BEIJING – Despite previous expectations of deep price discounts, the results of China's first ever national negotiations for costly drugs included in reimbursement schemes have still surprised many.

The outcomes, announced on May 20, saw a further big price cut for hepatitis B treatment Viread (tenofovir), developed by Gilead Sciences Inc. and marketed by GlaxoSmithKline PLC in China, and more than 50% reductions for two lung cancer target therapies from AstraZeneca PLC and Betta Pharmaceuticals Co. Ltd., respectively.

The price for Viread was reduced by 67%, from CNY1,500 ($230.80) to CNY490 ($75) per box of 30x300mg tablets, while AstraZeneca's Iressa (gefitinib) was cut by 55%, to CNY2,358 for a box of 10x250mg tablets, and Betta's Conmana (icotinib) suffered a 54% reduction to CNY1,399 per box of 21x125mg tablets.

After the reimbursement cuts, the monthly treatment cost for Iressa has been lowered from CNY15,000 to CNY7,000, and from CNY12, 000 to CNY5,500 for Conmana. The significant price reductions will lower patients’ financial burdens, said China's National Health and Family Planning Commission (NHFPC) in a statement.

What's also significant is that the results will be directly linked to local drug reimbursement without further bidding, and applied not only in nationwide public hospitals but also in military hospitals. China maintains two separate health care systems for civil hospitals and military facilities.

GSK has previously indicated its willingness to cut product prices in China as part of a “reset” strategy for its business in the country in the wake of the corruption investigation and fine. Viread’s price was cut to below CNY1,000 in Hunan provincial tenders, while previous tenders in other provinces had seen the drug’s price set at roughly CNY1,390 ([A#28150803004]).

Volume Benefits?

GSK said the inclusion of Viread in the latest round represented an opportunity to expand patient access in China.

Analysts agreed. "The three products covered under the [price cut] program are essentially included in the national reimbursement drug list [NRDL] in one step," said analysts at China Guangda Securities in a note to investors.

No new drugs have been added to the NRDL since 2009 when it was last updated, despite repeated calls from the industry for a timely revision.

In the meantime, several localities including Zhejiang and Jiangsu have launched their own initiatives to offer coverage for the EGFR inhibitors in lung cancer, but their inclusion in the NRDL and national insurance coverage schemes is expected to result in volume increases.

"The volumes for the products are expected to ramp up and the benefit from the increased volume is expected to far offset the loss in profits due to the price discounts," commented the Guangda analysts, led by Zhang Mingfang.

The national drug pricing negotiations started last October and five products were selected in the first round, including for hepatitis B and non-small cell lung cancer as well as multiple myeloma ([A#28160310002]).

Patent Protection, Local Competition

However, not all companies saw inclusion in the list as an opportunity, and they had good reasons. Among five makers selected for the negotiations, Celgene Corp., manufacturer of Revlimid (lenalidomide), decided to pull out, as did Roche, maker of another EGFR inhibitor, Tarceva (erlotinib).

Although multinationals may need to maintain a pricing system across different regions, the desire to increase volume market share before looming patent protection loss and in consideration of fierce domestic competition is more acute in China, a country with massive hepatitis C and lung cancer populations, analysts say.

The patent considerations are particularly urgent for AstraZeneca and GSK, as gefitinib and tenofovir are set to lose patent protection in China in 2016 and 2017 respectively.

"[With the loss of patent protection] domestic generics will enter the market, and increasing domestic competition will lead to a price nosedive," predicted Guangda analysts. "The makers thus are more willing to agree to the price cuts, and by entering the national reimbursement list earlier, they can ramp up the [product] shares before the competition."

Roche, on the other hand, has fewer incentives to follow a similar strategy. Tarceva is not facing an acute patent threat and the company can still afford to expand the drug in the self-pay market through its own patient assistance programs (PAPs).

In effect, PAPs have become a vital tool to expand market access for Roche, which has the most focus on cancer therapies among its multinational peers.

A PharmAsia News request for comments from the company has not been answered at the time of going to press.

Ripple Effects?

China's first ever national drug price negotiation process marks both an end and a beginning, analysts added. In the past, imported drugs from multinationals enjoyed a price premium that is now disappearing.

And through the negotiations, the Chinese government apparently hopes to bring down the prices of other foreign drugs. "[The price negotiation] will lead to more reasonable pricing for the same-class drugs," noted the statement from the NHFPC.

"An open, transparent price negotiation mechanism involving multiple parties on patented drugs and proprietary products is an important measure to deepen the health care reform, improve public hospital centralized procurement and the lower patient burden," it added.

Analysts also see an opening for domestic new drug developers, who may be well poised to capture a market that has long been dominated by multinational makers. "The tradition of MNCs' ability to command the highest pricing is probably ending," emphasized the Guangda analysts.

"From the market's perspective, the practice of lowering overall foreign patented drug prices will create a fairer environment for domestic new drug developers of same-class drugs. It will bring benefits to domestics developing patented drugs," they predicted.

Deep China Price Cuts Reveal Complex Considerations

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