Merck Favors Alliances Over Headcount to Tap China Growth

Merck & Co. is ditching the strategy of increasing sales staff in China and turning to local partners and education to reach doctors as the U.S. company seeks growth in the world’s third-biggest drugs market.

“The conventional thinking was that a linear increase of the sales force will generate a linear increase of revenue. I don’t believe in this model,” said Michel Vounatsos, the head of Merck’s China operations, in an interview yesterday. “We are very happy with the number of sales representatives we have now.”

Merck, the second-largest U.S. drugmaker, has been trimming jobs in developed markets and expanding in emerging ones, where increasing incomes are bolstering consumer spending on medical treatments. The company reduced its sales force in developed markets by 32 percent in 2010, while hiring workers in China, Brazil and Russia, Chief Executive Officer Kenneth Frazier said in January.

Merck has 5,000 employees in China, of which 3,500 are in sales. One thousand of those salespeople have been added since 2009, with a large part coming from its acquisition of Schering- Plough Corp. that year, said Vounatsos, who previously headed Whitehouse Station, New Jersey-based Merck’s unit in France.

“The prime focus of the physician is how to best treat patients, so they’re very eager to be continuously educated on innovation and novel techniques and new regulations. And we have a role to play,” Vounatsos said in an interview on board a high-speed train from Nanjing to Shanghai.

185,000 Doctors

More than 185,000 Chinese doctors have signed up to Merck’s online health-care education website Univadis since its China debut in July 2010, giving them access to content from such medical journals as The Lancet, Vounatsos said.

The drugmaker also sponsors training of doctors and nurses at community clinics in China, and has donated more than 5,000 copies of the Chinese version of the Merck Manual medical reference book.

“It translates into appreciation and good image for the company,” Vounatsos said. Merck’s senior management is supportive of the strategy, even if it may not immediately generate returns on the investments, he said.

“China is a long-term dossier and opportunity, so we don’t assess in the short term, we measure our progress beyond the five-year period and refresh our strategy as it evolves,” said Vounatsos, who has three school-going children learning the Chinese language.

Merck Target

The target is to grow “at least at or above the market growth rate” in China, he said.

Merck fell 3 cents to $32.10 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have declined 11 percent this year.

China’s pharmaceutical market will probably grow 19 to 22 percent annually over the next five years, according to Norwalk, Connecticut-based IMS Health Inc. The market will probably be valued at $115 billion by 2015, according to the research company.

Merck generated $206 million of sales in China in the second quarter, a 30 percent increase from a year earlier, said Adam Schechter, the company’s president of Global Human Health, on a July 29 earnings call.

Merck is also looking an improving its access to the Chinese market by teaming up with local companies such as Sinopharm Group Co. (1099), the country’s biggest drug distributor. In July, 2010, the two companies agreed to cooperate on the sale of vaccines.

The company on July 21 inked a deal with Nanjing-based Simcere Pharmaceutical Group (SCR) for a venture that will improve access to patients in the world’s most-populous nation and boost sales of blood pressure treatments Cozaar and Renitec, and cholesterol-lowering pill Zocor.

--Daryl Loo. Editors: Bruce Rule, Chris Staiti

To contact Bloomberg News staff for this story: Daryl Loo in Beijing at +86-10-6649-7540 or dloo7@bloomberg.net

To contact the editor responsible for this story: Jason Gale at j.gale@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.