Facing further price cuts, Chinese companies look to diversification

By Wang Fangqing

- Last updated on GMT

Facing further price cuts, Chinese companies look to diversification

Related tags Pharmacology

China’s national development and reform committee (NDRC), which oversees pricing across industries, has announced plans to introduce further mandated price cuts.

Zhao Chenxin, spokesperson of NDRC, said at a press meeting​ that the government will issue new policies in three areas to further lower drug prices. A major area is the government procurement scheme. 

We will make it possible to allow public hospitals to purchase drugs directly from drug companies through an online platform​” he said.

Currently, Chinese public hospitals buy drugs from the drug suppliers selected by the local government. 

I think NDRC is actually talking about de-bureaucratization​,” Fu Baihang, senior partner of Beijing-based consulting firm Adfaith, told us.

According to the NDRC, the retail price of a drug is on average five times higher than its ex-factory price, and the local governments’ role as a middle man is one major cause.

Marketization probably is the future for Chinese drug procurement scheme. Drug exchange is a good example,​” Fu said, referring to the testing project in Chongqing and Guangzhou, which allows drug suppliers and public hospitals to make deals directly at a platform under the supervision of the local government.

Fu said in general, Chinese pharmas are fully aware that achieving sustainable growth can no longer rely on drug sales, so they are looking to other areas to diversify their businesses.

Some, like Jiangsu province-based Hengrui Medicine, moved their focus to innovation. Hengrui earned more than $25m through an out-licensing deal last year to the US biopharma Incyte of SHR1210, a monoclonal antibody candidate targeting PD-1 to treat tumors.

Other companies, as Fu put it, are investing in the healthcare service sector. For example, Shanghai Pharma, one of the largest state-owned pharma companies in China, made it clear in the recent investor letter that healthcare service will be its new focus in the next three years. These services vary, could be opening clinics or providing personal health management through mobile apps.

International suppliers

The planned price cuts will also impact multinationals.

The NDRC is in talks with multinationals over five drugs, asking them to cut the price by half. Among them are the hepatitis B treatment Viread (tenofovir) from Gilead, and Revlimid (lenalidomide ) from Celgene to treat multiple myeloma. The two drugs will be out of patent protection in China in mid-2017.

Drugs without patent protection can no longer bring hefty profits to multinationals because there are many qualified, highly competitive Chinese generics makers​,” Fu said. However, because China encourages innovation, so “multinationals can still make good money through novel drugs, which is what they should focus on,” Fu added.

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