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21st Century Business Herald reporter Ji Yuanyuan reports from Shanghai

In 2024, the key words surrounding multinational pharmaceutical companies are mainly "layoffs", "pipeline cuts" and "clinical suspensions". The global market layout of multinational pharmaceutical companies is undergoing a new round of transformation pains.

Recently, market news said that FibroGen, a US pharmaceutical company focused on the research and development of first-in-class drugs, announced that it would cut about 75% of its US team employees. At the same time, given that the CTGF inhibitor pamrevlumab had failed in late-stage clinical trials for indications such as Duchenne muscular dystrophy and idiopathic pulmonary fibrosis, the company decided to stop research and development of the drug.

Another company that is making large-scale layoffs is Takeda Pharmaceutical. Starting in July this year, Takeda Pharmaceutical announced the start of a restructuring plan to lay off 495 employees at its Cambridge plant in Massachusetts and 146 employees at its Lexington plant. Takeda Pharmaceutical disclosed that the move is to reduce costs and increase efficiency, with total profits reaching 225 billion yen (approximately US$1.4 billion) in fiscal 2024 (ending March 2025) and further increase its core operating profit margin. Recently, Takeda Pharmaceutical's layoffs are still progressing. On August 2, Takeda Pharmaceutical announced plans to close its research and development center in California, USA, and lay off 1,000 employees in the United States.

In addition to layoffs, some multinational pharmaceutical companies have also made plans to sell their subsidiaries in the Chinese market. On August 1, Concordia Kirin announced the launch of a major restructuring of the company's Asia-Pacific business, including the transfer of all equity of its Chinese subsidiary Concordia Kirin (China) Pharmaceutical Co., Ltd. to Hong Kong Weijian Pharmaceutical Group. The transaction is expected to be completed on September 30, with a transfer price of RMB 720 million.

Regarding the plan of Concord Kirin to sell its Chinese subsidiary, the 21st Century Business Herald reporter immediately contacted a person related to Concord Kirin. A person close to Concord Kirin told the 21st Century Business Herald reporter that the news was true. "Concord Kirin has a certain position in the rare disease drug market, but the layout of the rare disease market is also quite difficult. The company's move this time is basically a strategic adjustment to cope with the challenges of the global market." The person said.

Talking about the current survival environment of multinational pharmaceutical companies, a securities company pharmaceutical industry analyst told the 21st Century Business Herald reporter that the market environment has changed over time. Today, the success of a company depends not only on the investment of human and material resources, but also on a comprehensive consideration of policies, product lines, and R&D capabilities. Therefore, even large companies may face the risk of failure, and it is necessary to adjust their market strategies.

Layoffs, layoffs, layoffs

For multinational pharmaceutical companies, the layoff wave is still continuing in 2024, and reducing costs and increasing efficiency is also one of the important goals of multinational pharmaceutical companies in 2024.

According to statistics from industry consulting agencies, the global health industry will continue to face challenges in 2024. In the first quarter, the number of layoffs was close to 3,000, and in the second quarter, global pharmaceutical and medical device companies reported more than 45 layoffs. Layoffs and streamlining of organizational structures have become a new trend for top pharmaceutical companies.

According to statistics on layoffs in biopharmaceutical companies in 2024 released by Fierce Biotech, as of July 31, 2024, more than 80 biotech companies have laid off employees worldwide, including large multinational pharmaceutical companies such as Novartis, Sanofi, Roche, Takeda, Bristol-Myers Squibb (BMS), Pfizer, and Bayer. In the wave of layoffs, middle and senior management and core R&D personnel were all affected.

For example, in June this year, Pfizer's DMD (Duchenne muscular dystrophy) gene therapy PF-06939926 failed in clinical trials and did not reach the primary endpoint. Pfizer immediately abandoned all development of the therapy, and there was news that Pfizer would lay off employees at the Sanford plant, the main development base of PF-06939926, and the number of layoffs may reach 200.

On July 31, Sumitomo Pharma announced that it has decided to implement an early retirement plan for employees. All employees who are 40 years old and have been with the company for more than five years as of November 30 this year meet the requirements, with a target of about 700 people. The scale of this early retirement recruitment is the largest in the company's history. The preferential measures include adding special pensions on top of normal pensions and providing re-employment support for employees in need.

In the announcement, Sumitomo Pharma informed employees of the reasons for implementing the early retirement plan. The company has suffered large losses in the current period attributable to the parent company's owners for two consecutive fiscal years in March 2023 and March 2024, and its performance has continued to be sluggish. Although the goal for the March 2025 period is to achieve a core operating profit turnaround, the current period profit attributable to the parent company's owners is expected to still be a loss.

Previously, Sumitomo Pharma had implemented layoffs in the United States, reducing the number of employees from about 2,200 to about 1,200 in the last fiscal year ending in March 2024, nearly half of the employees. This time, Sumitomo Pharma decided to cut staff in Japan as well, and said it would reduce R&D expenses and focus operating resources on areas such as regenerative and cell medicine businesses that are positioned as the next growth engine.

The above-mentioned analyst told the 21st Century Business Herald reporter that the main reasons for multinational pharmaceutical companies to carry out large-scale layoffs and streamline product pipelines include a response to the current market environment, as well as considerations of cost control, strategic adjustments, and improving R&D efficiency. For example, now large pharmaceutical companies are reducing their own R&D investment and turning to external introduction of high-success rate products from other small pharmaceutical companies, which has greatly reduced their R&D teams.

"For example, five years ago, the market demand for PD-1 was extremely high, and many companies invested heavily in recruitment. However, as the market environment changed, the market demand for PD-1 dropped sharply, and many companies had to lay off employees. This fully demonstrates that in the current market environment, relying solely on the scale and strength of large companies can no longer guarantee success." The analyst believes that multinational pharmaceutical companies can use layoffs and streamlined product pipelines as a means to reduce costs and improve operational efficiency in the short term. In the long run, pharmaceutical companies still need to rely on the research and development and market promotion of innovative drugs to achieve sustained and stable growth in performance.

At present, multinational pharmaceutical companies are facing challenges and adjustments in their operations in the global market, such as selecting partners, optimizing pipeline layout, etc. These factors will affect the survival and development environment of pharmaceutical companies.

Strategic Adjustment of Layout in China

In addition to layoffs, the move to "exit" the Chinese market has also become an important development for multinational pharmaceutical companies recently.

According to public information, Kyowa Kirin will conduct a major reorganization of its Asia-Pacific business. The main contents of the reorganization include three aspects:

Transfer of Chinese business. Kyowa Kirin will transfer all the equity of its subsidiary Kyowa Kirin China Pharmaceutical Co., Ltd. in China to WinHealth Pharma of Hong Kong. The transaction is expected to be completed on September 30, 2024, with a transfer price of RMB 720 million (approximately JPY 15 billion).

Licensing cooperation. Weijian Pharmaceuticals will also obtain the rights to sell Concord Kirin's mature pharmaceutical portfolio, including five brands, in China, and Concord Kirin will also enter into a licensing agreement with Weijian Pharmaceuticals to commercialize Concord Kirin's global products Crysvita and Poteligeo.

Business adjustments in other regions of Asia Pacific. In six regions outside mainland China (Singapore, South Korea, Taiwan, Malaysia, Thailand, Hong Kong/Macao, China), Kyowa Kirin has signed licensing and distribution agreements with DKSH Holding Co., Ltd., covering the commercial rights of seven mature pharmaceutical brands and some global products.

In the view of many industry insiders, this move by Union Medical College Qilin is also determined by the current development of China's pharmaceutical market. The current market environment requires companies to understand every value of the market and products earlier in order to better position products and formulate market strategies.

When talking about the operation mode and challenges of multinational pharmaceutical companies in the Chinese market, some pharmaceutical executives analyzed that as the Chinese market continues to expand and mature, multinational pharmaceutical companies are faced with 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 coverage and penetration of each hospital requires a lot of resources and time, it is particularly important to choose distributors as a cooperative model for sales and market expansion.

At the same time, we need to pay attention to the impact of cost control policies on the pharmaceutical market. In China, the government's cost control policy for medical insurance is very strict, which poses a major challenge to multinational pharmaceutical companies' product pricing and market strategies. In order to adapt to this environment, pharmaceutical companies need to adjust their business models to comply with the government's medical insurance negotiations and price control requirements.

"In a market environment like China, where regulation is increasingly stringent, multinational pharmaceutical companies need to ensure that all their operations comply with local laws and regulations. This includes working with compliance teams with local experience, as well as learning from the experience of foreign companies in the European and American markets to help them meet compliance standards in the Chinese market. In addition, faced with the complexity and huge potential of the Chinese market, it is difficult for a single company to cope with all challenges alone. Therefore, establishing partnerships and leveraging external resources and channels will be one of the key strategies for the success of multinational pharmaceutical companies," said an executive at the pharmaceutical company.

Concord Kirin said that the reorganization was to cope with changes in the external environment, optimize resource allocation, ensure the continuous supply of drugs, and lay the foundation for the company's sustainable development. After the reorganization, Concord Kirin will conduct commercial activities in the Asia-Pacific region through partners, which is similar to the joint venture strategy adopted in Europe last year.

The company expects that the reorganization and equity transfer will have a certain impact on its financial performance in fiscal year 2024. Kyowa Kirin has included the relevant impact in the revised financial forecast released on the same day, and promised to announce immediately if there are further matters that need to be disclosed.