How big is the potential market for diabetes drugs in China? As big as the entire populations of Australia, Canada and Argentina — combined. And it’s growing.
That has drug manufacturers turning more attention to the world’s most populous country in hope of collecting massive new revenues in the coming decades.
Challenges — among them the recent slowdown in China’s once-booming economy, but also its sprawling geography and the specter of increased regulation — abound. But global drugmakers have invested heavily in China in hopes of raising awareness about the illness and then capitalizing when people seek treatment.
Inside a unit that makes insulin pens at an Eli Lilly factory in Fegersheim, France, in October 2015.
About half of China’s diabetics have been diagnosed, according to health experts. Only 15% of those diagnosed are receiving comprehensive treatment, said Jakob Riis, head of the China business at Novo Nordisk, the world’s largest insulin maker. Increased urbanization and more sedentary lifestyles are expected to produce more patients.
That, market watchers say, means the battle is on for millions of untreated Chinese diabetics and the millions more expected to follow. “The potential, looking at just the existing number of diabetics, is enormous,” said Riis.
More than 150 million expected to have diabetes by 2040
More than 100 million people have diabetes in China, more than any other country in the world, according to the International Diabetes Federation. (In the U.S., the number is closer to 30 million.)
The number of cases has increased rapidly in recent years and is expected to reach 151 million by 2040.
The number of patients with diabetes in China is expected to continue to grow.
More than 11% of Chinese adults suffered from the disease in 2013, according to a study by Chinese scientists published in the Journal of the American Medical Association, up from less than 1% in the 1980s and about twice the amount in 2000. By comparison, about 9% of adults in the U.S. are diabetic, up from around 6% in 2000, data from the U.S. Centers for Disease Control and Prevention show.
Almost 500 million more suffer from so-called “prediabetes” — a stage where blood sugar levels are high, but not high enough to trigger a diagnosis — indicating what the IDF calls “the enormity of diabetes as a public health problem in China.”
The rise comes as many Chinese are changing their diet and lifestyle amid improving living standards and a rush to live in cities. This, health experts say, has led to obesity and less physical activity — type II diabetes, the most common form, is commonly considered a lifestyle disease — for many.
High levels of pollution in major cities, which can contribute to diabetes by raising blood pressure and resistance to insulin, is also seen as a culprit, according to health experts.
‘The opportunity to take market share is gigantic’
These developments haven’t gone unnoticed by international drugmakers. Novo Nordisk NOVOB, -4.03% NVO, +1.53% Eli Lilly & Co. LLY, +4.09% Sanofi SAN, -1.76% SNY, +1.06% and Merck & Co. Inc. MRK, +2.25% have all made large investments in the country, setting up sales, marketing and production facilities to benefit from an expected jump in demand for insulin.
Estimates of the size of the Chinese market for diabetes treatments vary, but they are large. Franck Le Deu, head of McKinsey’s Greater China health care practice, estimated that the insulin market was valued at between $1.7 and $2 billion in 2015, while London-based market research firm Visiongain recently said total 2015 Chinese revenue from diabetes drugs is estimated to come in around $5.12 billion.
Diabetes-related deaths are a major issue in China, where between 40% and 60% of diabetics die before they turn 60.
They are further expected to rise about 10% a year to reach $8.7 billion in 2020, according to Visiongain, which expects a market of around $23 billion in 2025. That, experts say, means there is still time for substantial jockeying for position in a fast-growing marketplace.
“The opportunity to take market share is gigantic,” Le Deu from McKinsey said.
Novo Nordisk, the biggest insulin maker in China, got almost 10% of its $13.5 billion in 2014 sales from China. And Sanofi said almost 20% of its diabetes sales came from emerging markets in 2014, a large chunk of that coming from China.
Novo Nordisk expects Chinese sales growth to be flat to slightly positive for 2016 after coming in around 5% in 2015, CEO Lars Rebien Sørensen said in October.
That would represent a substantial slowdown from the 11% growth seen in 2014 and the 15% recorded in 2013. But the company remains committed to the market, he said, and is keeping its more than 2,000 sales representatives in the country.
Drugmakers urged to work harder to build presence in rural markets
With just half of China’s diabetes sufferers diagnosed — and fewer receiving correct or adequate treatment — the battle for the 50 million remaining patients has begun.
While many multinational drug makers have offices and staff in China’s largest cities, according to Le Deu, they are missing millions of potential patients in the rural areas. There, smaller Chinese companies are better positioned to promote products and build relationships with health professionals.
In response, he says, drug makers should use digital channels to develop harder-to-reach markets and create deeper partnerships with Chinese companies. “The companies need to extend their coverage,” said Le Deu.
Some companies are already doing that. Sanofi agreed in July to set up a joint venture with Zhejiang Hisun Pharmaceutical Co. Ltd. 600267, -4.50% to develop insulin and other diabetes-related treatments. Novo Nordisk and Eli Lilly also have close ties to government health care workers they are working to educate about diabetes.
The large and growing market has attracted more manufacturers, including domestic ones, which has meant pricing competition and pressure to cut costs. The recent slowdown in China’s economy has also tempered the short-term outlook.
A man and his child wear masks as they stroll along the Bund in Shanghai in 2013.
There is also long-term risk, according to Le Deu, particularly if Chinese authorities move to protect local companies by requiring that more packaging and product manufacturing is done in-country.
Most international insulin makers make their products closer to home. Novo Nordisk, for example, makes the active pharmaceutical ingredients of insulin in Denmark and then ships it off to be packaged and marketed in China.
Such a change might redraw the lines of profit and potential for the Chinese market, observers say. “It isn’t likely to happen right now, but medium to long-term it’s a possibility that can’t be ruled out,” said Le Deu.
While the opportunity for huge revenue growth is enticing for drug companies targeting China, profit margins can be thin when compared with the U.S. markets because the state regulates prices, giving manufactures less control.
Still, market watchers believe the opportunity is too good to ignore. “The pie is growing extremely fast,” said Le Deu. “Maybe they’ll get a smaller share, but from a bigger pie.”
‘We’re in China for the long term‘
Investors watching the insulin drug market shouldn’t build a case solely on Chinese potential, according to DNB Markets pharmaceuticals analyst Rune Majlund Dahl, as the U.S. remains the largest market by far.
Sales for the U.S. diabetes market were around $16.4 billion in 2012, and are forecast to rise to $38.8 billion in 2022, according to a study published in Pharmacy and Therapeutics in December 2014. This means the U.S. market is set to more than double over a decade, although the growth rate is still forecast to be well below China’s.
Meanwhile, most drug companies — with Novo Nordisk a notable exception — produce products targeting a range of illnesses, making it hard to bet solely on Chinese diabetes growth as a revenue and profit driver. Sanofi and Merck have large cancer-drug and vaccine businesses, while Eli Lilly is strong in neuroscience.
“You aren’t buying into a China story” in most cases, said Dahl, whose “buy” rating on Novo Nordisk is driven mainly by the company’s U.S. outlook. “You are buying into a pipeline story and a story that is primarily driven by the U.S. and other international operations.”
For drug companies operating in China, however, the story remains a key part of their vision for growth.
“We entered China [in 1993] because we saw huge potential,” said Andrew Hodge, president of Eli Lilly’s China business. “We’re in China for the long term.”
This entry passed through the Full-Text RSS service – if this is your content and you’re reading it on someone else’s site, please read the FAQ at fivefilters.org/content-only/faq.php#publishers.