MNC Profiles: Who Values the Chinese Market Most?

MNC Diversity: Who Values the Chinese Market the Most?

When studying the pharmaceutical industry, MNCs (multinational pharmaceutical companies) are an unavoidable industry coordinate system. Although China’s pharmaceutical industry has continued to develop in recent years, it still relies heavily on MNCs in many niche areas. According to the recently disclosed 2023 National Health Development Statistical Bulletin, China's total health expenditure in 2023 was 9.06 trillion yuan, accounting for 7.2% of the national GDP. Among this, personal health expenditure reached 2.48 trillion yuan, accounting for 27.3% of total health expenditure. While many may not fully grasp this data, further breakdown reveals underlying issues.

After a comprehensive review of MNC financial reports, a total of nine MNC pharmaceutical companies disclosed their operating data in China, with total revenue reaching 31.398 billion USD, approximately 222.179 billion yuan.

This figure does not yet include MNC companies in the medical device sector. Since most MNC products are out-of-pocket expenses, this portion primarily comes from personal health expenditure. The revenue from these nine leading MNC pharmaceutical companies accounts for nearly 10% of China's personal health expenditure.

It is important to note that personal health expenditure includes not only expenditures on innovative drugs and vaccines but also hospitalization fees, examination fees, generic drugs, traditional Chinese medicine, and other costs. Therefore, a 10% share of revenue from leading MNCs in China is actually quite substantial.

This data indicates that China has become a fiercely contested area that MNCs highly value, but on the other hand, it also reveals that domestic innovative drugs still have a long way to go. Based on this, what are the attitudes of various MNC companies towards the Chinese market? Which company values the Chinese market the most? To answer these two questions, we have conducted a comprehensive review of financial data from the past six years and performed a systematic analysis and interpretation.

Bird's Eye View

After a systematic review, we found that among all MNCs primarily engaged in pharmaceuticals, nine companies disclosed their revenue data for the Chinese market: Merck, AstraZeneca, Bayer, Roche, Novartis, Sanofi, Novo Nordisk, Eli Lilly, and AbbVie. (All revenues are reported in USD.)

Overall, the total revenue from these nine companies in China shows a significant upward trend, increasing from 17.299 billion USD in 2018 to 31.398 billion USD in 2023, with a compound annual growth rate (CAGR) of approximately 12.5%. Particularly from 2018 to 2021, the revenue growth rate of these nine MNCs peaked at 18.6%. Analyzing the overall revenue landscape, AstraZeneca and Merck have a high proportion of revenue from China, each exceeding 10%. Bayer, Novartis, Novo Nordisk, Sanofi, and Roche have revenue shares ranging from 6% to 7%, while Eli Lilly and AbbVie have lower shares of 4.5% and 1.7%, respectively.

Next, we will comprehensively analyze the revenue trends and strategic plans of each of the nine MNCs in the Chinese market.

AstraZeneca

Throughout its history, AstraZeneca has been the MNC that places the highest value on the Chinese market, with major drugs often entering the market relatively early. At one point, revenue from the Chinese market accounted for over 20% of its total revenue. However, since 2021, AstraZeneca's revenue in China has gradually entered a bottleneck period, with not only total revenue stagnating but also the proportion of revenue in the company's overall earnings continuously declining to 12.8%.

The core reason for the decline in AstraZeneca's revenue proportion in China is the impact of centralized procurement on its previous blockbuster product, Pulmicort. Pulmicort, which is a budesonide suspension primarily used for asthma treatment, was AstraZeneca's exclusive product until 2020. In February 2020, Chia Tai Tianqing obtained the first domestic generic approval for budesonide suspension.

With the entry of domestic pharmaceutical companies, centralized procurement for budesonide suspension began in 2021, leading to a significant drop in product prices. Before centralized procurement, Pulmicort generated approximately 6 billion yuan in annual revenue for AstraZeneca, but this figure was halved after procurement began.

Despite the challenges faced by its core product, AstraZeneca has continued to rely on the ongoing launch of its innovative drug pipeline to fill the gap. Major products such as Tagrisso, Enhertu, Calquence, and Forxiga have successively entered the domestic market, compensating for the decline in Pulmicort's revenue.

Merck

Merck has undoubtedly been the best-performing MNC in China over the past few years, with revenue soaring from 2.184 billion USD in 2018 to 6.802 billion USD in 2023. Additionally, the proportion of revenue from the Chinese market has doubled from 5.2% to 11.3%, demonstrating its strong revenue potential. The rapid growth of Merck's revenue in China can primarily be attributed to the continuous expansion of its PD-1 benchmark drug, Keytruda (K drug), and the 9-valent HPV vaccine, Gardasil.

The strength of Keytruda is well-known; it has surpassed Humira to become the new "king of drugs" globally in 2023. Over the past few years, Merck has consistently regarded Keytruda as the cornerstone of its revenue, continuously working to expand its indications and combinations with other therapies.

Although domestic PD-1 drugs have significantly lowered in price, they have not shaken Keytruda's benchmark status. However, with Kangfang Biologics' Ailin defeating Keytruda "head-to-head," Merck's revenue in China may be affected in the future.

On the other hand, Merck's 9-valent vaccine may also face challenges from domestic vaccines in the short term. As the only approved 9-valent HPV vaccine in China, Gardasil was once "hard to come by," but with the continuous progress of Wantai Biopharma's 9-valent HPV vaccine, Gardasil is likely to encounter serious challenges next year.

While both core products face domestic challenges, Merck's revenue growth in China is impressive, yet the underlying concerns cannot be overlooked.

Bayer

For Bayer, the Chinese market is extremely important, with its share of total revenue remaining around 8.5% for a long time.

Bayer's core drugs are Eylea and Xarelto. While these two drugs are still considered "king-level" products, they are beginning to face the "patent cliff" crisis, resulting in a downturn in revenue starting in 2023.

The decline of these core products has led to Bayer recording a total revenue of 52.043 billion USD in 2023, a year-on-year decrease of 6.1% compared to 2022. Besides these two core drugs, Bayer has almost no other blockbuster products with global revenues exceeding one billion USD.

The challenges Bayer faces in the Chinese market are even greater. In 2023, Bayer's revenue in China decreased by nearly 15% year-on-year, with its share of total revenue falling below 8% to 7.6%.

Under pressure from these difficulties, Bayer has initiated a comprehensive adjustment this year, significantly reducing management personnel and introducing a new Dynamic Shared Responsibility (DSO) operational model. This model aims to reduce internal hierarchies, eliminate bureaucracy, and maximize operational efficiency. Bayer China is also expected to adopt the DSO model, which may lead to significant upheaval.

Novartis

Over the past five years, Novartis has seen the greatest increase in its weighting in the Chinese market among MNCs. In 2018, Novartis’s revenue from China accounted for only 4.4% of its total revenue, but by 2023, the Chinese market has become the fastest-growing region for Novartis.

Although Novartis has not followed the trend in PD-1 and ADC drugs, it has a substantial portfolio of blockbuster drugs with revenues exceeding 1 billion USD. These include the heart failure blockbuster Entresto (6 billion USD), IL-17A monoclonal antibody Cosentyx (5 billion USD), IgE monoclonal antibody Xolair (3.6 billion USD), as well as Revolade, Kesimpta, Kisqali, Lucentis, Tafinlar, and Tasigna, each generating around 2 billion USD in revenue.

In addition to traditional pharmaceuticals, Novartis is also exploring nuclear medicines and small nucleic acid drugs, which are expected to become new growth points in the future.

It can be said that Novartis is not lacking in blockbuster drugs, but rather in its focus on the Chinese market. With the increased importance of the Chinese region, Novartis's revenue growth in China has significantly improved, raising its share of total revenue to 7.2%. Amidst a bottleneck in Novartis's global revenue, the Chinese market stands out as one of the few bright spots.

Sanofi

Over the years, Sanofi's performance in the Chinese market has remained lukewarm. Despite continuous global revenue growth, the proportion of Sanofi's revenue from China has fallen to 6.8%.

The company's main issue lies in the fact that the growth rate of its blockbuster drugs in China is slower than the global average. Coupled with the intense competition in the insulin market and the lack of absolute blockbuster vaccines, Sanofi's overall revenue in China has not seen significant growth.

Looking at Sanofi's product structure, it boasts the IL-4Rα monoclonal antibody Dupixent, a blockbuster drug generating over 10 billion USD in revenue, which achieved sales of 11.588 billion USD in 2023, with a year-on-year growth rate of 33.49%. However, in the Chinese market, the sales of immunology drugs have not met expectations; not only has the revenue in China not increased, but it has also declined by 6.8% compared to 2022.

For Sanofi, there is an urgent need to replicate Dupixent's remarkable performance in overseas markets within China. However, this is no easy task, as the IL-4Rα inhibitor, Sopuchemab, developed by ConvaTec, has already been successfully launched.

Novo Nordisk

Novo Nordisk is one of the hottest pharmaceutical companies globally in recent years, benefiting from the booming sales of GLP-1 drugs, with its revenue in 2023 doubling compared to 2018.

However, Novo Nordisk's performance in the Chinese market has not shown a matching growth rate, particularly in the past three years, where it has nearly stagnated. This has led to the company’s revenue from China declining to 7.2%, a new low since 2018.

Of course, the decrease in Novo Nordisk's revenue share from China is related to the centralized procurement of insulin. However, it also highlights that the globally successful weight-loss drug GLP-1 has not been rapidly introduced into the domestic market, resulting in growth that lags far behind the global pace.

Previously, the Chinese market was one that Novo Nordisk valued highly, but with the surge of GLP-1, the importance of the Chinese market is evidently diminishing.

Roche

Roche takes great pride in its once blockbuster monoclonal antibodies. However, with the intensive approval of domestic biosimilars, the sales of Roche's products in the Chinese market have been severely impacted. Herceptin, Avastin, and Rituxan were once global products generating around 7 billion USD each, but their current global revenues are now only in the low billions.

As a result, Roche's revenue in China has declined for three consecutive years, dropping from 3.817 billion USD in 2021 to 3.35 billion USD in 2023, with its share of total revenue falling from 7.3% to 6.4%.

Nevertheless, Roche remains attentive to the Chinese market; recently, it secured overseas rights to the next-generation CDK inhibitor from Regor Pharma for a prepaid price of 850 million USD.

Eli Lilly

Eli Lilly is the highest-valued pharmaceutical company globally, with a market capitalization nearing 900 billion USD. However, its attitude towards the Chinese market has not been very proactive.

In 2023, Eli Lilly reported global revenues of 34.124 billion USD, but its revenue from China was only 1.54 billion USD, accounting for just 4.5% of total revenue.

While the Chinese commercialization rights for Innovent Biologics' PD-1 drug, sintilimab, were granted to Eli Lilly, even with this addition, its revenue remains relatively low, indicating that Eli Lilly's weight in the Chinese market is not high.

Looking at its product line, Eli Lilly not only has blockbuster drugs like GLP-1 but has also received FDA approval for its Alzheimer’s drug, donanemab. Additionally, it boasts other significant products like Verzenio and Taltz, each generating around 2 billion USD in revenue, suggesting there should be more potential for development in the Chinese market.

Unfortunately, this potential has not materialized; it seems that for Eli Lilly, the Chinese market business has become somewhat "flavorless."

AbbVie

Over the past six years, AbbVie's performance in the Chinese market has been impressive. In 2018, the revenue from its Chinese operations was only 152 million USD, but by 2023, it has grown to 950 million USD.

However, even with this significant growth, AbbVie's revenue from China accounts for only 1.7% of its total global revenue, which exceeds 50 billion USD, indicating that the company has not fully prioritized the Chinese market.

Nonetheless, this situation may be quietly changing. In early April last year, AbbVie's General Manager for China, Osram Ou, suddenly left the company. His departure was generally seen as unexpected in the industry. Osram had been with AbbVie China for ten years, having joined when AbbVie was spun off from Abbott in 2013 and serving as the President of AbbVie China; he was always the de facto leader of AbbVie in China.

Taking over Osram's role is Dong Lijun, who has 25 years of experience in the pharmaceutical industry and previously served as Chief Operating Officer at Luoxin Pharmaceutical, successfully restructuring the company's commercialization team.

The leadership transition in AbbVie China suggests that the company is clearly seeking to achieve more growth from the Chinese market, especially since AbbVie is highly competitive in the fields of immunology and hematological oncology.