China pharma must swallow that jagged little pill called R&D as government slashes profit margins of generic drugs
- New policy environment demanding cheaper drugs adds pressure to innovate
- China’s hospital drugs market was US$118 billion last year
China’s pharmaceutical industry – shaken by drastic price cuts from Beijing’s recent pilot roll-out of state hospital bulk purchase open bidding – will need to go through painful restructuring and raise big sums to fund innovation, according to executives.
As Beijing’s pilot reform spreads nationwide to cut prices of drugs and improve their efficacy and safety, companies are under mounting pressure to invest in innovative drugs development and reduce reliance on low profit products that are the same copies of original drugs.
That is because the reform means generic drugs manufacturing – the cornerstone of the industry – has become much more competitive.
“The industry and investors need to get used to the new environment in China, where generic drugs are a tool for lowering medical costs,” China Pharmaceutical Innovation and Research Development Association executive president Song Ruilin said in an interview at the sidelines of the JP Morgan Healthcare conference – the world’s largest – in San Francisco last week.
“To survive this, companies need to innovate,” he said.
Early last month, the first round of price bidding in 11 cities saw prices slashed by 62 per cent on average, according to Guoyuan Securities, raising concerns about the industry’s profitability. Two drugs saw prices fall by over 95 per cent.