Johnson & Johnson Loves China Regardless of Bribery and Pricing Investigations

Posted: November 12, 2014 in Econ 101


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J&J eyes dealmaking in China to ratchet up pharma sales

Bribery and pricing investigations aren’t scaring Johnson & Johnson ($JNJ) away from China. CEO Alex Gorsky tells The Wall Street Journal that his company is expanding full speed ahead in the fast-growing emerging market–and is actively looking at deals there to boost pharma sales.

J&J’s sales in China last year hit about $3 billion, a 10% increase over 2012, Gorsky told the WSJ. About half of that comes from devices, with the rest evenly split between consumer health and pharma. The company is looking for deals to grow drug and consumer health sales, and targeting common diseases for pharma expansion.

To amp up growth in China, the company put one local chairman in charge of all its operations in the country, whether prescription meds, devices or consumer health. J&J has set up local R&D and manufacturing, and has teamed up with domestic drugmakers on development projects. One collaboration, with the Chinese biotech Ascletis, focuses on HIV drug development.

Still, J&J has lots of room to grow, if its Big Pharma rivals’ sales are any indication. Bayer HealthCare, which also sells pharmaceuticals and over-the-counter products, posted €926 million in drug sales in 2010 and hopes to hit €2.5 billion by next year.

But in an echo of other drugmakers’ comments about the Chinese government, Gorsky suggested that some companies are more equal than others, putting J&J at a disadvantage. When Chinese law enforcement started targeting corruption and price-fixing in the drug business, foreign drugmakers were at the top of their list. Some market analysts figured that the government was trying to protect its domestic industry; officials later said they were targeting rule-breaking by Chinese drugmakers, too.

J&J itself was fined for “monopolistic pricing” in its contact lens business. And with the government in charge of healthcare, enforcement probes are only one way officials can give domestic companies a leg up on multinationals. For instance, China pulled J&J’s trademark protection on its OneTouch diabetes products early this year, allowing rivals to sell their products under the same name.

“[W]e support government actions in creating a leveled playing field for all companies,” Gorsky told the WSJ.

A challenge all multinational drugmakers face in China is regulatory speed–or lack thereof. Winning approval from China’s FDA is the first step; winning reimbursement from the government is another. Big Pharma has been complaining that getting their brands to market takes too long, leaving less time to sell before generic competitors hit.

“One of the things we are concerned about is the drug lag you see,” Gorsky told the WSJ. According to the J&J chief, the average time to market there is about 8 years, twice as long as in other markets.

Overall, J&J’s emerging markets business has increased dramatically over the past several years. By 2012, the company’s sales in emerging markets accounted for 20% of its pharma revenue, up from just 12% in 2007.


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