2023 Senior Management Personnel Changes of Multinational Pharmaceutical Companies in China, what's behind it? - II

The year 2021 witnessed a series of strategic adjustments and executive changes in multinational pharmaceutical companies operating in China, a phenomenon that has been dubbed the "Year of Leadership Transitions" for multinational pharmaceutical companies in the country. Reports suggest that approximately 25 executives in multinational pharmaceutical companies experienced significant changes in their roles and responsibilities. These transformations were primarily driven by factors such as national drug procurement policies, healthcare insurance negotiations, and the need to divest non-core businesses.

1. The Impetus for Strategic Adjustments in Multinational Pharmaceutical Companies in China:

The intensifying competition in the pharmaceutical industry and the global economic downturn prompted industry giants to recognize the urgency of slowing down mergers, acquisitions, and expansions. Under the pressure to deliver better financial performance, shedding the burden of non-core businesses became a necessity and a consistent transformation strategy for many multinational pharmaceutical companies. Pfizer's divestment of its generic drugs division, Upjohn, and AbbVie's sale of women's health assets are examples of such strategic adjustments. Merck's move to separate its women's health, traditional products, and biosimilar businesses and GlaxoSmithKline's spin-off of its consumer healthcare division further exemplify this trend.

The case of Novartis and its separation from Sandoz, announced on September 15, 2023, did not come as a surprise given the current market conditions. Similar to the global market, the situation in China was equally challenging. The sustained growth pressure bore down on the executive teams of multinational pharmaceutical companies, leading to significant changes and upheavals.

2. The Pressure on Multinational Pharmaceutical Companies in China:

The pressure faced by multinational pharmaceutical companies in China stems from several factors. Over the past two decades, these companies recognized the immense potential of the Chinese market and were willing to invest time, resources, and opportunities. They patiently nurtured the market, providing ample support and opportunities for growth. After more than ten to twenty years, the majority of multinational pharmaceutical companies have established a strong foothold in the Chinese market. AstraZeneca's Chinese market, for instance, accounts for approximately 14% of its global business. However, as companies transitioned from nurturing to expecting returns, the dynamics changed. The expectations shifted towards increasing sales volume and improving efficiency.

However, with the diminishing absolute advantage of multinational pharmaceutical companies in China, their position in the market has weakened. Previously, these companies leveraged their original research drugs and specialized academic promotion to outperform domestic generic drug manufacturers. There was a clear market segmentation between multinational and local pharmaceutical companies, with the former dominating the high-end market and the latter competing in the low-end market. However, with talent mobility and the domestic industry's pursuit of innovative drugs, the competitive edge of multinational pharmaceutical companies has eroded.

For example, as the patents for blockbuster drugs like Crestor, Glivec, and Sovaldi expired, AstraZeneca experienced a prolonged period of stagnation. Generic drug manufacturers rapidly encroached on AstraZeneca's market share, and the company faced setbacks in new drug development. In response, AstraZeneca adjusted its China business strategy by redirecting investments from brand-name generics to smaller regional hospitals and county-level facilities. However, the aggressive marketing approaches used in major cities and large hospitals by multinational pharmaceutical companies were less effective in the county-level markets familiar to generic drug manufacturers.

Moreover, the dominance of multinational pharmaceutical companies in tier-one hospitals faced challenges due to drug procurement policies and healthcare insurance negotiations. Traditionally, during the patent protection period, multinational pharmaceutical companies enjoyed pricing autonomy for their innovative drugs. However, with the implementation of centralized drug procurement in China, the situation changed dramatically. Lui Wenxin, the head of the Technical Standards Department at the China Association of Pharmaceutical Insurance Research, revealed that after the implementation of centralized drug procurement, the purchase volume of non-selected innovative drugs significantly decreased, and the substitution effect of selected generic drugs became evident. Within a year of implementing the procurement results, the national annual purchase volume of non-selected innovative drugs decreased by an average of 46%.

This significant profit loss posed a challenge for multinational pharmaceutical companies, as they sought to protect their market share from domestic generic drug manufacturers while ensuring that China remained a major growth driver. Consequently, strategic adjustments in human resources became a critical factor in their China market strategies.

The Chinese pharmaceutical market has witnessed a series of strategic adjustments and executive changes in multinational pharmaceutical companies due to a variety of factors, including intense competition, economic downturns, and policy shifts such as drug procurement reforms and healthcare insurance negotiations. Multinational pharmaceutical companies have faced challenges in maintaining their dominant position in China, as the market dynamics have shifted with the rise of domestic generic drug manufacturers, patent expirations, and changing market regulations. The need for strategic adjustments has compelled multinational pharmaceutical companies to reevaluate their organizational structures, divest non-core businesses, and seek new growth opportunities in emerging regions and market segments.

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2023 Senior Management Personnel Changes of Multinational Pharmaceutical Companies in China, what's behind it? - I (echemi.com)

2023 Senior Management Personnel Changes of Multinational Pharmaceutical Companies in China, what's behind it? - III (echemi.com)

2023 Senior Management Personnel Changes of Multinational Pharmaceutical Companies in China, what's behind it? - IV (echemi.com)

2023 Senior Management Personnel Changes of Multinational Pharmaceutical Companies in China, what's behind it? - V (echemi.com)

2023 Senior Management Personnel Changes of Multinational Pharmaceutical Companies in China, what's behind it? - VI (echemi.com)