Epidemic Response to COVID-19

in Pharmaceutical and Healthcare

Industries Series Issue 2
Impact of COVID-19 on the health industry and how certain
sectors will cope and use it as an impetus for change

The outbreak of Coronavirus Disease 2019 (COVID-19) has caused enormous challenges to China’s economy
and people’s lives. With the epidemic on the rise, society has paid more attention to the healthcare and
pharmaceutical industries, which will impose both positive and negative consequences across different sub-
sectors. In the short term, there will be a variety of impacts on pharma companies, healthcare institutions,
pharmaceutical distribution and retail, and health insurance (Fig.1).
In the medium to long-term, the impact on the healthcare and pharmaceutical industries are relatively positive:
• Societal awareness for disease control, prevention and healthcare will be enhanced;
• The Government will drive the development of hierarchical medical systems, strengthening the
competence of community medical institutions;
• The value of development and commercialization of medicine, vaccines and medical devices by the
capital markets will be enhanced;
• Digitalization of the industry such as internet hospitals will speed up;
• The demand for private health insurance will increase, currently dominated by state social benefits
Focusing firstly just on the pharmaceutical industry, this public health emergency may push the process of
medical reform of the “tripartite” of healthcare, medical insurance and medicine, where players in the industry
will face new challenges and opportunities. Framing these impacts against the pharmaceutical industry value
chain together with our experience, PwC has identified three significant trends and has proposed the strategic
problems which enterprise leadership should focus.
Fig.1 Impact analysis of COVID-19 on different sectors of pharmaceutical industries

Positive Impacts Negative Impacts

• Sales decrease for Chronic disease

• Growing demand for drugs for
coronavirus prevention and treatment
• More attention for vaccine development
drugs in hospitals
• Limitations on academic promotions for
innovative drugs and those newly
Pharma Companies admitted to the NRDL
• Obstruction of recruitment for Clinical
research might affect new drug launch

• Fast development of Internet of Medical

Things
• Acceleration of hierarchical medical
• Patients seeking non-emergency or
systems leveraging community medical
elective treatments decrease due to the
institutions
coronavirus
• Third-party Medical Image and Testing Medical Institutions
Centers to alleviate resource shortage in
medical institutions

• Traffic interruption affects daily operations

• Favorable for Online Pharmacies for pharma distribution and retail
• Convenient apps to search or deliver companies
drugs with significantly increasing users Pharmaceutical • Consumers in offline pharmacies
Distribution and Retail decrease to avoid cross-infection

• Public’s growing demand for commercial

health insurance
Health Insurance

Trend One: With the drive of Government policy and
advantaged resources, China drug innovation will
become more globalized
2015 was a milestone year in which the State Council issued
“Opinions on the Reform of Review and Approval Process for
Drugs and Medical Devices” (No. 44), which marked the
launch of a comprehensive reform plan for drug innovation.
Another milestone was China joining the International
Conference on Harmonization (ICH), setting the foundation to
accept clinical trial data from abroad, which opened the China
market further to innovative companies. At that point, China
innovation officially entered the global game and now
competes with top innovators across the globe.
Meanwhile multiple superior resource advantages have
provided the necessary conditions for the development of
China drug innovation. First of all, as a country with a large
population, the patient pool is enormous. For example, China
has more than 25% of the global patients with lung cancer or
esophageal cancer. Pharmaceutical companies can recruit
patients much faster and at a lower cost, expediting new drug
launches. Furthermore, talent resources for scientific
research keeps growing and more papers are published in
high quality life science journals, signaling that China has
stepped up into the world’s top ranks. Finally, national major
special funds and the Sci-Tech Innovation (“STAR”) Board
have provided capital backing and financial support for drug
innovation.
Facing the COVID-19 emergency, government regulators,
universities and colleges, and pharmaceutical and device
manufacturers have responded and adjusted quickly:
decoding genomic sequencing, developing and
manufacturing nucleic acid diagnosis kits, and urgently
screening potential drugs and conducting clinical research,
publishing policies and technical guidance on clinical trials
and medical device reviews. All of these demonstrated
encouraging progress for comprehensive and collaborative
innovation in medicine, especially when compared to the
SARS outbreak in 2003.
Hence PwC suggests that pharmaceutical companies
develop a mindset of “In China, For China and In China, For
Global” in R&D.

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First, pharmaceutical companies should develop their Trend Two: Supply-side structural reform is
R&D strategy and product portfolio targeting the China strengthening in China’s pharmaceutical industry;
market. There is realization that there are specific diseases in production cycles are more focused and logistics
China worthy of attention considering the large population networks and distribution efficiency are expected to lift
here. For example, there are rare types of liver disease that enormously
have an enormous population of patients in China. Besides
With medical reform, the concentration of pharmaceutical
molecular innovation, there is a promising future for
companies has increased: BE evaluations and Volume Based
innovation of preparations and drug administration
Procurement will eliminate many companies that are weak in
considering patients’ habits of drug usage and physicians’
drug quality management and cost control. The New Drug
clinical experience. For example, children and elderly patients
Administration Law will increase compliance requirements for
who have difficulty in swallowing would prefer granules and
quality control and product tracing. Meanwhile, with China’s
suspensions rather than tablets for oral anti-infection agents.
environment protection policy tightening, many API or
Multinational pharmaceutical companies would benefit by
intermediate manufacturing companies may not be able to
paying more attention to specific R&D and launch plans for
cope. The industry has really moved toward companies with
the China market. Local pharmaceutical companies should
“high quality, low cost, and steady supply”, which will further
iterate and adjust their development strategies and leverage
push the consolidation of API and formulation manufacturers.
available capital to transform from generic and me-too drugs
to innovative molecules, preparations and drug In the course of COVID-19, the Chinese production of API
administration. not only impacts the local market, but it could cause supply
chain disruption all over the world. According to reports by the
Second, pharmaceutical companies should enhance the
Times of India on Feb 18, more that 60% of API for the
capabilities of their R&D management. Local Chinese
Pharma manufacturers in India rely on importation from
pharmaceutical companies have been setting up research
China. Since some of the API manufacturers in China could
centers overseas. CRO and CDMO are also rapidly
not return to work due to COVID-19, some Indian companies
developing. Multilateral coordination will increase R&D
for generic drugs were exposed to production disruption risk,
efficiency, but this also makes overall management more
which then further impacted their exportation to the European
complicated, could drive costs, and may expose risks in
and American markets.
patent protection and intellectual property. The key is
improving efficiency by properly responding to the new
research and development model involving multilateral
coordination. Pharmaceutical companies should improve
capabilities in four key areas, 1) individual project operation,
2) budget planning, 3) management of R&D personnel and 4)
overall pipeline planning by clarifying internal and external
cooperation, optimizing procedures, conducting follow-up
from planning to deliverables, building databases for
transparency and introducing enhanced risk management
procedures and governance. These capabilities will improve
the output of R&D and companies will benefit.
Finally, pharmaceutical companies should re-evaluate the
positioning of China for global drug innovation. For many
top pharmaceutical companies, the China reforms have
released the strength of local innovation, and capital has
backed with strong support. The role of the China market has
significantly shifted over time from a country with great sales
potential, to a low cost manufacturing and supply base, to a
country well-placed for global innovation. Leadership teams
need to deep-dive into the role of China research centers and
the unique value it provides to their global research network.
In addition, we have observed more and more multinational
and local pharmaceutical companies adopting a strategy of
“Industry + Investment”. Their business development teams
work to establish or participate in investment funds, support
start-ups or build open innovation platforms. The difficulties
that most leadership teams reflect on include balancing an
endogenous and extensional strategy with relevant KPIs,
identifying talent for the team, and avoiding the potential
contradictions between external innovation parties and their
own internal R&D team.

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We suggest that pharmaceutical companies utilize the
current COVID-19 situation as a “pressure test” to
improve the capability of their supply chain management.
For procurement, pharma companies should strengthen their
control of key upstream resources. Many pharmaceutical
companies can take advantage of willing capital to lock
supply for core materials via business acquisition. Companies
need to examine their supply network with a global outlook,
and try to hedge the impact of any future “black swans” by
applying the principles of multi-point supply.
Fig.2 Models to evaluate capabilities of production management for pharmaceutical companies
• Optimize time-length of production
process, accelerate cycles of
bottleneck production
• Optimize production line structure and
operation conditions
• Optimize production process
Assessment
Dimension
• Streamline training plan and increase
training quality.
• Clarify roles and responsibilities, cut
down unnecessary communication cost
• Reduce production materials turn-around time
• Reduce non value-added activities
• Reduce procedures in operation process
In the end, we suggest pharmaceutical companies and
their distributors investigate logistics distribution. During
the outbreak, Governments, enterprises and public have paid
special attention to Jointown Pharmaceutical Group’s
distribution network, SF Express’s drone delivery and
JD.Com’s digital supply chain management services. With the
advance of medical reform, innovative medicines need to
reach their sales peak as soon as possible. Established
medicines need to reach broader and deeper markets, from
public hospitals to retail, private hospitals, and online
pharmacies, etc. Besides commercial strategy, product
characteristics could also affect the delivery network:
requirements for storage and delivery of biological products
are very strict, flu products have seasonal sales peaks,
inventory cost and sales loss caused by stockouts need to be
balanced for antineoplastic and orphan drugs. More and more
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Pharmaceutical companies should invest more in
manufacturing management and quality control. Taking
bio-macromolecular drugs as an example, manufacturing cost
and quality control are the core competencies. Not only
specialists but also experienced generalists are needed for
product and process development, process optimization, and
operations management. For chemical drugs, a reliable,
efficient production management team with the capability to
drive and sustain improvement is needed when facing
consistency evaluations, inspections and downward pressure
on price. Evaluating capabilities of production management
(Fig.2) and developing plans and executing against these are
major issues for companies to survive.
• Strengthen the validity of quality control
• Set-up automatic controlling system
(online confirmation and feedback)
• Evaluate opportunities to control
material cost
• Optimization plant layout and stock
plan
• Decrease transportation cost
pharmaceutical companies have built Regional Distribution
Centers for broader market coverage and more flexible stock
allocation. Pharmaceutical retail groups are also building
“cloud warehouses”, to combine sales orders from offline and
online pharmacies, sort and package in the center, and deliver
to the patients’ home or inpatient hospital department. The
model could decrease the operating cost for DTP special
medicines and optimize the stock level for high-value drugs.
Extra capital and other budgets need to be set aside for these
new initiatives, which will widen the gap between leading
companies and disadvantaged players, thus drug production
and distribution will be of focus.
Trend three: Cross-functional cooperation to face the dominated by payers (Fig. 3). This has driven organizations
challenges of market access; digitization to lead to be more agile, and to increase their capability for market
companies’ transformation access. For example, during pricing negotiations, leadership
teams need to determine the magnitude of sales value and
In recent years in China, the medical insurance reform of
volume changes in very limited time. Information sharing,
the “tripartite system reform” changed marketing models.
data lakes and collaborative decision-making across
Price negotiation for innovative medicines, centralized
strategy, marketing, sales, finance, government affairs,
procurement for off patent and generic drugs, negotiation for
bidding and tendering are very important. If each function
placement onto the national reimbursement drug list
still develops a “silo” operational plan or adheres to out of
(NRDL), provincial tendering and hospital drug listing have
date procedures, pharmaceutical companies won’t be able
all increased the importance of market access.
to react quickly enough to survive in this new highly
Pharmaceutical companies in China need to realize the era
competitive market.
of the classic commercial model relying on medical
representatives has ended and China has entered a market

Fig.3 Different stakeholders’ decision-making power on prescriptions and drug prices directly affects
marketing models

Relative influence and decision-making power of key stakeholders

1. “Classic Model” 2. “Transitional Model ” 3. “New Model”

Payer

Physicians Medical institutions etc.

Physician Centered Multiple stakeholders Payer/Buyer Domination

• Physicians are key decision
makers
• Government regulators don’t make
decisions on procurement or
prescription directly
• Prescription right for physician is
limited
• New stakeholders to have more
impact on treatment plan and drug
price
• Prescription options for Physicians
are limited
• Payers have decisive role on
clinical use of drugs, market
access and drug price
• Pharmaceutical companies sign
contract with payers

Marketing Mode Marketing Mode Marketing Mode

Hospital Hospital Hospital

Representative Representative Representative

Hospital Key Hospital Key Hospital Key

Account Manager Account Manager Account Manager

Retail pharmacy Retail pharmacy Retail pharmacy

Representative Representative Representative

Payer Payer Payer

Negotiator Negotiator Negotiator

Others (Online Others (Online Others (Online

representative etc.) representative etc.) representative etc.)

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To avoid COVID-19 cross-infection caused by crowd
gathering, many patients have had to cancel or delay
previously planned visits to the hospital. Instead, internet
hospitals gained popularity, and Apps allowing search for
drugs and drug delivery services arose. The National Health
Commission published two documents to support internet
medical care. The Beijing and Shanghai Healthcare Security
Administrations have announced policies to include internet
medical care into the social security reimbursement system.
Academic promotional activities for the most part ceased in
many districts. Leveraging the mature technology of
electronic social security cards, Chinese patients may
experience a new care model of “online diagnosis at home,
online drug purchase, online payment by medical insurance”.
The model provides a new window of care for chronic and
common diseases, and potential touch-free digitized epidemic
disease control.
We suggest in this rapidly changing market, pharmaceutical
companies should build an agile organization ready to adapt
to rapid and uncertain changes.
First, pharmaceutical companies need to develop a
market access strategy based on the characteristics of
the portfolio and build the key capability for cross-
functional cooperation. Generally speaking, the focus for
innovative medicines that are not on the NRDL, should be up
for national price negotiation. For those that have been
adopted by NRDL, the focus should be on quantity and the
key is access to hospitals. After the patent cliff, off patent and
generic drugs will compete in centralized procurement.
Besides lifecycle considerations, competency in a target area
and product sales strategy are also important factors when
developing market access strategy. Pharmaceutical
companies should not simply re-design their organization
structure by benchmarking, as a market-back approach
needs should be the basis for organizational changes. While
conducting organizational optimization, key scenarios in
market access should be referenced to design and practice
how to effectively operate cross-functionally.
Second, pharmaceutical companies should explore
digital transformation for marketing. When the leadership
team is considering the value of digital transformation
proposals, they could assess whether or not digital solutions
can achieve three goals (Fig.4)

Fig. 4 Three strategic goals for digital transformation for pharmaceutical and medical device companies

Develop unique, differentiating Optimize key stakeholders’ Increase operation efficiency by

competency for the products experience cross-function information sharing
(including patients and strategic coordination
and physicians)

• Chronic disease management • Patients referral based on • Supply chain management

outside hospital electronic medical record • Equipment utilization and
• Diagnostic Devices with digital • Prescription supported by spare parts management
solutions electric medical insurance
• Customized patient education card
and product/service • Internet hospital and
recommendation prescription e-commerce

The setting of strategic goals should be based on product and evaluate any data or IT system investment. (Please see
characteristics. For example, in patient-centered innovative PwC Series One article about the Epidemic Response by the
business models, pharmaceutical companies should evaluate Pharmaceutical and Healthcare Industries.
unmet needs from the perspective of patients’ knowledge of
The COVID-19 will pass, but medical reform will continue.
the drug, prescription accessibility, affordability, and
Facing fast-changing policies and market demands,
medication compliance. It’s not difficult to imagine the clinical
pharmaceutical companies need to drive product innovation
needs from innovative and generic drugs, or those for chronic
across a number of dimensions. Facing this current adversity,
disease, cancer, and epidemic diseases. A good digital
companies need to push for better access and patient-
innovation plan relies on in-depth understanding of unmet
centered care through digitization, which will require
patient needs.
organizational transformation while making drug quality
Besides strategic planning, the leadership team also needs priority number one.
steadfast execution of the plan. They need to develop clear
KPIs, design and carry-out pilot programs, provide
organization and talent, review and optimize key processes

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Contact us

Mark Gilbraith
PwC China Pharma & Healthcare Industry Lead Partner
+86 (21) 23232898
mark.gilbraith@cn.pwc.com

Dr.Jia Xu
PwC China Pharma & Healthcare Consulting Lead Partner
+86 (10) 65337734
jia.x.xu@cn.pwc.com

Jingyu Cai
PwC China Pharma & Healthcare Consulting Partner
+86 (21) 23233005
jingyu.cai@cn.pwc.com

Shenyi, PwC China Pharma & Healthcare consulting manager, Xiao Hu, senior consultant, Yifei Lv and Yuren Gao, consultant, also contributed
to this article

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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