Chinese Pharma’s Latest Race to the Bottom on Pricing

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China’s roll-out of a 25-province expansion to the 4+7 pilot procurement scheme has seen pharma companies scrambling to cut prices for their drugs even further in the latest bidding war.

 

Pharma companies in China are facing yet another intense race to the bottom on pricing. On the 24th of September, the country’s 10-month pilot 4+7 procurement scheme was expanded to cover 25 provinces. The new block procurement scheme focuses on 30 Tier 2 cities such as Xiamen and Guiyang, and 70 Tier 3 prefecture-level cities, and will cover mainly public hospitals in the provinces in the block. By volume, the first 4+7 scheme accounted for 30 to 40 percent of China’s large urban pharma markets, whereas the expansion will impact the overall pharma market much further. With 100 more cities included in the block procurement scheme, billions of dollars were at stake in the latest bidding round. 

 

September 24th started early at the Shanghai Medical Procurement Office, with pharma company representatives waiting outside to hand in their bids for 25 drug products, many of them off-patent products in the areas of cardiovascular, CNS, anti-infectious diseases and anticancer. The results, announced the next day, validated many companies’ fears: price cuts for the block procurement scheme went even deeper than in the 4+7 round, some products seeing prices slashed by more than 60 percent, with new rules stating that the bids could not exceed their 4+7 prices. 

 

The results were music to the ears of the multinationals and domestic companies that came out on top. Sandoz (Novartis’ generics arm), Sanofi, AstraZeneca, BMS, MSD and Eli Lilly all secured winning bids. Sandoz won the bid for cholesterol drug atorvastatin 10mg at 71 percent below the 4+7 winning price of CNY 0.78. Sanofi won the bid for antiplatelet agent Plavix (clopidogrel) 75mg tablets, at 21 percent below its 4+7 value of CNY 3.18. MSD was among two companies to win the bid for Singulair (montelukast) for asthma, and the winning price matched the 4+7 winning bid. Lilly won for lung cancer drug Alimta (pemetrexed) with a bid just CNY1 lower than in the 4+7 round winning bid. Domestic companies that won bids included Sichuan Huiyu Pharma, Qilu Pharmaceutical, Xinan Pharma, and Hisun BioRay Biopharmaceutical. Some companies that had won the previous round were dealt devastating losses, including Jialin Pharma, Jingxin Pharma, and Shenzhen Salubris, which was competing directly with Sanofi.

 

The Medical Procurement Office made some changes to the original procurement scheme; for example, compared to the 4+7 pilot, the volumes needed for the new block purchases are much larger and will ultimately multiply drug volumes nearly 12-fold. Furthermore, in the original scheme, the winning bidder was the sole supplier of their product; however, under the new expanded scheme there are no limits on the number of suppliers of a particular drug, and up to three contractors are permitted to divide the market rather than just one winning bidder. These new measures have been implemented to ensure sufficient supplies and avoid drug shortages.

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