In China, Big Pharma companies know all too well that their off-patent drugs face intense pressure from a relatively new price-cutting scheme. In response, many are turning to newer offerings for growth while trying to stabilize their established medicines departments. Overall, the strategy is working.
AstraZeneca, Bayer, Eli Lilly, Merck & Co., Novartis, Novo Nordisk and Sanofi are among Western drugmakers that reported pharma sales growth from China during the first half of 2021.
But even as innovative products such as AZ’s lung cancer med Tagrisso, Merck’s HPV vaccine Gardasil and Novartis’ immunology drug Cosentyx ginned up sales increases, pharma companies have also found themselves playing defense for their mature brands. Plus, that continually expanding price-cutting program now looks ready to tap into biologics, starting with insulins.
Innovative medicines fuel growth
Over the last few years, AstraZeneca has established itself as the leading foreign drugmaker in China. The company's sales in the country jumped 11% at constant currencies to $3.21 billion in the first half of the year.
Despite having to offer big discounts, AZ has worked hard to get its drugs onto China’s National Reimbursement Drug List (NRDL). Tagrisso’s use in newly diagnosed EGFR-mutated non-small cell lung cancer and Lynparza’s indication for first-line maintenance treatment of BRCA-mutated ovarian cancer after one round of chemotherapy recently scored inclusion on the list starting back in March.
What’s more, AZ is “maximizing” Farxiga, known as Forxiga outside the U.S., AZ’s China and international market head Leon Wang said during a conference call a few days ago. The SGLT2 drug in October had its cardiovascular outcomes benefit added to its China label and scored approval in February to reduce heart-related death and hospitalization in patients with heart failure with reduced ejection fraction.
For Merck, which isAZ’s collaborator on Lynparza, China sales grew 33.7% year-over-year to $1.70 billion in the first half. The growth was “really driven by Gardasil,” Merck’s president of human health, Frank Clyburn, said during the company’s recent quarterly conference call.
Since China’s approval for Gardasil 9 in 2018, demand for the HPV vaccine has continuously outstripped supply. Looking forward, Merck expects strong China sales for the vaccine because it has so far only reached a small number of eligible recipients, Clyburn said.
Besides Gardasil, Merck’s alliance revenue for Eisai-partnered liver cancer med Lenvima increased by 15% at constant currencies in the second quarter to $181 million. The growth came thanks to the drug’s recent inclusion on China’s NRDL, Clyburn said.
But generic pressures could soon come for the cancer med.After defeating Eisai’s key patents, two generic versions by Simcere Pharma and Chia Tai Tianqing Pharma have just won local go-aheads a few days ago.
Another company benefiting from a recent NRDL inclusion is Novartis. Cosentyx, currently the Swiss pharma’s top-selling med, quadrupled China sales in the second quarter compared with the first quarter following the listing in March, Novartis’ pharma chief Marie-France Tschudin told investors on a call a few days ago. In addition to Cosentyx, Novartis also scored new NRDL spots for blood disorder drug Promacta and BRAF-MEK cancer duo Tafinlar and Mekinist.
Meanwhile, Novartis' popular heart med Entresto tripled sales year over year in China, making the country its second-biggest market behind the U.S. In June, Entresto won a China nod for treating essential hypertension, an indication that’s not yet included on the drug’s U.S. label.
Overall, Novartis’ China business posted sales gains of 18% at constant currencies to $811 million in the second quarter. As CEO Vas Narasimhan noted during the conference call, the company is “on track on our stated goal to double the size of our China business from the 2020 baseline” by around 2024 to 2025.
For its part, Lilly enjoyed 35% growth in China during the second quarter “as sales of new medicines have accelerated significantly in the past three quarters,” company chief financial officer Anat Ashkenazi said during a call last week. These include Innovent Biologics-partnered PD-1 inhibitor Tyvyt. As the first PD-1 to snag an NRDL status a year ago, the drug’s revenue in China nearly doubled during the first six months of the year to $214.6 million.
In addition to those companies, Bayer’s pharma unit recorded 22% growth in China during the second quarter thanks to heart drug Xarelto. Sanofi’s China business grew sales by 6.3% at unchanged exchange rates during the first half to €1.38 billion ($1.62 billion). Novo Nordisk saw China sales increase reach DKK 8.05 billion ($1.27 billion) after a 12% year-over-year increase at constant currencies.
Pricing pressure on generics still a drag
Aiming to lower drug costs, China in 2018 rolled out a new program designed to bring down the prices of off-patent drugs. This so-called volume-based procurement (VBP) program pits generic makers against the originators to win large tenders from public hospitals.
Some companies have chosen to distance themselves from off-patent products—a strategy that doesn’t necessarily focus solely on China.
In this group, Pfizer has offloaded its Upjohn established medicines to Mylan to form Viatris. Merck has spun off its aging meds—along with the women’s health and biosimilars portfolio—into Organon. Takeda recently sold off some cardiovascular and metabolic drugs in the Chinese mainland to local firm Hasten Biopharmaceutic. Lilly a few days ago just divested Chinese rights to erectile dysfunction therapy Cialis to Menarini.
Merck’s China performance lately “ties very well through our strategy where we pivoted and focused more on our innovative portfolio,” Clyburn said on the company’s conference call. That’s why the company is “very confident in the future growth within China,” he added.
But many foreign pharmas still maintain a sizeable business for off-patent drugs. Those companies have typically suffered losses from the VBP program.
AstraZeneca, for its part, cited the program’s effect on blood thinner Brilinta as the main reason for its emerging markets pullback so far this year. Tagrisso predecessor Iressa, cholesterol med Crestor and proton pump inhibitor Nexium are all still reeling from the effect of the VBP program. And asthma inhalation Pulmicort will start facing the assault in October.
Still, not all older drugs have suffered from VBP. For example, Sanofi’s blood clot buster Plavix managed an 8% sales growth in China to €94 million in the second quarter. The performance came more than a year after its inclusion in the VBP.
The more dreadful outcomes lie in what’s yet to come. In July, China’s National Healthcare Security Administration gathered insulin developers to discuss potential VBP rounds of the key diabetes drug class. Many industry watchers feared that the move could tee up potential inclusion of biologic drugs and their biosimilars in the future. The VBP program has so far only focused on small molecules.
After talking to authorities at the July meeting, Novo believes “it's less likely” that insulins will be included for VBP this year, company CEO Lars Fruergaard Jørgensen said during its second-quarter call on Friday. But an insulin VBP “will eventually happen,” he added.
“If you want to do a VBP for a biologic, and not least life-saving medicine like an insulin, this is not a trivial thing to do to secure both volumes and quality of those volumes,” Jørgensen said.
Despite the recent introduction of GLP-1s such as Ozempic in China, insulin products still make up the majority of Novo’s sales in the country. In the first half of the year, Novo’s insulin sales reached DKK 6.20 billion (nearly $1 billion) in China, up 10% at constant currencies over the same period last year. By comparison, the Danish pharma’s GLP-1 sales in the country were DKK 833 million ($131 million) during the period after a 68% year-over-year growth.
Novo is currently the top insulin maker in China with a 50.8% market share as of May, the company said.
Another major insulin player, Sanofi, remains “vigilant to learn about any potential mechanism for the inclusion of the insulin class,” Sanofi’s general medicines head, Olivier Charmeil, told investors on the company's second-quarter call.
“The exact mechanism, the scope, the timing is not known, and we feel very confident, given our track record in managing VBP in our ability now to grow volume,” he added.