‘Painful’ consolidation ahead for China’s generic drug makers, as Beijing gets behind procurement revamp
- 52 per cent difference in price on average between winning bids under centralised bulk drugs procurement pilot and last year’s lowest prices for the same drugs
Can Chinese generic drug makers remain profitable under Beijing’s new state procurement mechanism that has already led to a fall in average selling prices by more than half?
Yes they can, according to analysts who say tender winners will be able to offset the impact of lower prices through savings made possible by bigger volumes and the elimination of hefty distribution costs under the current, distorted pricing mechanism.
“Winning prices in this [new] round of centralised procurement are not the result of unreasonable reductions,” Jin Hong, an analyst at Guoyuan Securities, says in a report. In the previous system, a lot of distribution costs were incurred to push sales, “resulting in a huge gap between ex-factory and end-user costs”, sometimes as high as dozens of times.
Jin is referring to a 52 per cent price cut on average between winning bids under China’s first centralised bulk drugs procurement pilot conducted a week ago, and last year’s lowest prices for the same drugs.
According to Jin, the new system will usher in a period of “painful adjustment and consolidation” for the generic drug industry in China, resulting in a smaller number of more capable and innovative companies in an industry with more than 600 players.
Although the winners will still be profitable, the original, over 30 per cent net profit margins enjoyed by producers will no longer be maintained
The price falls ranged between 13 per cent and 96 per cent for the 25 drugs tendered. The tenders for six other drugs attracted no viable bids and were withdrawn.