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 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) 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) 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 DRUGS INCLUDE OTC AND “OUT PATIENT”Rx DRUGS McKinsey Key FindingsOverall Market Situation BROAD MARKET REPRESENTS 94% OF OVERALL DEMAND FOR BROAD MARKET DRUGS Class 3 hospital DUE TO LOW INSURANCE COVERAGE AND RECENT REIMBURSEMENT POLICIY CHANGES, MOST PATIENTS PAY BROAD MARKET DRUGS BY THEMSELVES Insurance coverage in Yantai & Jining PATIENTS GO TO PHARMACY/CLINICS FOR MINOR SYMPTOMS A LARGE PROPORTION OF DRUG SALES COMES FROM RETAIL PHARMACIES; PHARMACY CLERKS BECOME INFLUENTIAL CLINICS ARE PLAYING IMPORTANT ROLE ESPECIALLY AT COUNTY AND TOWN AND BELOW G.I. Category Review FOR GI DISFUNCTION DRUGS AS A WHOLE THERE IS SIGNIFICANT LATENT DEMAND; PEOPLE GENERALLY SEEK TREATMENT IN CLINICS AND PHARMACIES FOR GI DRUGS, POLARIZATION IS BECOMING MORE OBVIOUS SALES OF GI DRUGS ARE MORE CONCENTRATED TOWARDS VILLAGE AND COUNTY, WHILE THE MARKET IS FRAGMENTED WITH MANY DIFFERENT DRUGS IN BROAD MARKET, MOTILIUM IS LOSING OUT BIG TIME IN RETAIL PHARMACY CHANNEL ……AND IN COUNTY GEOGRAPHY Vaginal Infection Category Review FOR VAGINAL INFECTIONS, PATIENTS ARE MORE AWARE OF THE DISEASE AND GO TO HOSPITAL FOR TREATMENT FOR GYNO DAKTARIN, HOSPITAL IS CRITICAL FOR PRESCRIPTION BUT PURCHASING HAS BEEN GRADUALLY SHIFTING TO RETAIL PHARMACY IN ADDITION, GYNO DAKTARIN NEEDS TO GROW THE MARKET SHARE ESPECIALLY THOSE OF COUNTY AND TOWN Nail Fungal Infection Category Review FOR TINEA UNQUIUM DRUGS, DEMAND LATENCY IS EVEN HIGHER HOSPITAL CHANNEL IS STILL DOMINATING TINEA UNQUIUM DRUG MARKET WHILE PHARMACY CHANNEL IS PICKING UP THERE ARE ONLY A FEW COMPETITORS AT CITY AND COUNTY LEVEL FOR SPORANOX; LIANGJIA IS DOING BETTER THAN SPORANOX AT RETAIL PHARMACIES DUE TO HEAVY ADVERTISING THERE ARE ONLY A FEW COMPETITORS AT CITY AND COUNTY LEVEL FOR SPORANOX; LIANGJIA IS DOING BETTER THAN SPORANOX AT RETAIL PHARMACIES DUE TO HEAVY ADVERTISING PRICE IS A HUGE ISSUE FOR SPORANOX FOR SPORANOX, XJP SHOULD CONTINUE TO FOCUS ON HOSPITALS ……AND AT CITY AND RICH COUNTIES Vertigo Drug Category Review THERE IS UNTAPPED DEMAND IN TWO OF THE THREE PRODUCT-RELATED TAs BY GEOGRAPHY, COUNTY LEVEL AND ABOVE CONSUME A DOMINANT SHARE OF SIBELIUM McKinsey Broad Market Proposal WE NEED TO SOLVE THREE CRITICAL ISSUES TO ACHIEVE OUR ASPIRATION FOR BROAD MARKET XJP NEEDS TO INVEST TO CAPTURE THE GREAT POTENTIAL IN BROAD MARKET DURING OUR KILLER IDEA WORKSHOP, WE DEVELOPED FOUR SETS OF HYPOTHESIS TO BE TESTED IN PILOT Comments on the McKinsey Proposed Initiatives Hospital Seeding Besides testing the idea to conduct professional detailing to the county hospitals, we also want to provide coverage among the smaller hospitals (Tier I & II ) in the urban cities to compare the www.book118.com.s Pharmacy Plus We have seen competitors (like SiDaShu) sales growth via aggressive coverage and promotion among the drugstores in the richer countis. So, this is definitely worth testing. Comments on the McKinsey Proposed Initiatives Distributor Drive We have expanded our distribution network to include almost 1,000 sub-distributors in the last 3 years. We will try to test the sales impact if we invest more program and resources among them. Turbo CME We have started CME program among county hospital doctors. It would be interested to find out the sales contribution if we conduct the program among the barefoot doctors. XJP COULD ADOPT A THREE-PHASED ACTION PLAN TO ESTABLISH AND MAINTAIN DOMINANT POSITION IN BROAD MARKET REVENUE FORECAST OF NATIONAL ROLL-OUT Eye Opening Key Learnings Development of G.P. clinics Lack of sensitivity of reimbursement in the broad market due to new M.I. System Speed of retail drugstore development and influence in patient product choice Prescription spill over to the retail outlets Our Conclusions The potential of the broad market is once again confirmed by the McKinsey study The fast development of drugstores and the polarization of hospitals sales are aligned with our understanding Agree with McKinsey’s finding regarding our share loss in the broad market (especially among county level drugstores) to local competitors and generic products Testing the different proposal initiatives with dedicated resources and monitoring effort will enable us to focus on the key business drivers for future broad market expansion Our Proposed Action Steps Seek management approval for the broad market pilot test in 2004 Assume approval is obtained before Nov. 1, Select internal candidate to be project leader Form the project task force with marketing, sales and market research members Recruit and train the broad market team Kick off the plan by Feb. 1 after CNY Our Proposed Pilot Test Our Proposed Pilot Test Schedule Management Approval		Nov. 1, 03 Recruitment 				Nov. –Dec., 03 Training					Jan., 04 Pre-test survey				Jan., 04 Pilot Test begins				Feb., 04 1st Assessment (with 3 months data)	June, 04 2nd Assessment (with 6 months data)	Sept., 04 National Roll-out Proposal		Mid-Sept., 04 Management Approval 		Nov. 1, 04 Required FTEs Required Funding Products to be supported by the Broad Market Test Initiatives Main Focus (in order of priority) Motilium Gyno-Daktarin Sibelium Tag-Ons Pevisone Daktarin Potential Pilot Test Sales & Opex Impact How to measure? Pre and Post survey to measure the change Monthly survey to monitor the change in customers attitude and sales off take Monthly report from sales reps. / supervisors / project leader for qualitative feedback Senior consumer research manager will be responsible for the tracking study Investment Returns People development Organization Financial and org. implication Prioritize market opportunities Sub-market within a region Around 80 regional cities 332 regional cities (whole China) Build a solid platform XJP broad market team “Capturing broad market”“Turbo CME”for clinic/ barefoot doctors and township pharmacies “Pharmacy Plus”for large pharmacy chains “Hospital Seeding”for large county hospitals “Distributor network to county level”Broad market: 94% of overall demand County and below: 74% of overall demand Broad market drug sales breakdown by geography Percent, all 4 cities Village County Other channels at city level Town Class 3 hospitals High potential broad market Opportunity vs. XJP coverage gap New initiatives Nearly no coverage of barefoot doctors Barefoot doctors represent 45% of GI drug sales and 33% of Vertigo drug sales XJP has almost no coverage on them Adapt CME focus to barefoot doctors Nearly no coverage of pharmacies Pharmacy represents 37% of demand Pharmacy in county and below represents 23% of demand In developed cities, pharmacy chains are playing dominant role XJP now only covers city level pharmacies in several large cities Control large pharmacy chains at county level Insufficient coverage of county hospitals County hospitals represents 16% of demand Largest county hospitals can heavily influence consumption of Gyno Daktarin XJP only cover 23% of Tier II and 12% of Tier I hospitals Detail to county hospitals Low utilization of distributors’push Distributors’have influence on clinic and pharmacies XJP has not utilized distributors’