HONG KONG – As part of its efforts to continue reforming China's medical system, the National Health and Family Planning Commission (NHFPC) slashed the price of three top-selling drugs of both foreign and domestic companies by more than half.

Though seemingly bad news for the companies, the change may benefit everyone and may create opportunities to screen domestic novel drugmakers.

This is another major move in the area of drug price control after the price ceiling for most drugs was removed in June 2015.

NHFPC's director, Li Bin, said at a media briefing in March that the commission was negotiating with five drug companies in a pilot program to cut prices of patented drugs for major diseases. According to the NHFPC, the drugs that stuck through the negotiation are Glaxosmithkline plc's hepatitis B drug Viread (tenofovir disoproxil), Astrazeneca plc's lung cancer treatment Iressa (gefitinib), and Hangzhou-based Betta Pharmaceuticals Co. Ltd.'s anticancer drug Conmana (icotinib hydrochloride).

The negotiation brought the monthly cost of Viread down 67 percent to ¥490 (US$75), Iressa down 55 percent to ¥7,000 and Conmana down 54 percent from ¥12,000 to ¥5,500.

"It's the first time China negotiated drug prices with companies on a national level," said David Li, health care research analyst at BOCOM International. "This movement is mainly, but not solely, geared toward expensive innovative drugs from MNCs.

"It could be a win-win situation because the purchase cost of public hospitals would decline but the purchase volume could go up," Li added. "Also, if a drug doesn't have this negotiated price, it will have to go through different provincial tenders which could lead to even lower prices in certain areas and the company pulling out of the bidding."

The NHFPC said the three drugs will be available online for direct purchase from June and are exempt from further price negotiations during provincial tendering, or secondary price negotiations by public hospitals.

"The government took the pressure these expensive drugs face in the tendering process into consideration," said Li. "The unified negotiated prices could help them be more competitive against the other bidders in different provinces."

"This could also pose competition for Chinese companies developing the generic version or similar versions of the novel drugs," said Li. "The government will not blindly support just about any domestic pharmaceutical companies, and this could be a chance to eliminate the ones that lack competitiveness."

For example, China's Sino Biopharmaceutical Ltd. (HK:1177) has a drug called Mingzheng (adefovir dipivoxil) for the treatment of chronic hepatitis B that is similar to GSK's Viread. However, scientific studies have shown better efficacy of tenofovir disoproxil than adefovir dipivoxil to treat the disease. The much-lowered price of Viread definitely provides GSK a stronger edge for the competition.

The CFDA approved Viread in October 2013 for the treatment of chronic hepatitis B. GSK and its U.S. partner Gilead Sciences Inc. market Viread in Mainland China and four other Asian territories respectively and pay each other royalties.

"We are proud that Viread has been included in the Chinese government's efforts to add innovative medicines to the reimbursement policies," said GSK China and Hong Kong's Senior Vice President and General Manager of Pharmaceuticals and Vaccines Hervé Gisserot, in a company statement. "This represents a defining moment in the government's efforts to provide high quality, innovative products at more affordable prices, and ultimately improve patient outcomes in China."

GSK's China sales dropped 18 percent in 2015, "primarily reflecting significantly increased pricing pressures and the ongoing reshaping of the business," said the company in its 2015 annual report. GSK had to deal with the aftermath of a major bribery scandal last year.

On the other hand, China is a major force behind Astrazeneca's growth.

Although Iressa's China sales grew 5 percent to $146 million last year, it is little compared to cardiovascular drug Brilinta's jump of almost double growth, or asthma treatment Symbicort and Pulmicort's 38 percent and 43 percent growth.

Astrazeneca's Director of Communications Joyce Sun told BioWorld Today that "16 central government agencies jointly initiated a National Drug Price Negotiation process, selecting certain imported drugs that treat cancers and critical diseases as part of a pilot program" and Astrazeneca "has actively responded to and participated in the pilot negotiation process."

Since last year, Astrazeneca announced a range of strategic initiatives to accelerate the delivery of innovative biologics and targeted medicines in China including a strategic alliance with local contract research organization Wuxi Apptec Co. Ltd. to produce innovative biologics locally in December.

Local novel drug developer Betta said in a note that "this price cut will significantly remove the economic burdens of patients with medical insurance, so that more late-stage cancer patients will be able to enjoy this scientific achievement."

"This is just a price adjustment and recommendation for provinces to prioritize these drugs during tendering, the more important thing is if the provinces will indeed choose these drugs," said Li.

Sources said that the other two drugs that were included in the negotiation were Celgene Corp.'s multiple myeloma therapy Revlimid (lenalidomide) and Roche AG's lung cancer drug Tarceva (erlotinib).