BEIJING – China announced Jan. 17 which further pharmaceutical companies it will buy from under its centralized procurement program that seeks the lowest prices. The price war has forced foreign players to revalue the Chinese market and prompted Chinese players to come up with survival strategies under a policy that aims to consolidate the industry.

On Friday, 77 pharma companies won contracts with the Chinese government by slashing prices of drugs by 53% on average, according to Chinese state media. Those products for treating diabetes, high blood pressure, cancer or rare diseases will be accessible to patients in public hospitals starting in April.

Twenty-four foreign pharma companies also joined the bidding process. Those who won the bids cut the prices of their originator drugs by 82% on average, the state media reported.

Bayer AG made a surprising offer by slashing the price of its off-patent acarbose for diabetes by nearly 90% to ¥5.42 (US79 cents) for 30 tablets, compared to a previous cost of more than ¥50. The new price is also 78.5% lower than the price ceiling set by the government in December.

“For years, we have supported the Chinese government in improving access to our medicines for Chinese patients,” Bayer spokesperson Astrid Kranz told BioWorld earlier regarding the company’s pricing strategy for China.

Many believe Bayer's aggressive price cut aims to push its Chinese competitor, Hangzhou Zhongmei Huadong Pharmaceutical Co. Ltd., out of the acarbose market, and industry experts said they believe it will work. The Chinese firm offered ¥13.96 for 30 tablets in the bidding round.

“The Chinese authorities buy drugs in bulk almost every year, and companies need a much longer time to develop an innovative drug,” Dian Canghe, founder of pharma consulting firm Drugist, told BioWorld. “For most of the Chinese drugmakers, this bulk-buying policy matters to their survival.”

The centralized procurement program was launched as a pilot scheme in 2018, and now it has gone nationwide with an aim to push down drug prices by leveraging China’s huge population. China’s health care security authorities first determine what kind of drugs and how much of them will be needed in the public hospitals; then they invite drug companies to place bids in order to supply up to 80% of what is needed.

Winning a bid in that program means securing a much wider sales network. While the public hospitals are required to form an alliance to buy drugs in bulk, community clinics and pharmacies that prescribe drugs reimbursed by the government can also join the alliance voluntarily.

Foreign imports that are said to be purchased by the Chinese government this time include Bayer’s acarbose for diabetes and moxifloxacin for bacterial infections, Boehringer Ingelheim GmbH’s meloxicam for osteoarthritis, Sandoz Ltd.’s simvastatin for high cholesterol, and Celgene Corp.’s paclitaxel protein-bound particles for injectable suspension.

Global market access

Bayer’s aggressive price cut to its acarbose tablets implies that the China market can be critical to a drug’s global sales, and foreign companies need to revalue how important this market is to them.

“For Bayer, China takes up 95 percent of the global market share of acarbose. If it failed to win the bid this time, it would lose the global market,” Dian told BioWorld.

Acarbose is now recommended as a first-line drug for type 2 diabetes in China. According to Research and Markets, the drug sold far better in the Asian country than in developed countries. It reduces glucose uptake mainly by inhibiting amylase and thus is more suitable for Asians who eat mostly carbohydrates.

But Bayer’s acarbose is facing challenges from Chinese competitors, who have seized more market share over the years. In 2017, Bayer’s drug took up around 66.4% of the Chinese market, showing a continued decline.

China has the largest diabetes epidemic in the world, hosting a third of the world’s diabetic population. The market is expected to keep growing.

Dian said by winning the bid, Bayer can expand the market share of its acarbose by taking Zhongmei Huadong’s share. He called it “a disaster” for the Chinese company.

“As Bayer has now adopted an ultra-low-price strategy, it should now step up its marketing capability to gain access to all sales channels to seize its competitor’s market share in the most efficient way,” he added.

Those sales channels can range from the online and offline ones to public hospitals and private institutions. Companies must find ways to boost the accessibility and coverage of their drugs.

Another industry expert also pointed out that innovation will be the key to surviving a new landscape that centers on a 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,” Justin Wang, managing director at LEK Consulting, told BioWorld in a previous interview.

“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.

China has been pushing this bulk-buying policy to lower drug prices and country policymakers consider it a big success. The bulk-buying scheme is expected to be in place for three years to buy more than 160 drugs.

Foreign pharma companies have adjusted their pricing strategy to win the bid. Astrazeneca plc's EGFR lung cancer drug, Iressa (gefitinib), and Bristol-Myers Squibb Co.’s cardiovascular drug, Monopril (fosinopril), won bids when the scheme was launched. Later, Sanofi SA, Merck & Co. Inc., Eli Lilly and Co., Sandoz and Indian drugmaker Dr. Reddy's Laboratories Ltd. also made it to China’s bulk-buying list.

‘Companies must adjust’

Facing this “new normal” in China, it’s not only foreign players that will need to rethink their strategy for China, but also Chinese companies, who will have to boost their competitiveness to stay in the game. But it won’t be easy.

“Most of the Chinese drugmakers won’t be able to survive under this policy,” Dian said. “Nearly 90 percent of them have not yet launched the quality consistency evaluation for their products. Those who lost the bid will also find it hard to win access to markets other than the public hospitals.”

He said those companies will soon be pushed out of the market by more competitive pharmas who have stronger R&D and marketing capabilities.

“Chinese drugmakers will need to come up with a strategy to survive in the next three years,” Dian told BioWorld.

He offered a few tips: Be aware of the risks, competition, costs and efficiency when developing drugs; halt or sell programs that will not generate profits or cash flow; develop or license-in innovative drugs faster to boost pipelines when a company still has enough cash flow or ability for financing; and gain access to all sales channels.

“It is a shame to lose access to China’s public hospitals for up to three years, he said in a note. “But those who won the bid this time are not the winners as this is only temporary. Companies must adjust their overall business strategy.”

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