Strategic Adaptation and Key Considerations of Pharmaceutical Enterprises in the Era of "Full-Chain Support for Innovation"

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Full-Chain Support for Innovation: Chinese Government Continues Its Supporting to the Biopharma Industries, and Implications to the Industry Companies

Published date: 21 February 2025

As one of the strategic pillars in China's economy, the biopharma industry experienced a rapid development in the last decade. In the post-pandemic era, facing factors such as economic slowdown and cooling capital markets, Chinese biopharma industry has under pressure in the past two to three years. In 2024, the central and local governments have strategically introduced the “Full-Chain Support for Innovation” initiative along with a series of complementary policies and measures, aiming to provide a comprehensive policy support farmwork for innovation across the entire industry value chain for biopharma industry.

Deloitte's "Full-Chain Support for Innovation: Chinese Government Continues Its Supporting to the Biopharma Industries, and Implications to the Industry Companies" comprehensively reviews and deeply analyses the Chinese government's “Full-Chain Support for Innovation” policies , summarizes our observations of the driving impact on innovation within both MNCs and local industry players by the relevant supporting policies, and provides our insights and recommendations from business model and tax perspectives for the consideration of the financial and tax executives in the industry.

Industry Policies: Full-Chain Support for Innovation

Built on top of the earlier incentives and policies, both central and local governments undertake further actions to increase the industry supporting effort by introducing a new initiative of “Full-Chain Support for Innovation” from 2024.

  • Central Governments: Emphasized the importance of policy coverage for the entire chain of innovative drug development, including basic science, financing, drug examination and approval process, health insurance, price management for pharma market etc, to provide innovative biopharma companies with necessary support for the major millstones of their new pipeline and product development.
  • Local Governments: major cities with biopharma industry agglomeration like Beijing, Tianjin, Shanghai, Suzhou and Guangzhou, officially promulgate their local full-chain support policies, including business environment improvement, talent attraction, financing supporting, global development, digital empowerment, innovation ability, clinical trial support, approval process acceleration and commercialization of innovation products.

The full-chain support policy is different from the previous rather fragmented policy system in respect of a comprehensive support to the whole value chain of the innovative drug development cycle, aiming to enhance the overall competitiveness of the industry, and increase the breadth and depth of innovation within the industry.

Company Strategies: Active Response with the New Policies

In the face of new external environmental changes, industry participants have already taken actions to leverage the full-chain supporting policies, whilst considering their overall business strategies and initiatives. Based on our observations, MNCs and local Chinese companies are taking respective approaches to explore the benefit from the full chain supporting policies.

Amid the stronger competition from local biopharma companies and the external price reduction pressure due to government initiatives such as volume-based procurement and insurance catalogue entry pricing negotiations, the MNCs are more actively adjusting their innovation strategies in China and striving for relevant government support:

  • Increase effort of introducing innovative product and therapy solutions to the Chinese market
  • Increase local R&D partnership and local self-R&D activities
  • Increase collaboration or acquisition of pipeline rights from local enterprises
  • Increase consideration on supply chain localization and mature products' carve-out

Chinese biopharma companies are also taking concrete actions to seize the full-chain support related benefit:

  • Proactively advocate and negotiate supporting benefits to fits their overall R&D strategy
  • Organize R&D activities to leverage local advantages in multiple locations within China
  • Increase cross-border 3rd party or cross border intercompany license-out deals to speed up the recovery of R&D costs and tap into commercialization in the overseas market

Value Creation: Through Business Model Transformation

As China’s market continues to transform, all market players will need to consider updated regulatory requirements, growth or risk management focused partnering or license-in (or out) pathways, or new effective and resilient supply chains, all of which impact operating models. For many global pharma’s operating China, all these strategic adjustments will have structural and tax consequences and impacts, including transactional costs, new effective optimized revenue and invoicing models, including the in-depth review transfer pricing strategies. Local Chinese biopharma companies are accelerating commercialization of proven research, monetizing their investments in a reduced economic time cycle, considering new IP strategies, taking advantage of specific geographies in China to organize efficiently R&D activities to achieve optimal tax efficiencies.

Although the Chinese biopharma industry is currently under pressure, its growth, upscaling and tremendous innovation potential will more than likely continue to rise. Global pharma market players are eagerly scouting and continuously searching for assets of best quality and business fit, as additional opportunities are also emerging from the in-depth implementation of the “full-chain support for innovation”. A global environment that will make the physical trade, of materials, goods or services between jurisdiction even more complex, the dynamics of industry regulations, government support, business strategies and tax model optimization will require a timely renewed business planning. As your trusted advisor, we are looking forward to engage you in your value creation business model transformation discussions.

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