Glaxo Sees Emerging Market Price Cuts Driving Drug Volume Growth

GlaxoSmithKline Plc (GSK), the U.K.’s biggest drugmaker, said price cuts will accelerate volume sales of its medicines in emerging markets led by China as the company extends its reach to less well-off patients.

Unit sales of Glaxo’s Avamys nasal spray for allergies jumped almost five-fold in emerging markets in the two years since price reductions were introduced in 2009, according to the London-based company’s annual report. Revenue from Avodart, a treatment for enlarged prostate glands, gained 76 percent over the same period.

“Price reductions are in many ways very important in driving the access and take-up of health-care coverage,” Chief Financial Officer Simon Dingemans said in an interview in Beijing yesterday. “We see very good volume response to that, which shows the strategy is working.”

Drugmakers are turning to China, the world’s third-biggest pharmaceutical market, as competition from cheaper generics erodes earnings when patent protection on their brand-name medicines expires. Annual health-care spending in China is set to almost triple to $1 trillion in the decade to 2020, McKinsey & Co. projected in August.

Western drugmakers may have to give hefty subsidies and forgo some profit on expensive cancer drugs if they want access to China’s “huge market,” the country’s former Health Minister Chen Zhu said in an interview last month.

Glaxo’s China sales gained 20 percent last year to about 1 billion pounds ($1.52 billion), or about 3.8 percent of 2012 revenue, said Dingemans, who became chief financial officer in 2011 after leaving Goldman Sachs Group Inc. Its emerging markets sales grew 5.6 percent in the period to 1.56 billion pounds, according to data compiled by Bloomberg.

Cervical Cancer

The company is also making “reasonable progress” and is “hopeful” of gaining Chinese regulatory approval for its cervical-cancer vaccine Cervarix, he said, declining to give an expected time line.

“We see an opportunity that is similar to what Japan went through,” Dingemans said. The company sold 300 million pounds of Cervarix in Japan in the first year after the product’s introduction in 2011, he said.

“Cervical cancer is a very serious condition and vaccination programs have been very rigorously rolled out across the world, so we’ll see what China chooses to do with that,” Dingemans said. Whitehouse Station, New Jersey-based Merck & Co. is also awaiting approval for its competing Gardasil vaccine, its China-based executives told reporters in April.

Natural Hedge

Glaxo is also expanding its manufacturing of drugs, vaccines and consumer products in China as a way to offset currency variations. China’s yuan has gained about 7 percent against the British pound in the past year, while the Japanese currency has fallen by about 20 percent, according to data compiled by Bloomberg.

“We try and provide a natural hedge to the activity in sales that we have here in China, so it hasn’t made a huge or material difference to us,” Dingemans said. “We have the same approach in Japan, so the depreciation in the yen is not really making a big difference to how we think about the Japanese business.”

An outbreak of a new strain of avian flu, which has infected at least 131 in China and killed 36 of them since February, “is not making a big difference” to sales of the flu drug Relenza so far, Dingemans said. H7N9 infections eased in China after health authorities restricted live poultry sales and culled birds in the affected markets.

“What we are doing is making sure we are prepared for if it becomes more serious, and we can ramp up and respond quickly if we need to,” he said.

To contact Bloomberg News staff for this story: Daryl Loo in Beijing at dloo7@bloomberg.net

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

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