China’s 3rd Drug Procurement Round: A Bloodbath for Multinationals

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Since the Chinese government unrolled an unprecedented volume-based procurement initiative for essential drugs used in the public hospital system in November 2018 in a bid to curb unsustainable healthcare expenditures, domestic and foreign drug manufacturers have been forced into an increasingly cutthroat race to the bottom, at least for the products included within the program.

 

While the pilot round in 2018 was fairly conservative, involving only 33 drugs across 11 cities ultimately involved in the procurement process, the recently concluded third round saw a total of 56 medicines (with 86 product specifications) open for bidding. All but one tender was ultimately fulfilled in the current round. The average price reduction was 53 percent but some of the winning bids undercut rivals by as much as 95 percent, according to state media Xinhua News Agency.

 

A total of 189 companies entered the fray with 125 lucky winners. Following concerns over supply security after the pilot procurement round, which saw only one pharma company winning each tender, the administration decided to award drug tenders to multiple companies, who would then share the total procurement volume across different provinces and cities.

 

Unfortunately for foreign players, only three of the 125 are multinational companies, namely, Eisai (Methycobal® for vitamin B12 deficiency), UCB (antiepileptic drug Keppra®) and Pfizer Upjohn (the antibiotic Zyvox®). Little wonder given the ferocity of the competition: diabetes drug metformin which has a market of around USD 900 million in China saw over 20 bidders, with bids as low as one cent per unit!

 

Two particularly bloody losses within the MNC space are AstraZeneca’s Brilinta®, and Pfizer’s and BMS’ jointly-developed Eliquis®, both blood thinners and more importantly, global blockbusters: Brilinta® with USD 1.5 billion in revenues in 2019 and Eliquis® with a whooping USD 8.1 billion in 2019, ranking as the sixth best-selling drug of last year. Testament to the stress faced by MNCs, BMS decided against even submitting a bid for Eliquis®. The Eliquis® tender, worth 60 percent of the overall market, was won by two Chinese companies. Brilinta® had a total of six successful bidders, all local companies.

 

While most MNCs have already recognized the need to pivot from the legacy portfolios that used to generate stable revenues to the new game of novel breakthrough medicines, the stakes are only rising faster than ever.

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