In recent years, with the intensive introduction of policies such as medical insurance fee control and drug procurement in China, the world's second largest pharmaceutical market in front of multinational pharmaceutical companies has undergone profound changes. Domestic generic drugs evaluated through consistency and innovative drugs continuously accelerating research and development have also brought multiple competitive pressures to multinational pharmaceutical companies.
Recently, it was reported in the industry that GlaxoSmithKline (GSK) China has disbanded its LBT sales team for central nervous system products and, starting from January 1, 2024, will adjust its original organizational structure to three core business departments: specialty drugs, vaccines, and respiration; Meanwhile, the previous goal of achieving domestic sales of £ 3 billion by 2030 and becoming the top multinational pharmaceutical company in China has been adjusted to become one of the top ten multinational pharmaceutical companies in China.
21st Century Business Herald sent a letter to GSK China regarding the authenticity of organizational structure and goal adjustments. According to the response, GSK stated:& Quota; We are undergoing structural adjustments to our business in China. This is part of the measures taken to ensure that the company achieves our vision of sustained growth in the Chinese market in the coming years under the correct business model& Amp; Quota;
In fact, since the beginning of this year, there have been more multinational pharmaceutical companies than GSK that have been exposed to layoffs and organizational restructuring. According to reports, since Pfizer announced its corporate cost adjustment plan in October 2022, there has been a constant wave of layoffs. As Pfizer adjusts its business structure globally, organizational structures such as the Vaccine Division and Hospital Emergency Division in China have also changed accordingly. In addition, AstraZeneca has recently exposed news of department adjustments and layoffs.
Dr. Zou Guowen, founder of Kaicheng Capital, analyzed to 21st Century Business Herald, "Due to policy and market changes, large-scale strategic adjustments by multinational pharmaceutical companies in China are inevitable. Layoffs can save costs to a certain extent, quickly optimize financial statements, and adjust pipelines to help concentrate the company's strategic advantages. In addition, multinational pharmaceutical companies are also further controlling marketing expenses."
Can multinational pharmaceutical companies rely on the "layoff wave" to cross the cycle? With the changes in the pharmaceutical market environment in China, how to better carry out localization development is a topic that multinational pharmaceutical companies must consider. In this context, there are many multinational pharmaceutical enterprises buying local products crazily, and there are also multinational pharmaceutical enterprises purchasing local innovative pharmaceutical enterprises at a premium
"We must also recognize that due to policy and market changes in recent years, the dependence of multinational pharmaceutical companies on the Chinese market is gradually weakening. The core reason why multinational pharmaceutical companies become multinational pharmaceutical companies is still to rely on the continuous launch of new products to solve new clinical needs. As long as they have good products in hand, the global market they face is a broader world." Dr. Zou Guowen emphasized.
What are layoffs and streamlining pipelines like?
From the perspective of the overall environment, under the influence of the COVID-19 in recent years, the R&D pipeline of global pharmaceutical enterprises is seeking integration in the challenge, and each is promoting reform to achieve continuous improvement of pharmaceutical R&D productivity.
According to IQVIA data, global biopharmaceutical investment began to slow down in 2022 after experiencing a two-year surge during the pandemic. Despite changes in portfolio types and a significant decrease in IPO activity, global biopharmaceutical investment still exceeds the level of 2019. Starting pharmaceutical companies focusing on COVID-19 received more investment from 2020 to 2021, but there was some contraction. Compared to American companies, the transaction speed of companies headquartered in China and Europe has significantly slowed down.
According to the "China Biopharmaceutical Investment and Financing Blue Book (H1 2023)", a total of 196 biopharmaceutical enterprises in China obtained financing in the primary market in the first half of 2023, with a total financing amount of 31 billion yuan. Compared to the same period last year, the number of financing enterprises decreased by 21.6%, and the total financing amount decreased by 28.6%.
In this regard, an analyst from the pharmaceutical industry of the securities firm pointed out to the reporter of the 21st Century Economic Report that in the next five years, although the "pandemic" of COVID-19 has ended, the epidemic still affects the global pharmaceutical market, and the global pharmaceutical market will continue to face challenges. Especially with the well-known high cost, high risk, and long cycle of innovative drug development, reducing the R&D pipeline can to some extent reduce the R&D costs of enterprises.
In addition to the impact of the market environment, policies are also accelerating the promotion of multinational pharmaceutical companies to lay off employees and streamline pipelines to achieve cost reduction and efficiency improvement. In August 2023, the official website of the National Health Commission released a Q&A on the centralized rectification of corruption in the national pharmaceutical industry. The six Q&A detailed the background, purpose, main principles, key content, work plan, as well as hot topics of external concern such as academic conference postponement and rumors of corruption cases.
The above analysts pointed out that anti-corruption is an important measure in promoting industry standardization, which has a promoting effect on the healthy development of the industry and forces enterprises to strengthen innovation at the source. At the same time, this will bring certain changes to the future business promotion model of the enterprise. The enterprise will accelerate the use of more digital means for market activities in the future, and at the same time, the enterprise will pay more attention to patient education and patient-centered.
However, the essence of commercial promotion is still value transmission. Enterprises should actively consider non economic value transmission methods and the roles that enterprises can play in addition to economic value transmission. Through new value transmission models, hospitals, doctors, and medical insurance can enhance product awareness, brand image, and form differentiated competitive advantages beyond the product. On the hospital side, doctors will also increase their income through channels such as multi-point practice encouraged by the government, and therefore pay more attention to personal brand building, which may even encourage some doctors to flow into private hospitals.
"For pharmaceutical companies, especially those with weak compliance management in the past, they should sort out their internal compliance and internal control management system, make up for their weak links, actively explore and transform business models, and truly bring value to clinical practice and patients. For foreign-funded enterprises with more mature compliance, data analysis can be used to identify unreasonable costs in past marketing processes and optimize future market resource investment." said the analyst.
At a time of internal and external troubles, how multinational pharmaceutical companies can transform and respond has become an urgent problem that needs to be solved.
A "light asset" market promotion model
Can multinational pharmaceutical companies cope with current challenges? Many multinational pharmaceutical companies choose to start with commercialization in this regard.
Unlike the past self built sales teams, many multinational pharmaceutical companies have also begun to try new market-oriented promotion models in response to the demand for cost reduction and efficiency improvement.
As one of the four vaccine giants, Shingrid, the herpes zoster vaccine, is GSK's fastest growing and highest revenue vaccine product, expected to reach £ 4 billion by 2026. As of now, a total of four herpes zoster vaccines have been launched globally, among which GSK and Baike Biological vaccines have been approved for domestic market launch.
In 2019, Xin'an Lishi was approved for import registration and officially launched for sale in China in June 2020. As the first full sales year, in 2021, Xinan Lishi's sales revenue in China was 600 million yuan. At present, Xin'an Lishi has landed in 314 cities in China, covering over 9500 vaccination sites.
In February 2023, Baike Biological Herpes Zoster Attenuated Live Vaccine "Ganwei" was approved to participate in domestic market competition. By comparison, Ganwei is aimed at people over 40 years old and can achieve herpes zoster immunity with just one injection, with a transaction price of 1369 yuan/tube; Xin'an Lishi is targeted at people over 50 years old and requires two doses of vaccination, with a total self payment of approximately 3196 yuan.
With a wider range of applications and lower prices, Baike Biotechnology is becoming a strong competitor to GSK. According to a research report from Southwest Securities, 29 batches of domestic herpes zoster vaccines were issued in the first three quarters of 2023, including 11 batches for GSK and 18 batches for Baike Biotechnology. From the perspective of issuance quantity, Baike Biotechnology has effectively broken GSK's monopoly and achieved anti overloading.
The herpes zoster vaccine has gradually become an important marketing source for Baike Biotechnology. In the first quarter of 2023, Baike Biotechnology achieved a net profit of only 18.38 million yuan, while as of the first half of 2023, Baike Biotechnology achieved a net profit of 111 million yuan. From this perspective, the majority of the net profit exceeding 100 million in the first half of the year was achieved in the second quarter, which coincides with Ganwei's listing time.
According to Frost Sullivan data, based on sales revenue, the Chinese herpes zoster vaccine market has increased from zero in 2015 to 600 million yuan in 2021, and is expected to increase to 10.8 billion yuan in 2025 and reach 28.1 billion yuan by 2030. Faced with a huge market gap, research and development by companies such as Green Bamboo Biotechnology and Maikekang Biotechnology are also racing.
With a broad market prospect and accelerated competition, GSK has chosen to collaborate with local pharmaceutical companies to promote the mature single product of herpes zoster vaccine through a "light asset" approach. In October 2023, GSK signed an exclusive cooperation agreement with Zhifei Biotechnology. Starting from January 1, 2024, Zhifei Biotechnology has the exclusive import and distribution rights of Xin'an Lishi in China.
"Multinational pharmaceutical companies need to cooperate with domestic companies in commercialization." CIC Zhuoshi Consulting Partner Wang Wenhua told 21st Century Business Herald, "Domestic companies are more familiar with policies and have a wider coverage of channels, and are also more adaptable to China's pharmaceutical macro environment and some innovative models. Only multinational pharmaceutical companies with forward-looking layout in the field of heavyweight innovative drugs and a more complete sales and marketing network layout can maintain stable growth in the Chinese market."
Pfizer has also made the same choice. As Pfizer's only vaccine product sold in China, the 13 valent pneumococcal polysaccharide conjugate vaccine (PCV13 vaccine, trade name "Pei'er 13") approved for sale in November 2016 has lost its first mover advantage. According to statistics from Southwest Securities, 68 batches of domestic 13 valent pneumococcal polysaccharide conjugate vaccines were issued in the first three quarters of 2023. Among them, Pfizer has 8 batches, Minhai Biotech has 15 batches, and Watson Biotech has 45 batches.
On December 1, 2023, Pfizer will hand over Peier 13 to Science Park Trade for exclusive import, distribution and promotion in Chinese Mainland. This cooperation means that Pfizer will end the tradition of self built teams selling vaccines, open a new vaccine business model, and be promoted by local enterprises.
In Dr. Zou Guowen's view, the Chinese market was once one of the most valued markets for multinational pharmaceutical companies due to its large population base and relatively sufficient medical security. But now there are significant changes. For multinational pharmaceutical companies, if they want to develop better in China, the core idea is to do a good job in localization. Increase cooperation with domestic companies and government departments in various aspects such as innovative research and development, production, marketing, circulation, and cooperation projects.
However, after the establishment of cooperation with local innovative pharmaceutical enterprises, whether multinational pharmaceutical enterprises can have a strong complement of blockbuster products and find new growth points has become a major practical problem.
Digging for local pharmaceutical companies' research and development capabilities
Whether it is organizational restructuring or personnel layoffs, behind it is the repositioning of multinational pharmaceutical companies in the current internal and external environmental changes. What remains unchanged is that the growth of the pharmaceutical industry needs to be driven by innovative drugs. In addition to partnering with local pharmaceutical companies for commercialization, the "gold rush" of multinational pharmaceutical companies in China is moving towards an earlier stage, targeting the research and development capabilities of innovative pharmaceutical companies.
"Since 2015, China's innovative pharmaceutical industry has embarked on a magnificent chapter of innovation driven development, and has accumulated many high-quality products to this day. However, in recent times, coupled with US dollar interest rate hikes, increasing global instability factors, domestic policies, and other factors, the stock prices of biopharmaceutical listed companies have sharply declined, and domestic fund fundraising is not smooth, resulting in significant challenges for domestic biopharmaceutical companies' financing. Therefore, the acquisition of high-quality domestic assets by multinational pharmaceutical companies is also timely. Compared to overseas, China's biopharmaceutical assets have a very high cost-effectiveness." Dr. Zou Guowen analyzed.
Since the beginning of this year, AstraZeneca has frequently engaged in research and development cooperation with domestic pharmaceutical companies. In February, AstraZeneca, along with Konoa Biotech and Lepu Biotech, announced that AstraZeneca has obtained a global exclusive license for CMG901 research, development, registration, production, and commercialization; In May, AstraZeneca and Lixin Pharmaceuticals reached a global exclusive licensing agreement for the GPRC5D targeted ADC drug LM-305 project in the preclinical stage; In June, AstraZeneca and Kelan Pharmaceuticals reached a three-year research and development cooperation to develop innovative drugs for hypercholesterolemia and related metabolic diseases.
It is worth noting that on December 26, AstraZeneca China's official WeChat official account announced that it would acquire Genxi Biology, with a down payment of about $1 billion, which is expected to be delivered in the first quarter of 2024. Once the news was released, it immediately attracted widespread attention in the industry, and Genxi Biotechnology became the first biotech company in China to be acquired by a multinational pharmaceutical company.
Wang Wenhua said, "The vigorous development of China's innovative drug industry also reflects the continuous improvement of the R&D strength of domestic pharmaceutical enterprises, which makes multinational pharmaceutical enterprises face increasingly fierce competition in many mature drug categories, and also urges multinational pharmaceutical enterprises to more forward-looking layout of some major categories with huge market potential through self research or outsourcing in innovative drugs."
Among them, in terms of ADC (antibody conjugated drug), on December 12th, Baili Tianheng announced an exclusive licensing and cooperation agreement with BMS for the BL-B01D1 project. BL-B01D1 is a dual anti-ADC (antibody conjugated drug) drug that can simultaneously target EGFR and HER3. The product has shown therapeutic signals in multiple indications for epithelial tumors.
According to the agreement, BMS will make a down payment of $800 million to Baili Tianheng, with a potential total transaction amount of up to $8.4 billion. This transaction is the highest amount of domestic innovative drug license out (external authorization license) so far this year, and sets a new record for the down payment of authorized overseas innovative drugs in China. BL-B01D1 is also the first domestically produced dual antibody ADC new drug to successfully go global.
"In the past two years, multinational pharmaceutical companies have seen a lot of transactions purchasing pipeline products from domestic innovative biopharmaceutical companies, and the amount is very considerable, which to some extent indicates that Chinese innovative pharmaceutical companies have made significant progress in product research and development innovation capabilities. Such active innovative drug pipeline transactions were not seen in earlier years, which also to some extent verifies the research and development capabilities of domestic innovative pharmaceutical companies." Wang Wenhua analyzed.
At present, shrinking, focusing on core competitiveness, and seeking new growth points have become the main development theme for many multinational pharmaceutical companies in the cold winter. In the future, we will wait and see how multinational pharmaceutical companies can continue to write their stories in China.