Big Pharma feels the pain in China, with AZ delivering the only 10%-plus sales hike

Not so long ago, China was such a promising pharma market that drugmakers recruited hundreds of new sales reps to race after a share. But growth is slowing there now, and drug companies are feeling it.

Novo Nordisk ($NVO) became the latest pharma to report a slowdown in China for the second quarter, with 3% real growth in a market that had previously delivered in the double digits. In its earnings presentation, the diabetes specialist blamed distributor shipments for part of the decline, but also pointed to slowing growth in China's diabetes market, thanks to government cost cuts and reduced access to doctors. Stepped-up competition from local drugmakers also took its toll.

Meanwhile, Eli Lilly's ($LLY) China sales shrank by 16% for Q2 as lower volume paired up with the strong dollar to drag down the numbers. Some government policies are holding back volume growth, Lilly's emerging markets chief Chito Zulueta said during a call with analysts, and more hospitals are switching to cheap generics.

Eli Lilly's Chito Zulueta

More of a squeeze is coming, too, with pressure on pricing for human insulin as local companies step up to compete. "[M]oving forward I think you'll see more pressure on pricing, particularly for off-patent brands," Zulueta said, adding, "I think we should expect that the short-term will be challenging."

Novartis ($NVS) CEO Joe Jimenez said China appears to be consciously working to slow down its rapid growth in healthcare spending--and the effects of that work come on top of slowing overall economic growth. His company is "starting to feel it," Jimenez said during the Q2 earnings call, with a slowing of China growth across all its business units.

That doesn't mean China isn't worth it, though, Jimenez pointed out. Growth rates there are still at a level that contributes to the company's overall growth, he said, "and I don't see that changing because you still got high demand, just probably not at the rates that we've been seeing."

GSK CFO Simon Dingemans

Then there's GlaxoSmithKline ($GSK). Its China business has come back somewhat from the major hit it took in the wake of a bribery scandal, it's not growing by any means. Sales there fell by 14% for the quarter, on a pro forma basis that accounts for its big sale-and-swap with Novartis. The company has cut prices to drive volume in China, CFO Simon Dingemans said during the company's Q2 call with analysts, as part of its efforts to "reset this business for the future."

As Reuters notes, AstraZeneca ($AZN) was in fact the only drugmaker that managed double-digit growth in China last quarter; sales in the country swelled by 10% for Q2, bringing half-year growth to 19%. The company said during the Q2 call that it expects to be able to keep up the double-digit increases for the rest of the year, despite "a structural slowing" in the market. "[W]e believe we can grow ahead of the market, but there will be some more pricing pressure," said EVP Luke Miels, head of global product and portfolio strategy. "But again, that should be offset by uptake in volume."

Overall, Zulueta said, pharma companies have seen "a pretty significant drop" in China growth. From mid-teen growth over the last few years, so far this year it's "somewhere around single-digit," he said. But like Jimenez, he thinks it's worth it to hang in. "[W]e anticipate pressure in the short-term, but we're very confident that the medium- to long-term prospects remain very, very positive," he said.

- see Novo's earnings presentation (PDF)
- read the AstraZeneca call
- get the Novartis transcript
- check out GSK's call transcript
- read the Lilly transcript

Special Report: Top 10 drugmakers in emerging markets