CEO Frazier In China, On China: 25% Of All Merck’s Revenue By 2013?

I promised we’d cover any newsworthy remarks made by CEO Frazier in Bejing — and here it is — in video, from CNBC. See below; Merck projects that a quarter of its sales will come from CHina by 2013.

If we assume that the “Other Sales” line item, on page 137 (Revenues By Geographic Area) of the most recent SEC Form 10-K filed by Merck is primarily (or almost all) China sales, then, in 2010, Merck generated about 18.5 percent of its sales from China (and Australia/New Zealand). So, CEO Ken Frazier is expecting an about 25 percent increase, over two years, in Merck’s China revenue-stream. That’s significant, as Merck already employs over 4,500 people in three plants in China, so significant growth will be likely driven by increased sales penetration of mature drugs like Zocor, and the Hep B vaccine series — as well as via a select-market, limited basis introduction of cutting edge therapies.

It is important to remember, however, that the gross margins on sales of all drugs in China will be much lower than in the EU and US. The state payor simply will not pay 65% or 70% margins — so net, net — this increase in sales may actually be a drag on overall gross margins at Merck. Here’s a bit of the CNBC story quote. Enjoy.

. . . .Merck expects more than a quarter of its revenue to come from China by 2013 as the government there carries out a plan to reform its healthcare system, according to Merck Chief Executive Kenneth Frazier. . . .

Merck began working with the Chinese government during the 1980s in the midst of a hepatitis B epidemic. The New Jersey-based pharmaceutical company donated vaccine at that time and built plants. The company now has three facilities and over 5,100 employees in China.

“Even now we work closely with the Chinese government to place our biggest drugs Zocor on their essential drug list,” he said, adding that, “There’s a long-term partnership between Merck and the Chinese government. . . .

Do expect it to crimp overall margins, though.


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