Since the outbreak of the COVID-19 pandemic, there has been a noticeable change in public behavior, with people consistently adhering to personal hygiene practices such as wearing masks in public spaces. This change has led to a decrease in the incidence of influenza, impacting the sales of flu medications. However, this year has seen significant variations in the seasonal characteristics of the flu compared to previous years. Consequently, during this summer, several provinces and cities in the southern regions experienced shortages of flu medications.
By Simin Wen, Ziqi Liu (Internship)
Winter is the peak season for influenza, which typically lasts until around April of the following year. However, in the summer of 2022, a widespread outbreak of influenza A suddenly swept through many regions in southern China. Multiple southern provinces such as Guangdong, Jiangxi, and Fujian have successively issued flu warnings since June, indicating that these provinces entered a peak period of flu prevalence.
According to the “Flu Monitoring Weekly Report” released by the National Institute for Viral Disease Control and Prevention, the percentage of flu-like cases in emergency room visits in southern provinces was 3.0% in the 20th week of this year (late May). However, it sharply increased in the following six weeks, reaching 7.5% in the 26th week (mid-July).
The Flu Monitoring Weekly Report shows that from the 14th to the 26th week of 2022, southern provinces in China reported a total of 762 outbreaks of flu-like cases, which is five times higher than the reported cases during the same period in 2021. According to the definition of the National Center for Disease Control and Prevention, an outbreak of flu-like cases is considered when there are 10 or more cases of flu-like illness within a week in the same area or unit, confirmed by the county-level CDC and reported through the “China Influenza Monitoring Information System”.
This sudden summer outbreak of influenza gradually showed a declining trend after August, but some provinces still remained in a high prevalence state, catching numerous retail pharmacies and manufacturers off guard.
Confirmed by both manufacturers, retailers, and doctors speaking to CBN Weekly almost all oseltamivir (Tamiflu) manufacturers experienced supply shortages at some point during this flu epidemic. The brand with the highest domestic market share, “Kewei,” produced by HEC Pharm, faced widespread stockouts in southern provinces. A pharmaceutical retail professional mentioned that shortages of Kewei occurred to varying degrees every winter, but it was unusual for such a situation to happen during summer.
Oseltamivir, a prescription drug, is currently the preferred medication for treating flu among patients and doctors nationwide. “It’s been several years since we became familiar with oseltamivir, and its clinical efficacy is indeed quite good. For children with severe symptoms of flu, early use of oseltamivir can effectively prevent the progression of the illness,” said Dong Xiaoyan, Director of the Respiratory Department at Shanghai Children’s Hospital, speaking to CBN Weekly.
Influenza, also known as the flu, is an acute respiratory illness caused by viruses, highly infectious with a rapid spread. Its symptoms are similar to those of common colds. There are four types of influenza viruses: types A, B, C, and D. The most common ones affecting humans are Influenza A, specifically subtypes H1N1 and H3N2, and Influenza B, which includes Victoria and Yamagata lineages.
Starting from a flu outbreak in mid-May in Fujian this year, influenza viruses, primarily H3N2 strains of Influenza A, spread successively to regions like Hainan, the central and southern parts of China. Patients infected with these viruses often experience sudden and more severe symptoms than a common cold, making complications more likely.
When the COVID-19 pandemic erupted in 2020, reduced social mobility and increased public consciousness about hygiene and protective measures, such as wearing masks in public places, led to significantly lower occurrences of flu in the last two years and a substantial decrease in prescriptions. Following the peak sales witnessed in 2019, HEC Pharm witnessed a rapid decline in the market, leading its parent company, listed on the A-share market, to implement asset divestitures in 2021. Concurrently, the entire domestic market landscape for flu medications underwent changes with the entry of several new pharmaceutical companies competing in this field.
On August 12 this year, the U.S. Food and Drug Administration (FDA) approved a new drug application for Xofluza (brand name “Xofluza”) by Swiss pharmaceutical company Roche. It’s the world’s first single-dose oral flu medication designed for children aged 5 to 12.
Roche has been a formidable competitor for domestic manufacturers in China producing oseltamivir. The original oseltamivir, known as Tamiflu, was introduced to the market by Roche over 20 years ago. Xofluza is considered an upgraded version, a new generation “miracle drug” for influenza. Now, apart from the adult medication market, Roche has further segmented the market by developing innovative drugs specifically for children.
Relying on the production of generic versions of Tamiflu and a deeper understanding of the domestic market, Chinese pharmaceutical companies like HEC Pharm have represented the dominance in the flu medication market, with annual sales reaching tens of billions. However, within just two years, they faced challenges due to overly relying on a single category of products. This demonstrates that continuously pursuing product innovation is the key to securing a stable position in the pharmaceutical industry, especially in the development of medications targeting prevalent diseases.
From Prosperity to Adversity
In the internationally recognized flu prevention strategy, getting vaccinated against influenza remains the primary approach. According to the released batches of flu vaccine by the National Medical Products Administration, in 2021, the number of vaccine batches reached 397, doubling compared to pre-pandemic levels. However, overall, the penetration rate of flu vaccines in China and public awareness of vaccination remain relatively low.
For most Chinese citizens, the primary defense against influenza relies on the second line of defense – taking antiviral flu medications.
Oseltamivir rose to fame during the global avian flu outbreak in 2005. At that time, Roche’s oseltamivir, known as Tamiflu, as the original drug, couldn’t meet the global demand for treatment during the pandemic. Under pressure, Roche agreed to license some generic versions for production.
In 2005 and 2006, Roche licensed oseltamivir to Shanghai Pharmaceuticals Group and HEC Pharm for production, marketed under the names “Aofei” and “Kewei,” respectively. Particularly, HEC Pharm’s “Kewei” oseltamivir, due to its lower production cost, later outsold Roche’s Tamiflu in China and became the monopolizer of this drug in the domestic market.
In 2019, Kewei achieved sales of 5.933 billion RMB. According to data from DXY Insight database, Kewei had a market share of 93.3%, while Tamiflu and Aofei accounted for 6.2% and 0.54%, respectively.
“Recently, many regions in seven southern provinces have continuously issued flu warnings. Influenced by this, Tamiflu’s sales have shown an increasing trend in June,” Roche mentioned in a written response to CBN Weekly in August this year. In 2015, the company granted full medical promotion rights of Tamiflu in China to WinHealth Groups(Hangzhou). To tackle this summer’s H1N1 epidemic, Roche Pharmaceuticals China, WinHealth, and related medical channel suppliers and hospitals have closely collaborated to ensure Tamiflu’s supply in China.
According to an industry insider who spoke to CBN Weekly, Kewei’s sales coverage has reached over 90% within domestic hospital clinical channels. Most Chinese pharmaceutical companies distribute their products through third-party distribution channels, while HEC Pharm primarily relies on self-operated sales teams for channel expansion. Additionally, in recent years, HEC Pharm has also ventured into e-commerce retail channels.
The “Alibaba Health Pharmacy” currently sells two brands of oseltamivir, mainly Tamiflu and Kewei. As the original drug, Tamiflu is priced higher, with an imported 75ml * 10 capsules from Italy priced at around 200 yuan per box, while Kewei’s price for 75ml * 6 capsules is around 80 yuan per box.
“In this recent flu outbreak in multiple southern regions, the growth of oseltamivir products has been more significant compared to other flu treatment drugs,” Alibaba Health told CBN Weekly. As of June 26, month-over-month, the purchase volume of oseltamivir increased by 715%, surpassing Tamiflu’s sales, with the fastest growth rates observed in Fujian, Guangdong, Jiangxi, and Hainan provinces.
In China, hospital channels remain the primary battleground for drug sales, accounting for over 80% of the market share. To enter these hospital channels, gaining recognition from doctors is crucial. “As a doctor, our main considerations are the compliance for pediatric applications and whether it can improve clinical efficacy. As for the drug brand, many doctors are actually not concerned. We care whether the drug in the consistency evaluation can achieve the efficacy of the original drug and whether its adverse reactions are minimized,” said Dong Xiaoyan, Director of the Respiratory Department at Shanghai Children’s Hospital.
HEC Pharm’s sales strategy in recent years has relied on price advantages while continuously developing new formulations—ranging from granules to capsules and then to dry-mixed suspensions—to expand the user base. They also emphasize academic promotion in their marketing efforts.
In terms of growth rates, from 2017 to 2019, the sales of Kewei granules and Kewei capsules soared from over 1 billion RMB to 6 billion RMB, establishing a dominant position in the domestic market.
The financial reports indicate that before 2020, oseltamivir had accounted for over 90% of HEC Pharm’s total revenue. It could be said that HEC Pharm’s business model was highly reliant on oseltamivir sales. However, after the COVID-19 pandemic, the market for flu medications rapidly contracted. In 2020, HEC Pharm’s revenue plummeted from the previous year’s 6.224 billion RMB (with Kewei’s sales at 5.933 billion RMB) to 2.348 billion RMB. In 2021, the company’s revenue further declined to 914 million RMB, with Kewei’s sales only reaching 555 million RMB.
HEC Pharm was listed on the Main Board of the Hong Kong Stock Exchange in 2015. In 2018, as a valuable asset, it was incorporated into HEC Tech, the brother company engaged in the main aluminum foil industry, aiding the parent company’s listing on the A-share market.
In November 2021, faced with the decline in sales performance of oseltamivir drugs, HEC Pharm announced the separation of its pharmaceutical business from the A-share listed company. Through this internal related-party transaction, they retrieved 3.72 billion RMB in transaction cash.
A New Competitive Landscape
Roche, the developer of the original oseltamivir, now prefers to promote the new influenza antiviral drug, baloxavir marboxil.
The reason is simple: according to Roche, baloxavir marboxil is used for the entire course of treating flu with just one oral dose, stopping the flu virus’s shedding within 24 hours and significantly relieving flu symptoms. On the other hand, oseltamivir requires twice-daily dosing for five consecutive days.
As flu viruses develop increased resistance to previously approved drugs, the emergence of new mechanism drugs is not surprising; it can even be considered inevitable.
Originally developed by a Japanese pharmaceutical company, Shionogi, baloxavir marboxil saw a collaboration framework between Shionogi and Roche in 2016. They jointly managed the drug’s development in Japan and the Taiwanese region of China. Roche holds commercialization rights outside Japan and Taiwan.
While HEC Pharm was continuously breaking revenue records with oseltamivir, Roche had already set plans in motion to penetrate the market with baloxavir marboxil. In February 2018, it gained approval for sale in Japan and later entered the U.S. market in October of the same year. In April 2021, marketed as “Xofluza,” it received approval from the China National Medical Products Administration and was included in the latest national medical insurance catalog eight months later. Its most recent move was securing a new drug supplemental application from the FDA in August this year.
Xofluza and Tamiflu are within the same price range in China, establishing a certain level of competition. However, gaining access to hospitals still depends on the company’s distribution capabilities. “Baloxavir marboxil can be used for mild cases and for flu prevention. Another advantage is its faster efficacy in severe cases, which might challenge oseltamivir’s leading position in the future. But the product’s current price is relatively high, which poses certain difficulties in market promotion and entry into hospitals,” said an unnamed investor speaking to CBN Weekly.
Simultaneously, a group of domestic competitors alongside HEC Pharm are gradually gaining a more advantageous position in the race to develop different formulations of oseltamivir.
Beimei Pharma was the first to introduce Hetero, an Indian company’s dry-mixed suspension in 2019. In the same year, the sales of Kewei reached their historical peak. Together with Tamiflu, the overall sales of oseltamivir reached around 8 billion yuan that year, greatly boosting competitors’ estimations of the market capacity.
Beimei is a pharmaceutical company positioned in the children’s prescription drug market, engaging in self-research, importing, and sales. When selecting the domestic oseltamivir market, Beimei’s approach to introducing drugs focused on finding formulations with higher pediatric compliance.
Previously, the two mainstream formulations of oseltamivir were granules and capsules, with the latter being more for adult use. Li Zhiling, the South China Sales Director of Beimei Pharma, told CBN Weekly that compared to granules, the dry-mixed suspension is a powdered medicine with distinct advantages in taste masking and palatability, making it easier for children to take. It allows for dosage adjustment based on a child’s weight in kilograms, making it a relatively novel form for oseltamivir products.
Introducing a European or American drug into China is a challenging process. Besides communication challenges due to cultural differences, at the domestic approval level, there’s a need for additional research due to differences in domestic and foreign regulations and evaluation standards. Throughout the entire import process, companies need precise control over the three-dimensional basis, original application materials, and the registration evaluation process of the imported product to ensure approval within specified timeframes.
From early 2019, choosing Hetero’s products, signing import agreements, to obtaining official approval for domestic listing in October 2021 under the brand “Aoweiping,” Beimei underwent a process lasting over 500 days. Typically, the cycle for imported drugs from submission to approval is at least two years. Li Zhiling noted that Beimei’s approval speed was relatively fast.
A bottle of “Aoweiping” at 360mg is priced at 169 yuan, targeting the mid-to-high-end pharmaceutical market. Price-wise, this strategy involved a roughly 10% increase based on competitors’ pricing. Aoweiping’s channel strategy initially focused on hospitals, gradually expanding into pharmacies and e-commerce retail channels. “We are initially solidifying the main channel, driven and recognized by experts and tertiary hospitals. Within this system, we will expand into other channels such as private hospitals and OTC chain pharmacies,” stated Li Zhiling.
Aoweiping officially entered the market in February this year. It has become one of the company’s core products, assisting Beimei Pharmaceutical in securing nearly 100 million yuan in Series B and B+ financing at the beginning of the year.
Impact of Centralized Drug Procurement
From 2008 to the present, the domestic pediatric oseltamivir market has been exclusively dominated by Kewei granules. However, Beimei’s “Aoweiping,” as the first domestically approved oseltamivir dry-mixed suspension, has increased the variables within the children’s flu medication segment.
Apart from the generic versions of Tamiflu, Oseltamivir, and Kewei, domestically, there are also generic versions of oseltamivir capsules introduced successively by BrightGene, CSPC Pharmaceutical Group, and Kelun Pharmaceutical. Shortly after the approval of baloxavir marboxil in China last year, CSPC Pharmaceutical Group submitted an application for the market launch of its generic version. This indicates that the covert battle surrounding flu medications will continue for the long term.
In July this year, during the seventh round of national-level drug procurement bidding, HEC Pharm’s 75mg specification of oseltamivir was awarded at a price of 0.99 yuan per tablet. In this “volume-based procurement,” HEC Pharm’s procurement price was 92% lower compared to the highest effective declared price of 13.01 yuan for the same specification. This successful participation in the seventh round of national procurement for 60 types of drugs marks an intended average price reduction of only 48%. Therefore, HEC Pharm’s bidding strategy has been widely acknowledged in the industry for being “aggressive.” Market analysts suggest that HEC Pharm aims to stabilize its market dominance through this low-price policy.
According to Imeta Consulting, HEC Pharm’s confidence in quoting such a low price lies in its possession of the raw material approval for oseltamivir and having the largest domestic production line for oseltamivir phosphate raw materials. This allows the company to maintain a technological advantage in raw materials, enabling it to keep prices low until the patent expires in 2024. Additionally, HEC Pharm holds the global exclusive patent for oseltamivir granules, which is protected until 2026.
Under the pharmaceutical policy logic of volume-based procurement, a significant market trend indicates that the dividend period for various generic drugs has passed. To maintain a competitive edge in generic drugs, pharmaceutical companies have only two paths: minimizing costs to gain a cost advantage or pursuing a differentiated competitive route. With the implementation of volume-based procurement, more and more players are expected to enter the oseltamivir market, reshaping its market landscape.
However, the most significant double-edged sword affecting the market remains the fluctuating influenza incidence rate. When news of oseltamivir shortages emerged in mid-June, HEC Pharm’s stock price soared nearly 50% over ten consecutive trading days. This surge prompted institutions like Morgan Stanley to issue research reports, giving HEC Pharm a “synchronized with the market” rating and directly increasing profit forecasts for the company from 2022 to 2030 by 8 percentage points to 13%.