(Bloomberg) -- Johnson & Johnson and Merck & Co. are cutting jobs in China, as they face growing competition from domestic rivals resulting from Beijing’s campaign to drive down medical costs.
Both US drug giants have laid off employees in China in recent days, according to people familiar with the matter who asked not to be identified discussing internal matters. The J&J cuts mainly impacted a division that sells products used in surgery, while Merck scaled back in its diabetes unit, the people said.
Chinese media outlets, which were first to report the redundancies, cited the J&J layoffs to be as much as a fifth of its mainland workforce. J&J employs nearly 10,000 people across some 90 cities in China, according to its website.
J&J “has recently implemented organizational changes to optimise our business operations” in the country, a company spokesperson told Bloomberg in an email. J&J remains committed to the “critical and growing” China market, the spokesperson added.
Merck didn’t immediately reply to a request for comment outside regular business hours.
Multinational drug and medical device makers are grappling with narrower profit margins in China, largely due to the country’s system of having companies bid to supply drugs and devices to public hospitals — known as volume-based procurement (VBP). The program has seen global pharmaceutical companies lose hospital contracts for their top off-patent drugs and devices to cheaper local suppliers, essentially putting their sales team out of work in those categories.
The layoffs add to turmoil in the pharmaceutical market in China. Once seen as a big market opportunity for global drugmakers to expand, they’ve come under regulatory pressure on multiple fronts. AstraZeneca, which has seen China revenue growth slow due in part to losing hospital contracts for its off-patent medicines, is facing a criminal investigation into allegedly illegal sales practices which has ensnared its China chief.
In a recent earnings call, J&J executives acknowledged a “disproportionate impact from VBP” thanks to its being the largest medtech company in China. The layoffs are the first major round of redundancies affecting the company’s surgery division, a person familiar with the matter said, though layoffs in other departments have been ongoing for some time.
Meanwhile, Merck is set to face off against local suppliers for generic versions of two major diabetes drugs – Januvia and Janumet – in the latest round of VBP tender submissions.
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