to manage risk, contain cost, and control fraudulent activity because these companies lack the ability to influence hospitals the way government authorities do. As a result, most private health insurance plans cover only serious or critical diseases. Most companies provide cancer-specific insurance plans that compensate for a pre-determined fixed amount (see Table 2).
The market environment
Foreign pharmaceutical companies must compete with local and generic manufacturers in the China market (generics accounted for 61.4 percent of the market in 2009). Because foreign companies produce more innovative treatments, they tend to dominate specialized markets, such as cancer, diabetes, and asthma. Companies that provide specialized high-cost cancer therapeutics must consider the patient’s “spectrum of affordability.” According to the PRC National Bureau of Statistics, the highest-earning urban residents had an average annual income of ¥51,350 ($7,705), disposable income of ¥46,826 ($7,035), and annual consumption expenditures of ¥29,004 ($4,358) in 2009. Considering these numbers, only a small percentage of Chinese households may be able to afford treatment costs of more than ¥100,000 ($15,076) annually out of pocket. These wealthy households may also be unevenly distributed across Chinese cities, depending on the city’s size and industrial level.
Given that newer innovative therapeutics cost more, foreign companies may find greater opportunities in Tier 1 cities and Grade 3 hospitals, which have a larger population of high-income households. (Grade 3 hospitals have the most resources, including staff and medical facilities, and are mostly located in China’s large cities [see the CBR, July-August 2009, China’s Healthcare Reform].) Cancer treatment costs much more in high-level hospitals because Grade 3 hospitals have higher standards of care. Such hospitals are also usually bigger and better equipped, and they have larger budgets that can absorb the high costs associated with cancer treatments. But patients must also pay more for the advanced drugs these hospitals use that may not be covered by China’s national health insurance plan. According to the PRC Ministry of Health (MOH), average lung cancer treatment spending per hospitalization was about ¥15,000 ($2,261) in Grade 3 hospitals and about ¥5,400 ($814) in Grade 1 hospitals in 2009 (the average hospitalization period was 14 days for both grades). MOH also reported that the average curative rate for malignant cancers in urban hospitals (33.6 percent) was higher than that in rural hospitals (20.2 percent) in 2009.
The updated RDL, released by MOH in August 2009, allows numerous innovative cancer drugs to be reimbursed under a special negotiation category, which gives lower-income households more access to these treatments (see the CBR, January-February 2010, Drugs for the Masses). The most successful cases of foreign company drugs that listed on the RDL include capecitabine (Xeloda, manufactured by Hoffmann-La Roche ltd.) and gemcitabine (Gemzar, manufactured by Eli Lilly & Co.). Roche Shanghai’s pricing and reimbursement strategy for Xeloda breast cancer treatment is a good example of how to increase the use and penetration of a branded drug in the China market. Roche Shanghai labeled Xeloda as a Chinese domestic drug and priced the drug lower in the China market than in the international market. As a result, Xeloda is one of the few innovative cancer drugs on China’s national reimbursement list and is one of the top-10 cancer drugs sold in China.
Cancer treatment considerations
In Western countries, regular physician office visits include routine screening for some cancers (such as mammograms for women and prostate-specific antigen [PSA] or digital rectal exams for men). Such protocols are not yet developed in China but will likely become more common as personal health and wellness education evolves and awareness of the preventive value of these procedures increases. Companies must be mindful of certain differences when providing cancer treatments in China. Standards of care can differ considerably between China and other industrialized countries. For example, Avastin (bevacizumab, manufactured by Genetech Inc./Roche) has become a standard component of the regimen for colorectal and lung cancer treatment in the United States. SFDA, however, approved Avastin for metastatic colorectal cancer only in February 2010—six years after its initial approval in the United States. In addition to different standards of care, uneven healthcare coverage because of local economic differences and wide income disparities make serving the China market even more complex.
China’s prostate cancer rates are among the lowest in the world. The country’s reported incidence of prostate cancer was predicted at about 32,000 patients in 2010, considerably lower than the United States (229,000) and Japan (66,300). The low reported incidence may be because of several reasons, but lack of early screening and detection for prostate cancer, namely PSA and routine prostate exams, in China is a contributing factor. Though most prostate cancer patients in the United States and Japan are diagnosed at an earlier stage, about 70 percent of prostate cancer patients in China are diagnosed at stages III or IV (see Table 3).
Initial treatment for prostate cancer in China often involves orchiectomy, a relatively low-cost surgical procedure that immediately lowers testosterone levels. Orchiectomy has fallen out of favor in Western countries, however, because hormone therapy such as medical castration is less intrusive and appears to be equally effective. The use of medical castration to treat prostate cancer is nearly universal in the United States and Japan, where Lupron (leuprolide, manufactured by Abbott Laboratories and Takeda Pharmaceutical Co. Ltd.) is the leading brand. Physicians in China still tend to rely on orchiectomy, however, possibly because of the low cost of surgery compared to the higher and continuing costs of hormone therapy.
Recent interviews conducted by Kantar Health and Draco Healthcare Consulting, LLC show that physicians in China have sound knowledge and awareness of advances in prostate patient treatment. The PRC government in March 2006 approved Lupron and in 2009 approved generic leuprorelin acetate made by several domestic companies, which may lower the cost and increase the use of medical castration in the future. China still needs to invest heavily in education, however, to increase patient awareness.
Human epidermal growth factor receptor 2 (HER2, a gene found in more aggressive breast cancer) testing in China costs between ¥80 to ¥100 ($12 to $15) and is covered by public medical insurance plans. Despite the low cost, however, only 57 percent of China’s breast cancer patients were tested for HER2 status in 2008, according to a 2008 Chinese Medical Association survey. Reasons for the low testing rate included patients’ lack of awareness of the test and its value, as well as low confidence in the test’s quality and accuracy because of the lack of standardized testing kits.
For patients who test positive for HER2, treatment options in China are also limited. Herceptin (trastuzumab, manufactured by Genentech/Roche), which is effective in combination with standard of care treatment and is considered the golden standard for treating HER2+ patients, is not included in the government’s National Basic Reimbursement List—severely limiting its use in China. A Kantar Health-Draco Healthcare Consulting survey reported that only about 30 percent of HER2+ patients in China used Herceptin to treat the cancer—much lower than in the United States and Japan (about 80 percent each). This is likely because the treatment’s high out-of-pocket cost may be too expensive for most patients in China.
The reported incidence of liver cancer in China is projected at nearly 349,000 for 2010. Roughly 80 percent of these patients are diagnosed in stages III or IV, highlighting that many Chinese may be unaware of health issues or do not consult a physician until they have serious discomfort or other symptoms. If the cancer is operable, the patient will undergo surgery; otherwise, the patient receives chemotherapy, such as the FOLFOX regimen (fluorouracil, folinic acid, and oxaliplatin). The cost difference between branded chemotherapy products and generics is substantial: Branded products such as those in the FOLFOX regimen cost roughly $1,188 per cycle while generic equivalents cost about $350. The price of intravenous drugs in China is set by the 2004 National Basic Healthcare Insurance Drug List or capped by the PRC National Development and Reform Commission (NDRC).
Health insurance in China may not cover new cancer therapies, leaving patients no choice but to pay out of pocket for these treatments. The high price of new therapies is likely a significant factor that contributes to their relatively low use in China. For example, surafenib (Nexavar, manufactured by Bayer AG), a liver cancer treatment drug that is commonly prescribed in the United States, is priced at ¥25,192 ($3,795) for 60 tablets (200 mg each) in China—comparable to its US price, despite China’s lower income levels. As a result, physicians in China tend to use less expensive agents first, and offer Nexavar as a second-line treatment if the patient can afford it.
Some foreign pharmaceutical companies have introduced patient assistance programs to help cover medication expenses that the national healthcare system may not reimburse. For example, liver cancer patients clinically eligible for Nexavar treatment usually must pay for the first two months of treatment. If the patient benefits from the treatment in the two months but lacks financial resources to continue therapy, the patient may apply for Bayer’s assistance program. Though Nexavar has a huge potential market in China, the product would need to be made more affordable through price subsidies or assistance programs to increase market penetration.
The future of branded drugs in China
Many cancer drugs in China have locally produced generic versions, which compete with branded versions imported from overseas. Listing decisions for the RDL are generally based on the actual retail prices of drugs, which are determined through tendering. Because the tendering process separates branded and generic drugs into different categories, branded drugs tend to maintain prices that are close to maximum price caps set by NDRC while generic drugs—which face stiffer local competition—could be priced considerably lower. RDL includes the generic names of drugs—covering the generic and branded versions—and offers the same reimbursement and co-pay levels for both versions. As a result, though the availability of generic drugs helps foreign companies gain access to the RDL, equal reimbursement status for both versions requires the patient to pay a significantly higher out-of-pocket expense for the more expensive branded drug. For example, Eli Lilly’s Gemzar and Jiangsu Hansen Pharmaceutical Co., Ltd.’s Zefei each hold a significant share of China’s gemcitabine chemotherapy market, and both drugs enjoy the same reimbursement status. Chinese physicians can prescribe either version of the drug, but patients must pay a higher co-pay for Gemzar because of its higher retail price.
Ultimately, the patient decides which drug to take, depending on the drug’s price and the perceived quality of imported brands versus locally manufactured generics. Chinese patients’ income, household wealth, and willingness to pay will significantly affect the acceptance of high-priced, self-pay medicines in the China market. Even for the 10 percent of the population in the high-income bracket in 2009, branded cancer treatments such as Mabthera (rituximab, manufactured by Roche) cost 218 percent of the household’s average annual income. Only a small percentage of these high-income patients will be able to afford highly priced innovative medicines.
Because of the cost and effect on the national healthcare budget, it is unlikely the PRC government will develop a comprehensive system that reimburses for high-priced products in the near future. But China is initiating a special negotiation category for some expensive drugs to be included on the reimbursement list in 2010. Though Chinese income levels are rising, foreign pharmaceutical companies may target select Tier 1 cities and Grade 3 hospitals in the short term—until China develops a healthcare system that allows more citizens to afford high-price treatments. Meanwhile, foreign companies can develop a country-specific pricing strategy (such as Roche’s strategy for Xeloda) or offer more assistance programs to further penetrate the China market.
Implications for foreign companies
Despite challenges, opportunities abound for commercializing cancer drugs in China. China is undoubtedly a hot market, with continued gross domestic product growth, strong government investment in healthcare, and higher incomes across all economic classes. The country’s expanding cancer patient population increases the need for more advanced and affordable treatment options—a significant opportunity for foreign companies that can penetrate the market. When considering commercializing cancer and other specialized treatment products in China, companies should research and understand local conditions, including
- Differences from one’s home market, such as disparities in current disease treatment practices and regulatory requirements;
- Medical standards of care, in particular for drugs that face domestic competition in China;
- National guidelines in place or under development;
- Cost of treatment (including all treatment modalities for the disease entity); and
- Patient affordability.
To succeed in the China market, a manufacturer must develop its plans carefully. It should consider which product lines (generics, branded generics, or premium products) to promote, how to compete locally and control cost, what its target market is, and patients’ ability and willingness to pay for premium products.
[author] Ian Hicks ([email protected]) is senior vice president at Kantar Health in Los Angeles, California. Lucy Liu (lucy.liu@ kantarhealth.com) is associate director of Market Access at Kantar Health China in Shanghai. Linda Zhao ([email protected]) is president of Draco Healthcare Consulting, LLC in San Francisco, California. [/author]