Big Pharma Bets Big on China

SINGAPORE—Global pharmaceutical companies are bucking one of the biggest trends in business right now: they are still betting on China at a time when many multinationals are shifting their focus elsewhere.

Western drug companies including Pfizer and AstraZeneca have recently said they are committed to helping China solve the challenges posed by its aging population and have struck multimillion-dollar licensing deals with local companies. 

Their moves signal the staying power of the Chinese market despite the risk of being caught by rising Sino-U.S. tensions and a push in Washington and European capitals to reduce reliance on China. 

Driving demand in China is the rapidly rising share of the population who are living longer with chronic lifestyle diseases, and a wealthier middle class that cares more about health. Beijing has vowed to improve the quality of public healthcare and extend basic insurance that covers more than 95% of the population. 

China is the world’s second-largest pharmaceutical market after the U.S., according to health-data company IQVIA. Chinese spending on medicines reached $166 billion last year and is expected to grow by almost $30 billion in the next five years. Trade in pharmaceutical products between China and the U.S., meanwhile, has risen to a record. 

Beijing has also been courting foreign drugmakers—alongside a renewed focus on the role private enterprise can play in reviving the country’s flagging economy. This month, Commerce Minister Wang Wentao told representatives from U.S., European and Japanese drugmakers, including Pfizer, Merck and GE Healthcare, that foreign pharma companies could expect to benefit from China’s “unwavering push for high-quality opening up.” 

Such official assurances come as foreign businesses report a worsening environment inside China, with pressure from more stringent antispying laws and raids by authorities on due diligence and consulting companies. 

In March, a veteran Japanese executive at Astellas Pharma was detained and accused of espionage. A company spokesman said he had no new information to disclose on the case. Kyodo News on Friday cited a source saying that Japanese Embassy staff in Beijing had their first in-person meeting with the executive on Wednesday.

Despite the growing geopolitical risk, Western drugmakers are staying put—and that isn’t only down to China’s size. 

“It is also an important market in terms of tapping into innovation,” AstraZeneca Chief Executive Pascal Soriot said on an earnings call in April. 

Helping make China more attractive: The time regulators take to approve new drugs roughly halved in the six years to 2022, according to a Sectoral Asset Management report. At the same time, regulatory standards improved and the government has been encouraging innovation.

Merck & Co., Johnson & Johnson and other Western pharma giants attracted to experimental Chinese drugs have struck licensing deals potentially worth billions of dollars. This month, Bayer

In April, Pfizer signed a deal with state-owned Sinopharm, one of China’s two main Covid-19 vaccine producers, with which Pfizer plans to bring a dozen new drugs to the market by 2025.  

“The Chinese government understands the value of the innovative pharma industry in terms of providing much-needed cutting-edge therapies and vaccines to improve healthcare, which is a top priority,” said Xiaoqing Boynton, a health-industry expert at Albright Stonebridge Group, a strategic advisory company.

Although Western-developed Covid-19 vaccines are shut out of China, the gene-based technology is at the center of several Chinese efforts to develop vaccines for a range of other diseases, from cancer to rabies.

Early this month, vaccine maker Moderna said it would develop and produce mRNA medicines in China exclusively for the market. 

In a sign that medical technology may become mired in the U.S.-China tech war, Moderna’s announcement was decried by Sen. Marco Rubio (R., Fla.) as a betrayal of U.S. taxpayers who made the technology possible. 

“We look forward to addressing Sen. Rubio’s questions and engaging on the topics he raised in his letter,” Moderna’s spokesman said.

The Biden administration has also moved in the direction of bolstering the domestic biotech sector with an executive order last September, seen as part of a strategy to reduce reliance on China. 

But given how global and integrated the pharmaceutical industry is, “it is nearly impossible to decouple, if they were to go that far,” said Arwen Liu, a senior portfolio manager at Sectoral Asset Management. The China-West pharma relationship “benefits the companies, it benefits the patient population.”

China made up almost 9% of Merck’s sales last year and 13% of AstraZeneca’s. 

Last year, China became the U.S.’s fourth-largest supplier of medicines. It is more dominant in the supply of active pharmaceutical ingredients, or APIs, accounting for 15% of imports to the U.S.

China and India can make APIs 30%-40% cheaper than Western producers, said Niels Graham, an expert in economics and foreign policy at the Atlantic Council, a think tank. “As we diversify, as we de-risk from China, cost will increase and cost will eventually be passed through to the end consumer.”

U.S. exports of pharmaceuticals and medicines to China, meanwhile, rose 38% last year, according to the U.S.-China Business Council.

But drugmakers’ entry to the vast Chinese market also comes at a cost, as authorities drive a hard bargain in a bid to make drugs affordable, and local competition is fierce.

In January, Pfizer and Chinese authorities failed to reach a deal to add the Covid-19 treatment Paxlovid to a list of drugs covered under state medical insurance.

“Companies may face the dilemma of agreeing to significant price cuts in exchange for access to the sheer national market volume,” Boynton said. 

Write to Clarence Leong at [email protected]