July 19, 2019

Leading European and US drugmakers saw their revenues from China and emerging markets increase steadily over 2016–1Q19, and a survey of their Chinese units show their growth has outpaced their global operations.

This growth has coincided with China’s faster review and inclusion of innovative drugs onto its National Reimbursement Drug List (NRDL). Once the drugs of global players are included onto the list, their prices tend to fall but they normally see sales volume increase rapidly, thus driving revenue growth in China.

The faster inclusion of drugs was evident when three innovative drugs were added to the list in 2016 after suppliers and authorities reached an agreement on selling prices. A new NRDL was then announced in February 2017, and 36 new medicines were added to the amended list in July 2017. In 2018, 17 anti-cancer drugs were included in the NRDL following negotiations between the drugmakers and relevant government agencies.

We take a look at some of the leading drugmakers and see how China and emerging markets contribute to their revenue growth.

Novartis

Novartis’ emerging market revenue (which includes China) grew at a 4.6% CAGR over 2016–2018, and its Chinese business saw double-digit growth in 1Q19.

Furthermore, China’s faster inclusion of innovative drugs onto its NRDL in recent years appears to have benefited the firm. Sales of its drug Gleevec accelerated in China after it was added to the list in 2017, and achieved a CAGR of 13.2% in 2016–2018.

Figure 1: Sales of Gleevec in China have trended up Source: PDB database, CICC Research

Figure 2: Novartis’ China revenue from main products has grown in recent years
Source: PDB database, CICC Research

Roche

China is the largest contributor to Roche’s emerging market revenue. The firm has two major business lines – drugs and diagnosis – and saw China revenue grow at a 16.8% CAGR over 2016–2018, much faster than the 11.0% CAGR from emerging economies and 6.0% from the global market.

A reason for this is the strong momentum of its innovative drug sales in China. The firm has multiple anti-tumor innovative drugs that are considered clinically urgent in China. Also, in addition to strong sales of its drugs Rituxan and Herceptin in China, its Alectinib drug was added to the NRDL in 2018.

Figure 3: Roche’s China drug sales revenue and other emerging economies
Source: Corporate filing, CICC Research

Figure 4: Roche’s China diagnosis revenue and other emerging economies
Source: Corporate filing, CICC Research

Figure 5: Roche’s key anti-tumor drugs registered solid sales growth in China
Source: PDB database, CICC Research

Merck Sharp & Dohme (MSD)

Although China comprises a small share of Merck Sharp & Dohme’s overall revenues, the firm’s China revenues saw strong growth in recent years.

For instance, MSD’s revenue from China registered a 23.4% CAGR over 2016–2018, well above its overall revenue CAGR of 3.1% in the same period. In addition, its revenue from China surged 53% YoY to almost US$750mn in 1Q19. The firm attributes the strong growth to increased sales of vaccines and anti-tumor drugs.

Figure 6: MSD’s China revenue and growth rate in recent years
Source: Corporate filing, CICC Research

Figure 7: MSD’s share of revenue coming from China market
Source: Corporate filing, CICC Research

Newly included drugs

The new drugs included onto the NRDL in recent years have mostly been those addressing urgent clinical needs, for example anti-tumor drugs.

Figure 8: China has accelerated the pace of adding innovative drugs to NRDL
Source: National Health Commission, CICC Research

As indicative of their importance, anti-tumor drugs are exempt from taxation in China, and this is significant as we have found that this segment is a key source of revenue for global drugmakers. Given these positives, global drugmakers are poised to see further growth in the Chinese market.

For more details, please see our report China: Key growth engine for innovate drug sales of multinational firms published in July 2019.