Page 356 - 2020 White Paper on the Business Environment in China
P. 356
0 White Paper on the Business Environment in China
using the company’s information systems, if they For all biopharma companies, foreign or
decide not to buy drugs in the hospital, they can domestic alike, winning such bulk purchase
authorize transfer of the prescription information bids represent a dilemma. On the one hand, it
to a chosen pharmacy, and collect the medicine means a sizeable secured market and savings on
themselves or have it delivered. For patients marketing efforts; but on the other, lowering prices
getting follow-up treatment, they can have online significantly could put profits at risk. The new
consultations with doctors either through the procurement scheme comes at a time when China
hospitals’ WeChat accounts or Bestyoo app, or is pushing for wider adoption of generic drugs
simply ask for a renewed prescription. Once to drive down overall health spending and make
doctors prescribe medication, patients can collect room to adopt new innovative drugs in its national
the medicine from their chosen pharmacy, as long drug reimbursement system. It could mean a
as the pharmacies are connected to the Bestyoo bumpy road ahead for big pharma companies,
platforms and have the drugs (Xinhua, Smart Tech). which have enjoyed fast growth in China, thanks in
part to some legacy drugs. For a long time, foreign
4+7: China’s New Volume-Based pharma’s original drugs were considered better in
China and were not placed in direct competition
Purchasing Policy with local copycats. But those days are gone as
the Chinese government inches forward with a
China introduced the most recent campaign to evaluate the bioequivalence between
pharmaceutical procurement pilot program domestically-made generics and their originators.
“4+7 cities” in November 2018 and it was kicked (Liu, Big Pharma’s).
off in March 2019. The pilot was only targeting
established products, and generics which have In the past, domestic companies hoped to
passed the Generic Quality Consistent Evaluation benefit from more government investment in
(GQCE). In total, 25 molecules were included in the health care due to the ageing population, but now
first pilot. The pilot was carried out in four major these health care stocks will be further hurt by
cities: Beijing, Shanghai, Chongqing and Tianjin, policy and undergo a greater correction. The plan
along with seven other urban areas which make will redraw the industry by forcing its thousands
up around 30 percent of China’s total drug sales. of small generic drug makers to streamline and
As part of the program, healthcare authorities will consolidate after decades of enjoying outsized
start to carry out pooled procurement of drugs profit margins. To survive the shifting landscape
based on the volume required at public medical and rely less on generics—drugs whose patents
institutions in certain regions. The fight on the have expired—many companies are scrambling
initial round was brutal to say the least. For drugs to pump money into research and development.
with three or more bidders, the lowest tender Discovering a new medicine allows companies
price was automatically chosen. to earn high profits for as long as the new drug
is covered by a patent, balancing out the loss
While the full procurement results have yet of revenue from the fall in generic drug prices.
to be made public as of this writing, the price Chinese companies had been in a sweet spot.
cuts reported so far are bigger than expected, Among the top 100 generic drug makers, Chinese
that is why certain affected companies have firms had a 74 percent gross margin and an 18
been hit particularly hard. The new procurement percent profit margin in the third quarter of 2018,
process, led by the newly formed State Medical compared with a global average of 55 percent
Insurance Administration, was promulgated to and 9.5 percent, respectively, according to data
keep pharmaceutical prices low in an ageing compiled by Bloomberg. The privileged position
society. Combined with mandatory clinical trials, was due to the quirks of China’s regulatory system.
the measure is part of the Chinese government’s While multinational giants had to wait years for
effort to improve the quality of China’s drugs (Ng). approval to import their new drugs, the domestic
generic makers could do a thriving business in
copying, testing and getting local permission for
356
using the company’s information systems, if they For all biopharma companies, foreign or
decide not to buy drugs in the hospital, they can domestic alike, winning such bulk purchase
authorize transfer of the prescription information bids represent a dilemma. On the one hand, it
to a chosen pharmacy, and collect the medicine means a sizeable secured market and savings on
themselves or have it delivered. For patients marketing efforts; but on the other, lowering prices
getting follow-up treatment, they can have online significantly could put profits at risk. The new
consultations with doctors either through the procurement scheme comes at a time when China
hospitals’ WeChat accounts or Bestyoo app, or is pushing for wider adoption of generic drugs
simply ask for a renewed prescription. Once to drive down overall health spending and make
doctors prescribe medication, patients can collect room to adopt new innovative drugs in its national
the medicine from their chosen pharmacy, as long drug reimbursement system. It could mean a
as the pharmacies are connected to the Bestyoo bumpy road ahead for big pharma companies,
platforms and have the drugs (Xinhua, Smart Tech). which have enjoyed fast growth in China, thanks in
part to some legacy drugs. For a long time, foreign
4+7: China’s New Volume-Based pharma’s original drugs were considered better in
China and were not placed in direct competition
Purchasing Policy with local copycats. But those days are gone as
the Chinese government inches forward with a
China introduced the most recent campaign to evaluate the bioequivalence between
pharmaceutical procurement pilot program domestically-made generics and their originators.
“4+7 cities” in November 2018 and it was kicked (Liu, Big Pharma’s).
off in March 2019. The pilot was only targeting
established products, and generics which have In the past, domestic companies hoped to
passed the Generic Quality Consistent Evaluation benefit from more government investment in
(GQCE). In total, 25 molecules were included in the health care due to the ageing population, but now
first pilot. The pilot was carried out in four major these health care stocks will be further hurt by
cities: Beijing, Shanghai, Chongqing and Tianjin, policy and undergo a greater correction. The plan
along with seven other urban areas which make will redraw the industry by forcing its thousands
up around 30 percent of China’s total drug sales. of small generic drug makers to streamline and
As part of the program, healthcare authorities will consolidate after decades of enjoying outsized
start to carry out pooled procurement of drugs profit margins. To survive the shifting landscape
based on the volume required at public medical and rely less on generics—drugs whose patents
institutions in certain regions. The fight on the have expired—many companies are scrambling
initial round was brutal to say the least. For drugs to pump money into research and development.
with three or more bidders, the lowest tender Discovering a new medicine allows companies
price was automatically chosen. to earn high profits for as long as the new drug
is covered by a patent, balancing out the loss
While the full procurement results have yet of revenue from the fall in generic drug prices.
to be made public as of this writing, the price Chinese companies had been in a sweet spot.
cuts reported so far are bigger than expected, Among the top 100 generic drug makers, Chinese
that is why certain affected companies have firms had a 74 percent gross margin and an 18
been hit particularly hard. The new procurement percent profit margin in the third quarter of 2018,
process, led by the newly formed State Medical compared with a global average of 55 percent
Insurance Administration, was promulgated to and 9.5 percent, respectively, according to data
keep pharmaceutical prices low in an ageing compiled by Bloomberg. The privileged position
society. Combined with mandatory clinical trials, was due to the quirks of China’s regulatory system.
the measure is part of the Chinese government’s While multinational giants had to wait years for
effort to improve the quality of China’s drugs (Ng). approval to import their new drugs, the domestic
generic makers could do a thriving business in
copying, testing and getting local permission for
356
