China’s centralized drug supply drastically cuts spending, driving foreign drugs away from the market

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Under China’s centralized drug procurement policy, domestically produced generic drugs are crowding out foreign-made drugs from the Chinese public health care market with their lower prices.

The Chinese Communist Party’s (CCP) centralized purchasing and marketing policy is seen as forcing pharmaceutical companies to negotiate price for sales, while patients say they don’t benefit.

Under the policy, once a drug is selected for centralized procurement, not only will its official purchase quantity be guaranteed, but it can also save a lot in marketing costs. However, to reap these benefits, manufacturers need to keep the price as low as possible.

Drug sales through Chinese public hospitals account for more than 60% of the total. If the drug does not win the tender, not only will it lose the mainstream market and have to open its own sales channels, but it will also be affected in terms of price in the mainstream market.

Medicines made abroad do not win tenders

China’s sixth centralized procurement of diabetes special drugs (insulin) was fully implemented on July 22, and the seventh national centralized drug procurement completed the proposed selection list on July 12, pending assigned market share according to the price classification.

Among the 60 drugs selected on July 12, only 6 are imported, only 4 are originators, including Pfizer’s tigecycline, with an average price reduction of 67%, well above the total average reduction of 48%.

At least 36 brand name drugs, including Pfizer’s multi-target cell cancer drug Sunitinib, Merck’s lipid-lowering drug ezetimibe, and Gilead’s tenofovir alafenamide (TAF), known as the “medicine against hepatitis B in history”, did not win the tender.

Nearly 100 original imported drugs failed to win the tender in all centralized procurements since 2018.

The original insulin gradually lost the traditional Chinese market

Before the specialized centralized insulin supply in November 2021, foreign insulin still dominated the Chinese market, with imported products accounting for about 70% of the total.

According to data from Chinese public hospitals in the first quarter of 2021, Novo Nordisk, Sanofi and Eli Lilly had a combined market share of almost 80%. Especially in the field of third-generation insulin, the most advanced, these three companies accounted for up to 90% market share in the hospitals in the sample.

However, in this specialized insulin purchase, 15 originator drugs from 3 foreign pharmaceutical companies were selected, which is only 36%. Most of them belonged to the lowest class C. Not only was the supply volume cut in half, but 30% of the volume had to be allocated elsewhere.

Sharp price cuts by Chinese generic drug companies have reduced the price of third-generation insulins, where some originators dominate, to the lowest in the world. Among them, the two third-generation insulins from Gan & Lee Pharmaceuticals, China’s leading insulin drug maker, won the lowest price tender, with a 66.6% drop. and 68.1%, respectively.

Denmark’s Novo Nordisk, which received the most bids (seven) among multinational pharmaceutical companies, was cautious in cutting prices. Six of its products were classified as Class C in six supply groups, just to ensure that they would not be excluded from the main market.

Eli Lilly and Company of the United States has only focused on the two third generation insulins. It won the tender with the largest reduction of 74.7% and 68.2% respectively from centralized supply.

China is the largest diabetic country in the world, with an estimated 141 million people with diabetes as of November 2021. The prevalence of diabetes among Chinese adults has risen to 11.2%.

Sales of insulin and analogues in Chinese public medical institutions were about 27 billion yuan (about $4 billion) in 2020.

However, China has the lowest rates of diabetes awareness and treatment, according to data from Guosheng Securities. Although China has more diabetics than the United States, its per capita medical expenditure is only one-tenth that of the United States.

Centralized procurement hits brand name drugs hard

Due to the high research and development costs of originator drugs, their prices are usually much higher than those of generic drugs. Take insulin for example, the brand name drug can cost up to 30 yuan (about $4.5) more than a generic version of the drug. If the brand name drug manufacturer wants to win the tender under centralized procurement, they have to make a much bigger price cut.

The “consistency review” policy for generic medicines, initiated in 2018, evaluates generic medicines according to the principle of consistent quality and efficacy against originator medicines, so that generic medicines can replace originator medicines in the clinical practice.

Moreover, there are additional price and quantity requirements in centralized procurement that force pharmaceutical companies to conquer the market at the expense of price.

If we take the example of the sixth centralized insulin purchase, not only was the maximum effective declared price specified, but the declared price was not more than 1.3 times that of the lowest price in the same group , i.e. less than 60% compared to the highest effective declared price in the same group.

Mainland Chinese: People don’t take advantage of it

CCP authorities say local generics have benefited the public by cutting prices to speed up their entry into the Chinese market.

However, some Chinese would disagree.

The impact of centralized procurement only applies to hospitals, while ordinary people do not benefit, said Zhang from Shenzhen City. According to Zhang, the price of medicine may be low, but the cost of a hospital visit has skyrocketed, costing at least several hundred yuan each time.

“In China, social status is the key to being able to pay for health care and medicine,” Zhang told The Epoch Times, citing the experience of a friend with diabetes. “His past use of imported drugs, which cost more than 140,000 yuan (about $21,000), was reimbursed 90% by his company, but for most people in China, health insurance does not reimburse much- thing,” he said.

Wang Yan, said her husband, who is a civil servant and receives 4,000 yuan (about $593) a year from health insurance, has cut his normal insulin dose in half so he doesn’t have to pay himself.

“His blood sugar is not well controlled,” Wang told The Epoch Times.

Huxiu, a Chinese website, quoted Shen Longhai, deputy director of Liaoning Baoshihua Hospital Oncology Center, as saying that many Chinese patients “always choose the most expensive brand-name drugs as long as they have the financial means to do it”.

The report also covered a number of patient complaints about generic drugs, claiming they have more side effects and are less effective than imported drugs. Chinese industry insider says generic drugs only copy key ingredients of brand name drugs, while there are often differences in formulations leading to differences in actual efficacy and side effects .

Epoch Times reporter Ellen Wan contributed to this report.

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Jennifer Bateman is a China-focused journalist.

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