From the pharma C-suite: Notable, quotable remarks on Asia, emerging markets for Q1 (Part 6)

FiercePharmaAsia combs earnings calls by major drug companies for notable and quotable nuggets on emerging markets and Asia to track the latest sales trends and insight into business outlooks in markets as diverse as China, India and Japan to Southeast Asia.

For the first quarter of the year, we wind up with GlaxoSmithKline ($GSK).


GSK CFO Simon Dingemans

Earlier this month, Simon Dingemans, GSK's chief financial officer, gave some of the Asia, emerging markets highlights along with the release. But like most major pharma companies this quarter, Dingemans had to give the bad news on Japan.

"Sales were down in Japan, due to a tough comparator with Q1 last year, which saw significant wholesaler stocking last year ahead of a tax increase in April 2014," he said on May 6.

"Also a large government Relenza order in Q1 2014 did not recur this year. Despite this, total respiratory sales were up 1%, as Relvar continued to build momentum following the lifting of the Ryotan restrictions, offsetting almost half of Advair's decline of 27%, which benefitted significantly last year from wholesaler stocking. Seasonal products made up the rest."

He then gave a bare bones look at pharma emerging markets, though a bit of a bright spot on China.

"Sales in emerging markets were down 1% pro forma and growth in several areas, including respiratory, was more than offset by the impact of disruptions in some countries in the Middle East region, lower established product sales, due to both the phasing of shipments but also some supply constraints. Seretide was up 6%, with strong growth particularly in China."

GSK CEO Andrew Witty

After the earnings release and remarks from Dingemans, Andrew Witty, CEO, warmly welcomed analysts to the Goldman Sachs Auditorium on May 7 and had a lot more to say.

He detailed what was described as a "big release" and noted that the entire board and the heads of the company's three global businesses were also on hand to help him through it.

Those executives were Emma Walmsley, who runs consumer healthcare business; Moncef Slaoui, who runs the vaccines business globally; and Abbas Hussain, who runs the pharmaceutical business.

He then fairly quickly discussed what the rapid changes at GSK mean for Asia and emerging markets broadly, including "prioritizing our emerging markets."

"We think about the industry, the traditional pharmaceutical industry, essentially it's being developed, it has grown, supported by a population of, let's say, 600 million people," Witty said.

"The United States and most of Western Europe. But you think about where the future is, the other 6 billion, 6.5 billion people in the world are rapidly becoming significant contributors to the world healthcare marketplace."

"So we wanted to develop a strategy which speaks to that bigger population, doesn't just fixate on the higher-priced smaller marketplaces of the past. That's a significant evolution of positioning, it's what we've been working toward organically, it's why we have invested in the emerging markets, but it's absolutely taking forward substantially, particularly through the transformation of the consumer business, now market leader in 36 countries in the world, and the vaccine business."

The numbers, Witty suggested are already evident.

"In the next 5 years, 300 million new people on the planet will start to consume healthcare for the first time. So the size of the United States, in terms of people, will begin to consume products that we could supply for the very first time."

But Witty also noted these sales efforts will not start from scratch, which is a particular plus for the vaccines business.

"Our emerging markets footprint is already big. The deal gives us a chance to go even broader, particularly with some of the vaccines we have brought through, and you'll see there is a dramatic opportunity for us to expand margins in this business, not least because the Novartis business was in fact loss-making when we took it over."

But that does not mean that the company will rely on existing practices in markets around the world, Witty said.

"Make no mistake, the business model which has historically been prosecuted by this industry, the commercialization model, is not in step with regulators, or governments, or payer expectations," he said, before a possible reference to the bribery scandal in China.

"We've made the call, two years ago, to start that journey, and we reiterate today, we see this not just as something we have to do, it's something that we want to do."

Hussain filled in some details on emerging markets and how generics remain a good bet.

"In emerging markets, we are tending to see pricing pressures as a consequence of fierce competition between brands and branded generics, typically in emerging markets you start to see about 2% to 3% price erosion every year," Hussain said.

But he noted that the generics market has two sides to the coin.

"Typically what happens in an emerging market is you have multiple generics launch, you lose in price and volume, maybe by 15% to 20%, and from that new base, you continue your promotion," he said.

He then added some color to the vaccines business.

"In the emerging markets, over the last 7 years, we have had double-digit growth with vaccines," Hussain said. "In fact, in emerging markets, we have cumulatively added £8 billion worth of business as consequence of vaccines."

He also said that China fits into the mix.

"In China, we expect Rotarix to be approved sometime in 2016, and Cervarix to be approved sometime in 2017," Hussain said. "Just to remind you, the birth cohort in China is 16 million, and rotavirus is a significant healthcare issue in China, so seriously an important vaccine for China, and something that is very important for public health."

Emma Walmsley

Walmsley spent some time on the digital side of the consumer business, something many drug executives don't often bring up, and suggested GSK is ready to break the mold.

"In our new digital age, the consumer has never been more interested or more informed with informational healthcare available anytime, anyplace," Walmsley said.

She then described one aspect that might grab attention industry wide.

"We will also be making sure that we capitalize on our Shopper Science Lab," she said. "This is a really state-of-the-art facility that allows us to research these finish innovation products in both simulated, digital, and real retail environments with our retail partners, to test packaging, claims, and our shopper materials."

Finally, all of the analysts, as they do, had many questions, but on specific products and very little on the grand strategies talked about. But then one decided that it might be good to ask about any lessons learned from the Chinese bribery scandal and Witty rose to it in a cautious way at first.

"Just on the China piece, nothing new to say there," Witty said. "I'd say overall things are--have stabilized over the last 6 or 9 months in every dimension, and we're--frankly, I'm personally cautiously optimistic in terms of what we can see happening now in China. Interestingly enough, the transaction, I think, will help us."

And then he got warmed up.

"It brought into GSK a very interesting vaccine manufacturing center. One of the centers that came to us from Novartis is in China. That will probably speed up some of our vaccine strategy for China. But I think overall, we're in a different phase now, which is good."

"In terms of lessons learned, we are literally trying to learn every lesson we can from that kind of thing. I think we've had a pretty thorough going over in terms of trying to understand what we can improve from, and obviously we are trying to replicate that. We're also deploying it in the due diligence that we are doing in terms of all the Novartis businesses and the people that we have joined the business. We have prioritized a lot of our -- for example, ABAC due diligence into the Novartis businesses."

And it gave him the segue needed to explain why the whole sales model has to change and that GSK is leading the way.

"As far as the competitive advantage is concerned, I know a lot of people don't want to hear this, but the model the industry has followed historically is coming to an end. And it's coming to an end because more and more policymakers, governments, regulators around the world are looking for ways to bring into an end. So we have a choice," Witty said.

"We can either go like everybody else and be dragged kicking and screaming to be forced to change, or we can try and invent a new way of operating. And do that ahead of time. In the last few weeks, I've met with a number of heads of government, a number of other representatives of government. I have met nobody in government who wants anything other than us to succeed in the changes we are making in our business model, because it's totally aligned with the expectations of those key stakeholders."

- here are the GSK Results and investor presentation (reg. req.)