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21st Century Business Herald reporters Ji Yuanyuan and Han Liming report from Shanghai

Over time, the Chinese market environment has changed.

Since 2005, the rapid expansion of the Chinese market has led many foreign-funded enterprises to increase the number of employees, and this trend has lasted for about 15 years. Compared with Menarini, multinational companies such as Pfizer, AstraZeneca, Eli Lilly, and Roche entered China earlier and enjoyed many dividends from China's early market expansion. At that time, most pharmaceutical companies could obtain corresponding market returns by investing manpower and material resources due to the relaxed national policies and the slack market competition.

However, in recent years, the government's cost control policy for medical insurance in China has been very strict, which has posed a major challenge to the product pricing and market strategy of multinational pharmaceutical companies. In order to adapt to this environment, pharmaceutical companies need to adjust their business models to meet market requirements.

Chen Jialin, CEO of Menarini China, said in an interview with a reporter from 21st Century Business Herald that the impact of national policies on products is not actually a decisive factor. The key lies in whether the company's operating strategy is correct and whether the investment in the product is sufficient. Therefore, as long as the company can operate correctly and invest fully, the impact of national policies on products will be limited.

"However, in the ever-changing and developing stage of the market, the company also needs to maintain keen insight and flexible strategic adjustment capabilities. Only in this way can it remain invincible in the fierce market competition." Chen Jialin said that with the changes in product cycles and the existence of potential centralized procurement risks, the product life cycle may be shortened to one or two years. Therefore, small and medium-sized multinational pharmaceutical companies urgently need to increase the speed of listing to cope with market changes. Among companies of the same type, Menarini's performance is not bad, and it is even slightly better. The company will pay close attention to market dynamics and formulate corresponding strategies based on the forecast of future growth points.

Breaking the “three-line parallel”

"Before that, I was involved in and witnessed the company's rapid expansion. Every day, we had to calculate the number of recruits accurately to ensure that we reached our goals. We achieved significant staff growth within two years. At that time, in order to fill the huge manpower needs, we even started recruiting students."

Nowadays, relying solely on the size and strength of a large company can no longer guarantee success. The success of an enterprise depends not only on the investment of human and material resources, but also requires a comprehensive consideration of national policies, product lines, and R&D capabilities. Therefore, even large companies may face the risk of failure.

For example, a few years ago, some oncology drugs were hot and the market demand was extremely high. Many companies invested heavily in them and expanded recruitment. However, due to changes in the market environment, the market in related fields was saturated and demand declined, and many companies had to "cut pipelines", "lay off employees", and "reduce costs and increase efficiency".

"Menarini entered the Chinese market 11 years ago. We always decide our investment strategy based on the current policy environment, avoiding the risks of blind investment. Therefore, even in the current market environment, we can still maintain stable profit growth. This is also our advantage compared with other companies." Chen Jialin told the 21st Century Business Herald reporter that Menarini's company scale is relatively small among foreign companies. As a small and medium-sized enterprise, it has limited resources and energy, and is more cautious in comprehensively exploring new areas. Therefore, Menarini will choose to focus on existing and familiar areas to add and expand products. At present, this strategy may have more advantages in terms of cost performance.

According to IQVIA market analysis, in recent years, the Chinese market has continued to expand and mature, and multinational pharmaceutical companies are facing the challenge of how to more effectively penetrate this vast market. Due to the large number of hospitals in China's first-, second-, and third-tier cities, and the fact that the coverage and penetration of each hospital requires a lot of resources and time, facing the complexity and huge potential of the Chinese market, it is difficult for a single company to cope with all the challenges alone. Establishing partnerships, making good use of external resources and channels, and selecting distributors as a sales and market expansion cooperation model will be one of the key strategies for the success of multinational pharmaceutical companies.

Chen Jialin introduced that Menarini has also made corresponding adjustments in terms of channel layout. Previously, the company mainly adopted a three-line parallel strategy of hospital, retail and e-commerce channels. In the field of e-commerce, Menarini had already set foot in it as early as 2016 and opened a cross-border flagship store. In the Chinese market, which has only 11 years of history, the layout speed can be said to be very fast. In the field of retail, Menarini's pace is also not slow. Five years ago, the size of the retail team exceeded 100 people, and now it has expanded several times. In terms of hospital channels, the company has also established a considerable sales team, but because the company has only been in China for a short time, it still needs to register more products and introduce them into the country.

Every year, Menarini rapidly adds new hospital partners. From this perspective, the company's performance is not inferior. However, given the huge size of the Chinese market, although the company has achieved good results in hospital coverage in the past 11 years, there are still many hospitals waiting to be developed. Menarini also realizes that due to the huge size of the Chinese market, it is impossible to fully cover it in a short period of time.

"Our sales team is already quite large among small and medium-sized pharmaceutical companies. We realize that in order to achieve better results in the hospital market, we need to speed up the product registration process. However, in order to accelerate the company's further development in the Chinese market, we have added a new partner CSO (Contract Sales Organization)." Chen Jialin believes that considering that competitors have been deeply involved in the market for decades, Menarini must speed up the pace of cooperation. Therefore, in familiar fields, Menarini tends to choose partners who can be monitored and guided to jointly promote business and ensure clear and efficient direction.

Adjust marketing strategy

The reason for choosing a strategy adjustment is also based on the actual situation. For multinational pharmaceutical companies, investment in hospitals is usually relatively stable and predictable capital investment. In contrast, investment in retail and e-commerce is more difficult to predict.

On the one hand, at present, the cost of China's retail industry continues to rise, the industry's approach in the retail field is constantly upgrading, and the key factors that determine profitability are constantly changing. Often, high investment does not bring high returns.

On the other hand, aspects other than manpower, such as platform fees, are also showing a high trend.

"After evaluation, we believe that some of our products will be able to play a greater role if taken over by external partners. In particular, those products in which we have invested for many years but have not yet found an ideal development path may not fully fit with our core business strengths. Therefore, we decided to hand them over to a more professional team. With the assistance of our partners, we will be able to cover more hospitals more efficiently in areas that are difficult for us to reach ourselves, so as to achieve the best market performance." Chen Jialin said that the era of fighting alone is over, and only through close cooperation with partners can we better seize market opportunities and achieve long-term development of the company.

In recent years, the market has undergone a series of significant changes in response to the emergence of centralized procurement products. In particular, the market value of some products cannot be ignored even in the face of centralized procurement, so many CSOs (contract sales organizations) have accumulated a large number of products after centralized procurement, which has also made the CSO industry particularly active in recent years.

In 2021, multinational pharmaceutical companies began to use CSOs. On March 29, 2021, Roche Pharmaceuticals China and Baiyang Pharmaceuticals jointly announced that the two parties will work together to explore cooperation in the field of oncology. Roche Pharmaceuticals granted Baiyang Pharmaceuticals the marketing rights of its two major oncology products, Xeloda and Tarceva, in mainland China. According to market information disclosure, the amount involved in the transaction has reached 400 million yuan, which was a large scale at the time.

Chen Jialin believes that the underlying trends and reasons can be seen. From the perspective of manufacturers, they no longer rely solely on dealers to sell products, but can start to seek more diversified and efficient sales channels. This change stems from a deep understanding of the market and strategic adjustments.

"In the past year or so, we have observed that foreign-funded enterprises have also begun to actively get involved in the product market after centralized procurement. This is mainly due to changes in market demand and companies' keen insight into market dynamics. In the past, foreign companies may be more inclined to cooperate with distributors or sales companies, but now they are more likely to choose to directly participate in market competition to gain a larger market share and profit margin." Chen Jialin said that in addition, the way foreign companies participate is also changing. They began to study the characteristics of centralized procurement products in depth and formulate corresponding sales strategies. For example, some foreign companies will choose to work hard in a certain product field to ensure their leading position in this field. At the same time, they will also pay attention to market development trends so as to adjust their strategic direction in a timely manner.

How to break through?

In addition to commercialization, insufficient R&D capabilities are also a major pain point for small and medium-sized multinational pharmaceutical companies. Due to the relatively limited R&D capabilities of small and medium-sized multinational pharmaceutical companies, companies need to make more efforts in the product promotion process and communicate with all parties one by one. This is undoubtedly one of the challenges faced by small and medium-sized enterprises.

The reason behind this is that most small and medium-sized multinational pharmaceutical companies lack the genes or essential characteristics for R&D. Due to the lack of this gene, it is difficult for them to develop the required technology or products on their own. Therefore, small and medium-sized multinational pharmaceutical companies will turn to external cooperation, that is, through the BD (business development) approach, to explore feasible solutions with BD partners.

"At present, many small and medium-sized multinational pharmaceutical companies only have R&D centers at their global headquarters. This situation has led to a great reliance on the launch of BD products, which is undoubtedly a problem that the company cannot avoid. Whether to develop independently or BD is not a multiple-choice question, but an inevitable dilemma faced by many small and medium-sized multinational pharmaceutical companies, and it is also our only feasible path at present." Chen Jialin said that when cooperating with BD, both projects and partners need to have certain screening criteria. Menarini usually considers that the target product has significant synergy with the company's business. When selecting products, Menarini tends to look for products that have advantages in this field and have been proven to have reliable efficacy in practice. Considering the characteristics of small and medium-sized enterprises, the company tends to avoid the overly common "me too". Therefore, it is more inclined to look for products that have been certified in clinical medicine and have excellent quality.

"Although the original companies of these products may not have planned to bring them to market, they have performed well in research and development. By setting up a fund, we will introduce such products and transform them into our own products. Take Menarini's newly launched anti-allergic products as an example. Although its research and development is not dominated by us, we transform it into our own products by purchasing its research and development results." Chen Jialin said that recently, the company's listed hospital products are mainly based on the results of the third phase clinical trials of its partners, which means that Menarini only needs to identify the track and products, without doing too much research and development work, and can quickly introduce them to the market after the clinical trials are completed. This strategy enables the company to quickly supplement its product line and increase market coverage.

It is not easy for a successful drug to be put into clinical use. Due to the long product development life cycle, it takes at least 10 years from target discovery, antibody prototype construction, to real benefit to clinical patients, and the market environment is indispensable during this period. Talking about the current strategic needs of the Chinese market, Chen Jialin deeply feels that when examining the current policy environment, if the policy can be updated faster and the standards can be appropriately relaxed, it will have a positive impact on the development of the industry.

Medical insurance has greatly improved the accessibility of drugs for patients and solved the problem of affordability. "We are also very pleased to see that the country is constantly introducing new medical insurance-related policies to make it more convenient to take medicine and see a doctor. For example, the recently implemented outpatient pooling policy has helped more chronic disease patients simplify the drug acquisition process and improve the convenience of medication. It is helpful to improve patient compliance, which will be reflected in the company and will help us accelerate development." Chen Jialin said.

In addition, regarding the issue of product life cycle and market expansion, Chen Jialin further believes that Menarini headquarters should pay great attention to this. In view of the generally short life cycle of new and old products, the company should vigorously support the development of new products in the Chinese market to maintain market competitiveness. At the same time, the company should also consider expanding retail and e-commerce channels to reduce dependence on national policies, which will help Menarini China achieve more stable development.