MNCs Need China-Oriented Oncology Strategy Mixed With Pricing Know-how

Global players need to consider offering assistance in China, where most patients pay nearly 50 percent of their medical expenses out of pocket, and most simply cannot afford brand name innovative oncology drugs.

To succeed in China's fast-growing oncology market, multinational pharma companies need to look closely at their product mix and figure out whether getting listed on the country's reimbursed drug list will increase volume enough to offset price reductions, or whether it makes more sense to charge full retail prices to patients paying out-of-pocket and settle for lower volume.

A recent Easton Associates report titled "Building a New Oncology Market in China - the Myth, the Truth and a Way Forward," peeled through commercial options for innovative cancer drugs that are marketed or about to be launched in China. The first step to commercial success, according to the report, is to know your product strength and choose a strategy that maximizes that strength to obtain the largest product value.

China has roughly 20,000 hospitals, with about 750 advanced first-tier hospitals where the country's key opinion leaders are clustered and drive "the medical product usage trends throughout the country," according to the report. Moreover, these first-tier hospitals attract those most willing to pay for advanced therapies.

Medical insurance is offered only through a public program, and China's drug reimbursement lists contain 2,151 drugs, with 500 of them reimbursed 100 percent as Category A drugs, and the remaining reimbursed at 85-90 percent as Category B drugs, according to the report (Also see "China's NDRC Releases First Set Of Price Cuts; MNCs See Deepest Cuts As Expected" - Scrip, 1 Dec, 2010.).

"Each of China's 31 provinces and special districts (such as Beijing and Shanghai) has its own [reimbursement list], which is allowed to have a 10-15 percent variation from the [National Drug Reimbursement List]," the report notes. If a drug is not listed on the reimbursement list, patients pay 100 percent of the retail cost. Most of the older oncology drugs are listed, according to the report, but newer, targeted therapies such as Novartis' Gleevec (imatinib) and Pfizer's Sutent (sunitinib) are not listed.

Reimbursement List or Free Pricing?

Right now there are two paths for pharmaceutical pricing in China.

Drugs can be listed for reimbursement, but price concessions are required and depend on the availability of generics and alternative therapies. In addition, just because a drug is listed on the RDL doesn't mean it will be prescribed, the report notes.

Hospitals, which are government owned, have budgets for medical products that are scrutinized by China's insurance program.

"Having expensive drugs on the RDLs does not mean physicians will prescribe them, as they are keenly aware of the budget hazards of such expensive drugs," Easton notes. The result is often rationing - in one example cited by Easton, a Shanghai hospital limits imported Taxotere to 100 doses per month for each of the three medical oncologists on staff.

If a drug is not listed on the RDL, there is complete free pricing in China, with patients paying out-of-pocket.

The listing decision comes down to a tradeoff between price and volume and striking a balance between affordability and market share. As each product has a different profile, the decision has to be made case by case, said the report authors.

"At what level of price concession for RDL listing does it become value maximizing for [oncology drugs] in China? This is a billion dollar question and we have no precedent yet to reference," Easton says.

For a drug such as Eli Lilly's Alimta (pemetrexed), which has good clinical data but competes in the crowded non-small cell lung cancer market, Easton suggests it is likely better to list on China's reimbursed drug list. A reimbursement listing will increase a drug's profile and potential market share, but the drug maker may have to swallow a deep price cut.

Moreover, pricing decisions must be replicated many times over as reimbursement negotiations are conducted province by province. With 31 provinces in China, it is a significant commercial challenge for MNCs, although Easton points out that it could also allow companies to beta test strategies at the provincial level. "One could experiment with pricing negotiation for RDL status in some provinces to compare market performance with free pricing regions," the report states.

For a cancer drug such as Roche's Herceptin (trastuzumab), which is not likely to see generic competition soon in China, free pricing would likely be a better option, Easton says. Companies should consider free pricing for innovative cancer drugs that have no generic alternatives, the report states.

Paul Zhang, the leading author of the report, told PharmAsia News that free pricing enables companies to charge full retail price and to reduce uncertainties surrounding the tradeoff between volume and price on reimbursement lists.

"[Herceptin's] outstanding survival benefit is winning over Chinese patients and they are voting with their wallets to pay the full price in choosing to live," wrote the author. "The key is to work on the enablers of product use, such as HER2 FISH tests, physician and patient education."

According to Zhang and Easton analysis, nine out of 15 innovative oncologics produced by multinational companies are not covered by China's National Drug Reimbursement List and are instead paid out-of-pocket. Pricing for these drugs are 80-100 percent of U.S. average sales prices and at the high end of European markets.

Drugs not listed for reimbursement include Sutent, Gleevec, Herceptin, Alimta, Bayer's Nexavar (solafenib), Roche's Tarceva (erlotinib) and Rituxan (rituximab), Celgene's Abraxane (paclitaxel), and Novartis' Afinitor (everolimus).

Patient Assistance

Global players will also need to consider offering assistance in China, where most patients pay nearly 50 percent of their medical expenses out of pocket, and most simply cannot afford brand name innovative oncology drugs.

Roughly 15 percent of China's population can afford the innovative therapies produced by MNCs, but even this small number represents a population of 200 million, and "the pricing power in this segment is very attractive compared to the established markets," the report says. Moreover, Easton expects this "affordability cut" to rise to 25 percent (330 million people) within 10 years, which would equal roughly the size of the European Union's top five markets combined.

"Patient assistance programs will be a critical element in gaining wider adoption. Indeed, that is already playing out in China" the report says. One example cited was AstraZeneca, which has established a program for Iressa (gefitinib) where patients get free drugs after six months of documented purchase.

Similar programs are in place for Sutent, Nexavar, Gleevec and Tarceva through charitable foundations such as the China Charity Federation and the Cancer Foundation of China, according to the Easton Associates report.

China-centered Development Portfolio

China has a much different cancer portfolio than Western countries, and MNCs must orient their oncology R&D strategies on China's prevalent cancer types. In fact, China can be a powerhouse to not only leverage innovative brands, but also to serve as a niche market for a number of cancer types.

While prostate cancer is one leading cancer type in the U.S., China has far fewer cases due to lack of early detection and screening tests, according to the report. While both China and the U.S. have a high prevalence of breast cancer, China has much higher rates in lung, stomach and liver cancer.

Of the 27,644 global oncology clinical trials underway, only 544 trials are enrolling in China, which is roughly 2 percent of the global trials.

"This should serve as a wakeup call for MNCs interested in growing in China," the report says. "Considering the intensifying level of competition for patients in clinical trials for breast, lung and other common cancers in the west, these China-oriented cancers can provide a valuable alternative clinically and commercially."

To target these different medical needs, global players are ramping up resources and establishing R&D centers in China to focus on China-specific diseases.

Richard Wang, AstraZeneca Director of Strategic Alliance - Asia told PharmAsia News in an earlier interview that translational research in China will help the company to find the right drug for the right patient and bring these medicines to the market faster. AstraZeneca's Innovation Center China's mission is to explore AZ compounds for potential in treating diseases prevalent in China and Asia (Also see "Building A New Model For Developing New Therapies: An Interview With AstraZeneca's Strategic Alliance Asia Director Richard Wang" - Scrip, 5 Jul, 2010.)).

Just two months ago, Novartis Oncology announced a plan to spend $1 billion in China over the next five years to build an R&D center in Shanghai, which will be the third largest for the company.

Last year, Bayer set up a new €100 million R&D center in Beijing and teamed up with Tsinghua University to push research collaborations and innovation in oncology and other therapy areas (Also see "Bayer Shifting Further To Emerging Markets Including China" - Scrip, 1 Dec, 2010.).

A China-centered cancer portfolio can provide MNCs with alternative compounds that are not only clinically and commercially viable, but that also will see less competition, a larger patient pool, and regulatory benefits, the Easton Associates report stressed.

"Developing a 'China-oriented' portfolio to meet patient needs would surely endear an MNC to the Chinese government, which controls the regulatory approval and pricing hurdles," the report said.

- Brian Yang ([email protected])

[Editor's note: This article appears courtesy of PharmAsiaNews.com, Elsevier Business Intelligence's source for Asian biotech and pharmaceutical news. Register for a 30-day risk free trial.]