Novo Nordisk CEO Lars Sorensen On Novo's Vision For China (Part 2 of 2)

Every quarter, Novo Nordisk AS CEO Lars Sorensen flies around the world for meetings with his global team. This quarter, Novo reported an unexpected 3% sales drop in China due to regulatory headwinds and increasing competition from both local and multinational players.

Sorensen and the company's COO Kare Schultz flew to Novo's China headquarters in Beijing right after the Q3 earnings call to better understand current developments in the Chinese market (Also see "Novo Nordisk Fights Back Dipping Sales In China By Expanding R&D, Manufacturing Capacity" - Scrip, 3 Nov, 2011.).

During their trip, Sorensen, Schultz and Novo's China President Ronald Christie met with selected media, including PharmAsia News, to share their vision of China. Below are excerpts from that media roundtable discussion, held Oct. 31 in Beijing. [Editor's note: Read part 1 of the roundtable discussion here: (Also see "Novo Nordisk CEO Lars Sorensen On Novo's Vision For China (Part 1 of 2)" - Scrip, 10 Nov, 2011.)]

On comparisons between China, India and Russia

Lars Sorensen: It is clear that the strongest economic growth is taking place in China. It is clear that the more homogeneous ethnic and political system in China is very conducive to economic growth, whereas when we look at India - India and China have similar burden of diabetes, ranging up to almost 100 million people with diabetes - but the development in India is somewhat slower.

Due to the political reasons, [India] is a much more heterogeneous country with much stronger provinces and less strong federal influence on health policies at the provincial level, and therefore we see a slower development of our business in India. But we have expectations because of the underlying demographic burden - 100 million people with diabetes - that we will see strong growth in India as well. However, it's slightly different from the speed we see in China.

If we compare this to Russia, it's interesting for us to know that Russia has a completely different industrial and economic structure. Russia has a raw materials economy where most of the income comes from heavy industry and energy sources. And Russia is in the process of building up a local pharmaceutical industry, much based on the experience and example of that of India and that of China.

Right now we are starting to make investments in Russia to become like a local pharmaceutical company (Also see "Russia Pledges $3.9 Billion For Local Pharma Growth, As Big Pharma Scrambles To Set Up Shop" - Scrip, 22 Dec, 2010.).

In China we also want in the future to become a local pharmaceutical company. In Russia we want to be able to assist building up understanding and knowledge about diabetes, but it's coming at a much later point of time. And the economic situation in Russia is different from that of India and of China.

On concerns about local governments cutting back on healthcare funding in China

Ronald Christie: We've seen China developing faster than any of the large emerging markets like India and Russia, etcetera. But we still have some concerns in China. Recently we have had some concerns with the increasing debt of provincial and municipal governments, and we see that the Chinese government is in a very strong position to manage any debt that might occur with the provinces.

But we are seeing that this tightening of credit from municipal and provincial governments has resulted in, in some cases, healthcare budgets being restricted in places like Shanghai and many other big cities around China.

There is some concern about these levels of debt in the municipal and provincial governments. I hope that the provincial governments don't decide to cut back on social services and provision of healthcare, but rather do what the central government wants, cut back on capital investment levels. We have seen some concern because there are some little indications that markets have slowed down in certain parts of the country because the local governments decided to cut back quite strongly on healthcare spending.

Sometimes politicians find it easier to invest in property and railways and things like that rather than investing in healthcare. That's the big problem all over the world, so we are not free of those problems in China.

Sorensen: I hope you take our comments as not being disrespectful of the Chinese political system when we express some concerns. But rather, the fact, that in the past perhaps the development in China was most important for people in China, but China has become so important to the global economy and to many of us international companies, that we take a very great interest in what happens in China.

Inequities and imbalances in China will have implications for the global economies now, not only for the economy in China. That is why we have an interest and pass comments on it, not to criticize anybody in particular.

On competition with Eli Lilly & Co. and Sanofi

Kare Schultz: We have competed with Lilly and Sanofi for more than 85 years worldwide and the competition we have here in China is not basically different from the rest of the world. But we have started early investing, working with the Chinese government and Chinese healthcare professionals to improve the treatment of diabetes in China through education and training and through availability of the most modern insulin products for treatment of diabetes.

The basic strategy to maintain high insulin market share, both worldwide and in China, is to first of all, develop new, innovative and improved insulin products and products taking care of diabetes, such as the insulin Levemir, NovoMix and [the GLP-1 agonist] Victoza, and thereby securing product leadership. At the same time, supporting the healthcare sector by education and training activities that increase the chance that patients can be well taken care of by the healthcare professionals.

By having the world's largest research activities, manufacturing activities and training activities within diabetes, we plan to maintain our high market share.

Christie: I think if you look further into the research taking place in the world, Novo Nordisk has the largest number of researchers in diabetes. Whilst we talk about the new drugs today, which are referred to as the third-generation of insulins, having gone from animal insulin to human insulin to modern insulin, we are the only company that's really developing a fourth generation of insulins.

Those products are now coming into a stage where they have been applied for approval in the United States, so we are always a step ahead of the opposition and I think for this place there is a reason. We are a step ahead of everybody else; we have a complete range of products, and that's made us the leader in diabetes and in China as well.

I think the other key thing is that for other big companies like Lilly and Sanofi, they have a large number of therapeutic categories; whereas for us diabetes is our main business, and we have been there for 80 years. We have the most people and put the most money into research. I think that's the basis for our success, so China reflects the worldwide situation.

Of course, having the best products is one thing, but also patients have to use the insulin, so devices for injection are the key factor in the use of this product as well, and Novo Nordisk has been a leading developer of new injection techniques for decades. Here in China, as Lars mentioned, we have a factory for production of devices and we also do research for injection devices here in China as well.

On sales slowing down in China

Christie: We had a slow-down in the diabetes market, but generally it is a slow-down in the pharmaceutical market. There are a couple of basic reasons we think.

The government has made great effort in the last couple of years to spread healthcare coverage to cover more people. In essence, what they've done now is take the available funds and spread them over the whole population. So now China is in a really good position. Virtually every person in China has some form of healthcare cover, so that has spread the money wider and thinner.

But what we are expecting to see now is that the investment will continue to happen as China gets richer, and as GDP growth happens every year, more and more money will be invested into healthcare. We expect to see a change in the investment.

The other thing is that the market growth has slowed down because of healthcare reform. Because so many policies and changes have taken place in a relatively short time, it's disrupted the marketplace, and that is also starting to settle out.

We are seeing different cities taking measures to implement things like the national reimbursement drug list, etcetera. It's quite complicated, but in essence, we see more people with courage than in the past. We expect for the future that there will be more investment which shall speed up the market. So we think there is a temporary disruption for the market now, but it will improve within the next year, and we will then continue to see growth in China.

Please remember that when we talk about the slow-down in China, China is still the fastest-growing big market in the world. So whilst we see a slow-down, the growth rates in China are still very high. We have a lot of faith in the future for China because there are so many people with diabetes, the majority of [whom] are not treated or are not treated correctly. So there is huge potential in the future because there is a huge need for improving health treatment for diabetes, so we are very optimistic about the market.

We continue to invest more and more of our business here in China. Every year we increase the size of our sales force and we have one of the broadest reaches in terms of coverage of all the pharmaceutical companies because the need for diabetes treatment exists in every village of China. We are trying to get further and further out.

As you get bigger, complexity changes, you have to adjust things a little bit. But in essence, we need to invest more and more in the future. We are prepared as a company to continue to invest in China more and more people, more and more support for diabetes education, so diagnosis can be improved. It is something we do all around the world and we are very good at it. That's why we have this leading market position. It's because we are very good at supporting doctors in education and training.

On launch of Victoza in China to compete with Januvia and Byetta

Christie: The reality is that both of the drugs [Victoza and Lilly's competing GLP-1 agonist Byetta] are very new to the [China] market and not covered by reimbursement, so they have very little penetration of the market today. Victoza is all around the world, I can just tell you from worldwide experience that Victoza has very quickly become the leading product in the GLP-1 class and has been very successful, and we expect the same response here in China.

We've launched the drug recently, and in the last month we had excellent feedback from doctors about the product and how excellent it is for patients.

Regarding the DPP-4s [such as Merck's Januvia], there are a number of them coming out, but the reality is that those drugs are not as effective in terms of the capacity to lower glucose, so we expect to see that Victoza takes a leading role in this incretin class as we call it. So we have a very good drug that we think will very quickly become a leading product in this incretin class in China as well.

[Editor's note: PharmAsia News and the New York Pharma Forum will host a panel Nov. 15 in New York City on biopharma opportunities in China. For more information, please click here.]