Blood Thirsty: China sets the pace for global albumin market

China is now a focal point for the global blood products market, and in particular human albumin, the plasma-based therapeutic used ubiquitously in the acute care setting. Soaking up around 50% of the world’s total albumin production, and with volumes supplied to the market growing at a compound annual rate of over 14% in the last 5 years, the world’s leading multinational blood products players have moved to deepen their roots in the market, led by Australia’s CSL Limited. Domestic investors are also creating global waves and growing in competitiveness, with Chinese fund Creat Group buying out Germany’s Biotest AG in 2018 with an eye on establishing a stronger grip in China. GBI investigates the key trends including hospital purchasing and government pricing policies, and strategic approaches adopted by MNCs in one of China’s hottest market segments.

Serum albumin and its uses
Albumin is a natural protein that is produced in the human liver and forms an important component of blood plasma, making up 60% of plasma’s protein content and contributing up to 80% of the colloid pressure. The molecule has several properties that confer clinically useful attributes. These include having a negative net charge which attracts positively charged molecules (such as water and sodium), allowing albumin to play an important role in regulating fluid distribution around the body. Albumin is also capable of binding to a variety of other molecules, from hormones, enzymes, and vitamins, to drugs and toxins or metal ions. This means the protein can act as either a delivery driver or removals man, helping to transport, metabolize, or detoxify other molecules as needed. Other important functions include acting as an antioxidant, and as an antithrombotic agent.

Medical grade albumin began to be derived from donated blood plasma via fractionation from the middle of the 20th century. The product is widely used in intensive care and acute care settings for fluid resuscitation in patients who have suffered trauma and blood loss, such as those undergoing surgery or burns sufferers. Other evidence-validated indications include: use as a plasma-expander, to replace protein content and blood volume, or reduce toxins in the blood; to treat or prevent clinical complications in patients with cirrhosis of the liver; to treat acute respiratory distress syndrome (ARDS); and to support cardiopulmonary bypass surgery.

Albumin is also widely misused around the world, for indications that may not be backed by clinical evidence or in which use of albumin has been found to be futile or offer no improved clinical outcomes over more cost-effective measures such as saline drip. Studies have found that the proportion of albumin prescriptions made for indications not supported by clinical data can range from 40%-90% from country to country. Misuses include application as a nutritional supplement, to treat hypoalbuminemia (low albumin levels) when blood volumes are not abnormally low, for pancreatitis, stomach surgery, and others. 1

China’s unquenchable thirst
China consumes over 300 tonnes of albumin annually and accounts for around 55% of total global consumption, but the market still remains perennially under supplied, with local media reporting patients continue to face difficulties finding albumin in pharmacies. The level of use partly reflects the country’s heavy burden of liver diseases, including world-leading viral hepatitis burdens as well as rising rates of non-alcoholic steatohepatitis (NASH) and fatty liver. Albumin is also routinely used to support cancer chemotherapy or radiotherapy, to treat diabetes, as an auxiliary treatment for hemodialysis, and for ARDS. The blood product is also misused in ways specific to China, including consumption of albumin as a nutritional additive, to stimulate the immune system, and as a routine palliative care option, frequently recommended alongside or as an alternative to morphine for any critically ill or dying patient.

Market factors
Human albumin is the only plasma-based pharmaceutical product that can be legally imported into China, a reflection of the challenges in achieving a sufficient domestic supply. Health scares and supply crises beset blood donations during the 1990s and early 2000s, and in 2006 the government required that all plasma collection centers be owned and managed by local biopharma companies. Top-down price ceilings were imposed by the central government during the early 2000s, but led to supply disruptions as margins made production uneconomical. Consequently, from 2015, the system of retail price ceilings was scrapped, allowing the price of albumin to drift upwards.

Limited national reimbursement means albumin mainly purchased OOP
Albumin has been reimbursed in China since the first National Reimbursement Drug List (NRDL) released in 2004. However, usage is strictly limited to patients with severe cirrhosis or cancer and ascites, with albumin levels below 30g/L. This means that the majority of purchases are paid for out-of-pocket (OOP) by patients.

Retail pharmacy sales ascendant over hospitals
In the core urban markets, around 40% of albumin purchases are carried out in hospitals, while 60% is via retail pharmacies, according to an industry insider at a major distributor consulted by GBI. Albumin purchasing by hospitals is frequently carried out outside the provincial centralized procurement tenders, via independent procurement. This means that hospitals are free to choose their favored distributor, and prices are not capped by the local government.

The introduction of the “zero-markup” policy across all hospitals in 2018 means that hospital prices of albumin are usually lower than products available in retail pharmacies (see Table 1). However, global budgeting and the government limits imposed on the proportion of income that hospitals can derive from drug sales mean that albumin, as a relatively expensive but widely used product, is often not purchased in sufficient quantities by the hospital. Patients instead are directed to a nearby retail pharmacy to make purchases. In the view of the industry insider consulted by GBI, the proportion of albumin purchasing carried out in retail pharmacies can rise to as much as 90% in China’s lower tier markets.

Market volumes and COVID-19 impact
The volume of albumin released to market each year grew at a compound annual rate (CAGR) of 14.21% over 2016-2020, according to GBI SOURCE analysis of government batch release data (see Table 2). The SARS-CoV-2 pandemic provided a positive boost to demand. COVID-19 sufferers have decreased levels of albumin in about 75% of cases, a symptom found to be correlated with a higher mortality rate. The SARS-CoV-2 virus is also known to piggy back on the angiotensin-converting enzyme 2 (ACE2) to gain entry into human cells. 2

Albumin not only has anti-inflammatory and antioxidant properties, but is also able to downregulate the expression of ACE2 receptors and improve oxygen levels in patients suffering ARDS. The drug therefore became one of the primary therapeutic weapons used to combat the effects of the virus in Chinese patients, with COVID-19 sufferers routinely administered 3 to 4 bottles of albumin a day during treatment. 3

That helped produce a 78% bump in the albumin market volumes during Q1 2020 (see Table 2).

Importers grow roots and prosper
The COVID-19 outbreak also served to dry up domestic blood donations, leading to both an increase in prices from domestic manufacturers and an outsized jump in imports of over 58% YOY in Q1/Q2. Imported blood products from multinational firms have always played a significant role in China’s albumin market, Spanish firm Grifols S.A. (NASDAQ: GRFS) winning the first market approval in 1999. The removal of government-set price caps from 2015 onwards has produced a burst of investments and deal making in the segment as both foreign and domestic firms have maneuvered to tap the forecast market growth. In volume terms, importers have expanded above the overall trend with a CAGR of 22.8% over 2016 to 2020 (see Table 3). Australia’s CSL Behring (XASX: CSL) and Spain-based Grifols S.A. have deepened their lead as the first and second ranked players in recent years. The market is top heavy, the first four leading players between them accounting for around 55% of total volumes in 2019, albeit that figure is down from a 60% share in 2017.

MNCs entering the China market are required to form partnerships with local distributors. Given that albumin is essentially a commodity product, the nationally leading distributors dominate (namely Sinopharm, Shanghai Pharma, CR Pharmaceutical, Jointown Pharmaceutical Group, and Guangzhou Pharmaceuticals) thanks to their extensive networks and relationships with the key hospitals in each province, and their ability to wield economies of scale to enhance bargaining power. Alongside distribution partnerships, the vibrancy of China’s blood products market is reflected in some sizeable M&A action in recent years, including consolidation between domestics, MNC acquisitions of local companies, and Chinese investment into foreign firms. Notable deal making highlights from the major players include the following:

CSL Behring: CSL has sought to establish independent operations in the market through a series of investments. The Australian firm established local blood collection, fractionation, and product manufacturing infrastructure through the USD 352 million purchase of Wuhan Zhong Yuan Rui De Biological Products Co., Ltd, from Humanwell Healthcare Group Co., Ltd, in a June 2017 deal. Then in early 2019 CSL announced it had acquired a Good Supply Practice (GSP) license in China (purchased from a domestic firm for only USD 600,000) in order to operate as a Tier 1 distributor. This reflects the pressures of the “Two Invoice” reform introduced in 2017, requiring that drugs journeying from the factory gate to hospital pharmacies must be handled by only one distributor. CSL executives noted that the GSP certification allows the firm to better participate in and generate value from the supply chain, removing reliance on third parties and allowing the company to work directly with clinicians and hospitals. CSL still renewed its partnership with the nationally dominant distributer Sinopharm earlier this year.

Grifols and Shanghai RAAS: In 2018, China's Shanghai RAAS (SZ.002252) was reported to be weighing up a swoop for both the Germany based Biotest AG and the US diagnostics arm of Spain's Grifols AS, Grifols Diagnostic Solutions (GDS), in a deal that would have been worth over USD 5 billion. Biotest at that time had only recently been acquired by Shanghai RAAS’s controlling shareholder Creat Group. In the end, RAAS decided against buying Biotest, while Grifols and RAAS instead hammered out a deal to form an alliance focused on introducing Grifols’ plasma products and transfusion diagnostics into the Chinese market. Grifols put up USD 1.9 billion (via a share swap) to take a 26.2% stake in Shanghai RAAS and become the firm’s second largest shareholder behind Creat, while RAAS received a 45% share in GDS. Shanghai RAAS became Grifols’ exclusive distributor of plasma-derived products and transfusional diagnostic solutions in China, and also uses Grifols' nucleic acid amplification test (NAT) technology to screen plasma donations throughout its network of 41 plasma collection centers. That deal finally closed in March 2020.

CR Resources and Boya: The giant distributor China Resources Pharmaceutical Group Ltd (CR Pharma) is set to become a new blood products player after moving to take control of the Jiangxi-based Boya Biological for RMB 3 billion, announced in October 2020. The aim is to restore Boya to its position as one of China’s four leading blood products firms, alongside Hualan Biotechnology, Shanghai RAAS, and Tiantan Biotechnology, after Boya’s blood product revenues and profits stuttered in recent years. CR Pharma previously signed with CSL to provide distribution services in a 2018 partnership, and the decision by the giant distributor to take an active interest in the blood products market represents a challenge to the current status quo.