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Recently， large foreign pharmaceutical companies successively submitted their performance reports in the third quarter of 2013 in China. Their situations varied greatly as profits and losses could be seen all together. This also narrowed the gap among the Top 10.
Influenced by multiple bribery scandals， the circle of pharmaceutical companies held fewer academic events and external conferences in third quarter of 2013. The rectifica- tion of incorrect business behaviors held by companies like GlaxoSmithKline （GSK） has encumbered these foreign drug companies’ sales.
According to the latest data from IMS， GSK could keep the 14.4% annual compound growth rate from August 2012 to July 2013. However， in August， when the bribery scandal was revealed， the month-on-month sales grwoth rate dropped 21%.
Sanofi and Bayer which were put under investigation as well also had their sales increase drop over 2.5% in August compared with a month before.
The event of GSK’s bribery is to be ended within one or two months. The result is going to be an indicator for the industry. “Though GSK is very likely to be severely fined by the Chinese government， the company is next to impossible to quit the Chinese market”.
The Shrinking GSK Business
In the latest seat sequence of foreign drug companies in terms of sales amount in China， GSK took the eighth place and is trying to catch up with Mercer， the 7th seat， and widening its gap from Novo Nordisk and Lilly. However， the British company finds it more and more difficult to finish the task because the bribery scandal has raised the alert for the regulatory departments and made physicians less willing to write the products of GSK on their prescriptions.
The data from IMS shows that “GSK’s sales in China reached US$540 million in the first eight months of 2013， US$68 million higher than the same period of 2012.” But in August， GSK was the only company among the Top 10 foreign pharmaceutical companies that had a doubt-digit recession. In comparison， Novartis’s sales increased by 21.3%.
In the third quarter of 2013， GSK’s sales dropped 61%. The performance in July and August was said to be influenced most. The rebound was detected in September but whether the trend could be continued in the fourth quarter needs to be watched.
Andrew Witty， CEO of GSK， said recently that the sales amount was pulled down due to the investigation into GSK in China. The field with competitive drugs from other companies had been influenced most. For example， Advair HFA， the most popular product of GSK in China， has a counterpart from AstraZeneca with the same effect of countering lung disease. Meanwhile， he said that it was too early to tell when GSK could recover from the shockwave of the investigation. As for how to survive the bad time and boost the sales， GSK’s actions depend on how the Chinese government is judging the bribery case and the corresponding results.
Various rumors had it that the public security department of China was trying to find the connection of the bribery with GSK as a legal entity， meaning that they want to find whether the company， not these senior executives， is guilty or not. However， such a conclusion is hard to be gained. The once overheated saying about GSK’s quitting China or the RDPC was interpreted as the tool for distracting the public.
“Mark Reilly， president of GSK China when the scandal was revealed， will not be charged in China，” says a source. Though the free of charge can reduce the damage to the fame of GSK and applies less stress over the actual sales. However， the unmerciful attitude and the severe punishment are still going to bring great impact to the company.
The source says that the real result is not coming out until the beginning of January 2014. But once the result is published， it will decide the measures of GSK to boost its sales and the price it fixes for the products. The company’s strategic turning point also rests with this.
Shi Licheng， partner of Beijing University-Zongheng Drug Corp.， says： “the anti-corruption in the pharmaceutical industry should be continued in such a high profile till the super-national treatment for foreign companies is gone and put the them into the same platform of competition with domestic pharmaceutical companies.
The Ups and Downs among Competitors
The great recession of GSK is accompanied with the restraint development of the other foreign drug companies. However， the key fields are still plagued with cutting-throat competition.
The report from IMS shows that the Top 5 foreign pharmaceutical companies， Pfizer， AstraZeneca， Sanofi， Bayer and Roche. The sales of foreign pharmaceutical companies still took on the trend of increasing in the first eight months of 2013.
Pfizer had the largest sales in China， as well as the highest growth rate in this country in the first eight months of 2013. After increasing its sales by US$224 million， Pfizer China ended its first eight months of 2013 with the sales amount of US$1.265 billion. In the first three quarters of 2013， the sales amount increased by 16%. From August 2012 to July 2013， the annual compound growth rate of Pfizer’s sales amount was 21.5%， ranking among the Top 3 of China’s pharmaceutical industry. Pfizer was not the only foreign pharmaceutical company that benefitted， instead of suffering from the GSK event. Novartis could be said to be the biggest winner as its knockout products of countering high blood pressure got a dramatic increase.
In the first eight months of 2013， Novartis’s sales amount in China was the second largest， only next to Pfizer. It had earned the increase of US$150 million in the sales. Even though it was also impacted by the investigation in the third quarter and the year-on-year growth dropped from 25% in the previous quarter to 18%， but its entire sales in the first three quarters of 2013 rocketed up.
Such similar fluctuations could be seen everywhere among foreign pharmaceutical companies in China， Roche China’s business increased by over 34% in the second quarter of 2013， but it quickly dropped back to 16% in the third quarter.
The sixth to tenth places of the list were taken by Novartis， Mercer， GSK， Novo Nordisk and Lilly. These enterprises have contracted their operating expenditure and the workforce but their investment pace in China was not slowed down at all.
In November， Mercer initiated the construction of a large-scale modern pharmaceutical factory in Nantong. The new factory is going to focus on meeting the consumers’ demand of drugs for diabetes， cardiovascular disease and thyroid disorder.
The well-established consultancy company McKinsey forecasts that China’s drug market can keep the 17% annual growth before the year of 2020 and by then the retail volume in the market is expected to reach RMB 1.9 trillion. China can become an important source of profits for many pharmaceutical companies.
“Averagely， the Top 10 multinational pharmaceutical companies in China had 3.8% of their global revenue come from China， 0.8% percent higher than 2011. The accumulative sales amount increased from US$2.5 billion in 2005 to US$12.3 billion in 2012，” McKinsey points out.
Influenced by multiple bribery scandals， the circle of pharmaceutical companies held fewer academic events and external conferences in third quarter of 2013. The rectifica- tion of incorrect business behaviors held by companies like GlaxoSmithKline （GSK） has encumbered these foreign drug companies’ sales.
According to the latest data from IMS， GSK could keep the 14.4% annual compound growth rate from August 2012 to July 2013. However， in August， when the bribery scandal was revealed， the month-on-month sales grwoth rate dropped 21%.
Sanofi and Bayer which were put under investigation as well also had their sales increase drop over 2.5% in August compared with a month before.
The event of GSK’s bribery is to be ended within one or two months. The result is going to be an indicator for the industry. “Though GSK is very likely to be severely fined by the Chinese government， the company is next to impossible to quit the Chinese market”.
The Shrinking GSK Business
In the latest seat sequence of foreign drug companies in terms of sales amount in China， GSK took the eighth place and is trying to catch up with Mercer， the 7th seat， and widening its gap from Novo Nordisk and Lilly. However， the British company finds it more and more difficult to finish the task because the bribery scandal has raised the alert for the regulatory departments and made physicians less willing to write the products of GSK on their prescriptions.
The data from IMS shows that “GSK’s sales in China reached US$540 million in the first eight months of 2013， US$68 million higher than the same period of 2012.” But in August， GSK was the only company among the Top 10 foreign pharmaceutical companies that had a doubt-digit recession. In comparison， Novartis’s sales increased by 21.3%.
In the third quarter of 2013， GSK’s sales dropped 61%. The performance in July and August was said to be influenced most. The rebound was detected in September but whether the trend could be continued in the fourth quarter needs to be watched.
Andrew Witty， CEO of GSK， said recently that the sales amount was pulled down due to the investigation into GSK in China. The field with competitive drugs from other companies had been influenced most. For example， Advair HFA， the most popular product of GSK in China， has a counterpart from AstraZeneca with the same effect of countering lung disease. Meanwhile， he said that it was too early to tell when GSK could recover from the shockwave of the investigation. As for how to survive the bad time and boost the sales， GSK’s actions depend on how the Chinese government is judging the bribery case and the corresponding results.
Various rumors had it that the public security department of China was trying to find the connection of the bribery with GSK as a legal entity， meaning that they want to find whether the company， not these senior executives， is guilty or not. However， such a conclusion is hard to be gained. The once overheated saying about GSK’s quitting China or the RDPC was interpreted as the tool for distracting the public.
“Mark Reilly， president of GSK China when the scandal was revealed， will not be charged in China，” says a source. Though the free of charge can reduce the damage to the fame of GSK and applies less stress over the actual sales. However， the unmerciful attitude and the severe punishment are still going to bring great impact to the company.
The source says that the real result is not coming out until the beginning of January 2014. But once the result is published， it will decide the measures of GSK to boost its sales and the price it fixes for the products. The company’s strategic turning point also rests with this.
Shi Licheng， partner of Beijing University-Zongheng Drug Corp.， says： “the anti-corruption in the pharmaceutical industry should be continued in such a high profile till the super-national treatment for foreign companies is gone and put the them into the same platform of competition with domestic pharmaceutical companies.
The Ups and Downs among Competitors
The great recession of GSK is accompanied with the restraint development of the other foreign drug companies. However， the key fields are still plagued with cutting-throat competition.
The report from IMS shows that the Top 5 foreign pharmaceutical companies， Pfizer， AstraZeneca， Sanofi， Bayer and Roche. The sales of foreign pharmaceutical companies still took on the trend of increasing in the first eight months of 2013.
Pfizer had the largest sales in China， as well as the highest growth rate in this country in the first eight months of 2013. After increasing its sales by US$224 million， Pfizer China ended its first eight months of 2013 with the sales amount of US$1.265 billion. In the first three quarters of 2013， the sales amount increased by 16%. From August 2012 to July 2013， the annual compound growth rate of Pfizer’s sales amount was 21.5%， ranking among the Top 3 of China’s pharmaceutical industry. Pfizer was not the only foreign pharmaceutical company that benefitted， instead of suffering from the GSK event. Novartis could be said to be the biggest winner as its knockout products of countering high blood pressure got a dramatic increase.
In the first eight months of 2013， Novartis’s sales amount in China was the second largest， only next to Pfizer. It had earned the increase of US$150 million in the sales. Even though it was also impacted by the investigation in the third quarter and the year-on-year growth dropped from 25% in the previous quarter to 18%， but its entire sales in the first three quarters of 2013 rocketed up.
Such similar fluctuations could be seen everywhere among foreign pharmaceutical companies in China， Roche China’s business increased by over 34% in the second quarter of 2013， but it quickly dropped back to 16% in the third quarter.
The sixth to tenth places of the list were taken by Novartis， Mercer， GSK， Novo Nordisk and Lilly. These enterprises have contracted their operating expenditure and the workforce but their investment pace in China was not slowed down at all.
In November， Mercer initiated the construction of a large-scale modern pharmaceutical factory in Nantong. The new factory is going to focus on meeting the consumers’ demand of drugs for diabetes， cardiovascular disease and thyroid disorder.
The well-established consultancy company McKinsey forecasts that China’s drug market can keep the 17% annual growth before the year of 2020 and by then the retail volume in the market is expected to reach RMB 1.9 trillion. China can become an important source of profits for many pharmaceutical companies.
“Averagely， the Top 10 multinational pharmaceutical companies in China had 3.8% of their global revenue come from China， 0.8% percent higher than 2011. The accumulative sales amount increased from US$2.5 billion in 2005 to US$12.3 billion in 2012，” McKinsey points out.