Multinational Pharma Q3 Results: MSD China Sales Surge by 90%, Pfizer Rebounds with Strategic Turnaround

Adjustments to the National Reimbursement Drug List (NRDL) and the implementation of volume-based procurement... As industry giants adapt to China’s “rules of the game,” what are they relying on to drive performance growth? Which products serve as their “vanguard”?

As third-quarter reports are gradually released, the performance of multinational pharmaceutical companies during the first half of 2019 has also come into focus. In the Chinese market, Merck & Co. left its peers far behind with a 90% growth rate, while Roche, Eli Lilly, and AstraZeneca closely followed with increases of 53%, 33%, and 40%, respectively. Pfizer, whose second-quarter sales in China plummeted by 20%, managed to reverse the downturn and achieve positive growth through measures such as organizational restructuring and the introduction of new drugs.

Adjustments to the National Reimbursement Drug List and the implementation of volume-based procurement... It is evident that, regardless of their size and scale, an increasing number of multinational pharmaceutical companies are gradually adapting to the "rules of the game" in the Chinese market. Meanwhile, more and more global executives from multinational corporations (MNCs) are frequently emphasizing "the importance of the Chinese market" in public forums, and a growing number of companies are beginning to truly "tailor-make" their market strategies for China. Personnel changes and organizational restructuring have enabled foreign pharmaceutical companies to integrate more deeply into China's pharmaceutical market.

So, what are the industry giants, who have already integrated into the “rules of the game” in China, relying on to drive their performance? Which products serve as their “vanguard”? And what is the logic behind their collective update of China strategies?

Merck: 90% Surge in China Region Performance

Merck & Co. reported global sales revenue of $34.972 billion for the first three quarters, with Q3 sales reaching $12.4 billion, a 15% year-over-year increase. Notably, its blockbuster drug Keytruda generated $3.07 billion in sales in Q3 alone, representing a 64% increase compared to the same period last year. Keytruda’s sales for the first nine months of 2019 amounted to $7.973 billion. Buoyed by these strong results, Merck & Co. has raised its full-year sales guidance to a range of $46.5–$47 billion.

Another highlight of Merck’s third-quarter report was that its China business generated revenue of $2.368 billion in the first three quarters of 2019, with Q3 sales reaching $898 million, a year-on-year increase of 90%. In its financial report, Merck stated that China continues to maintain its leading position in the pharmaceutical business.

The strong performance in the China region was primarily driven by Keytruda and the nine-valent HPV vaccine. Keytruda has been launched in China with three indications, generating sales of approximately RMB 1 billion in the first half of the year. In particular, following its approval as a first-line therapy for lung cancer, Keytruda is poised to maintain its first-mover advantage in the lung cancer treatment landscape.

Driven by Gardasil and pediatric vaccines, global vaccine sales grew by 18% overall, with the China region making a significant contribution to this growth. In April 2018, Merck & Co.’s nine-valent HPV vaccine submitted its marketing application in China and received approval just 28 days later. Due to its high demand, there was even a shortage of the nine-valent HPV vaccine in the Hong Kong market in May 2018, where it became difficult to secure a single dose.

Pfizer: Performance Reversal in China Region

“Global Pharmaceutical Giant” Pfizer reported third-quarter revenue of $12.7 billion and net profit of $7.68 billion, surpassing the market’s prior expectations of $12.261 billion in revenue and $3.297 billion in net profit. Consequently, Pfizer’s stock price surged following the earnings announcement.

However, impacted by the loss of U.S. patent exclusivity for Lyrica (pregabalin), Pfizer’s global sales in the third quarter declined by 5% compared to the $13.3 billion recorded during the same period last year. Revenue from Upjohn, the Pfizer division that was recently “spun off,” dropped by 26% year-over-year. Lyrica generated $527 million in revenue, but nine companies—including Alembic Pharmaceuticals, Alkem Laboratories, Amneal Pharmaceuticals, Dr. Reddy’s Laboratories, InvaGen Pharmaceuticals, MSN Laboratories Pvt. Ltd., Rise Pharmaceuticals, Sciegen Pharmaceuticals, and Teva Pharmaceutical Industries—have already set their sights on this product, which achieved $5 billion in sales last year.

Just one day before the release of its third-quarter report, Pfizer’s Upjohn China management announced a restructuring of its sales team architecture, resulting in the collective resignation of five major sales heads. This was not the first significant personnel change at Upjohn this year; in September, Pfizer Upjohn announced that Wu Feng, General Manager of China, would step down, and appointed Huang Hai, formerly Head of Marketing for Upjohn China, as Chief Operating Officer of Upjohn China. As Upjohn’s business segment with the highest revenue contribution in China, it has undergone continuous changes within less than a year—from its formal establishment, to the relocation of its global headquarters to Shanghai, and finally to its “downstream merger” with Mylan.

In the first round of volume-based procurement, Pfizer’s two flagship products, atorvastatin and amlodipine besylate, failed to win bids. As the policy was implemented, Pfizer recognized the impact brought by volume-based procurement. Although Pfizer again failed to secure bids in the second round of volume-based procurement, Frank D’Amelio, Pfizer’s Chief Financial Officer, stated during a conference call that Upjohn “could mitigate the impact of the ‘4+7’ program by expanding its nationwide presence.”

The report shows that Pfizer reversed the 20% negative growth in China from the previous quarter, achieving a 2% growth in the region. Pfizer CEO Albert Bourla stated during the conference call that in the third quarter of 2019, Pfizer’s operational growth in China reached 42%, with revenues from its biopharmaceutical business exceeding those of Upjohn.

Financial reports indicate that Pfizer expects its Upjohn generics business in China to achieve mid-to-high single-digit revenue growth in 2019 compared with 2018. Meanwhile, the “2018 Annual Hospital Drug Use Monitoring Report” released by the Chinese Pharmaceutical Association also showed that Pfizer continued to firmly dominate the healthcare institution market, ranking first in procurement volume with a 3.75% share.

Roche: New Drug Relay

On October 16, Roche Group released its financial report for the third quarter of 2019. At constant exchange rates, the group's sales for the first nine months of the year reached CHF 46.1 billion (USD 47.1 billion), representing a year-on-year increase of 10%. Among these, pharmaceutical business sales amounted to CHF 36.559 billion, an increase of 12% over the same period, while diagnostic business sales totaled CHF 9.507 billion, reflecting a 4% growth during the same timeframe.

In the pharmaceutical business, the four most standout new drugs are: Ocrevus (ocrelizumab), a new drug for multiple sclerosis, with sales of CHF 2.664 billion in the first nine months; Hemlibra (emicizumab), a new drug for hemophilia, with sales of CHF 921 million in the first nine months; Tecentriq (atezolizumab), an oncology immunotherapy monoclonal antibody, with sales of CHF 1.297 billion in the first nine months; and Perjeta (pertuzumab), a new drug for breast cancer, with sales of CHF 2.665 billion in the first nine months.

Threatened by biosimilars, the global market performance of rituximab and trastuzumab has declined. Notably, Herceptin, Avastin, and MabThera have consistently served as the “three pillars” driving Roche’s growth in China for many years, maintaining robust expansion even after their price reductions enabled inclusion in the National Reimbursement Drug List in 2017. In the first half of 2019, Avastin’s sales in China grew by 61%, MabThera by 21%, and Herceptin by 144%. Driven by these products, Roche’s performance in mainland China and Hong Kong stood out, with a 53% year-on-year increase in the first nine months, reaching CHF 2.563 billion (RMB 18.378 billion).

Furthermore, the new drugs Perjeta and Alecensa have also performed well since their launch in China, and Roche has already planned to introduce multiple new products to the Chinese market in 2019. On October 21, the Roche Shanghai Innovation Center, built over three years with an investment of RMB 863 million, was officially inaugurated. The establishment and operational launch of the Roche Shanghai Innovation Center signify that China will no longer serve merely as a key market for Roche’s clinical development and regulatory registration of pharmaceuticals, but will become a primary hub for the conceptualization and validation of Roche’s global innovative drugs. More innovative medicines will be discovered for the first time in China and subsequently launched globally.

Eli Lilly: On Board with Volume-Based Procurement

Eli Lilly and Company Releases Q3 2019 Financial ResultsIn the reporting period, the company’s global sales reached $5.48 billion, a year-over-year increase of 3.2%; net profit amounted to $1.25 billion, representing a 9.1% year-over-year growth.

During the earnings conference call, Chief Financial Officer Josh Smiley revealed that sales in the China market increased by 33% year-over-year this quarter, making it a significant contributor to Eli Lilly’s 15% sales growth in markets outside the United States.

Architectural restructuring, new drug launches, price reductions for off-patent medications, and the closure of R&D centers... In addition to gradually integrating China into its global operations in sync with the rest of the world, Eli Lilly is also increasingly adapting to the local "rules of the game" in China.

Since July, Eli Lilly’s newly launched global drugs have become available in China: In early July, the once-weekly GLP-1 receptor agonist Trulicity (dulaglutide) and the 2mg tablets of Olumiant (baricitinib), indicated for the treatment of adult patients with moderately to severely active rheumatoid arthritis, were launched in the Chinese market. On September 4, Taltz (ixekizumab injection), indicated for adult patients with moderate-to-severe plaque psoriasis who are candidates for systemic therapy or phototherapy, received marketing approval from the National Medical Products Administration (NMPA). Previously, having recognized the trend of a significant overall slowdown in the growth rate of China’s diabetes market, Eli Lilly had already begun “downsizing” its operations in China, including shutting down its R&D center and divesting its off-patent drug business.

After experiencing the impact of the first round of volume-based procurement, Eli Lilly implemented a nationwide price reduction for pemetrexed. In March, Eli Lilly’s pemetrexed disodium was the first to undergo price adjustment in Zhejiang Province, making Eli Lilly the first originator pharmaceutical company in China to proactively apply for a price reduction. Adopting a low-profile strategy, it successfully qualified for the second round of procurement. Ultimately, pemetrexed won the bid at a competitive price of RMB 809 per box (100 mg), representing a 70% price reduction compared to the quoted prices in the “4+7” pilot program across 11 cities. In April this year, Eli Lilly sold the rights to its antibiotic products Ceclor and Vancocin in mainland China, along with the Ceclor manufacturing plant located in Suzhou, to Yiteng Pharmaceutical.

The financial report indicates that, regarding future profitability in the Chinese market, Taltz is expected to be launched and sold within the next few months. The drug was first approved in China this September for the treatment of adult patients with moderate-to-severe plaque psoriasis. Among products not yet approved, the CDK4/6 inhibitor Verzenio (abemaciclib) and the rituximab biosimilar, co-promoted with Innovent Biologics, have entered the NDA submission and review stages, and are poised to be the first to reach the market.

AZ: Performance Surges Driven by Medical Insurance

As the multinational pharmaceutical company widely regarded as having achieved the best localization in China, AstraZeneca’s growth in its China operations has naturally drawn significant attention. On October 24, AstraZeneca released its financial results for the first three quarters of 2019, reporting product sales revenue of $17.315 billion, a year-on-year increase of 17%. Among this, product sales revenue in the third quarter amounted to $6.132 billion, representing an 18% year-on-year growth.

Of this, revenue in China reached $3.691 billion in the first three quarters, a year-on-year increase of 37%. Specifically, sales revenue in the oncology segment amounted to $1.023 billion, up 67% year on year, while sales revenue in the new CVRM (Cardiovascular, Renal and Metabolism) segment totaled $359 million, representing an 88% year-on-year growth.

In the new round of volume-based procurement, AstraZeneca’s rosuvastatin was not selected. However, the company’s gefitinib, after a 75% price reduction last year, successfully won the bid in the “4+7” pilot program and has again been awarded the contract in the current volume-based procurement at the same price. Therefore, during the conference call, AstraZeneca executives pointed out that even if the “4+7” volume-based procurement is expanded nationwide or extended to more drug categories in 2020, the company’s business in China is expected to maintain a growth rate of “teenage percent.”

However, rather than relying on off-patent drugs, AstraZeneca is placing greater hope on new medications and inclusion in the National Reimbursement Drug List (NRDL). Last year, ten of AstraZeneca’s products were included in the National Essential Medicines List, including Brilinta (ticagrelor), Symbicort, Pulmicort Respules, and Farxiga (dapagliflozin). Furthermore, Farxiga (dapagliflozin), Lynparza (olaparib), and the novel anemia drug roxadustat have entered the price negotiation phase for inclusion in the NRDL.

Following its inclusion in the National Reimbursement Drug List (NRDL) in 2017, the market penetration of Tagrisso (osimertinib) has continued to rise in China. In August 2018, the PARP inhibitor olaparib was approved in China for maintenance treatment of platinum-sensitive recurrent ovarian cancer. The third-quarter financial report revealed that, driven by its inclusion in the NRDL, olaparib boosted sales in emerging markets by 227% to $101 million during the reporting period. Furthermore, following the adjustment to the National Reimbursement Drug List in August 2019, Kombiglyze (saxagliptin plus metformin hydrochloride extended-release), a treatment for type 2 diabetes, was added to the regular reimbursement list.

Novartis: Breakthrough in Innovative Drugs

Novartis reported global sales of $12.172 billion in the third quarter of 2019, representing a 13% year-on-year increase at constant currencies (CC). Of this, innovative medicines generated sales of $9.688 billion (up 15%), while the generics division, Sandoz, recorded sales of $2.484 billion (up 5%). Total sales revenue for the first nine months of 2019 reached $35 billion, a 9% year-on-year increase.

Novartis’ innovative drugs account for a significant share of its total sales. Among them, Cosentyx (secukinumab), used for the treatment of psoriasis, was the best-selling product this quarter, with sales reaching $937 million, a year-on-year increase of 27%. On April 1, 2019, Cosentyx was approved for marketing in China, and the first prescription was issued on May 20. In the same month, the marketing application for Cosentyx’s second indication in China, ankylosing spondylitis (AS), was simultaneously submitted.

Novartis is accelerating the launch of new drugs in China. Although Cosentyx missed the 2019 national reimbursement drug list adjustment negotiations, the company is actively seeking all opportunities to collaborate with national healthcare security authorities to include Cosentyx in provincial and municipal medical insurance schemes, thereby addressing issues of drug accessibility.

In addition, Novartis’ multiple sclerosis drug fingolimod generated $829 million in sales revenue in the third quarter. In April this year, the Center for Drug Evaluation (CDE) of the National Medical Products Administration (NMPA) accepted the marketing application for fingolimod. Previously, the drug was included by the CDE in the first batch of the “List of Overseas New Drugs in Urgent Clinical Need.”

Novartis’s Zolgensma, priced at $2.1 million for the treatment of spinal muscular atrophy (SMA), has been used to treat 100 patients within four months of its U.S. launch, generating $175 million in sales, including $160 million in the third quarter. Reportedly, Zolgensma was developed and manufactured by AveXis. In April 2018, Novartis acquired AveXis for $8.7 billion, a move widely regarded at the time as a bold bet on novel gene therapies.

Novartis’ blockbuster heart failure drug, Entresto, achieved sales of $1.208 billion in the first three quarters, representing a 75% increase.

Entresto was approved for marketing in China in 2017, only two years later than in the United States. Currently, three additional indications for Entresto are under further development, and China has simultaneously joined the global Phase III clinical trials for all of them.

Under the influence of policies such as the “4+7” volume-based procurement, Novartis opted to reduce prices for drugs including its flagship product Gleevec. Against this backdrop, Novartis has been strategically shifting its focus toward new medicines. In a previous interview, Paul Hudson, Global CEO of Novartis, stated that the company expects to launch 32 new drugs or new indications in China over the next five years.

In its report, Novartis stated that its current strategic outlook is as follows: assuming constant exchange rates, net sales are projected to achieve high single-digit growth, with net sales of innovative medicines revised upward from the previous high single-digit growth rate to a low double-digit growth rate; Sandostatin is expected to deliver low single-digit growth; and core operating profit guidance has been raised to mid- to high-double-digit growth.

Johnson & Johnson: Accelerating the Entry of Innovative Drugs into China

Johnson & Johnson’s Third-Quarter 2019 Global Financial Results Report showed that global sales reached $20.7 billion, a year-over-year increase of 3.2% on a constant-currency basis. Among these, the Pharmaceutical segment achieved global sales of $10.9 billion, representing a 5.1% growth; the Medical Devices business saw sales rise by 3.1% to $6.4 billion; and the Consumer Health business posted a steady 1.6% increase, reaching $3.5 billion.

During the earnings conference call held after the release of the financial report, company executives stated that overall sales in China grew by approximately 15% this quarter, surpassing the $1 billion mark for the first time.

In the pharmaceutical business segment, immunology and oncology have experienced rapid growth, driven by a robust pipeline that includes multiple potential blockbuster products with annual sales in the billions of dollars. Taking DARZALEX® (daratumumab injection), used for the treatment of multiple myeloma, as an example, the FDA approved five indications for it between 2015 and 2019, covering first-line, second-line, and third-line or later treatments for multiple myeloma, both as monotherapy and in combination regimens. Over 100,000 patients have used this medication. According to Johnson & Johnson’s financial reports, DARZALEX® achieved sales of $2.168 billion in the first three quarters of 2019, representing a strong year-over-year growth of 50.4%.

In July 2019, Darzalex (daratumumab) was officially approved by the National Medical Products Administration (NMPA) for entry into the Chinese market. It is indicated as monotherapy for adult patients with relapsed and refractory multiple myeloma who have received prior therapies including proteasome inhibitors and immunomodulatory agents and demonstrated disease progression during their last treatment. Clinical trials are currently underway for its first-line indication. Additionally, Johnson & Johnson is collaborating with Nanjing Legend Biotech, a domestic company, to jointly develop CAR-T therapy for multiple myeloma.

Meanwhile, the performance of several of Johnson & Johnson’s blockbuster products declined, with Remicade (infliximab for injection) down 18.2%, and Abiraterone and Velcade (bortezomib) down 21.9% and 26.3%, respectively. It is evident that Johnson & Johnson’s performance has been impacted by the patent cliff, but the revenue generated from the launch of its new drugs can mitigate the shock to some extent.

Over the past two years, Johnson & Johnson has continuously enriched its product pipeline, with more than 20 new drugs and new indications successively approved. Song Weiqun, Chairman of Johnson & Johnson China, stated that the company will continue to strengthen its local R&D and manufacturing capabilities in China. Xi’an Janssen, Johnson & Johnson’s pharmaceutical subsidiary, invested $397 million to build a new large-scale innovative supply chain production base in Xi’an, which commenced operations this year. The facility is expected to achieve an annual total output of 4 billion tablets and capsules, as well as 57 million units of creams, further meeting demand in China and other markets.

Biogen: Facing Numerous Challenges

On October 22, Biogen announced its financial results for the third quarter of 2019. Total revenue for Q3 amounted to $3.6 billion, representing a year-over-year increase of 4.7%. For the first three quarters, total revenue reached $10.7 billion, up 7.8% compared to the same period last year. The revenue was primarily driven by sales of multiple sclerosis (MS) therapies.

Although Biogen remains a key player in the treatment of multiple sclerosis, it faces intense market competition, and its multiple sclerosis business is currently shrinking. Sales of Tecfidera, Biogen’s top-selling product, are considered to have reached their peak; sales in the first three quarters of 2019 amounted to $3.271 billion, representing a modest growth of only 3.4%. Sales of its two major interferon products declined by approximately 10% and are expected to continue their downward trend.

Notably, Biogen and Eisai began collaborating in October 2017 to develop drugs for the treatment of early Alzheimer’s disease. However, following the failure of Phase III clinical trials, Biogen failed to make significant strides in the Alzheimer’s field. On that day, Biogen’s market capitalization plummeted by nearly $18 billion.

Biogen’s current growth momentum is primarily driven by its blockbuster drug, Spinraza, which generated $1.553 billion in sales in the first three quarters, representing a 23.8% increase. Spinraza is an antisense oligonucleotide that modulates SMN2 gene splicing to enhance the production of full-length functional SMN protein. It is the first therapy approved globally for the treatment of infants, children, and adults with spinal muscular atrophy (SMA). The treatment regimen requires six injections in the first year, at a cost of $750,000, with the second-year cost reduced by half to $375,000. Compared to Novartis’s gene therapy Zolgensma, priced at $2.1 million, Spinraza holds a certain price advantage among drugs in the same class.

Biogen has also remained active in its gene therapy strategy. On March 5, 2019, Biogen announced the acquisition of Nightstar, a UK-based gene therapy company, targeting ophthalmic gene therapies, although the total value of the transaction was only $877 million. Wall Street analysts stated that Biogen should begin considering merger and acquisition opportunities in the central nervous system field.

Original Title:Multinational Pharma Giants Unveil Q3 Results: MSD’s China Business Surges 90%, Pfizer’s Performance Reverses… What Drives the Collective Update of China Strategies?