Chinese pharmaceutical stocks plunge on bigger than expected price cuts of generic drugs on compulsory bulk tendering
- The new procurement process is being tested in Shanghai first, before being rolled out to 10 other cities prior to a nationwide roll-out
- The 11 cities covered in the pilot project make up between 30 per cent and 50 per cent of drugs used in China
The stocks of China’s pharmaceutical producers were hammered on Thursday, on concern that their profitability will be slashed by a new government procurement process for generic drugs.
The price of Entecavir, an antiviral medication used to treat hepatitis B – the principal product of Hong Kong-listed Sino Biopharmaceutical – that won the most recent bid came in 90 per cent below the previous winning tender, according to Shanghai Securities News.
Irbesartan, a drug for treating hypertension made by Shanghai-listed Jiangsu Hengrui Medicine, was slashed by 60 per cent, the Chinese-language newspaper said.
“While the full procurement results have yet to be made public, the price cuts reported so far are bigger than expected, that is why certain affected companies have been hit particularly hard,” said CCB International analyst Natalie Chiu.
The new procurement process, led by the newly formed State Medical Insurance Administration, was promulgated to keep pharmaceutical prices low in an ageing society. Combined with mandatory clinical trials, the measure is part of the Chinese government’s effort to improve the quality of China’s drugs.
Shanghai was the first city to test the new procurement process, with 10 other cities scheduled to commence trails later this month before the system is rolled out nationwide.
The 11 cities together make up between 30 per cent to 50 per cent of drugs used, by volume. The winning bidders can enjoy between 60 per cent to 70 per cent of the market share on each drug.
Five drugs mentioned by the report are made by Sino Biopharmaceutical, Chiu said. Their combined sales accounted for around 35 per cent of the drug maker’s total sales in the first half. The company’s shares fell 16 per cent to HK$5.84, the lowest in almost two years. The stock has plummeted 73 per cent since its record high of HK$20.9 on June 1.
CSPC Pharmaceutical Group produces four other drugs touched on by the report, and their combined sales took up 5 to 6 per cent of the Hong Kong-listed firm’s first-half sales, Chiu added. The stock declined 14.5 per cent to HK$13.82, the lowest since November last year. The stock has lost 45.6 per cent from its record high of HK$25.4 just over six months ago.
“But at a price cut of 90 per cent, for Sino Biopharmaceutical, which already has a 40 per cent share in Shanghai, the additional 30 per cent share from the tender will not be able to make up for the lost revenue due to the price cut,” Chiu said.
The stock slump has extended to drug discovery and development firms. Cancer treatment developer Genscript Biotech shed 11.4 per cent to HK$12.3. Hepatitis drugs developer Ascletis Pharma – the first unprofitable biotech firm listed in Hong Kong under revamped listing rules – lost 8.2 per cent to HK$6.49.