January 2019

National Drug Price Negotiation

Towards the end of 2018, pharmaceutical companies were invited to bid for contracts to supply 31 drugs to hospitals in 11 cities in China under a new, highly competitive tender process. After two months of negotiations, 17 anti-cancer drugs have been included in the National Reimbursement Drug List (NRDL) with an average price reduction near 50 percent.

Through this process, there can be only one ‘winner’ to supply a drug, which includes high blood pressure and cholesterol treatments, and allergy and cancer medication.

The new process, which allows the Chinese government to cherry-pick drugs and slash drug prices in exchange for reimbursement status, was introduced in 2016. In the same year, three drugs out of five candidates managed to reach an agreement with the Chinese government after slashing their prices by almost two-thirds.

While a speedier approval process may be an achievement for the industry, particularly to innovative players who lobbied for accelerated and positive reimbursement decisions for new drugs following Chinese approvals, slashing prices by half, or even more, creates new coverage and price challenges.

This event is being described as an earthquake to both the domestic and foreign pharmaceutical industry, and both innovative and generic drug manufacturers will experience slimmer profit margins and a change in business activities with hospitals as a result.

The procurement pilot program comes at a time when China is pushing for broader adoption of generic drugs to drive down overall health spending and to make room to adopt innovative medicines in a national drug reimbursement system.

Multinational pharmaceutical companies will be the hardest hit by this change as a result of only two imported products winning the bid, and also with a significant compromise on their prices – over 80 percent price reduction on gefitinib (AstraZeneca) and more than 60 percent on fosinopril sodium tablet from BMS, an ACE inhibitor.

For the generic players, this new mechanism featuring “all-or-nothing” and “lowest-price-wins” sends a strong signal that the central government is determined to accelerate industry consolidation by pushing out smaller players.

Table 1: US and China drug prices comparison

Just how important is the national procurement program?

Veranex (formerly Boston Healthcare Associates) has been routinely involved in comparative studies of healthcare policies and market dynamics between China and the United States and regularly reviews price differences (Table 1). The following table highlights price differences for specific drugs following negotiations.

However, not all companies are able to meet the expectations of the Chinese government.

For example, Bosentan (Tracleer®), a drug indicated for Pulmonary Arterial Hypertension, was approved by the China Food and Drug Administration (CFDA) in 2006 but was not included on the NDRL. In 2016 the manufacturer made a voluntary price reduction to drop the retail price from $2,854 to $571 per box. In 2017 the manufacturer rejected the government’s proposal to reduce the price by another 80 percent (to $114 per pack). As a result, the drug will not be reimbursed.

Table 3 shows the extreme examples where hundreds of drug manufacturers used to divide the market.

Table 2: failed negotiation example 
Table 3: Bidding that has more than 100 bidders    

In less than three years, Gefitinib (brand name: Iressa®), a lung cancer drug of AstraZeneca has dropped its price to about only 10 percent of its original price to survive the two events discussed in this article, national price negotiation, and national procurement (Graph 1).

Very much like the journey of the national drug negotiation mechanism the industry is now learning that a consolidated procurement program will only expand over time, particularly in the dimensions of the number of drugs, or the areas, or both.

What can innovators do?

For multinational or domestic pharmaceutical companies, Veranex recommends the following:

  • For those with commercial responsibilities:
    • Review negotiations and price cuts applied to drugs within their relevant therapeutic area since 2016 to prepare pricing strategies and tactics for the next round of negotiations – if seeking market access in China
  • For those with policy, market access, government affairs or business development responsibilities
    • Gain an in-depth understanding of the events occurring in China to inform global pricing, market access, and lobbying strategy development and execution.

For pharma companies entering the Chinese market, these recent changes require companies to develop a well-informed, validated market access approach to ensure success.

Veranex has a deep understanding of the evolving value and access landscape in China. Please contact us for more information.

Graph 1

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