Price cuts likely to hurt profits at drugmakers

PUBLISHED : Thursday, 25 January, 2007, 12:00am
UPDATED : Thursday, 25 January, 2007, 12:00am

Profits at Chinese drugmakers may be hit after the government said it would cut prices of mainland heart-related drugs by as much as 85 per cent, according to analysts.

The price cuts for cardiovascular drugs will average 20 per cent, resulting in a drop of about seven billion yuan in the value of drugs sold, according to the National Development and Reform Commission, which announced the decision on its website.

The reductions, which come about eight months after a similar move against antibiotic costs, are part of government efforts to limit health costs to patients under the country's medical insurance scheme which benefits only one member of a family.

The move might hold back profits of drug companies to about 5 per cent growth if 'seriously' implemented with cuts possibly being extended to other categories, analysts said.

Profit growth of listed drug firms were less than 5 per cent in the first 11 months last year, they said.

The cuts follow government monitoring of hospital drug use last year.

'The government aims to protect people under the medical insurance scheme,' said pharmaceutical analyst Gideon Lo at DBS. 'Where hospitals use large amount of certain drugs, the government would immediately take action to find room to cut the price of those drugs.'

Usually drug companies would produce other medicines to offset a decline in profit resulting from the cuts, one drugmaker said.

'Drug manufacturers will offer a discounted price for high volume orders from hospitals, so what the government is doing is to try to lower the ceiling price of the drugs only, not necessarily with the aim of hurting profits,' an industry player said.

Shares of Sino Biopharmaceutical, which have gained about 23 per cent this year, closed down 1.74 per cent at HK$1.13 yesterday. The company is one of four Hong Kong-listed drugmakers.