MNCs’ new strategies of business development in China

By Berry Pan, GBI Analyst

As a leading industry in one of the world’s fastest growing economies, China’s pharmaceutical sector continues to face challenges that pose numerous hurdles to multinational companies seeking growth in China. Such challenges include governmental plans to eliminate separate originator pricing, a changing drug procurement system, and a reshuffling of the healthcare system to name a few. An additional issue (in China as well as other geographies) is the problem of dwindling product portfolio values and pipeline sizes. It has been reported that over the next five years, many multinational corporations will lose patent protection for products worth USD 140 billion in annual sales, including Bristol Myers Squibb (BMS) and Sanofi-aventis’ clopidogrel products as well as Pfizer’s atorvastatin across multiple geographies. Clinical trial and/or registration failures for new drug candidates such as those of Roche’s taspoglutide/ocrelizumab and AstraZeneca’s zibotentan in 2010 highlight the difficulties (and costs) of new product development.

Seen through this lens, it is possible to appreciate several changes/shifts in corporate strategies among multinational pharmas for business development and growth in China, including collaborations with local pharmaceutical enterprises. In April, Merck Sharpe & Dohme (MSD) signed a marketing services contract agreement with Chongqing Zhifei Biological Products Company Ltd. (SZ:300122) for the latter to promote the former’s vaccine products in China. With this agreement, MSD can expand presence of two of its vaccine products in China: the company’s measles, mumps and rubella (MMR) combined vaccine and 23-valent pneumococcal polysaccharide vaccine (PPSV23). Per the agreement, Chongqing Zhifei will receive consideration of RMB 47.28 million per year.

An additional example is the growing relationship between Pfizer and Shanghai Pharmaceutical- the two recently signed a memorandum of understanding (MOU) to (continue to) jointly pursue business opportunities in China. The companies currently have an existing cooperation surrounding the promotion of Pfizer’s Prevenar (7-valent) pneumococcal conjugate vaccine. The two parties have strengthened their cooperation and, under the new MOU, will collaborate on regulatory approval and distribution of an “innovative Pfizer product.” Pfizer has also recently revealed that it will be a cornerstone investor in the upcoming Shanghai Pharmaceutical Hong Kong IPO, with a committed investment of USD 50 million. Taking advantage local collaborations enables MNCs to reduce compliance risks, advance business expansion initiatives (despite existing regulatory hurdles and other threats), and meet target sales. In addition, partnerships with local distributors also widen MNCs’ presence to Tier 2 and 3 cities in China.

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