Overview
Ducks know before others when spring comes because they feel the warmth of the water, so goes the Chinese saying. As the re-opening Chinese economy started to warm up, we went on the ground to meet with 15 biotech and pharmaceutical companies across three Chinese cities, to hear first-hand from the “spring ducks” on how the healthcare sector is faring post-pandemic.
Regulatory pressure weighed on Chinese healthcare companies in recent years, with policymakers pushing for lower prices for drugs and medical devices through centralised purchasing, also known as GPO. This remains the broad trend but our latest conversations with management teams in the sector suggest such headwinds have moderated. Executives attribute this to better recognition among regulators that reasonable profitability is necessary for encouraging innovation in the healthcare sector, where research and development costs can be immense.
On the other hand, policymakers have also been raising the bar for healthcare innovation by introducing stricter rules on evaluating drugs and medical devices. China’s Center for Drug Evaluation has tightened approvals to encourage truly innovative products rather than copycats. We see this as a positive development, one that will benefit industry leaders focusing on genuine drug development over the long term.
Trip takeaways
Our meetings and on-the-ground research strengthened our conviction in China’s “bioengineer bonus”, or the emerging advantage of an abundant supply of engineering talent. To maximise the probability of success, drugmakers often have to develop as many drug candidates as possible. We think Chinese biotech firms will benefit from a relatively cheap supply of bioengineering talent to boost efficiency in drug development, especially in preclinical stages. This growing talent edge could help turn China into a global hub for drug innovation.
Another observation we made based on our meetings is that broad hospital utilisation rates have recovered to around 80 per cent, with patient traffic surpassing 2019 levels at some hospitals. With improving utilisation at their hospitals, many healthcare executives are turning optimistic about drug sales and surgery volumes in the current fiscal year, expecting things to return at a minimum to where they were in 2019. Whichever way you look at it, the water is warm for these innovators, and spring has arrived for China’s healthcare sector.
