Healthy Skepticism Library item: 13859

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Publication type: news

Zamiska N.
AstraZeneca Looks Beyond Beijing
The Wall Street Journal 2008 Jun 13
http://online.wsj.com/article/SB121331518414669979.html

Full text:

Urumqi, China

Six years ago, this provincial capital in China’s remote west was just
another backwater for British drug maker AstraZeneca PLC.

Prescription-drug sales were surging in China’s bigger cities, such as
Guangzhou and Shanghai. Urumqi, closer to Kabul than to Beijing and where
the local population speaks a Turkic language unrelated to Chinese, was on
the country’s fringes in every sense. Drug sales here were dismal.

Today, Urumqi — the capital of Xinjiang province — and other cities like
it are at the heart of AstraZeneca’s business plan, one that has
transformed the way drugs are marketed in China.

In 2002, AstraZeneca decided to pour money into hiring local sales
representatives to canvass doctors and hospitals across China to persuade
them to prescribe the company’s products. While its major competitors
focused on the country’s big cities, AstraZeneca went after a slew of
smaller ones they ignored.

The strategy has paid off. Though still a fraction of its world-wide
revenue of $29.5 billion, AstraZeneca’s prescription-drug sales in China
grew to $423 million last year from $85 million in 2001. That growth has
propelled it from sixth place to No. 1 in the Chinese market last year,
ahead of much-larger rival Pfizer Inc. of New York, according to IMS
Health, a drug marketing-research firm in Fairfield, Conn.

A Pfizer spokesman said the company doesn’t generally discuss marketing
strategy, but said “we are currently experiencing reasonable growth in our
prescription-drug business in China.”

AstraZeneca’s lead could give it leverage to capture much of the expected
growth in the Chinese market — which IMS Health predicts will reach $46
billion by 2012, up from $8.4 billion in 2003. Yin Xudong, the head of
AstraZeneca’s China operations, says the company anticipated an “arms race,
and we needed to be first.”

The company’s success has inspired nearly every major pharmaceutical
company to follow its lead by sharply expanding their sales forces and the
number of cities they target. “Without any doubt,” AstraZeneca has grown
rapidly, says Jesus Acebillo, Swiss rival Novartis AG’s head of emerging
growth markets, including China, India and Russia. “AstraZeneca started a
few years ago, a little bit earlier than Novartis.”
[growth prescription]

Mr. Acebillo adds that Novartis has tripled its staff in China over the
past five years, but said that other factors — such as the portfolio of
drugs a company has to sell — are as important as the size of its sales
force.

In developing its strategy, AstraZeneca hired Emerging Market Economics
Ltd., a London consulting firm, to create a color-coded map of China
showing where incomes were growing fastest, as a way of finding out which
patients had money to spend on medication. AstraZeneca also collected data
to figure out “which hospital is hot, which doctor is hot,” says Mr. Yin.

Xinjiang province, which is more than twice the size of Texas, proved to be
a standout. In 2002, AstraZeneca had around eight sales representatives
there. It now has 43, and sales have shot to $6.2 million in 2007, up from
$1.1 million in 2002. Now, “everybody is interested in Xinjiang,” says Mr.
Yin, who was born in China and holds a doctorate in biochemistry from
Stanford University and a master’s degree in business administration from
Harvard.

China’s pharmaceuticals market is filled with challenges. Corruption has
been a significant problem; last year, China’s former top drug regulator
was executed for accepting bribes from drug makers.

Mr. Yin says his company deals harshly with any unethical behavior by its
employees, including the promotion of drugs for off-label use. AstraZeneca
adds that it covers some costs for doctors to attend scientific or academic
meetings, but that doctors must spend at least 70% of each day at the
conference. In addition, the company permits small gifts, of around $14 or
less, but no more than three times per year per doctor, and only on
designated holidays, such as the Lunar New Year.

Competition has heated up among drug makers to hire the most talented sales
representatives to compete for business in China’s hinterlands. Since 2002,
AstraZeneca has quintupled its sales force in China to nearly 2,000 people.
Many are recent college graduates, who are paid around $15,000 annually, a
relatively large sum compared with the pay for other jobs open to them.

But AstraZeneca’s turnover hovers around 18%, according to Mr. Yin, as the
major foreign drug companies poach one another’s best people. “There is a
type of war for capturing talent, for developing talent, for attracting
talent,” says Mr. Acebillo of Novartis. “This is one of the greatest
challenges that the general managers in China are facing.”

AstraZeneca’s push into China began in earnest around 2002. Bruno Angelici,
its executive vice president for international sales and marketing outside
of the U.S. and Canada, started traveling to China regularly.

The company hired Boston Consulting Group in Hong Kong, where Mr. Yin
worked at the time, to draw up a plan for the Chinese market. AstraZeneca’s
sales in China had been growing at around 12% per year, but Mr. Angelici
wanted more.

Though he had a commitment for more funding from AstraZeneca’s London
headquarters, the problem was where to spend it. The country’s eastern
cities were saturated with sales representatives, so AstraZeneca looked
inland.

Mr. Yin had a list of nearly 700 cities, with data on each ranging from per
capita spending on health care to population projections. They narrowed the
list to around 200 of the most promising cities and nicknamed the strategy
Project 88, a number considered lucky in Chinese because the word for eight
(“ba”) sounds similar to a word for prosperity (“fa”).

Mr. Yin and his team at Boston Consulting developed a computer algorithm to
help decide where to put sales representatives. Mr. Yin says the algorithm
told them to bulk up significantly in Xinjiang, calling for some 40 people.
But Mr. Yin adds he doesn’t rely on algorithms alone in deciding where to
allocate resources.

One of the company’s representatives in Xinjiang is Chen Hanmin, who
occasionally makes a nine-hour trek in his Volkswagen Jetta from Urumqi to
Yili, some 400 miles away. He speaks Uighur, the Turkic language widely
used in Xinjiang. “It helps a lot” with the doctors, he says.

In such a remote area sales hinge on personal relationships with local
doctors. In 2006, Mr. Chen, who is in charge of boosting sales of
AstraZeneca’s drug Losec, prescribed for gastrointestinal disorders such as
acid-reflux disease, paid a visit to the People’s Liberation Army Hospital
of Urumqi. The hospital had Losec pills available for patients but wasn’t
prescribing them in great numbers.

Mr. Chen knocked on the office door of Zhang Jun, who works for the general
surgery department at the PLA Hospital. After several informal meetings,
the two men, who have discovered a shared interest in soccer, now see each
other regularly.

Dr. Zhang now often prescribes Losec “for big surgeries of intestinal
cancer or gastric cancer,” he says.