Category: Pharma, Biotech & Healthcare

10/11/13

Permalink 02:01:41 pm, by dacare, 1014 words, 657 views   English (US)
Categories: News of China, Pharma, Biotech & Healthcare

Merck’s Job Cuts Highlight A Big Problem Facing Big Pharma Companies

Merck (NYSE:MRK) has announced that it will cut its workforce by 20% over the next two years, which could result in the loss of close to 16,000 jobs. This will leave the company with less than 65,000 employees which is in stark contrast to its peak strength of close to 100,000 employees following its acquisition of Schering-Plough in 2009. [1] With this restructuring, Merck intends to save $2.5 billion annually which can boost its free cash flows by almost 20%. However, the impact will be mitigated by the expected restructuring costs of roughly $2.5 billion to $3 billion. [1]

The company’s move highlights the broader problems that Merck and other big pharmaceutical firms are facing today. The R&D (research and development) productivity has declined over the years, and the strategy of developing drugs for major diseases is not working. The landscape of the global pharmaceutical industry is shifting towards more niche, innovative and genetically targeted medicines. In addition, Merck is suffering from the loss of patent exclusivity for some of its major drugs and may look for acquisition of some promising medicines to offset the failure of some of its research projects.

What Is The Problem That Merck Is Facing?

Like other major pharmaceutical companies, Merck is also battling the impact of patent expiry of its several major drugs including Singulair, Propecia, Clarinex, Maxalt, Cozaar and Hyzaar. Out of these, asthma drug Singulair has had the biggest impact and has continually weighed on Merck’s growth for the past few quarters. Worldwide sales of Singulair, a once-a-day oral medicine for chronic treatment of asthma and relief of symptoms of allergic rhinitis, stood at $5.5 billion for 2011. However, this figure declined to $3.85 billion in 2012 following its patent expiry in August same year. Merck expects that within two years following the patent expiration it will lose substantially all U.S. sales of Singulair, with most of those declines coming in the first year.

In addition, Merck’s cardiovascular division has also been hurt by the patent cliff as its drugs Cozaar/Hyzaar, which garnered over $2 billion in revenue in 2010, lost patent exclusivity in large markets including the U.S. and Europe in late 2010. As a result, sales fell by roughly 35% to $1.3 billion in 2012. Additionally, Propecia, Clarinex and Maxalt together accounted for roughly $1.5 billion in revenues in 2012. Due to patent expiries, we expect their combined sales to go down to about $1-1.1 billion in 2013.

While the big drugs are losing their sales, there is little chance for new blockbusters replacing them. The R&D productivity has significantly declined over the last decade. Although the industry’s R&D spend has increased, the number of new drugs approved by the FDA has come down. In fact, Merck is planning to terminate certain drugs in late stage development and intends to focus on acquiring experimental drugs.

What Is Merck Likely To Focus On?

There has to be a shift from developing blockbusters treating major diseases to focusing on niche therapeutic areas where although the patient population is low, pricing is quite high due to high specificity and efficacy. Major therapeutic areas are getting flooded with generics and there haven’t been any major advancements to thwart the competition. Merck has mentioned that it plans to continue investing in vaccines and diabetes, where it already has successful products.

Diabetes

Merck’s type 2 diabetes treatment drugs Januvia and Janumet saw strong volume growth in international markets and retained their market leadership with 70% share in the second quarter. [2] Excluding the impact of currency movement, Januvia saw its sales jump by 7% while Janumet’s revenues surged 17%. [3] In addition, the company is working with Pfizer to develop and commercialize its investigational SGLT2 inhibitor, Ertugliflozin, for the treatment of type 2 diabetes. With obesity on the rise, diabetes is affecting more people globally. In the U.S. alone, roughly 26 million people suffer from the condition. [4] China’s problem is even worse, as a report suggests that 11.6% of Chinese adults have diabetes and around 40% of adults between the age of 18 and 29 are on the verge of developing it. [5] That puts China’s diabetes patient count at 114 million individuals, and this figure is likely to go higher. According to IMS health, China’s diabetes market is expected to grow 20% annually and reach $3.2 billion by 2016. [6]

We currently account Januvia’s revenues under Alimentary & Metabolism drugs division, which constitutes roughly 15% to our price estimate for Merck. Januvia’s importance can be gauged from the fact that the exclusion of the drug’s sales from Merck’s revenue forecast leads to downside of about 5-10% to our price estimate. That’s a lot of value for a single drug in a diversified company like Merck.

Acquisition Strategy

It appears that Merck will trim down its R&D expenses, and instead focus on acquiring drugs externally. This way, the company will assume the role of pharmaceutical private equity/venture capitalist firm to a certain degree. In addition, we believe that it can pursue orphan drugs, and novel therapies including higher focus on gene therapy, stem cell research etc.

Cancer Treatment

Cancer treatment is a growing market for the pharmaceutical industry. The opportunity comes from the fact that global incidence of Cancer is likely to increase from about 12.7 million in 2008 to 21.3 million in 2030. [7] In addition, the number of deaths are likely to show a similar growth trajectory as depicted in the chart below. Cancer is a not a single disease, it has in fact more than 200 types and thousands of subtypes affecting more than 60 organs. That gives an opportunity for Merck to develop novel therapies and capture niche markets.

Our price estimate for Merck stands at $51.60, implying a premium of about 5-10% to the market price.

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Notes:
Merck to Cut Staff by 20% as Big Pharma Trims R&D, The Wall Street Journal, Oct 22013 [?] [?]
Merck’s Q2 2013 Earnings Transcript [?]
ref:1 [?]
National Diabetes Fact Sheet, 2011, CDC [?]
China ‘Catastrophe’ Hits 114 Million as Diabetes Spreads, Bloomberg, Sept 4 2013 [?]
China Diabetes Triples Creating $3.2 Billion Drug Market, Bloomberg, Nov 5 2012 [?]
J&J’s Investor Presentation [?]

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09/24/13

Permalink 02:38:35 pm, by dacare, 1055 words, 437 views   English (US)
Categories: News of China, Pharma, Biotech & Healthcare

Bribery claims infect drug companies’ dealings in China

It began as a rumour on a Chinese social media site in July, but the impact has swiftly spread around the world: allegations that GlaxoSmithKline was the “godfather” of a system of bribery in the country totalling up to $500m.

The corruption claims, which have since expanded to other multinational pharmaceutical companies including Sanofi, Novartis and Eli Lilly, have created a growing sense of concern among executives, investors and doctors alike.

They raise the prospect of a squeeze in future sales growth, and a repetition of the escalating fines imposed on the industry in the US for illegal marketing and overpricing which have exceeded $30bn over the past two decades, according to Public Citizen, a health watchdog.

Last year, GSK paid a record $3bn to settle claims the US Department of Justice described as including “cash payments disguised as consulting fees, expensive meals, weekend boondoggles and lavish entertainment”. Abbott paid $1.6bn for illegal marketing of its bipolar disorder drug Depakote, and Johnson & Johnson paid $181m to settle some claims over marketing of its antipsychotic Risperdal, while the final bill could reach $2.2bn.

Now western companies face accusations in China covering everything from offering doctors luxurious trips to foreign medical conferences and visits to massage parlours, to payments disguised as research fees. All remain unproven and only scantily described. The sources are often anonymous – and potentially disgruntled – whistleblowers.

They also come in a country where commissions to doctors are viewed as a necessary way of supplementing low salaries. “If a doctor is paid no commission at all to use a particular drug, no one will ever prescribe it unless it has no competitors,” says a former drug representative for a mid-level Chinese pharmaceutical company.

But the Chinese probes have caused a drop in marketing activities as companies and the physicians they target seek to understand the new rules of behaviour, against a broader backdrop of concern over price cuts.

Marc de Garidel, chief executive of Ipsen, says some companies have stopped promotion in China, while hospital doctors did not want to meet sales staff. “In certain cities, in certain areas, there is a toughening of the marketing conditions,” he says. “We are monitoring this very closely. We don’t know how long it will last.”

Many investors have shrugged off the US fines, given the relatively modest financial impact compared with the revenues the companies’ drugs generate. They express more concern over costlier product liability litigation sparked by the side effects of drugs such as the painkiller Vioxx, which alone cost Merck more than $5bn.

Even so, the US clampdown has sparked fresh interest by regulators in other countries, who have been considering imposing their own fines.

This threatens to compound the drug companies’ problems. US and UK anti-corruption legislation – the Foreign Corrupt Practices Act and the Bribery Act respectively – raise the prospect of fines in those two countries being imposed on top of local penalties in the markets where bribery occurred.

Johnson & Johnson in 2011 paid nearly $80m to the UK and US for its activities in southern and eastern Europe and Iraq, for instance.

More fundamentally, investors have grown concerned in recent weeks about the impact of the Chinese probes on future sales practices and prices. Jo Walton, pharmaceutical analyst at Credit Suisse, says: “It seems clear that the breadth of the investigation into marketing practices is likely to slow growth for all of the majors.”

Few predict any withdrawal from China, given its strong growth. But they see pressure for price cuts after a period of adjustment to new rules. Deutsche Bank last month predicted the anti-corruption investigations in China would be “longer and larger” than expected, depressing sales growth into the first half of next year.

That also applies to many regional and local companies, perceived to be more aggressive in marketing than their western counterparts. One senior drug company sales representative in China says: “Everyone is afraid of getting caught, everyone. Before GSK, commissions were half public and half hidden, but now everything has been forced to go totally underground.”

“Doctors are trying to avoid drug sales reps, and many companies have put reps on half-time, or sent them for training,” she says. “Before, drug reps were given a quota of doctors they had to see every day; now you still need to go to the hospital, but if someone looks at you suspiciously, you should leave.”

Another multinational company rep said she still pays regular visits to doctors. “We try to avoid unnecessary trouble by hiding our company logo when we enter hospitals, but I am not too worried because what we are doing is legal. Doctors have to find out about our drugs somehow, and it is our job to inform them.”

Others are more critical of the industry’s role. One middleman in Shanghai said he recently began a business for multinationals conducting “phase IV” clinical trials, conducted after a drug is approved – and which critics claim are often for marketing purposes.

He described how over 15 years working for four foreign drug companies, he regularly filled out fake “clinical research forms” on trials that never took place, allowing kickbacks to be paid to the doctors who were on record for conducting the trials.

A medical student in a leading Shanghai hospital says: “The supervising doctor in my department sees as many as 80 patients in a morning, and prescribes as much as Rmb100,000 worth of drugs. She definitely takes commissions from drug companies, but that only affects what she prescribes when there are two similar drugs. It doesn’t affect the quality of care.”

Industry executives argue the multinationals are again reviewing compliance. “There is a real fear right now about doing business in China,” says Gregory Lovas, in charge of life science clients in Asia with CTPartners, an executive recruitment agency.

He says companies which previously saw China postings as a way of exposing their future leaders to an expanding market are now seeking greater existing “language, cultural understanding and market knowledge”. For middle level marketing staff, they want background checks and references stretching back as far as 10 years.

The industry is braced for a squeeze on pricing and tougher marketing rules in future. But given the sluggish growth in their traditional markets, China’s expanding healthcare demand will probably still be worth the price for most.

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09/05/13

Permalink 10:25:26 am, by dacare, 501 words, 454 views   English (US)
Categories: News of China, Pharma, Biotech & Healthcare

China Raises the Heat on Glaxo

BEIJING—GlaxoSmithKline GSK.LN +0.03% PLC came under new pressure as Chinese state-run news outlets ran reports of employees purportedly detained in a government bribery investigation of the drug maker saying that company executives created a sales culture that led to corruption.

China's national broadcaster on Tuesday aired reports featuring what it said were detained employees saying that managers pressured sales representatives to get drugs to Chinese customers faster. The identities of the people, whose faces were blurred, couldn't be verified.

A person identified as sales manager Huang Hong, who China Central Television said was one of four Glaxo employees detained in July, said in the report that former Glaxo China chief Mark Reilly told workers to enter hospitals to develop relationships with administrators to speed drugs' entries into pharmacies.

Mr. Reilly couldn't be reached for comment. Glaxo Chief Executive Andrew Witty in July said authorities hadn't alleged wrongdoing by Mr. Reilly.

"Upper management came from sales, so they should have realized what they were doing," the person identified as Ms. Huang said in the report.

Glaxo said the issues mentioned in the reports "would be a clear breach of our corporate values and we have zero tolerance for any behaviour of this nature."

Chinese officials have alleged that Glaxo transferred three billion Chinese yuan, or about $490 million, through travel agencies since 2007, creating fake invoices to help the company generate money that could be used to bribe doctors. Officials in July said that some of the travel agencies offered Glaxo employees bribes in the form of sexual favors to keep the company's business. Authorities didn't disclose further details.

Glaxo has said that some senior executives may have violated Chinese laws and that it is cooperating with the probe.

The person identified as Ms. Huang said in Tuesday's report that management instructed sales representatives to approach clients from the biggest and most powerful hospitals at least once a week and provide them with travel opportunities and gifts. The Wall Street Journal reported similar information last month, outlining information on trips and kickbacks that Glaxo allegedly offered to doctors.

Chinese authorities in July said Mr. Reilly left the country as they began investigations. Glaxo said Mr. Reilly left China on a preplanned business trip.

Glaxo in late July replaced Mr. Reilly as head of China with Hervé Gisserot, who had been co-head of Glaxo's pharmaceutical business in Europe. Glaxo said at that time that Mr. Reilly would remain with Glaxo in London, helping the company respond to the Chinese investigation.

A report from China's state-run Xinhua News Agency on Tuesday quoted Ms. Huang as saying that Glaxo management set sales growth goals of 25%, much higher than the industry standard of 7% to 8%. "Mr. Reilly's company objective was, 'Sales are king,' " Ms. Huang said.

The official People's Daily quoted Glaxo's head of recruitment in China, Guo Jianhua, saying that company executives shrugged off responsibility when authorities made bribery allegations. "When the problems were exposed, the company pushed all responsibilities to individual employees," Mr. Guo said.

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08/14/13

Permalink 01:36:25 pm, by dacare, 624 words, 368 views   English (US)
Categories: News of China, Pharma, Biotech & Healthcare

Influencing China's healthcare industry

Allegations that British drugs giant GlaxoSmithKline has paid millions of dollars in bribes to increase its market share in China have thrown the spotlight on the country's murky pharmaceutical industry.

China's health spending is projected to soar from $357bn (£232bn) in 2011 to $1tn in 2020, according to a report by McKinsey, the global management consultancy group.

And with sales slowing in the West, the global drugs giants want a share of the booming profits in China.

But now the Chinese authorities say they are investigating up to 60 pharmaceutical firms in an effort to curb drugs prices.

Chinese doctors who spoke on condition of anonymity to the BBC - fearing they would lose their jobs for speaking out - say the healthcare system is awash with corruption.

They say that the pharmaceutical firms, both foreign and Chinese, have enormous influence.

'Bribery chain'
That is because Chinese hospitals traditionally rely on pharmaceutical sales as a major source of income.

Government funding is often barely enough to cover basic operational costs at most hospitals.

So doctors rely on drug prescriptions - and the kickbacks that come with them - to bulk up their pay.

But the doctors we spoke to stressed that they were at the "very end of the bribery chain".

"State and food administrators need to decide if the drugs are safe," said one doctor.

"And then, when the drugs reach the hospital, the directors get involved. Everyone takes their cut. And by the time it reaches the doctors there is very little money to be made."

While Chinese companies will offer incentives in the form of cash to prescribe certain drugs, foreign companies will offer lecture fees or conferences at hotels, the doctors claim.

The medical staff we spoke to say they depended upon the income. Despite China's booming economy, they receive meagre salaries.

"My basic monthly salary is about $600," said one surgeon with 30 years of experience. "Without bribery I could not live a decent life."

But increasingly, doctors in China are bearing the brunt of public anger over bribery. Patients often complain of being given tests they do not need and being prescribed expensive drugs.

According to Chinese state media, there were more than 17,000 violent incidents in Chinese hospitals in 2010. Several hospitals in Beijing have also reportedly beefed up their security.

Market survival
Fixing the system is one of the priorities of China's new leaders. The Chinese government has promised to rein in soaring health costs as the authorities roll out a national health insurance plan.

They plan to introduce national reforms to lower drugs prices and pay doctors more.

Tackling the powerful pharmaceutical industry also fits with President Xi Jinping's pledges to do more to root out widespread corruption, which is a source of enormous public anger.

James McGregor, a businessman and author who has spent more than 20 years in China, said foreign companies make a convenient first target for the authorities.

"It's all about market survival for foreign firms because there are local businesses that want their market share," he said.

"At the same time there are political reforms that look like they are going to happen in the state sector. And I think the authorities are going to be going after some very tough players. So if you go after the foreigners first it may soften the way a little bit. "

But the doctors we spoke to said the healthcare system needed a total overhaul. They said the key problem was that the government was not spending enough money to guarantee decent healthcare.

But they all agreed there was no easy fix.

"I'm a Communist Party member," said one doctor. "I probably shouldn't say this but the system is rotten to the core. It's hard to cure a deeply ingrained disease."

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08/12/13

Permalink 01:33:51 pm, by dacare, 315 words, 345 views   English (US)
Categories: News of China, Pharma, Biotech & Healthcare

Beijing teams investigate Sanofi for alleged bribery

BEIJING city corruption and health officials have launched an investigation into allegations that staff at French pharmaceutical giant Sanofi paid bribes totaling some US$280,000 to 500 Chinese doctors.

The joint investigation will probe claims reported in China’s 21st Century Business Herald newspaper that company staff paid 503 doctors in 79 hospitals bribes totaling 1.69 million yuan in a bid to increase sales.

The paper, citing documents provided by an anonymous whistleblower, said Thursday that in 2007 Sanofi paid doctors 80 yuan every time a patient bought its products, with the largest payment being 11,200 yuan.

The products named in the report are two drugs for high blood pressure.

Most payments were made to medical staff in hospitals in Beijing, Shanghai, Guangzhou, capital of southern Guangdong Province, and Hangzhou, capital of eastern Zhejiang Province, said the newspaper

The report claimed these were listed as “research expenses.”

The Beijing municipal health bureau will coordinate with the disciplinary authorities to investigate, a spokesman told Xinhua News Agency yesterday.

Define the boundary

How to define the boundary between a “research expense” and bribery is key to the case, industry insiders said.

Investigators will seek to find out whether clinical research programs had lists of patient names and medical reports, said a Beijing health bureau official.

On Friday, Guangdong Province health bureau summoned the heads of 16 hospitals named in the report, vowing to carry out a thorough investigation.

Sanofi said that it took the allegations “very seriously” and has begun relevant procedures to investigate the allegations.

“We have zero tolerance to any unethical practice,” it said.

Sanofi added that it has “processes for reviewing and addressing such issues in a manner that is consistent with our legal and ethical obligations.”

The allegations come after four executives from British drug firm GlaxoSmithKline were arrested last month for alleged bribery and other offences.

China’s top economic planner is investigating 60 foreign and domestic pharmaceutical companies over their prices.

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08/09/13

Permalink 01:38:57 pm, by dacare, 591 words, 485 views   English (US)
Categories: News of China, Pharma, Biotech & Healthcare

Pharm giant says it takes bribery claims 'seriously'

Allegations by a whistle-blower that French pharmaceutical giant Sanofi-Aventis bribed more than 500 doctors in China in late 2007 to boost its sales are being taken "very seriously" by the company.

An anonymous whistle-blower on Thursday told the 21st Century Business Herald newspaper that Sanofi staff paid about 1.69 million yuan ($276,000) in bribes to 503 doctors at 79 hospitals in Beijing, Shanghai, Hangzhou and Guangzhou in November 2007. The company also allegedly bribed 43 doctors at five hospitals in Beijing in the form of cash payments and gifts each month from May to October in 2007.

The allegations come after four Chinese executives from British drug firm GlaxoSmithKline were detained last month for suspected bribery and tax-related violations. China's top economic planner is currently investigating 60 foreign and domestic pharmaceutical companies over their prices.

British drugmaker AstraZeneca and Belgian drugmaker UCB recently admitted they are being investigated by Chinese authorities.

The 21st Century Business Herald, based in Guangzhou, Guangdong province, surmised that the whistle-blower worked in Sanofi-Aventi's upper management in China based on the nature of the content provided to the publication.

The whistle-blower said the bribes were given in the name of research spending and would only give the name "Pei Gen" to the newspaper.

"Sanofi is confident in our business operations in China and committed to conducting its business globally with integrity. We are determined to respect the ethical principles governing our activities and are committed to abiding by the laws and regulations that apply in each country where we operate. We have zero tolerance to any unethical practice," the company said. "At this time, it would be premature to comment on events that may have occurred in 2007."

The National Health and Family Planning Commission recently passed a plan to fight what it called inappropriate behavior in selling medicine. Li Bin, head of the commission, stressed in July that medical reform is needed to combat bribery in an industry where many Chinese hospitals rely on the sale of medicine.

Currently, the central government sets a pricing standard for medical services provided by public hospitals. Many experts believe the policy keeps the price of services at an artificially low level and puts pressure on hospitals and doctors to sell more medicine and possibly accept bribes.

In 2012, Beijing introduced new regulations on public hospitals to emphasize quality medical services and discourage hospitals and doctors from relying on the number of prescriptions they dole out.

As part of the reform, some hospitals are required to sell medicine at cost, but they are allowed to charge 42 yuan to 100 yuan in consultation fees (health insurance companies are required to reimburse the 40 yuan to the patient). Before the reforms, a consultation would cost between 5 yuan to 14 yuan.

But Niu Zhengqian, deputy director of the Chinese Pharmaceutical Enterprises Association, said the key to preventing doctors from excessively prescribing medicine lies in changing the way the healthcare insurance industry pays hospitals.
"Currently the public healthcare insurance sector pays hospitals based on each item of the service they provide, encouraging them to choose more expensive items, from which doctors can get more illegal kickbacks," Niu said.

An advanced payment system is also effective, said Wang Hongzhi, a healthcare industry consultant. With this plan, a local government healthcare agency pays a hospital a specified amount of money to cover healthcare fees. If there is a surplus, the hospital pockets it; if there is a deficit, it must share the costs with the local agency.

"If the market is more competitive and there are more private healthcare providers, that will also help solve problems in the industry," Niu said.

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