GSK Divests China Suzhou Site, Antiviral Rights To Fosun
Executive Summary
GSK becomes latest pharma multinational to offload assets in China as competition and pricing pressure continue to mount.
GlaxoSmithKline PLC has decided to transfer its stake in a Suzhou, China manufacturing subsidiary, along with the local registration for lamivudine, to a Fosun International Ltd. group company, in a deal worth CNY250m ($36m).
According to filings to the Shanghai Stock Exchange, where Fosun is listed, the Chinese company’s Chongqing Yaoyou Pharmaceutical Co. Ltd subsidiary will obtain the holding in GSK Suzhou, along with the Chinese registration and good manufacturing practice certificates for lamivudine, an antiviral used in HIV and chronic hepatitis B and marketed in China as Heptodin for the latter use.
GSK Suzhou is one of five manufacturing sites for the largest UK-based drug maker in China, the others being located in Shanghai, Hangzhou and Tianjin. The Suzhou site has annual revenues of CNY656m and profit of CNY74m.
Revenues, Profits Nosedive
The reasons for the divestment include GSK’s strategy to transfer manufacturing from Suzhou to other sites in China, noted Fosun in the regulatory filing. "The main driving force is GSK’s reducing its investment [in China manufacturing] from $135m to $110m,” the Chinese firm said. The move also appears to be driven by heating up competition and reduced profitability in general in the country.
For the first five months in 2019, GSK Suzhou reported sales of CNY147m and profits of CNY8.9m, according to the Fosun filing. The figures are a stark contrast and large decline from the CNY250m and CNY30m respectively for the unit’s average five-month period.
Although the company didn’t specify the reasons behind the nosedive, a massive centralized bidding mechanism initiated late last year across China appears likely to blame. The “4+7” bidding process has resulted in aggressive price cuts for widely-prescribed off-patent drugs, by an average of 52% and up to 96%.
Facing the need to slash prices to be included in the centralized scheme, only two multinationals, AstraZeneca PLC and Bristol-Myers Squibb Co., managed to win bids in the selection of the first batch of 31 drugs. (Also see "Drug Price Waterloo: China's New Bidding Process Hits MNCs Hard" - Scrip, 11 Dec, 2018.)
Rising Cost Pressures
Although lamivudine was not included in the group in which both entecavir and tenofovir were selected for centralized bidding, the ripple effect is such that the drug is seeing mounting pricing pressure.
Reflecting this, foreign drug makers in China including GSK are moving to cut costs by divesting non-core assets to domestic Chinese companies or moving the manufacturing to other sites. For its part, GSK has just opened two new continuous manufacturing facilities, and expanded another, in Singapore, investing $95.6m.
Heptodin is one of best-selling antiviral hepatitis B drugs for GSK in China. To offset the impact of patent expiry on its antiviral franchise, the UK firm has launched Tivicay (dolutegravir) in China for HIV infections, and the combination therapy Dovato (lamivudine plus dolutegravir) outside China.
Facing an uncharted path and these mounting challenges in China, the growth trajectory for pharma companies lies in five key areas, especially speedier launches of novel products and meticulous execution of commercial strategies, noted a recent report. (Also see "How To Deliver Your China Growth Story: Trends To Watch" - Scrip, 15 May, 2019.)