Johnson & Johnson has a Chinese strategy: long-term thinking. Despite an economic slowdown and regulatory crackdowns–and the example of other multinationals that have scaled back there–CEO Alex Gorsky figures it’s worth it to ride out the storm.
In an interview with the state-owned news service Xinhua, Gorsky said China’s “new normal” will still be an attractive prospect for his company. Industry investments in the country are starting to pay off, so it’s no time to ratchet back now.
“I really believe you need to take a long-term view. That’s the way we approach it,” Gorsky told Xinhua. In fact, he noted, “When you think about the investment we make in some of the pharmaceutical products we are working on, we may not see the benefits for another 15 years.”
Gorsky cited “the emergence of a vibrant ecosystem for life sciences” in China as one reason for optimism; J&J, of course, is part of that ecosystem, with R&D, manufacturing and new partnerships in the country. And he was upbeat about the government’s new growth forecasts, calling the 7% target “beneficial and reasonable.”
He also used some language that the Chinese government would no doubt approve. “China’s economy is shifting gear to the pace of the new normal, and a new horizon is appearing at the same time,” Gorsky said, making slower growth seem like a brand new sunny day.
Gorsky’s comments follow a similarly positive interview with The Wall Street Journal last fall, in which he noted a 10% increase in J&J’s China sales since 2012. One significant difference, however. With the WSJ, Gorsky suggested that some companies are treated more equally than others in China, putting J&J at a disadvantage.
When Chinese law enforcement started targeting corruption and price-fixing in the drug business, for instance, foreign drugmakers were at the top of their list. Some market analysts figured that the government was trying to protect its domestic industry; officials later said they were targeting rule-breaking by Chinese drugmakers, too.
J&J itself was fined for “monopolistic pricing” in its contact lens business. And with the government in charge of healthcare, enforcement probes are only one way officials can give domestic companies a leg up on multinationals. For instance, China pulled J&J’s trademark protection on its OneTouch diabetes products early this year, allowing rivals to sell their products under the same name.
“[W]e support government actions in creating a leveled playing field for all companies,” Gorsky said at the time.
Meanwhile, China has made at least one move that could make multinational drugmakers happier. The government has said it’s planning to nix price caps on a range of meds. It’s not a change likely to move the financial needle much by itself, but is a positive signal nonetheless.
J&J’s rivals are looking for Chinese growth, too, despite the economic slowdown. Last month Sanofi said its China sales grew by 8.8% last year, far more than the 4.9% increase in the rest of the world. Actavis, which had expressed some reservations about China in the wake of the GSK bribery scandal, now says it’s looking to grow China sales of the Allergan products it acquired in that $66 billion merger. Eli Lilly & Co. last week inked a new partnership with China’s Innovent Biologics, in a deal worth up to $456 million. And even GlaxoSmithKline says it’s still committed to the market. Disgraced in a bribery scandal in 2013 and slapped with a $489 million fine last year, Glaxo recently fired another batch of Chinese workers, citing ethical problems.
By Tracy Staton