Middle-small hospitals in city and county
Town hospital
Pharmacy/clinics
Increased price sensitivity
Changed medical insurance policy
Improved highway infrastructure Rich information access
TV Newspaper
Severe symptoms
Minor symptoms
City patients
Rural patients
Increased life pace
No time to visit hospital
Pharmaceutical market deregulation policy
• Final report (Aug. 03)
• Presentation to corporate management (Sept. 03)
BROAD MARKET CAN BE DEFINED AS CLASS 2 HOSPITALS AND BELOW AT REGIONAL CITY LEVEL AND ALL HEALTH CARE INSITITUTIONS AT COUNTY LEVEL AND BELOW Broad market
16 47 37
* 40% of the patients changed their mind in pharmacy Source: Interview; Focus group; McKinsey analysis
Perceived drug available but persuaded by pharmacy clerk
Broad market drugs
OTC Mature Targeting easily diagnosed, nonlife threatening diseases
Rx
New
Outpatient
In-hospital
Easy to use
Relatively cheap
Relatively safe with few side effect
More and more pharmacies & clinics Conveniently located
Middle-small hospitals find it hard to survive due to lack of patients
Source:Interview; McKinsey analysis
broad market
McKinsey Broad Market Study Process
• Project design (Q1, 2003)
• Project review with local and regional J-C team (Apr. 03)
• Survey market selection (Apr. 03)
Total
City
County
Town
Village
Source: Interview; focus group; McKinsey analysis
PATIENTS GO TO PHARMACY/CLINICS FOR MINOR SYMPTOMS
Drivers
Largest hospitals in city and county
100%= 21
1%
6
7
2
12 15
Mn RMB
City County
15 28 24
Broad market represents 94% of demand
36
39
31
38
Town
19 16 24
26 47
24
Village
19 19 18
33 15 2 12
Class 3 hospital
All 4 cities
3-5 20-30 10-15 1 0
95-97
Self-pay
70-80
85-90
99
100
For those with insurance, they can use their personal accounts (~RMB 100~300 per year) to cover their broad market drug expense In loosely controlled region (like Yantai), patients can treat the personal accounts as savings account Patients pay on their own after the account balance is zero A majority of population does not have insurance They pay broad market drugs by themselves
G.I. Category Review
FOR GI DISFUNCTION DRUGS AS A WHOLE THERE IS SIGNIFICANT LATENT DEMAND; PEOPLE GENERALLY SEEK TREATMENT IN CLINICS AND PHARMACIES Motilium’s
A LARGE PROPORTION OF DRUG SALES COMES FROM RETAIL PHARMACIES; PHARMACY CLERKS BECOME INFLUENTIAL
Total drug sales breakdown Percent
Pharmacy 37%
42 52
33
Hospital
30 32 45 31 16
Overall Motilium Gyno Daktarin
35
Clinics
32
“What makes you change your perceived drugs?”* – Pharmacy patient survey Percent, Shandong city level
DUE TO LOW INSURANCE COVERAGE AND RECENT REIMBURSEMENT POLICIY CHANGES, MOST PATIENTS PAY BROAD MARKET DRUGS BY THEMSELVES
Insurance coverage in Yantai & Jining Insured
Class 2 & below hos Regional city
Pharmacy
Clinic
County
Town
Village
Source: McKinsey analysis
BROAD MARKET DRUGS INCLUDE OTC AND “OUT PATIENT” Rx DRUGS
CLINICS ARE PLAYING IMPORTANT ROLE ESPECIALLY AT COUNTY AND TOWN AND BELOW
Clinics’ share in total drug sales Percent
Sichuan
Overall 36%
Shandong
27%
City
Examples
Motilium
Gyno-Daktarin
Sporanox / Sibelium
Cipramil
Source: McKinsey analysis
McKinsey Key Findings Overall Market Situation
BROAD MARKET REPRESENTS 94% OF OVERALL DEMAND FOR Broad market BROAD MARKET DRUGS
• Field work in 2 cities in Shandong (May 03)
• 1st interim report (mid-June 03) • Field work in 2 cities in Sichuan (mid-June – mid-July 03)
• 2nd interim report and Killer Idea workshop (end July 03)
Sibelium Perceived drug not available; persuaded by pharmacy clerk
Changed mind by myself
XJP should design special initiatives to target pharmacy channels
13
“When I go to the pharmacy without a drug in mind, I just ask the pharmacy clerk to recommend. Then I will check the drug’s introduction sheet, if this drug covers my disease, I will have a try” – Yibin city level focus group
McKinsey was commissioned in Q1, 2003 to:
• provide dedicated effort in conducting in-depth market survey and collect detailed information from 4 cities within 2 provinces to identify the key growth drivers in China’s broad market; • 4 product categories were included: G.I. (Motilium), OBGY (Gyno.), Nail Infection (Sporanox) & Vertigo (Sibelium) • provide objective assessment about the broad market opportunity (not including any urban centres); • provide business model / proposal for XJP to capture the