BEIJING – China is aggressively pushing its goal to make drugs more affordable, and foreign pharma giants are adjusting their pricing strategy for a market that comprises nearly 20% of the world’s population and is expected to continue growing.
To achieve its goals, China is using its huge population, which stands at 1.43 billion, as a bargaining chip to negotiate prices with pharmaceutical companies. The government, which is the country’s biggest drug buyer, has not been shy about leveraging its purchasing power.
One measure to lower drug prices is centralized procurement program of bulk-buy drugs, which was launched first in certain cities last year and has now gone nationwide. After the government has determined how much of a particular drug it plans to buy, it invites drugmakers to propose the lowest prices under a bidding process to win rights to supply drugs to public hospitals.
Chinese authorities have made it clear that generic drugs – most likely developed by domestic drugmakers – will be prioritized in the government procurement program if their prices are much lower than the originators.
According to the latest rules announced this month, there won’t be more than six successful bidders for each drug. The winners can secure as much as 80% of the government’s purchase volume for one drug, or up to 50% if there is only one winner.
The results could result in foreign drugmakers being forced to slash prices of their drugs to the lowest level globally to secure access to this big market or face the possibility of losing to Chinese-made drugs with lower prices.
Some drugs have seen their prices plunge more than 90% since this bulk-buying strategy was adopted. The government regards the strategy as a huge success and a key part of the country’s health care reform.
Astrazeneca plc's EGFR lung cancer drug, Iressa (gefitinib), and Bristol-Myers Squibb Co.’s heart medicine, Monopril (fosinopril), won a bid when the bulk-buying scheme was launched. In the second round, five more foreign drugmakers won bids, including Sanofi SA, Merck & Co. Inc., Eli Lilly and Co., Novartis AG’s Sandoz unit and India-based Dr. Reddy's Laboratories Ltd.
Industry experts said winning the bids help guarantee sales and save costs on marketing.
Although the bulk-buying scheme is limited to chemical drugs for now, market watchers expect it will expand to biologics sooner or later.
In fact, prices of biologics are already being affected by another government policy.
China has a national insurance program that reimburses selected drugs by around 60% to 70% once they are made accessible in public hospitals. Those drugs can include biologics.
When the country updated its national reimbursement drug list last month, drugs that were newly added saw an average 60.7% decline in their prices. For example, Abbvie Inc. slashed the price of its blockbuster, Humira (adalimumab), by 59% to win a place on the list.
Volume to offset price cuts
In order to secure the China market, price cuts seem inevitable for multinational drugmakers, especially when their Chinese competitors are pumping out more knock-offs with comparable quality.
In addition to generics, a few homegrown biosimilar drugs have been approved this year.
Different global pharma companies have found their own ways to adapt their pricing strategies for China, a market that is quite different from Western markets.
“Roche Holding AG pursues a differential pricing approach where [countries with] lower per capita incomes may pay lower prices for products reimbursed by the national health system than countries with higher per capita incomes,” Roche’s spokesperson Nathalie Meetz told BioWorld. “Several of our medicines have been included in the national reimbursement drug list and we have lowered prices. However, this was more than offset by volume growth.”
Drugmakers share a common belief that volume growth will eventually make up for the price cuts.
Merck and Gilead Sciences Inc. also slashed prices by 85% to get their drugs on China’s reimbursement drug list.
While neither company disclosed their pricing strategy for China to BioWorld, they pointed to the potential sales growth in the country.
“Zepatier (elbasvir/grazoprevir) was successfully added along with one other acting antiviral drug to gain exclusive access to all genotype 1B HCV patients in China. China has the largest HCV patient population in the world,” Merck spokesperson Pamela Eisele told BioWorld.
She added that Merck believes growth in China will be driven by physician and patient demand for innovative drugs.
Gilead told BioWorld that chronic hepatitis B and C infections, in particular, are “highly prevalent in China” and there is a significant unmet medical need. By winning access to public hospitals, the company will make its drugs “more broadly accessible” to patients.
Expanding sales networks to public hospitals will help drugmakers establish relationships with hospitals, strengthen understanding of their products and make their products more known.
“Not just foreign drugmakers but all drugmakers, including the Chinese innovative players, understand that they need to trade price for reimbursement, and they need to tailor their commercialization strategies to this ‘new normal’ in China,” Justin Wang, managing director at LEK Consulting, told BioWorld.
While there is no guarantee to revenue, Wang said those winning the negotiation, including many multinational drugmakers, seem to be confident that they are able to significantly drive up volume to offset the price cut.
In the long run, “innovation” will be the key to surviving a new landscape that centers on price war. “You either stay ahead of the innovation curve so that you have limited competitive pressure, or find efficiencies in manufacturing and commercialization to be able to offer a more competitive price if you are not innovative enough,” Wang advised multinational players keen to stay in the China market.
“In addition to product innovation, innovation in business model and go-to-market approach will be important for foreign drugmakers to continue their leading position in China,” he added.