China LSHC Industry Survey：2024 State of Industry in China

Deloitte China Life Sciences & Health Care (LSHC) team conducted our 5th annual “State of industry” survey for the LSHC market in China during 15th January to 9th February 2024.

Thank all participants for providing insights covering a number of areas ranging from business performance, key elements impacting their business, their 2024 outlook and considerations, regulatory and digital compliance revolution as well as new business opportunities and challenges.

We have selected some few extracts from our report here below, and you may download the full report. Of course, our team is available to individual and specific presentations where we can further elaborate on some of the details.

China LSHC Business Outlook & Considerations

60% of companies saw 2023 results as planned or better, a significant improvement from previous year (~50%). Probably resulting from a more cautious approach to past year made by Large and Foreign companies (WOFE), most of them reported a better performance than planned. However, 41% of the local companies (SOE/POE) did not materialize their expectations for 2023.

Q: How did your company perform (top line) in 2023FY?

Probing into the factors, pricing and the overall economic value cycle remain the top impact factors for all stakeholders. Meanwhile, successful product launch has risen of importance, as this is the new battlefield to stay relevant and also grow topline. Besides, enhanced localized business development efforts and allocated resources, together with finding a better market access through partnering models are cited by nearly half of the respondents.

As for the business outlook in 2024, 90% of all respondents are expecting a positive growth in 2024, yet for a majority, growth expectations are lower for 2024 due to the uncertainties in the global and China economy environment. Nearly 50% of foreign players (WOFE) respondents continue to expect a double-digit growth > 10% for 2024. Notable to see that those expecting a revenue decline in 2024 are up to 11% from 8%.

Q: How do you foresee your China business outlook 2024?

Regarding the overall business outlook for the next 3-5 years, there exists a minor increase on China’s market importance with an increase to 45% in this year (last year 42%), with 42% of C-level respondents remain confident in the China market. However, 20% declare shifting investment (11%) or having less appeal (9%) to other markets slightly increased from last year, also indicating that foreign companies are becoming more cautious on the future opportunities in China years by years. Nevertheless, ‘China-specific solutions’ continued to hold the first place in the China market strategy in this year, resulted from the gradual completion of the forming of ‘China-feature’ health care system.

Regulatory and Digital Revolution

With the strengthen in the restriction in data privacy and export in China, as numerous data transfer related policies and regulations were published and became (technically) effective, the data & export restriction impact increased substantially this year, from 42% to 51%, foreign players see the impact more significantly, as 75% this year. Foreign players will continue adjusting their China-specific strategy, such as pay more attention to the application of advanced digital and AI tools, fasten and improve the product lifecycle of their innovation assets. For domestic companies showing a higher appetite of ‘going-out’, the data export restrictions are gradually showing impact as well.

Under the China nationwide regulatory initiatives, the market events are impacted the most– many medical events and conferences were on hold or cancelled since mid-2023. Over two-third of respondents felt harder patient access under the nationwide regulatory initiatives. Considering China's pace to technology changes and digital patient engagement, IT & data related investments continue to attract a larger portion of the compliance related investments, with 48% of all respondent.

With China's regulatory environment keep adjusting, innovation and new assets remain the critical focus to all respondents. To SOE&POE respondents, the local-preferential policies are the most critical factor (59%). The localization of supply chain for WOFE has changed a low 4th rank, from top rank in 2023, indicating a different regulatory landscape forecast among domestic and foreign players.

New Business Opportunities & Challenges

For new market channels beyond the traditional 'in hospital channel', unsurprisingly a large majority (77%) of all respondents are deploying investment in the development of ‘new channels’ as a key for market penetration and growth. While foreign players review (and use) the deeper penetration using an alliance model & third-party partners, domestic companies prefer to operate these channels directly.

When introducing new products into China, consistently over prior years, scale is cited by all players as the key & core reason of China’s market attractiveness. Local players focus less on the price changes while foreign players focus more on the pricing strategy and economic returns throughout the product life cycle.

China holds a must-do investment to most of respondents (91%), however over half of respondents are being cautious and holding a reserved attitude in increasing the investment, they think China's market has become 'higher risk'. Numerous recent transactions have shown that Chinese assets can be of interest either, foreign companies have further enhanced their local ‘China for China’ business development functions and teams. With the China market becoming more mature – attention crystalizes further on pipeline/portfolio choices and more so the ROI.

In conclusion

With the emphasis and speed-up in forming a ‘China-feature’ healthcare system, the importance of developing ‘China-specific’ solutions has been again raised. In order to strive with China's more standardized and regulated innovation landscape and the strengthened regulations, both foreign and local players are optimizing their pipeline and going lean, and adjust market engagement model and resource deployment, thus formulating the best market access strategy to stay competitive in the global market.

Moreover, ‘comprehensiveness’, ‘professionalism’, and ‘accuracy’ are the keys to survive under the new regulatory and compliance landscape in China LSHC market. As the strengthened data privacy and export related regulations updates starting to show impact in 2023 and onwards, companies will need to strengthen the compliance and resilience in managing external marketing activities and digital implications upon the improvement of compliance and data security related system, adopting local data technologies accelerated through Gen-AI technologies to shape many new processes and improve the efficiency.

Facing the economic uncertainties and the accelerated medical reform pace, the future investment will be slowed in 2024 with a shifting from fast expansion to secure existing resources instead. The potential to commercialize will become more important. Therefore, many LSHC companies in China are now reviewing all options and resources to seek for a better ‘China-fit’ development.

A total of 124 valid questionnaires were collected from industry executives and investors, among who nearly 70% are C-level. The majority of the company types are POE and WOFE (both accounted for 39% respectively), and the industry sectors mainly covered from pharma to medical devices (nearly 90% in total). Among all the companies surveyed, over half of them with revenues more than RMB 1 billion.

Note: [1] Large cos: company with 2023 revenue exceed RMB 1 billion; [2] SOE: State-owned Enterprise; [3] POE: Private-owned Enterprise; [4] WOFE: Wholly Owned Foreign Enterprise; [5] Life Science: Pharma & Medical Devices