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Dateline: China, 08 April 2015

GSK takes over Novartis' vaccines business amid large-scale integration of multinational pharmaceutical companies in China


"It is worth mentioning that the Chinese market is still very critical for foreign pharmaceutical companies, although the pace of development has slowed down in line with new market dynamics. 'EMD Millipore has a market share of 8% - 9% globally, but only a 5% - 6% share of the Chinese market. The average growth rate of the laboratory and pharmaceutical segments of the Chinese market is 2.5 times that of the global average. We still have huge potential for development in China,' said Batra. (Dr. Udit Batra, CEO and President of MilliporeSigma )"

As China's macroeconomic slow-down is gradually accepted as the "new normal" trend, foreign pharmaceutical companies are suffering ever more problems arising from rapid expansion and excessive infrastructure investment in recent years. These companies are trying to adapt to the new normal by taking necessary measures in terms of compliance, mergers and acquisitions, personnel restructuring, and so on.

"As China's macroeconomic slow-down is gradually accepted as the "new normal" trend, foreign pharmaceutical companies are suffering ever more problems arising from rapid expansion and excessive infrastructure investment in recent years. These companies are trying to adapt to the new normal by taking necessary measures in terms of compliance, mergers and acquisitions, personnel restructuring, and so on," said an insider who spoke to CBN Daily.

The Chinese vaccines market is being transformed
Last year Novartis, GSK and Lilly concluded a "business exchange" transaction. Novartis took over GSK's oncology business division, and handed over its vaccine business to GSK. Meanwhile, Novartis' animal health business was sold to Lilly Pharmaceuticals at a price of USD 5.4 billion.

An inside analyst revealed that there have been further developments since these transactions. It has been reported that the former head of Novartis Vaccines China has resigned and the former head of GSK's vaccine business division has taken a new role leading Novartis Vaccines China. These changes to the companies' China leadership have been announced internally in both companies.

"Other positions have not yet been determined, with the exception of the head of Novartis Vaccines China, but these will be confirmed in the next six months," the above insider told CBN Daily. Many former employees of Novartis Vaccines China have considered or are considering resigning. The next phase of the integration of the two vaccines divisions will involve linking management systems and conducting the necessary handovers.

Meanwhile, GSK is expanding the footprint of its vaccines business in China as part of the reorganization of both vaccine divisions.

"GSK will expand its production capacity in China in the coming year; we will introduce some new, leading technology to China, particularly in the vaccines division. This is a key business for us," said An Weijie, CEO of GSK China, on March 21, at the "China Development Forum 2015".

During the integration, Novartis' vaccines division is being "disbanded" as part of the current CEO's strategy. Novartis expects to focus on its core business areas, such as oncology, ophthalmology, and bio-similars," the insider said. It is reported that the actual net sales of Novartis' vaccine business was USD 1.4 billion in 2013, and profits accounted for less than ten percent of the company's total profit.

However, Novartis and GSK are not the only two companies reorganizing their vaccines business in China.

On March 30 this year, Pfizer China announced in an e-mail that it would be suspending its vaccines business in China.

This decision is believed to be based on its main product "Prevenar" (used primarily to treat common childhood pneumococcal disease). Prenevar could not be released in the Chinese market because the CFDA did not approve its renewal application for an import registration license.

In fact, some insiders revealed that Pfizer's vaccine product line was not fully diversified in China, and thus performed poorly on the market. Coupled with higher operating costs, these circumstances forced Pfizer to suspend the operation of its China's vaccines division.

"Pfizer's actions are also influenced by global pharmaceutical industry trends; otherwise, Pfizer would not have had to lay off so many employees – which it would not have happened had this situation occurred in 2013."

Adapt to the new normal by accelerating mergers
Just earlier this year, Hunan province slashed the price of drugs in the province's drug tendering process. Against this backdrop, many foreign pharmaceutical companies have quit the basic drug market in Hunan. It represents just one example of the frustration suffered by pharmaceutical companies in China in the past two years. As domestic anti-corruption efforts build momentum, and health insurance departments implement further cost control measures, the pace of development for foreign pharmaceutical companies has slowed in China. "Merging and downsizing" have become commonplace among the majority of foreign pharmaceutical companies operating in the country.

"In the last year, the pharmaceutical industry has seen three major trends developing. Firstly, in both the global and Chinese markets, law enforcement and regulations have become stricter. The second major trend is that a lot of joint ventures have been further reorganized through more frequent M&As, and the size of these transactions has been unprecedented. The third trend is that more and more cases of corruption in the healthcare industry have been publically exposed," said Yang Yihua, partner of dispute coordination and review, at Ernst & Young Greater China, in an interview with CBN Daily.

They have not only "downsized" and given up subordinate businesses that have a limited impact on the company's overall revenue, thus reducing basic expenses. They have also "merged" to stabilize and grow industry-leading business to increase profits.

Last September, EMD Group, the German pharmaceutical and chemical giant, spent USD 17 billion on acquiring Sigma-Aldrich, an American biochemical company. The deal - the largest acquisition in the history of EMD - will improve the company's competiveness in the biopharmaceutical market. "This acquisition will double our business volume in China, with Sigma-Aldrich's portfolio of 240,000 products," said Udit Batra, CEO and President, EMD Millipore, during an interview with CBN Daily. "Sigma has a more mature e-commerce platform, and provides seamless logistics services for its 240,000 kinds of products; this is what we need."

It is worth mentioning that the Chinese market is still very critical for foreign pharmaceutical companies, although the pace of development has slowed down in line with new market dynamics. "EMD Millipore has a market share of 8% - 9% globally, but only a 5% - 6% share of the Chinese market. The average growth rate of the laboratory and pharmaceutical segments of the Chinese market is 2.5 times that of the global average. We still have huge potential for development in China," said Batra.