(Bloomberg) -- China’s aggressive drive to replace brand-name foreign drugs with dirt-cheap homegrown generics has already taken a toll on global pharmaceutical companies’ local business. Now they’re almost nowhere to be found on the latest list of companies winning contracts to sell commonly-used drugs to Chinese hospitals.
Almost all international firms lost to Chinese generic makers in the latest round of the country’s centralized drug procurement process, through which foreign and domestic companies bid to supply public hospitals with medications and devices. The shutout came as rivals offered to supply hospitals medications at bottom-barrel prices that would make them some of the cheapest in the world at the annual bidding session, held last week.
Generic aspirin tablets produced by Chinese drugmakers will be available for as little as 0.03 yuan ($0.0041) per pill. Pregnant women will be able to buy folic acid tablets for just 0.0289 yuan each, while phloroglucinol injections, used to treat muscle spasms, can be had for a mere 0.22 yuan, according to a list posted by the National Healthcare Security Administration.
The low prices highlight the new reality facing the world’s drug giants in China amid Beijing’s campaign to drive down medical costs through the volume-based procurement, or VBP. What started as a pilot program in late 2019 to bulk-buy medicines has saved the government billions of dollars, but also squeezed profit margins for foreign drug developers and triggered fierce competition among Chinese generics makers.
Revenue from older drugs included in the program shrank from 62% in 2019 to just 28% in 2023 among the world’s 10 largest multinational pharmaceutical companies, McKinsey said in November. That’s forced major players to scale back and rethink their business model, including reducing the size of their China operations.
Johnson & Johnson and Merck & Co. laid off local employees in November, Bloomberg reported, and executives from J&J, the largest medtech company in China, have acknowledged a “disproportionate impact from VBP,” which also covers medical equipment and consumables.
Under VBP, brand-name companies must bid against generic makers to win exclusive contracts to supply certain treatments to hospitals, with only a handful ultimately prevailing. Despite participating in previous rounds, many multinationals were either absent from this year’s session or refused to budge on price.
New rules introduced during the session included lower bid price ceilings and a new “resurrection” system that gives companies a second chance to bid. They indicate that pricing could become even more competitive among Chinese generic makers, said Justin Wang, China head and a leader in the health-care and life sciences practice at LEK Consulting.
Hospitals have traditionally had flexibility to purchase a small portion of their medications outside the program, which have often been big pharma’s off-patent drugs, but those volumes might also be shrinking. Going forward, that could pile even more pressure on drug companies to slash prices even when opting out of VBP, he added.
“This is still the same trajectory but it seems to be accelerating,” Wang said.
The new prices, notably that of aspirin, have also had some Chinese netizens, including on WeChat and underneath local news articles, questioning whether it’s even possible to buy the plastic bottles and vials that hold the drugs for such low prices.
“What about the efficacy? Don’t put a discount on that!” read one comment posted in response to a local media outlet’s story about the bidding.
©2024 Bloomberg L.P.