China drives down drug prices with bulk-buy bidding

China drives down drug prices with bulk-buy bidding

Pharma giants that used to profit from off-patent drugs forced to compete with local generic makers

Chinese customers buy medicines at a pharmacy in Beijing. (Reuters Photo)
Chinese customers buy medicines at a pharmacy in Beijing. (Reuters Photo)

Drugmakers that want to sell to public hospitals in China now have to bid for the privilege, which is driving prices down sharply and making Big Pharma nervous.

Beijing has been pushing forward a system that requires drugmakers to go through a bidding process and cut prices low enough to be considered over generic copies if they want to sell their products at public hospitals via large-volume government procurement.

Some big global names such as AstraZeneca and Merck have already cautioned about intensifying price pressures on their mature brands in the world’s second largest drug market, as China expands the usage of the programme.

In the latest bidding on Friday that involved 33 drugs and 122 companies, Bayer slashed the price of its popular diabetes treatment Acarbose to 0.18 yuan (2.6 US cents) per pill, 78.5% lower than the price ceiling set by the government in December. That actually undercut some Chinese generic providers and squeezed them out of the tender, according to a Reuters calculation based on the preliminary results released by the authority overseeing the programme.

“Products that won bids in this round of centralised procurement saw a huge price drop, which squeezes out unreasonable overpricing that has existed in drug distribution for a long time,” the authority said in a statement published alongside the preliminary results on Friday.

Selling prices of over 100 types of commonly used drugs are on average about 17 to 18 times their manufacturing costs, the statement said.

Some other drugs that included therapies for hypertension, dementia and viral infections saw prices drop by more than 60% in the bidding, according to Zhang Jialin, a healthcare analyst at ICBC International.

Chinese generic makers won bids for most of the 33 drugs, including generic versions of drugs ranging from Johnson & Johnson’s prostate cancer treatment Zytiga to the erectile dysfunction treatment Cialis by Eli Lilly, the results showed.

In Friday’s bidding, for products with two bid winners, 60% of the government procurement volume can be shared among the winners, according to official documents detailing the tender rules. For products with four winners and more, as much as 80% of the volume can be shared among the companies.

In the first round of the nationwide bulk-buy bidding contest in September, global drugmakers including Sanofi and Eli Lilly managed to cut some prices low enough to levels close to those offered by local generic makers. 

China is doubling down on its efforts to radically overhaul its healthcare system by driving down prices of off-patent drugs to free up state funds for novel, cutting-edge therapies. The campaign is putting pressure on profit margins for both foreign and domestic drug makers.

A pilot bidding round in late 2018 resulted in prices plunging by more than half as generic drugmakers undercut their global peers. Its success emboldened Beijing to expand the programme nationwide in 2019 and then initiate a second round of supply contracts for its public hospitals.

“Overall the price fall this time is deeper than the first round,” Zhang said. “Most of the originators are out in this round so the takeaway is that the exercise will gradually phase out originators and replace them with domestic companies.”

Global drug makers are having to adjust to a new normal in China, which was once a lucrative market for their off-patent medications. In the previous round, this has resulted in prices of well-known medicines like Pfizer’s cholesterol pill Lipitor dropping by as much as 74% below their previous prices in China.

In a new feature, the government has this time added a price ceiling for each drug. The price caps were as much as 95% below current prices in China, according to estimates by ICBC International.

“The game is over for foreign pharmaceuticals looking to make money from drugs with expired patents,” said Zhang. “They have to keep bringing in new therapies to China to offset the price cuts on older drugs.”

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