China Healthcare:Monthly hospital Rx tracker,February 2017

Distinctive growth profiles in 2M17

    Hospital Rx data indicate 2.8% YoY growth in 2M17, compared with 1.7% YoYgrowth in the same period last year and 7.3% for 2016. We attribute this tofaster-than-expected growth deceleration of China-specific drugs, which wedefine as chemicals that are only sold in China but not ex-China. Notably, alltop 10China-specific drugs except NBP saw a growth decline during thisperiod. In contrast, all top three oncology drugs from Roche, Rituxan,Herceptin and Avastin saw growth acceleration in 2M17vs. 2016, due to morePRDL inclusions. We expect this trend to continue.

    Implications for high frequency data: upside for NRDL/PRDL inclusion

    The divergence of growth of different drugs is primarily driven by competitionand reimbursement. As we detailed in our FITT report Biological drugs andmAbs in China, all three aforementioned oncology drugs enjoyed benefits fromPRDL inclusion. With 32%, 35% and 33% YoY growth in 2M17, vs. 21%, 24%and 22% YoY growth in 2016for Rituxan, Herceptin and Avastin respectively,the trend continues. As such, we continue to believe that the streetexpectation for growth acceleration of drugs newly added to the NRDL mightbe conservative. For example, we believe the street expected 27% growth forYisaipu in 2018. We anticipate growth might achieve the high end of therange, or even exceed.