SHANGHAI - China's New Drug Price Guidelines are expected to be released by the end of this year, which are likely to lead to another round of price cuts on drugs included on the National Drug Reimbursement List, according to analysts.

China's National Development and Reform Commission released a draft of the drug pricing guideline in June to solicit feedback from industry (Also see "China's New Guideline For Drug Pricing Favors Innovation And First-to-market Generics" - Scrip, 14 June, 2010.).

The draft sets up a detailed price reduction schedule and margin ceiling for drugs in different categories. However, industry is pushing for more modest price cuts.

"Our checks suggest that the margin limits could be more modest in the final version given that the terms in the draft version were widely considered to be harsh and received considerable pushback from industry," said Citi analyst Richard Yeh, who recently spoke to the NDRC and noted the final version could be issued as early as September or October.

"The magnitude of the price reduction is difficult to predict," Yeh told PharmAsia News in an interview.

The final version will likely have modest price cuts, he said, rather than the originally rumored 30-40 percent reductions.

Niu Zhengqian, the vice general manager of the largest private distributor Jointown, noted during a recent conference call that margin ceilings for drug makers and distributors as well as the independent pricing for first-to-market generics and innovative drugs will take center stage (Also see "China's New Drug Price Policies Will Favor Big Distributors, Restrict Smaller Ones" - Scrip, 20 July, 2010.).

Price Cuts Focus On Newly Added NDRL Drugs And Essential Drugs

The price cuts will likely affect two categories of drugs: those new to the NDRL and those on the essential drug list, according to the Citi analyst.

China added 226 Western drugs and 234 traditional Chinese medicines to a new NDRL last year to replace the 2004 edition (Also see "China Boosts Health System Reforms With Expanded National Drug Reimbursement List" - Scrip, 8 December, 2009.). The initial EDL listed 307 Western drugs and TCM products, and officials said that no markup would be added to essential drugs sold in government-run clinics (Also see "China Releases First Part Of Essential Drug List For Community Health Clinics And Rural Hospitals" - Scrip, 19 August, 2009.).

"I would expect the companies whose drugs recently made it to the NRDL lists are fully anticipating a price cut," Helen Chen, director of global consulting firm L.E.K.'s life sciences practice in China, told PharmAsia News.

Drugs developed by multinational outfits that have been added to the latest edition of the NDRL include Merck's (formerly Schering-Plough's) corticosteroid Elocon (mometasone), Eli Lilly's recombinant human insulin Humalog and Novo Nordisk's short-acting insulin NovoMix and its NovoRapid insulin.

"The impact to MNCs will be the first-to-market generics; the price cuts will have a real impact but depend on government's execution," Citi's Yeh said.

Still, being listed carries volume benefits that come from easier hospital entry, higher physician willingness to prescribe, and higher patient willingness to adopt the drug, said Chen, who added the increase in volume should more than offset the top-line revenue impact from a price cut or competitive tendering.

"All of these benefits apply to MNC products, particularly those which are still on patent, or were only approved in the past four years," Chen added, noting that companies may still see top-line revenue growth.

"Unless of course, the volume shift is so significant that it materially lowers the cost of production, sales and distribution on a percentage basis," she said.

- Dai Jialing (j.dai@elsevier.com)

[Editor's note: Helen Chen, L.E.K. Consulting Director will participate in a panel discussion on China's ongoing healthcare reforms at the 2nd PharmAsia Summit, to be held in San Francisco, Oct. 25-26, 2010. For a list of topics and speakers, click here.]

China's Next Round Of Drug Price Cuts? NDRC To Slash Prices On More Products On National Drug Reimbursement List

More from Archive

More from Scrip