BMI View: In line with our optimism towards the Chinese healthcare sector, many multinational pharmaceutical firms continue to record healthy double-digit revenue growth in Q114, despite the economic slowdown. Given the attractiveness of the Chinese pharmaceutical market (due to its ageing population, increasingly personal wealth and government support for healthcare), we expect continued investments from foreign investors into the pharmaceutical and healthcare sector.
The majority of multinational pharmaceutical firms that have disclosed their sales figures in China in Q114 achieved strong double digit growth, in line with our long-term optimism towards the Chinese pharmaceutical and healthcare sector.
| Mixed Performance |
|Revenues Generated In China By Selected Multinational Pharmaceutical Firms (USDmn)|
UK-based AstraZeneca generated USD584mn of sales in China during Q114. This represented a 25.6% increase from USD465mn in Q113. In constant currency (CC) terms, this was a 22% increase and was driven by strong sales of Crestor (rosuvastatin calcium), Pulmicort (budesonide) and Nexium (esomeprazole). According to CEO Pascal Soriot, the 22% growth is the highest growth rate of all large multinational pharmaceutical companies in China. He added that China is the second biggest market for the firm and that AstraZeneca's growth in China has consistently outpaced the overall Chinese market by approximately 10%, maintaining the firm's number two position among the multinational pharmaceutical firms in the country.
In Q114, sales in China reached EUR377mn (USD502.7mn), a 8.3% year-on-year (y-o-y) increase in EUR terms from Q113's figure of EUR348mn (USD457.9mn). In CC terms, sales in China grew by 10.3% and this was attributed to the performance of diabetes and consumer healthcare business segment although there was also lower sales of vaccines due to the timing of the supply of Pentaxim (diphtheria), tetanus, pertussis (acellular, component) vaccine, and poliomyelitis (inactivated) vaccine. In Sanofi's diabetes segment, sales of Lantus (insulin glargine) grew by 39.4% (cc terms) to EUR45mn (USD61.7mn).
CEO Chris Viehbacher maintained that despite the decrease in China's GDP figure, 'it does not necessarily mean that you see a change in the fundamentals of what drives healthcare markets.' Specifically, he pointed out the increasingly affluent and emerging middle class as well as the population's migration from rural to urban areas. With the migration, there will be changes in disease patterns due to changes in lifestyle choices, benefitting pharmaceutical firms. More importantly, governments in emerging markets are also investing in healthcare infrastructure in urban areas, providing support for pharmaceutical growth.
In Danish kroner terms, Novo Nordisk saw a 15% increase in sales from DKK1,880mn (USD334.5mn) in Q113 to DKK2171mn (USD396.2mn) in Q114. Novo Nordisk reported that it held a 58% market share in the total insulin market, and a 64% share in the modern insulin and new-generation insulin market, in February 2014.
Novo Nordisk Market Share (%) In China
| Novo Nordisk's share of total insulin market || Novo Nordisk's share of the modern insulin and new-generation insulin market || GLP-1 share of total diabetes care market || Victoza share of GLP-1 market |
| Feb 2014 || Feb 2013 || Feb 2014 || Feb 2013 || Feb 2014 || Feb 2013 || Feb 2014 || Feb 2013 |
| 58 || 60 || 64 || 65 || 0.7 || 0.6 || 70 || 55 |
| Source: Novo Nordisk |
In Q114, the US-based firm saw a 4.1% increase in China sales, from USD271mn in Q112 to USD282mn in Q114. The firm did not comment further on its performance in China for this quarter.
GSK remains the only company that was significantly negatively affected by the anti-corruption scandal.  In China, the firm's pharmaceutical and vaccines sales fell by 20% in CC terms from GBP199mn (USD310mn) in Q113 to GBP137mn (USD227.4mn) in Q114. Commenting on the performance in China, CEO Sir Andrew Witty stated that the decline in China is showing continued stabilisation. BMI highlights that the corruption scandal has yet to reach its conclusion for GSK, and that the firm may potentially see more losses in its Chinese business.
In May 2014, China's Ministry of Public Security alleged that Mark Reilly, former China head of GSK, Zhang Guowei, GSK vice president, and Zhao Hong Yan, GSK legal affairs supervisor, bribed law enforcement and other officials in Beijing, Shanghai and elsewhere to block a government investigation of GSK. They were also accused of bribing hospitals, doctors and health officials to use GSK drugs. Further adding to the pressure, local media, the Legal Daily, also alleged that GSK evaded at least CNY100mn (USD16.0mn) in taxes.
In Japanese yen terms, Daiichi Sankyo saw a 29.3% increase in sales in China, from JPY16.4bn (USD197.6mn) in fiscal 2013 (April 1 2013-March 30 2014) to JPY21.2bn (USD212mn) in fiscal 2013 (+7% y-o-y in US dollar terms).
Contrary to previous quarters, Roche did not mention its sales performance in China in Q114 with the exception that sales of Rituxan in China grew by 21% in CC terms. Instead, Daniel O'Day, head of Roche's pharmaceutical division, stated that sales in Q114 in China were affected by lower demand for Tamiflu (oseltamivir phosphate).
According to Eli Lilly's vice president of Investor Relations, Phil Johnson, China experienced 15% volume growth in Q114
Overall sales in China grew by 17% in CC terms in Q114.
The firm did not report on its sales performance in China, although it did state that China is one of the key emerging markets for the firm. Similar to Sanofi's view, CEO Miles White stated that the Chinese economy has slowed but stressed that 'China is not like Europe or the US or Japan or other developed markets, it is by comparison a robustly growing market. The fact that it is not growing double digits may disappoint some people, but I think the single-digit growth rates in the Chinese economy are pretty attractive, and then our business opportunity on top of that is pretty attractive.'
The firm did not give a figure for its sales growth in China. Nevertheless, John Young, president of Pfizer's global established pharmaceutical division, stated that the firm's China business continues to perform well and sees 'additional opportunities for growth with certain key partnerships such as with Zhejiang Hisun'.
Johnson & Johnson
The firm did not provide any figures for its performance in China, although CFO Dominic Caruso stated that China and Brazil drive the majority of the firm's growth, but also mentioned that the total Brazil, Russia, India and China (BRIC) business is a 'relatively small piece of [J&J's] business'.
The firm did not mention its performance in China. However, the firm's main focuses in emerging markets are Russia, Brazil and China. The firm aimed to grow faster than the average market growth through maximizing sales of its existing portfolio of branded generic and over-the-counter medicine.
The firm did not state its performance in China although it did mention that China is one of the main contributors to organic growth for its subsidiary Merck Serono.
Multinationals Keeping Silent On China
There was no mention about its performance in China.
The firm chose not to comment on its performance in China.
 Business Monitor International - Industry Trend Analysis - Corruption Hits Pharmaceutical Sector Again - July 25 2013.