AstraZeneca Reportedly Plans to Spin Off Respiratory Business Amid China's Volume-Based Procurement Pressure

　　【Pharmaceutical Network Corporate News】Spinning off non-core assets and having a newly established company "take over" is not uncommon among multinational pharmaceutical companies. For example, Pfizer spun off its business into three segments: biopharmaceuticals, Pfizer Upjohn, and consumer healthcare. Mylan and Pfizer subsequently chose to merge Mylan with Pfizer's Upjohn to create a new pharmaceutical company named Viatris. Recently, industry reports indicate that AstraZeneca also has a new spin-off plan. It will divest its respiratory product line and transfer it to a new company jointly established by AZ and a major Chinese state-backed investment company. The new company is expected to complete employee contract signings by July 1.
 

Regarding this spin-off, analysts attribute it primarily to the impact of centralized procurement. Under centralized procurement, drug prices are reduced, causing related products to gradually become non-core assets for the company. The newly established entity is mainly responsible for managing the portion of centralized procurement product lines carved out from the parent company. It is expected that more centralized procurement products will be transferred to it in the future, such as the gastrointestinal product line.
 

Based on AstraZeneca's product portfolio, respiratory, gastrointestinal, endocrine, and oncology constitute its four major product lines, all of which are, to varying degrees, subject to volume-based procurement.
 

For example, in the oncology sector, Iressa has been included in the centralized procurement. In the fifth batch of centralized procurement, seven of AstraZeneca's products were selected, including the respiratory drug budesonide inhalation preparation and the digestive system drug esomeprazole injection. Both are blockbuster products with sales exceeding RMB 1 billion, and AstraZeneca holds a substantial market share in both. With the implementation of centralized procurement, domestic companies that have passed the generic drug consistency evaluation are expected to secure a larger market share, and competition with AstraZeneca is anticipated to be highly intense.
 

AstraZeneca’s decision to divest its respiratory product line may also be linked to its declining performance. It is understood that China’s inhalation formulation market is primarily dominated by budesonide, budesonide/formoterol, salmeterol/fluticasone, and tiotropium bromide. AstraZeneca and two other foreign pharmaceutical companies collectively account for approximately 92% of the market share. Among these, AstraZeneca’s budesonide has maintained a dominant position since entering the Chinese market in 2001. According to IQVIA’s sampled statistical estimates, the terminal sales value of budesonide inhalation suspension in China in 2019 was approximately RMB 5.632 billion.
 

However, with the rise of generic drug manufacturers, AstraZeneca's budesonide has faced significant competitive pressure from generic alternatives, and its sales have subsequently been affected. Data shows that from January to August 2020, sales of AstraZeneca's budesonide amounted to RMB 2.279 billion, representing a year-on-year decline of 39.0%. Additionally, according to the company's 2020 financial report, global sales of AstraZeneca's budesonide dropped by 33% to USD 996 million, as pediatric patients and their parents were restricted from accessing nebulization centers for treatment during the pandemic.
 

Inhalation formulations feature high technical barriers and pose significant challenges for generic development. However, confronted with a market size of tens of billions of RMB, and with the continuous enhancement of R&D capabilities among pharmaceutical companies in China in recent years, numerous firms are actively expanding their presence in this sector following breakthroughs in the technical barriers of inhalation products. Coupled with the introduction of favorable policies and regulations such as 《Guiding Principles for Bioequivalence Studies of Generic Orally Inhaled Drug Products》, which provide technical guidance for the R&D of generic inhalation formulations and accelerate the process of generics replacing originator drugs, the landscape is evolving rapidly. Against this backdrop, AstraZeneca will undoubtedly face intense competitive pressure, making its decision to accelerate the spin-off and divestiture of its respiratory product line entirely logical.
 

Additionally, it is reported that regarding personnel transition arrangements for the team managing AstraZeneca's legacy product line, medical representatives joining the newly established company can expect a base salary increase of RMB 1,500–1,900. Regional directors will be granted equity, and representatives may be eligible for stock options, among other incentives. This is likely to be welcome news for medical representatives.