Life Sciences Blog

In China drugmakers walk increasingly fine line between lower prices and making a buck




In mid-July, China’s Ministry of Human Resources and Social Security (MoHRSS) announced that it would add another 36 medicines to the National Reimbursement Drug List (NRDL), after months-long negotiations between the government and global drugmakers. 

The addition of the 31 Western medicines and five Traditional Chinese Medicines (TCM) was expected. In February, after the MoHRSS announced a long-awaited update to the NRDL – the first since 2009 – it added that approximately another 45 high-cost medicines with significant clinical value remained under pricing negotiations. These included Roche’s Herceptin, Avastin and MabThera, Celgene’s Revlimid and Novartis AG's Afinitor, among others. 

The resulting price cuts were not small. The average drug discount for the 36 additional medicines was 44% against last year’s retail prices, although individual price cuts went as far as 70%. On the face of it, the outcome is a win-win-win: the pharma industry acquiesces to the price slashes in return to greatly expanded market access to the world’s second-largest pharmaceutical market. Chinese patients receive greater access to much-needed innovative treatment for several chronic diseases, including cancer, haemophilia and hepatitis B. The Chinese authorities bring in a raft of new medicines at greatly discounted prices, as they battle to rein in soaring healthcare spending. 

However, the pricing pressure does not end there for pharmaceutical companies. While drugmakers look forward to a significant bump in the uptake of their newly-added medicines to the NRDL, there are signs that future pressure on drug prices may be greater than anticipated.

For one thing, drugmakers face another round of pricing negotiations at the hospital level. After the addition of the newly-reimbursed treatments to the NRDL and in turn, the provincial reimbursement drug lists (PRDLS), pharmaceutical companies will also need to enter into tendering processes with individual hospitals in order to be included on hospital formularies.

According to the South China Morning Post, provincial authorities in Beijing, Jiangsu, Guangdong and Shandong are expected to negotiate hard with drugmakers to lower prices, due to tighter government budgets for reimbursements and ageing populations. Local Chinese media also report that in March, the Guangdong and Fujian provincial authorities demanded a 14% and 32% price cut, respectively, in order to be allowed to take part in tenders to supply public hospitals.

Consider also that pricing negotiations were not required in the run-up to the 2009 NRDL. However, steep price cuts – such as those in May 2016, which included a 67% cut in the price of GlaxoSmithKline (GSK)’s hepatitis B drug Viread – are now widely seen as a prerequisite to reimbursement in China, and may just be the starting point.

Given the lack of transparency of China’s pharmaceutical price negotiating process, it’s hard to predict what shape future pricing discussions will take. However, it seems fair to say that the focus on lower drug prices will certainly increase, and the pressure on pharmaceutical multinationals will only intensify. 

“The bargaining process was particularly ruthless, beyond business expectations,” reported local media outlet PharmNet, citing an anonymous executive taking part in the negotiations, who described pharmaceutical executives as “sweating, leaning against the wall after they came out [of negotiations].”

“The feeling of the negotiations was that you were doing it as if your life depended on it,” another source said. “The need for adaptability, on-site persuasion, for professional knowledge and other requirements were very high,” another executive was quoted as saying.
Overall, pharma companies rightly see China’s growing pharma sector – despite the increasingly tough pricing environment - as an opportunity not to be missed. Looking ahead, however, drugmakers will need to walk an increasingly fine line between the pressure to cut prices, and still seeing a boost in sales. 

“That is the balance we have to strike,” Camilla Sylvest, Novo Nordisk’s China general manager, told the Wall Street Journal last month.

Sophie Cairns is a Life Sciences Research Analyst for IHS Markit
Posted 4 August 2017

About The Author

Sophie Cairns is a Senior Analyst in the IHS Markit Life Sciences practice, covering the Asia-Pacific region. Sophie holds a Master of Science degree in Public Health from the London School of Hygiene and Tropical Medicine and prior to joining IHS Markit worked in several consulting and analytical roles, focusing in particular on pricing and reimbursement issues in China. Sophie also worked as a journalist for seven years, mostly as a foreign correspondent for Reuters newswire in Hong Kong, Shanghai and Paris. She is fluent in Chinese (Mandarin and Cantonese), French and German.