Looking ahead to the "epidemic" : Five major issues that China's biopharmaceutical enterprises need to pay attention to

From a supply chain point of view, manufacturing and logistics networks were spared. Hubei, the epicenter of China's initial outbreak, does not have many biopharmaceutical factories. However, the impact of the outbreak on the supply chain remains to be seen, as both hospitals and distributors are likely to experience a severe cash flow crisis.

Clinical research and development has suffered a certain degree of impact, such as patients' clinical response monitoring is blocked, subject recruitment is delayed, but data analysis or registration approval is only delayed by a few months. Recently, the number of clinical trial registrations related to the epidemic has increased rapidly, and the number of clinical study subjects is insufficient.

Business executives in China are now focusing on the full recovery of their business in China, while also worrying about the spread of the virus in Europe and North America. As China joins the global clinical trial program, its regulatory progress may be affected by disruptions to overseas clinical trial centers. Given that some important countries along the value chain, such as India, are facing uncertainty, the risks at the supply chain end are also increasing. On top of that, the intense profitability pressure on multinational corporate headquarters could further limit their ability to invest in the Chinese market, at least in the short term.

To sum up, the market environment has changed dramatically in just a few months. The real question is: What does this mean for China's biopharmaceutical market in the medium term? Before the outbreak, the market was booming. Can this momentum continue in the future? If you dig deeper, the crisis raises five important questions.

How will the focus of the healthcare industry evolve? How will budget allocations be affected?

Looking back at SARS, many of the policies implemented by the Chinese government between 2004 and 2008 can be traced back to the epidemic. The scale of relevant policies under the COVID-19 epidemic is much larger than that during the SARS period. The central government has paid more attention to public health, disease prevention and the development of primary medical care. Local government leaders will also take healthcare as a major performance indicator and formulate reform plans to promote the transformation of local healthcare systems. Shanghai, for example, recently launched a plan to become one of the safest cities in the world for public health by 2025, providing support in infrastructure, operational efficiency, capacity building and other areas, and committed to building a public health emergency command information system and smart decision-making platform.

Looking at the big picture, which companies will benefit from this reform? The following three areas deserve attention:

First, we will build an epidemic prevention and community-level medical care system. This is a market development direction after the 2008 medical reform, and it is also a clear goal of the "Healthy China 2030" planning Outline. Due to various factors, the progress of the project is relatively slow. The urgent need to strengthen the construction of the primary health care system has been evident in the outbreak, further strengthening the determination of regulators to move in the direction of this system reform.

The second is to expand the scale of Internet hospitals. The pandemic has once again demonstrated the importance of Internet channels in building efficient healthcare systems. Considering the large number of enterprises with access qualifications in this field, coupled with the imbalance between supply and demand caused by the lack of existing traditional medical infrastructure, we expect the Internet hospital market to usher in rapid development.

Third, we will accelerate the development of individual health insurance (PHI). As the Chinese government expands funding sources to create more cutting-edge healthcare development programs, the role of commercial insurance institutions and channels will also increase, making up for the lack of funding and coverage in public spending. Technology companies such as Tencent Micro Insurance will play an important role in the large-scale design and adoption of new medical insurance products.

From a budget allocation perspective, we expect the healthcare budget to shrink in 2020. GDP growth is likely to be modest, if not negative. Due to business difficulties and the government's implementation of social security relief policies, the source of health insurance funding will be affected. In the short term, the government could, if necessary, shift its focus to more stringent cost control measures, such as accelerating the pace of implementation of the volume purchase policy (the second and third batches are already under way), or stepping up negotiations when it updates the National Medicare reimbursement drug List this year. Some of the policy programs launched before the pandemic may take a back seat to more pressing matters. We expect to see a rapid rebound in the Chinese economy starting in 2021, with healthcare as a share of GDP rising relative to its historical trajectory.