China to Soften Generic Drug-buying Program, Report Says

(Bloomberg) -- Chinese drugmakers jumped on Monday after a local news report that a centralized drug procurement plan that is hurting drugmakers’ profit will be expanded nationwide -- but on milder terms than expected.

The bulk buying program for generic drugs, which had its pilot in 11 cities last December, will be rolled out across the country with gentler rules, according to a report from the 21st Business Herald. Instead of one winner for each tender, authorities will pick three -- the lowest bidder and two others willing to match its price, said the report. This means that three drug makers will share each drug contract, for the supply of 70% of that medicine to public hospitals, instead of the previous winner-takes-all approach.

CSPC Pharmaceutical Group Ltd. rose as much as 9.5% during Hong Kong trading while Sino Biopharmaceutical Ltd. advanced as much as 5.4% and SSY Group Ltd. was up as much as 4.9%.

Amid an expansion of health-care coverage, China wants to direct state insurance funds towards covering new drugs by cutting the amount it pays for older, widely-used, off-patent medicines. Its preferred tool -- a tender system that forces companies to bid for contracts, driving down prices of these generic drugs by as much as 90 percent -- has roiled pharmaceutical stocks and put pressure on global pharmaceuticals’ China revenue. The pilot program last December, covering just 25 drugs in 11 cities, has already saved the Asian nation about 5.8 billion yuan ($844 million).

And while analysts were expecting the program to include more generic drugs besides going nationwide, the report said that the regulator was keeping the number of drugs on the tender list unchanged at 25 -- the second major element of relief for drugmakers in the the world’s second largest pharmaceutical market.

The milder-than-expected nationwide roll out “may ease up the tension for other generic drugs for now, and give drugmakers more time to prepare for future competition,” said Carol Dou, an analyst with UOB Kay Hian. She wrote in a note Monday that that the nationwide tender process will likely start at the end of this year.

To contact the reporters on this story: Bhuma Shrivastava in Mumbai at bshrivastav1@bloomberg.net;Jeanny Yu in Hong Kong at jyu107@bloomberg.net

To contact the editor responsible for this story: Rachel Chang at wchang98@bloomberg.net

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