China shows the way on drug prices

China shows the way on drug prices

US President Donald Trump exulted this week over Pfizer Inc's decision to delay planned drug price increases a day after he attacked the company on Twitter. He should take a look at China, where President Xi Jinping has done much better.

Over the past two weeks, the US pharmaceutical giant quietly cut the prices of more than a dozen of its medications in China by as much as 10%.

The country's latest propaganda weapon isn't social media, but a movie named Dying to Survive. The low-budget film, released on July 5, has already taken in 1.8 billion yuan (8.9 billion baht) at the box office, ranking as the second-biggest earner in the world on its opening weekend, according to Variety. It's already one of the highest-grossing films in Chinese cinema history, outpacing blockbusters such as Jurassic World: Fallen Kingdom and Transformers:The Last Knight.

The reason is that Dying to Survive resonates with China's middle class.

The movie is based on the true story of a businessman with leukaemia who imported cheap generic drugs from India to save himself and fellow patients (a plot that has parallels with the 2013 American film Dallas Buyers Club). Gleevec, manufactured by Novartis AG, cost almost 300,000 yuan a year in China, leaving many sufferers with a choice of dying or sinking themselves and their families into poverty. The drug is prized by patients because about 90% are still alive five years after starting treatment.

Dying to Survive has raised public awareness of the drug-price issue, boosting a government campaign to lower costs that was already beginning to bear fruit.

On June 29, Hubei province said Pfizer would cut prices of drugs including cancer treatments Inlyta and Xalkori, by 3.3 to 10.2%. The changes will take effect by this Sunday. The city of Beijing released a similar statement on July 4.

For China to let a movie go viral that reflects deep social problems is interesting, and begs two questions. One, why aren't life-saving drugs included in the communist government's insurance programmes? Two, why are the likes of Pfizer and Roche Holding AG charging so much?

China is addressing both issues. In a May article, the state-run China Daily boasted that leukaemia patients now pay less than a quarter of the previous amount after Gleevec became eligible for reimbursement by the government. The country adds about 4 million cancer patients a year.

But China's coffers aren't bottomless, hence the government's pressure on drugmakers to reduce the amount they charge. If an oncology treatment's price is lowered significantly, it will join the government's reimbursement list more quickly and get priority in clinical use. If not, then watch out -- authorities are just as happy to use cheaper generic versions.

The incentive for Pfizer and Roche is a vast market with elastic demand. Roche cut the price of chemotherapy drug Avastin by almost 70% last year, but revenue from the medicine rose by about 25%, according to UBS Group AG.

Pharmaceutical firms are also keen to make as much as possible from aging medications before their patents expire. For instance, sales of breast and stomach cancer drug Herceptin, which reached a record US$7 billion (232.6 billion baht) last year, will probably slump after the US Food and Drug Administration in December approved Ogivri, a biosimilar developed by Mylan NV and India's Biocon Ltd.

Herceptin may have found a revenue buffer in China. The drug was placed on Beijing's reimbursement list last July after Roche slashed the price by more than 60%. It's now in short supply.

The US and China have both used public sentiment to sway drugmakers, but the firms need carrots as well as tongue-lashings to get on board. So far, Mr Trump has only used the stick. Mr Xi knows better. -Bloomberg Opinion

Shuli Ren is a Bloomberg Opinion columnist covering Asian markets.

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