13 Oct 2009 09:15

Essential medicine price caps to impact multinational drug firms- analyst

Shanghai. October 13. INTERFAX-CHINA - New retail price caps will adversely affect the ability of of multinational pharmaceutical companies to tap China's grassroots drug market, a pharmaceutical analyst told Interfax on Oct. 12.

On Oct. 2, the National Development and Reform Commission (NDRC) released retail price caps for essential drugs, which cover 296 types of commonly-purchased generic drugs and traditional Chinese medicines (TCM). The price caps will come into effect on Oct. 22 this year.

A number of multinationals drug companies currently benefit from a government pricing policy which allows them to sell their branded products at higher prices than the same drugs produced by domestic manufacturers.

These multinational pharmaceutical firms will potentially see their revenues cut in the grassroots market, according to Li Jingsong, from Xing Ye Securities. For instance, Shanghai Roche Pharmaceuticals Ltd. currently sells 1g ceftriaxone, an antibiotic, at RMB 70 ($10.20) per bottle, but will have to cap the drug's retail price in the grassroots market at RMB 7.00 ($1.02) per bottle.

Likewise, Pfizer Dalian Pharmaceutical Ltd. currently sells another antibiotic, 250mg azithromycinm at RMB 70.10 ($10.22) per bottle, but will have to cap the drug's retail price in the grassroots market at RMB 14.20 ($2.08) per bottle once the policy takes effect.

"As hospitals will procure essential drugs via drug bidding exercises in each province, it is possible that the retail prices may be further pushed down," Li said.

"The price caps will have the effect of discouraging drug multinationals from expanding in the grassroots market in China even though many of them are showing a big interest in the sector," Li added.

Under the new policy, ceiling prices will be lowered by 12 percent on average for 45 percent of the listed drugs while price caps for 49 percent of the drugs will remain the same.

In particular, ceiling prices of 41.5 percent of the total Western medicines listed, or 83 Western medicines, most of which are antibiotics, will be lowered by nearly 20 percent on average while ceiling prices of 57 TCMs, accounting for 56 percent of the total TCMs listed, were lowered by between 1 percent to 25 percent.Health authorities are expected to issue a separate essential drug list for public hospitals soon.

"While it is difficult to foresee if retail price caps for essential drugs sold in public hospitals will be similar to the price caps for grassroots medical institutions, I believe the authorities should continue to take a prudent approach," Li said.

According to Li, many experts and industry insiders predicted that ceiling prices would be lowered by about 15 percent on average this time. Li said the NDRC did not pursue a more aggressive price cap reduction because it wants to ensure reasonable profits for drug manufacturers as well as maintain a stable supply of essential drugs.