Can AstraZeneca sustain rapid growth in China amid price-cutting scheme and local competition? It'll probably be slower, execs say

AstraZeneca
The Chinese market pulled in sales of $1.53 billion for AstraZeneca in the second quarter after a 12% year-over-year growth at constant currencies. But problems are showing. (AstraZeneca)

Over the past few years, China has been offering AstraZeneca bragging rights. But the company’s business in the country is coming to a turning point after being exposed to the government’s price-cutting scheme and local competition—and investors have caught wind.

During a conference call Thursday, Wall Street analysts piled into AstraZeneca’s China performance, pressing management on whether the company can sustain its double-digit sales growth in the country.

The short answer? Expect slower growth going forward.

“Slower growth in China is no question,” AstraZeneca CEO Pascal Soriot told investors on the call. “We believe we can continue growing [and] maintain our position of leadership, but it’s going to be more difficult moving forward.”

AstraZeneca's Chinese business pulled in sales of $1.53 billion in the second quarter after a 12% year-over-year growth at constant currencies. But problems are showing.

As one analyst noted during the call, more than $1 billion in annual sales from older AZ products are now exposed to China’s volume-based procurement (VBP) initiative, a price-cutting program that targets off-patent drugs.

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Cholesterol drug Crestor, blood thinner Brilinta and acid reflux med Nexium have all suffered as a result. Brilinta, for example, saw emerging markets sales drop 40% at constant currencies to $180 million in the first six months of 2021. 

Over the past two to three years, VBP has become “quite a challenge,” AZ’s international and China market chief Leon Wang said on the call. In response, the company has resorted to multichannel marketing, turning to the retail pharmacy market to soften the blow of tender losses.

In addition, AZ has been working to ink local commercialization deals to maintain its presence in China, Wang said.

AZ’s competition isn’t just coming from generics, though. China has a growing biopharma industry where many companies are piling into a few validated drug targets, threatening incumbent foreign drugmakers.

Case in point: Hansoh Pharma is seeking approvals for its third-generation EGFR inhibitor Ameile (almonertinib) for newly diagnosed EGFR-mutated non-small cell lung cancer. It comes as AZ’s flagship EGFR inhibitor Tagrisso has just been included for national reimbursement in China in the front-line setting.

Competition is indeed “severe” from local firms, Wang said, but the company is working to add new drugs and indications to the market and is noticing increased volumes from national reimbursement deals.

“With our commercial capability, we will definitely make sure that we can stabilize and continue growing,” Wang said.

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Another area AZ sees as a growth opportunity in China is rare diseases. In announcing its recent $39 billion acquisition of Alexion late last year, Soriot highlighted the potential to expand the Boston firm’s rare disease portfolio to China.

Problem is, China is currently focused on reining in healthcare expenditures and might not respond favorably to pricey rare disease meds.

AZ’s chief financial officer and incoming Alexion head Marc Dunoyer acknowledged that the reimbursement infrastructure for rare disease drugs in China isn’t as advanced as it is in many developed economies. The rare disease market in China is still small, but there’s a growing recognition of its importance from authorities, he added.

“We were all surprised by the speed at which the oncology market grew in China,” Dunoyer said on the call. “Even if we don’t expect rare disease to grow at the same speed, it is likely that the speed at which the rare disease grows in China is going to be faster than other markets of the world.” 

Wang noted that Alexion could first introduce Alexion’s portfolio to China’s Guangdong-Hong Kong-Macau Greater Bay Area. A special program currently allows cross-border use of drugs and medical devices in the province of Guangdong—a wealthy territory with a large population—as long as the product is approved in Hong Kong. That offers an easy regulatory pathway for drugs already approved in the U.S. and the EU.

Ultimately, AZ hopes to shape the market by working with Chinese authorities to develop guidance on how rare disease drugs can be included for national coverage at reasonable prices, Wang said.

Overall, Wang confirmed that AZ can still grow its China business at low double digits in the second half of the year, but the company declined to offer an outlook for 2022.