Dance With Domestic Companies: Pfizer And Merck Look To Broaden Market Access In China Via JVs

Merck/Simcere, Pfizer/Hisun launched JVs in China this week to increase sales in outlying cities.

SHANGHAI – After watching several rounds of price cuts on branded generics, which account for roughly 80% of multinational companies’ business in China, Merck & Co. Inc. and Pfizer Inc. hope to boost volume of off-patent products via partnerships with local companies. First, Merck and Simcere Pharmaceutical Group officially launched a joint venture in Shanghai Sept. 12, and the following day, Pfizer announced the launch of its JV with Zhejiang Hisun Pharmaceutical Co. Ltd.

Both moves should be seen in the greater context of China healthcare reforms, including the expansion of basic health insurance to virtually all of China’s 1.3 billion people. The reforms, in particular, have fueled rapid growth in lower-tier cities and rural markets, areas that have been the commercial domain of domestic pharma companies, whereas multinationals like Pfizer and Merck historically focus on larger cities.

Merck signed its agreement with Simcere last August, and the JV, called SMSD (Simcere-MSD), was granted a business license in July 2012. SMSD has recruited a team of 400 employees to cover all provinces in China, and headcount is expected to double to 700 - 800 by year’s end. Merck’s affiliate in China Merck Sharp & Dohme Ltd. owns a 51% stake in the JV and Simcere holds the remaining 49% of SMSD (Also see "Merck And Simcere Trial Partnership In China: Two Different Cultures But One Common Goal" - Scrip, 22 Aug, 2011.).

In contrast, Pfizer signed a memorandum of understanding to form its JV with Hisun – Hisun-Pfizer Pharmaceuticals Co. Ltd. – to develop, manufacture and commercialize off-patent pharmaceutical products in China and global markets in June 2011. Earlier this year, Pfizer and Hisun signed an additional framework agreement and have since been waiting for government approval to launch the JV.

In a reverse of the Merck/Simcere structure, Hisun will control a 51% stake in the JV and Pfizer will hold 49%. Aggregate investment in the JV is $295 million and registered capital is $250 million (Also see "Pfizer And China’s Hisun To Explore Branded Generics JV For China And The Globe" - Scrip, 22 Feb, 2012.).

Pfizer Commercial And Diversified Business General Manager Kevin Xiao, who has spearheaded Pfizer’s geographic expansion in China, will lead the JV as CEO (Also see "Pfizer China Country Manager Wu Xiaobing And General Manager For Commercial And Diversified Business Kevin Xiao On Expansion To Rural Markets In China: An Interview With PharmAsia News" - Scrip, 11 Apr, 2011.).

Merck Testing Water With Cardiovascular Products

SMSD begins operations with six products in the cardiovascular field, including Merck’s Zocor (simvastatin), Cozaar/Hyzaar (losartan) and Renitec (enalapril), and Simcere’s Xinta (levamlodipine) and Softan (rosuvastatin).

Two years ago, MSD became one of the first multinational companies to list a front-line product on China's Essential Drug List, which aims to provide basic medicines to China's population through 100% reimbursement via government insurance. Merck's blockbuster statin Zocor saw its price reduced 52% to enter the EDL (Also see "China's Essential Drug Prices Less Severe Than Expected; Some Prices See Increases" - Scrip, 6 Oct, 2009.).

The roll out of China's EDL has also hurt Simcere sales. Its leading anti-infective agent Zailin (amoxicillin) saw its price cut in March, and the product's price was further reduced by an ongoing rollout across most provinces of an EDL tender system modeled after Anhui province. The Anhui model awards a single supplier for each drug on the EDL, setting up a winner-take-all bidding process that has drastically reduced prices for winning bids (Also see "China's Price Cuts And Antibiotic Limits Weigh On Simcere, But Merck JV Opens Doors" - Scrip, 15 Aug, 2011.).

SMSD has exclusive marketing rights for Zocor, Renitec, Xinta and Softan, while Cozaar/Hyzaar will be marketed by Merck in big hospitals and SMSD in smaller cities and hospitals, SMSD COO Renaud Sermondade told PharmAsia News in an interview following the opening ceremony Sept. 12 in Simcere’s R&D center in Shanghai.

[Editor’s Note: Want to know more about how China is changing the global pharma industry? Don’t miss the PharmAsia Summit Shanghai Sept. 24-26. Speakers include Pfizer GM Xiaobing Wu, SMSD COO Renaud Sermondade and other industry leaders. Click here for details.]

Merck and Simcere will penetrate China’s outlying cities with SMSD, which will expand access for their products to community healthcare institutions in smaller inland cities and rural areas.

Currently, more than 260 million patients are diagnosed with chronic diseases in China annually, and 2 million people die from cardiovascular and cerebrovascular diseases in China each year, said Merck.

Merck brings expertise in innovation, products and manufacturing, while Simcere will bring its sales channels and efficiency advantages to the JV, Merck China President Pam Cheng said during a media roundtable. As a Chinese company, SMSD also provides Merck with a platform to China’s best talent as well as access to government officials, Cheng said.

The chairwoman of the JV will be Cheng, who stepped in as Merck’s China president earlier this month after Michel Vounatsos vacated the post to become president of Customer Centricity in the U.S. Before taking over as Merck’s China president earlier this month, Cheng acted as chief operating officer of Merck China, and prior to that she was SVP of Merck’s Global Supply Chain and Logistics. She noted that China’s supply chain is less efficient with thousands of distributors and several layers of middlemen between hospitals and manufacturers (Also see "China's New Drug Price Policies Will Favor Big Distributors, Restrict Smaller Ones" - Scrip, 20 Jul, 2010.).

Importantly, Simcere President Zhang Yehong will become the new CEO of SMSD and vacate his role as Simcere president effective Oct. 8. Zhang has a unique background among pharma leaders in China, having served previously both as president of Merck China and China country manager of IMS Health. He was also a senior healthcare practice leader at McKinsey & Co. where he focused on systemic issues affecting China’s healthcare industry.

During a recent industry conference, Zhang advocated for pharma companies to partner with the Chinese government to develop more sustainable business models. “There is a tremendous opportunity for the industry to work with the government on how to have a big, impressionable, sustainable pricing structure, and that pricing structure needs to be based on value,” he said.

Zhang also believes that companies must develop new strategies to win as China transitions from a hospital-based system to a primary care system where community healthcare centers act as a “gatekeeper” in smaller cities and rural areas, with an aim to provide affordable healthcare to patients (Also see "With Change On The Horizon, Current Business Models In China Are Not Sustainable – So What’s Next?" - Scrip, 28 Mar, 2012.).

In addition to Zhang and Cheng, Simcere Chairman Ren Jinsheng will serve as vice chairman of the JV, and Merck’s Strategic Alliances General Manager Renaud Sermondade will be SMSD’s chief operating officer.

Diabetes Products Have Longer Life In China

Unlike in the U.S., it may take many years for a drug to reach peak sales in China due to market-access challenges that complicate product launches. But Merck is looking to change that pattern to broaden access to patients earlier in the game.

Merck launched its best-selling DPP-4 Januvia (sitagliptin) in China in 2010, and the company recently received approval for Janumet, which combines sitagliptin and metformin in one dosage. The JV may also expand its product offering to include diabetes drugs, which could make Januvia available to patients in smaller cities and rural areas once these products are included on China’s National Drug Reimbursement List.

Before joining Merck, Sermondade was the sales and marketing head in China for Bristol-Myers Squibb Co.’s cardiovascular and metabolics products, where he launched BMS’s DPP-4 Onglyza (saxagliptin) last year.

As of now, three dipeptidyl peptidase-4 inhibitors – Januvia, Onglyza and Novartis AG’s Galvus – are approved in China, and the battle will likely be fierce once these products are eligible for reimbursement, which could come in 2013 when the next revision to the NDRL is expected. With the JV in place, Merck may have an advantage to make Januvia available more quickly to patients across the country (Also see "After Januvia And Onglyza, Novartis Launches Galvus In China; Lucentis Receives SFDA Nod" - Scrip, 19 Jan, 2012.).

Cost And Access: Pfizer Partnering With Hisun

Off-patent medicines, including branded generics, represent one of the fastest-growing segments in the global pharmaceutical market, says Pfizer, and the company hopes to maximize its return on the generic market via its JV with Hisun in Hangzhou.

Hisun-Pfizer will combine Hisun’s strong product portfolio, broad market outreach and experience in the production and commercialization of branded generic medicines with Pfizer’s R&D, manufacturing quality management, international market promotion and operational capabilities, say the companies.

It will focus on R&D and the production and commercialization of high-quality branded generic medicines, and the broader commercialization of existing medicines through a local and global sales and marketing infrastructure.

“Providing high-quality, accessible and affordable health care to people over a vast area and from broad socioeconomic levels has become a primary objective of Chinese healthcare reforms, which is aligned with Pfizer’s mission to provide high-quality and affordable medicines to our patients,” said Xiaobing Wu, country manager of Pfizer China, in a statement.

“Our objective is how to reach to the vast majority of the Chinese population to the county level fast enough and cost-efficiently enough,” Wu said in an earlier interview with PharmAsia News. Wu noted the partnership with Hisun is a part of Pfizer’s expansion to reach China’s outlying cities.

Both Pfizer and Hisun will inject products into the portfolio for China and global markets, said LEK Consulting Principal Helen Chen during a June 18 presentation on partnering at the 2012 BIO conference in Boston.

A leading contract manufacturer for multinational companies, Hisun is a top branded generic manufacturer with advanced marketing capabilities, according to Chen. The partnership expands Hisun’s finished drug portfolio and U.S. cGMP compliant plants and products, and provides a global platform and new business to Hisun as the majority stakeholder, she said.

Also, Pfizer gains quicker access to a broad branded generics portfolio in China than it could if it were going it alone, she said. The partnership also paves the way for Hisun to transition from being an active pharmaceutical ingredients manufacturer to an established branded generics company.

“Chinese companies are also desirous of innovative products for the Chinese market,” she said, “so in-licensing is a key way for Chinese companies to seek collaborators to bring in an innovative product outside of China to China.”

“The joint venture will provide our patients with high-quality and low-cost branded generic medicines through our internationally compatible management systems and R&D and production technology,” said Hisun President Bai Hua. “This will help us better contribute to the development of the Chinese pharmaceutical industry, advance the drug innovation and manufacturing capabilities of Zhejiang province and China, and lay a solid foundation for Chinese pharmaceutical companies to enter the international market,” he said.

Attending the launch ceremony Sept. 12 were Pfizer CEO Ian Read, Hisun Chairman and President Bai Hua, Pfizer Emerging Markets and Established Products Business Units President Olivier Brandicourt, Hisun-Pfizer CEO Kevin Xiao, and Shao Zhanwei, mayor of the Hangzhou Municipal Government.

[Editor’s note: This story was contributed by PharmAsia News , which provides daily coverage of the Asia biopharmaceutical industry and regulatory policies. To learn more, sign up for a free trial – no credit card needed.]