麦肯锡-麦肯锡－PHA981023-sectorplan

CONFIDENTIALThisreportissolelyfortheuseofclientpersonnel.Nopartofitmaybecirculated,quoted,orreproducedfordistributionoutsidetheclientorganizationwithoutpriorwrittenapprovalfromMcKinsey&Company.ThismaterialwasusedbyMcKinsey&Companyduringanoralpresentation;itisnotacompleterecordofthediscussion.SectorPlanOctober,1998BuildingOurPharmaceuticalPracticeinPRCPRCClienteleDevelopmentSUMMARYAspirationTargetclienteleExternalreputationbuildingKnowledgebuildingPeopleAppendix-Industryandplayersoverview1PRCPHARMACEUTICALPRACTICEASPIRATION1999actionplanTobecomerecognizedastheprimarycounselorforaggressivepharmaceuticalMNCstosucceedindealingwithChinaspecificissuesandforlocalenterprisestofaceupchallengesinanopeningmarket,basedonunparalleledreputationfordeliveringtangibleresultsandtransferringindustryexpertise.2SUMMARYAspirationTargetclienteleExternalreputationbuildingKnowledgebuildingPeopleAppendix-Industryandplayersoverview3GCOPHARMACEUTICALCLIENTSChemicaldrugTCMLocalMNCRecent24monthsPastRecent24monthsYuayi-ShanghaiPharmaceuticalsJ&J(3)PfizerNovartis(2)BaxterInternationalBoehringerIngelheimJ&J(7)SmithKlineBeechamNovartisYuayi-ShanghaiTraditionalChineseDrugGuangzhouPharma(2)()Numberofprojects4TongrentangWuhanHongtaoKGroupShanghaiPharmaGuangdongApolloSichuanTaijiJiangsuYangzijiangShenzhenTaitaiTonghuaDongbaoZhengdaQingchubaoGuilinSanjinGuangzhouPharmaJanssenSmithKlineBeechem*SquibbGlaxoPfizer*AstraRocheNovartisBayerEllyLillyMerkSalesin1997,US$million20015610063544236NCPCNanfang999ShandongXinhuaGuangzhouBaiyunshanShandongLukangHaerbinPharmaNortheastChinaPharmaShijiazhuangPharmaChemicaldrugsTCMLocalMNCTARGETCLIENTELERANKEDBYSALES5ClientShanghaiPharmaGuangzhouPharmaNCPCNanfang999More……..ProgressTalkingabout3rdphase??2ndphaseinprogress,talkingaboutthe3rd??SalesforceeffectivenessworkshopsuccessfullyconductedSeveralroundsofdiscussionwiththetopmanagementReadyfordiscussionofLOPDanielAdamecispreparingadiscussionpackonUSmarketstrategyReadyforfirstdiscussionCLIENTELEDEVELOPMENT/RELATIONSHIPCONTINUENCYINPROGRESS * FootnoteSource: Sources6TargetclienteleNCPC(Shijiazhuang,Hebei)ShandongXinhua(Jinan,Shandong)GuangzhouBaiyunshan(Guangzhou)Revenue1997304815761379Ownership

SOE,NCPCLtd.listedSOE,listedinSHandHKListedinSHCAGR92-9637%29%8%Comments#1amonglocalAsia’slargestantibioticsproducersignificantexpansionsincemid1980’sHighaspirationoffurthergrowthDominatingtheanalgesics&antipyreticsmarketwith20-30%marketshare.Losingmoneyin1997,duetointernalmanagementproblemandimproperbusinessdiversificationRecoveringin1998,with44%salesgrowthDeterminedtofocusonantibiotics,physicianmedicineandrealestateManagementreadinessTARGETPHARMACEUTICALCLIENTELES-CHEMICALDRUGS(1) * FootnoteSource: SourcesRMBmillionLowHigh7TargetclientShandongLukang(Jinan,Shandong)HaerbinPharma(Haerbin)DongbeiPharmaRevenue1997939935877Owner-ship

ListedinSHListedinSHListedinSHCommentsManagementreadinessTARGETPHARMACEUTICALCLIENTELES-CHEMICALDRUGS(2) * FootnoteSource: SourcesRMBmillionAntibioticsscalenexttoNCPCandHaerbinR&Dandqualityadvantage30%shareinantibioticsmarketSalesin1sthalf1998fellduetoenvironmentproblemsandpoweraccident.Conglomerationofproduction,tradecompaniesand48chain-stores.Diversifiedproductportfoliocoveringantibiotics,TCMandbioproducts.Consistentchannelmanagementamongtradingsubsidiariesascurrentmanagementfocus.Oneofthe“BigFourFamilies”togetherwithNCPC,TaiyuanPharma(mergedwithNCPC)andShandongXinhua.VCandantibioticsproducerIntegrationofresearch,productionandsales&marketingascurrentmanagementfocus.CAGR92-9631%18%13%8Conglomerationof4pharmacompaniesmergedin1997ProducingVC,antibiotics,enzymeandbioproducts.Changingmindsetfromfocusingonhospitalstoendusers.Withaggressiveplantoexpandsalesforce,establishmoresalesofficesandinvestheavilyinmarketingandadvertisement.VerysuccessfulconglomerationdevelopedrapidlyviaM&AwithformermilitarysupportBusinesscoveringrealestate,beverage,agricultureandfinance.,TargetclientShijiazhuangPharmaGroupNanfang999Revenue19977002054Ownership

SOE,withawindowcompany(ChinaPharmaEnterprisesInvestmentCo.)listedinHKListedSOECAGR93-97?????13%CommentsManagementreadinessTARGETPHARMACEUTICALCLIENTELES-CHEMICALDRUGS(3) * FootnoteSource: SourcesRMBmillion9TargetclientTongrentang(Beijing)WuhanHongtaoKGroup(Wuhan,Hubei)GuangdongApolloRevenue199615901260(1997)419OwnershipListedSOE

PrivateListedCAGR92-9679%??-20%CommentsManagementreadinessTARGETPHARMACEUTICALCLIENTELES-TCM(1) * FootnoteSource: SourcesRMBmillionPowerfulbrandinChina.Highlyintegratedresearch,production,retailing(andevendiagnosis).SuccessfuldiversifiedproductportforliorecognizedastraditionalChinesetherapiesandtonics.OneofthemostsuccessfulprivateenterprisesinChinaVeryrapidgrowthsinceestablishmentin1993HeavyinvestmentonR&Dandmarketingnetwork100millionRMBinvestedtorestructure15SOEsbyM&Aetc.KeenonfurtherexpansionSalesshrank1/6from1993,duetoimproperbusinessdiversificationandmanagementdeficiency.Determinedtoturnaroundbyfocusingonorganizationre-structuring,productportfoliore-designandcostcutting.10TargetclientSichuanTaijiJiangsuYangzijiang(Taixing,Jiangsu)ShenzenTaitaiRevenue1996375

297???OwnershipListedin1997SOEconglomerationCollectiveCAGR92-96CommentsManagementreadinessTARGETPHARMACEUTICALCLIENTELES-TCM(2) * FootnoteSource: SourcesRMBmillionOneof10keyTCMenterprisesidentifiedbyNationalTCMAdministrativeAgency.StrongR&Dcapability.Goodperformanceamonglistedcompanies.Financeingoodshapeandsalesgrowing60%in1sthalfof1998WithitsownR&Dcentreandresearchinstitute,8newproductslicensedin1997byMOH,8inR&Dprocessand8istobeputintoproduction.HeavyinvestmentinadvancedproductionequipmentandmedicalexpertrecruitingSalesgrowth25%KeenonexpansionHeadhuntedseniormanagersfromSKB,Uni-liverandJanssen.

114%????27%11TargetclientTonghuaDongbao(Tonghua,Jilin)ZhengdaQingchubao(Hangzhou,Zhejiang)GuilinSanjin(Guilin,Guangxi)Revenue1996287275267Ownership

?CommentsManagementreadinessTARGETPHARMACEUTICALCLIENTELES-TCM(3) * FootnoteSource: SourcesRMBmillionSharholdingShareholding,conglomerationStateOwnedSalesgrowth35%in1997.Amongtop10TCMproducersSignificantexpansionviaM&A.LocatedinTCMmaterial-abundantarea.Favoredbylocalmunicipalgovernment.CoreenterpriseinHangzhouwith30JVorshareholdingcompanies100products,planingtobemorefocused30millionRMBworthofstatedownedsoldtoemployees.Profitincreased10times92-96.Goodbrandnameinitssegmentandwell-sellingproductKeenonfurtherexpansionCAGR93-9740%??????12CompanyNCPCShandongXinhuaGuangzhouBaiyushanShandongLukangHaerbinPharmaDongbeiPharmaShjiazhuangPharma

CEOnameTextYearswiththecompanyTextQualificationbackground(academic,workingexperience)TextCLIENTELECEOPROFILE-CHEMICALDRUGS * FootnoteSource: SourcesOthercommentsTextINPROGRESS13CompanyTongrentangWuhanHongtaoKShanghaiPharmaGuangdongApolloSichuanTaijiJiangsuYangzijiangShenzhenTaitaiTonghuaDongbaoZhengdaQingchunBaoCEOnameTextYearswiththecompanyTextQualificationbackground(academic,workingexperience)TextCLIENTELECEOPROFILE-TCM * FootnoteSource: SourcesOthercommentsTextINPROGRESS14Developedrapidlyinthepast10yearsWithdiversifiedproductportfolioandveryspecificsegment.AggressivelyinvestingonR&D,marketing,salesforcedevelopmentandhumanresourceAspirationclosetooperational/actionlevelConcentrateinSouthChinaFacingmultipleissuesspecifictoChina-regulatoryandeconomic,withwhichtheystillneedtobuildexperience.ExpectingfurthermarketpenetrationandproductintroductionMostlySOEconglomerationChangingmindsetfromproduction-orientedtomarket-oriented,thereforeneedbasicmarketstrategydirectionsConcentrateinNorthChinaChemicaldrugsTCMLocalMNCEACHCLIENTELESEGMENTISFAIRLYDISTINCTIVE15MNCs,chemicaldrugsLocal,chemicaldrugsLocal,TCMHighPriorityissuesChinamarketdynamicsMultipleregulatoryissuesMarketorientedmanagementsetup.ProductstrategySalesandmarketingenhancement.1379ManagementreadinessASSESSMENTOFPHARMACEUTICALCLIENTELESEGMENTS * FootnoteSource: SourcesLowHighFinancialstrengthApproachingKSFsCommunicationwithheadquartertopmanagement.DemonstrationofMcKinseyChinaMNCconsultingexpertiseandChina-specificindustryknowledge.BrainwashingthetopmanagersbydiscussingwiththemontheirownissuesusingMcKinseymethodologyandtools.(e.g.workshops)Patientcommunicationwithtopmanagment16SUMMARYAspirationTargetclienteleExternalreputationbuildingKnowledgebuildingPeopleAppendix-Industryandplayersoverview17EXTERNALREPUTATIONBUILDINGMajorassociationsKeygovernmentagenciesLeadingmediaChinaMedicalAssociationChinaChemicalDrugIndustryAssociationChinaMedicalTradeAssociationChinaForeignPharmaceuticalCompanyAssociationMOH(MinistryofHealth)SPSA(StatePharmaceuticalSupervising&administrationAgency)STAC(StateTCMAdministrationAgency)MinistryofLaborandSocialSecurity * Manyacademicassociations,likeChinaComputerAssociation,arevaluabletoMcKinsey.Source: Interviews;LitSearchChinaMedicalIndustry

ChinaChemicalDrugIndustryInformationChinaHealthChinaPharmacyChinaPharmaceuticalBusinessUpdate18MAJORINDUSTRYASSOCIATIONSGroupChairmanMembershipValuetoMcKinseyChinaNationalMedicalAssociationChinaChemicalDrugIndustryAssociationChinaPharmaceuticalEnterprisesManagementAssociationChinaMedicalTradeAssociationChinaForeignPharmaceuticalCompanyAssociation????WuTingbao,CEOofNortheastPharmaCo.Keyhealthcareinstitutions(medicalexperts)LocalchemicaldrugproducersLocalpharmaceuticalcompaniesPharmaceuticaltradecompaniesPharmaMNCs,initiatedbyJanssenMajoractivitiesGovernmentmoveinhealthcareAcademicactivitiesIndustrycodedesigning,strategycommunicationandindustry-wideinitiativesIndustrycodedesigningandinformationupdatingMarketdynamicsandregulationcommunication19KEYGOVERNMENTOFFICIALSGovernmentAgencyFunctionafterre-structuringValuetoMcKinsey

MOH(MinistryofHealth)SPSA(StatePharmaceuticalSupervising&administrationAgency)STAC(StateTCMAdministrationAgency)MinistryofLaborandSocialSecurityNationalhealthcarepolicydesignandoverallexecutionSupervisinghealthcareorganizationsMedicalproductlicensingSupervisingpharmaceuticalmanufacturingandtradecompaniesInchargeofpharmaceuticaladministrativeprotectionSupportingTCMresearchdevelopment(technicalandacademic)ReporttoMOHRDLpolicyexecutionRDLlistdeterminationKeyofficialsZhangWenkangZhengXiaoyuVice:ZhuJie,ZhangHongkui20LEADINGMEDIATitleFormatPositioningValuetoMcKinseyChinaMedicalIndustryChinaChemicalDrugIndustryInformationChinaHealthcareChinaPharmacyChinaPharmaceuticalInformationMonthlyMonthlyBio-monthlyUpdateofindustrydevelopment,medicalresearchandperspectiveonfuturedevelopmentUpdateofproductandenterprises,perspectiveonmarkettrendHealthcarepolicyandadministrationCoremedicalproductjournalinChinaMarketdynamicsupdateandproductinformationMajorissuerSPACinformationcenterChinaChemicalDrugIndustryAssociationChinaChemicalDrugIndustryAssociationChinaPharmaceuticalIndustrialGeneralCo.MOHMedicalAgencyofMOHSPACinformationcenterChinaPharmaceuticalTradeAssociation21IndustryassociationsdifficulteasyEaseofaccessLowHighImpactASSESSMENTOFEXTERNALREPUTATIONBUILDUPTARGETS * FootnoteSource: SourcesGovernmentagenciesIndustrymediaMajorvehiclesSeminar,speechesatmeetingsSeminar,speeches,workshopArticlesTangiblevaluetoclientwork22PRIORMcKINSEYCHINAPHARMACEUTICALEXTERNALREPUTATIONBUILDINGDateFormatTitleAudienceAuthor/presenterSep.98WorkshopSalesforceeffectivenessworkshopNCPCMikeSherman,GordonOrr23EXTERNALREPUTATIONBUILDINGPLANTopicResponsibilitiesDuedatePreferredmediaandapproach24SUMMARYAspirationTargetclienteleExternalreputationbuildingKnowledgebuildingPeopleAppendix-Industryandplayersoverview25KNOWLEDGEBUILDINGPROGRAM

PDeffortsFactpackeffortsAuthors/leadership * FootnoteSource: SourcesYing&yangMarketingSuccessfulsalesandmarketinginChina??????RichardZhangMikeShermanDoneInitiative26SUMMARYAspirationTargetclienteleExternalreputationbuildingKnowledgebuildingPeopleAppendix-Industryandplayersoverview27PEOPLE

ProjectMGMsSEMsEmsAssociatesBA/CAs

ProjectparticipantsGordonOrrTCChuJonanthanWoetzalTonyPerkinsDanialAdamecSaimondIpRichardZhangPeterKenevaneKevinLaneChennyLinYibingWuJaneXuZQLiCarlYangDominicChanLemengZhangPingPingJoannaYaoPoHouSKB,Novartis,PfizerSKBJ&J,SHPharmaPfizerNovartis,Baxter,BoehringerIngelheim,GZPharmaGZPharmaSHPharmaNovartisSKBNovarris,SHTCM,J&JGZPharmaPfizerPfizerGZPharma/J&JBarterSHPharmaSHPharma28NEXTSTEPFORCLIENTELEDEVELOPMENTContactglobalCSTtodevelopMNCclienteleInviteMcKinseyPharmaspecialisttoChinaHoldaMcKinseyPharmapracticeConferenceinChinaMNCLocalNewComersBuildMckinseyawarenessamongtargetclientelethroughpharmamagazine,e.g.,“ChinaPharma”andothermediaInvitekeyclienteletopharmaworkshopAssignCSStoeachclienteleIdentifyandprofilenewcomersinpharmaindustryUnderstandthekeyissuesofthenewcomersFORDISCUSSION29SUMMARYAspirationTargetclienteleExternalreputationbuildingKnowledgebuildingPeopleAppendix-Industryandplayersoverview30Source: CONSBio-Tech;ChinaPharmaceuticalYearbook;Lit-searchUS$billionCHINAPHARMACEUTICALMARKET1994ChemicalDrugTCM19951996199718%CAGR28%7.38.910.712.7TCM31 * 1US$=8.3RMB

** NowunwoundfollowingPharmacia/Upjohnmerger

*** CAGR92-96Source: ChinaPharmaceuticalYearbookUS$million*TOPJVPLAYERS:SALESANDPROFITTRENDS929394959697929394959697929394959697SalesPretaxprofitROS%Xian-Jassen(Jassen)TSK&F(SB)SquibbCAGR92-97CAGR

92-9727%21%20%15%26%-2%***N/AN/A32US$million*TOPJVS:SALES/PROFITTRENDSalesPretaxprofitROS%CAGR

92-97CAGR

92-97

Source: ChinaPharmaceuticalYearbook,Lit-search959697WuxiAstraJ&J32%96929394959697Sino-Swed(Pharmacia/Astra**)14%15%94959697DalianPfizer54%216%N/AN/A33

Source: ChinaPharmaceuticalYearbook,Lit-searchUS$million*TOPJVS:SALES/PROFITTRENDSalesPretaxprofitROS%CAGR

92-97CAGR

92-9794959697HangzhouHuadong16%6%N/A949596

GuangzhouGreencross-3%-5%959697ShenyangNovoNordisk33%58%N/AN/AN/A9596ShanghaiRoche-46%

34 * 1US$=8.3RMBSource: ChinaPharmaceuticalYearbookUS$million*TOPDOMESTICPLAYERS:SALESANDPROFITTRENDS–CHEMICALDRUG929394959697929394959697929394959697929394959697SalesPretaxprofitROS%HuabeiPharmaceuticalCo.Shenzhen999GroupGuangzhouBaiYunShanEnterpriseCo.ShandopgXinHuaPharmaceu-ticalCo.CAGR92-97CAGR92-9737%13%8%29%24%31%17%19%35US$million*TOPDOMESTICPLAYERS:SALESANDPROFITTRENDS–CHEMICALDRUG9293949596929394959692939495969293949596SalesPretaxprofitROS%HarbinPharmaceu-ticalCo.DongbeiPharmaceuticalGroupShangdongLuKangPharmaceuticalCo.ZhuhaiLivzonPharmaceu-ticalCo.CAGR92-96CAGR92-9618%13%31%51%22%0%44%35% * 1US$=8.3RMBSource: ChinaPharmaceuticalYearbook36US$million*TOPDOMESTICPLAYERS:SALESANDPROFITTRENDS–CHEMICALDRUG929394959694

97SalesPretaxprofitROS%上海信谊药业有限公司红桃KCAGR92-96CAGR92-9611%11% * 1US$=8.3RMBSource: ChinaPharmaceuticalYearbookN/A37Source: ChinaPharmaceuticalYearbookUS$millionTOPPLAYER:SALES/PROFITTREND–TCM9293949596929394959692939495969293949596SalesPretaxprofitROS%北京同仁堂上海药材成都地奥广东太阳神CAGR92-96CAGR92-9679%50%37%-20%26%-2%42%-21%N/AN/AN/A38Source: ChinaPharmaceuticalYearbookUS$millionTOPPLAYER:SALES/PROFITTRENT–TCMSalesPretaxprofitROS%四川太极93-96CAGR93-9693949596114%121%93949596正大青春宝35%82%39Source: EIU;IMS;Scrip;SPACPHARMACEUTICALJOINTVENTURESINCHINA–1982-1996ChinaOtsukaSino-Swed1996199419921990198819851982SquibbTSK&FPfizerGlaxoAbbotCiba-GeigyWarner-LambertJanssenMerckRhone-PoulencRocheSchering-PloughTakedaJ&JPharma

AstraBaxerBohemannEntrantYear>6001240Hoechst40MNCPHARMACENTICALCLIENTELE–CHEMICALDRUGSCompanyLocationYearInititalinvestmentPlannedfutureinvestmentOwner-shipPartnerMainproductsJanssenXian1988$43.4million65%ShanxiPharmaIndustryHanjiangPharmaceuticalFourpartnersunderstatePharmaceuticalAdministration34productsSKB-TianjinTianjin1985$18million55%TianjinPharmaceuticalCo.TianjinAminoAcidCorp.ContactPanadolSKB-ShanghaiPudong,Shanghai$30.4millionN/AShanghaiInstitudeofBiologicalproductCo.ContactPanadolSquibbShanghai1985$34m,initially58%SHCorporationofPharmaceuticalTechnicalCorporationChinaNationalPharmaForeignTradeCorporationVelosetAzactamKenacombCapotenProvachol$300mby2000PfizerDalian$50.4million60%DalianpharmaceuticalCo.HoechstShijiazhuang$30millionN/AHuabeipharmaceuticalFactory1994EllyLillySuzhou$28millionCeclor,ProzacJ&JShanghaiTylenolBand-Aid$70millionShanghaiBiochemicalCo.198890%AstraWuxi1994$7.2millionby2000MajorityWuxipharmaceuticalCorporationWuxiDevelopmentZoneCorporationPharmaceuticalformulationsUS$98mmby200041MNCPHARMACENTICALCLIENTELE–CHEMICALDRUGSCompanyLocationYearInititalinvestmentPlannedfutureinvestmentOwner-shipPartnerMainproductsRoche-JV3Shanghai1997$30millionMajoritySHNo.6PharmaFactoryConcentratedVitaminspecialitymixes,VitaminpremixRoche-JV4Pudong,Shanghai1997$29.6million60%SHNewAsiaticPharmaceuticalLtd.VitaminB6Roche-JV1Pudong,Shanghai1994$45million70%SunvePharmaceuticalCo.RocephinRoferon-ACelkeptXenicalPosicorRoche-JV2Shanghai

1997$20million60%SunvePharmaceuticalCo.VitaminERochetotal$200millionbyearly2000centuryAbbotNingbo1988$2million50%NingboPharmaceuticalFactoryEnzymeDiagnosticReageatsNovartisBeijing1988$22.8million$130million(national)60%BJGeneralPharmaCo.BJNo.3PharmaFactorySandimmunNeoralVotalinSandostatinLotensinLesolLamisilTabChongqing1988$13minitially$36mto199655%initially88%by1993SouthwestNo.3Pharma-ceuticalFactoryofChongqingChinaNationalPharmaForeignTradeCorporationVentolinBecotideBeconaseGlaxoSuzhou$100millionAnti-bioticsinjectionsLamivudine42MNCPHARMACENTICALCLIENTELE–CHEMICALDRUGSCompanyLocationYearInititalinvestmentPlannedfutureinvestmentOwner-shipPartnerMainproductsMSDHangzhou1994$19.2million75%HangzhouEastChinapharmaceuticalFactorySuzhou1987$14million50%ChinaNationalPh