China’s Biggest Round of Drug Price Cuts Crowds Out Global Firms
A researcher inspects samples inside a laboratory at BeiGene Ltd.’s research and development center in Beijing, China. (Photographer: Gilles Sabrie/Bloomberg)  

China’s Biggest Round of Drug Price Cuts Crowds Out Global Firms

(Bloomberg) --

China’s biggest-ever round of drug price cuts saw global drugmakers losing most of the nationwide contracts to local rivals, as Beijing aggressively pushes to contain health care costs by an average of 53% decline in latest bulk purchase.

Among 33 commonly-used medicines in a bidding exercise on Friday, some money-makers for global pharmaceutical companies had the deepest cuts, with the biggest one being as high as 93% as shown in a government-funded medical procurement website. Bayer AG’s diabetes drug acarbose had its price slashed by 80%, said Zhang Jialin, a health care analyst at ICBC International.

Some other drugs in the group that included therapies for hypertension, dementia and viral infections saw prices drop more than 60% in the bidding, according to Zhang. While the official results of the bidding exercise have not been released, information circulated on the Internet citing company representatives present on the venue, causing some stocks to move.

China is doubling down on its efforts to radically overhaul its health care system by driving down prices of off-patent drugs to free up state funds for novel, cutting-edge therapies. The campaign is putting pressure on profit margins for both foreign and domestic drug makers.

The late-2018 pilot had seen prices plunge by more than half cheaper generic drugmakers undercut their global peers. Its success emboldened Beijing to expand the program nationwide in 2019 and then initiate a second round of supply contracts for its public hospitals.

‘Phase Out’

“Overall the price fall this time is deeper than the first round,” Zhang said. “Most of the originators are out in this round so the takeaway is that the exercise will gradually phase out originators and replace them with domestic companies,” he said, referring to the western pharmaceutical companies which discovered and developed those drugs.

Global drug makers are having to adjust to a new normal in China, which was once a lucrative market for their off-patent medications. In the previous round, this has resulted in prices of well-known medicines like Pfizer Inc.’s cholesterol pill Lipitor dropping as much as 74% below what they priced previously in China.

In a new feature, the government has this time added a price ceiling for each drug. The price caps were as much as 95% below current prices in China, according to estimates by ICBC International.

Up For Bidding

Therapeutic AreasNumber of DrugsMakers of Original Drugs
Cardiovascular5Glaxo, Daiichi Sankyo, Merck, Takeda, Lab Servier
Anti-infection/viral10Glaxo, Teva, Pfizer, Bayer,

Bristol-Myers

Metabolic3Bayer, Sanofi, Merck
Oncology3Janssen, Taiho Pharma, Celgene
Painkiller2Boehringer Ingelheim
Urinary system2Astellas Pharma, Lab Servier
Reproductive system2Lilly, Abbott Labs
Digestion3Ipsen, Bayer
Central nervous system1Eisai
Allergy1UCB
Respiratory system1Mitsubishi Tanabe Pharma

Source: ICBC International, Adis Insight

In some aspects, China has softened the rules of the exercise. As many as six firms could be chosen to supply 80% of the total national demand for the drug under bidding, up from three in the last round.

If fewer winners are chosen for a drug, the market share awarded to winning drugmakers will be reduced to avoid concentration risks. For instance, if only one drugmaker wins a contract, it will get just 50% of that drug’s total demand.

Nationwide Expansion

A trial in late 2018 in which 25 drugs were procured for 11 Chinese cities -- mostly from local generic drugmakers -- saved the Asian nation 5.8 billion yuan as prices more than halved on average. The government has since expanded the program nationwide, pushing prices down by another 25%.

China’s Drug-Buying Plan Puts Chill on Hottest Pharma Market

The pharmaceutical sector is reeling: Chinese drugmakers issued a flood of profit warnings last year, while their global counterparts such as AstraZeneca Plc and Sanofi cited the procurement plan as a damper for earnings. Foreign pharmaceutical giants are pivoting toward innovative treatments to make up for the tumbling sales of their off-patent drugs after local rivals undercut them on pricing.

“The game is over for foreign pharmaceuticals looking to make money from drugs with expired patents,” said ICBC’s Zhang. “They have to keep bringing in new therapies to China to offset the price cuts on older drugs.”

©2020 Bloomberg L.P.

Also read: China Agrees to Tweaks on Drug Patents as Part of Trade Deal

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