Pharma firms face shake-up with China’s plan to bulk-buy drugs
- Pilot programme involves major cities clubbing together to purchase certain medicines, driving down prices
- Chinese companies that have invested heavily in R&D stand best chance of survival
China’s plan to drive down generic drug prices through a centralised bulk procurement programme is set to redraw the industry by forcing its thousands of small generic drug makers to streamline and consolidate after decades of enjoying outsized profit margins.
“There won’t be a second act for traditional generic drug makers in China,” said Dai Ming, Shanghai-based fund manager at Hengsheng Asset Management.
“In the past, there was hope that these companies would benefit from more government investment in health care due to the ageing population, but now these health care stocks will be further hurt by policy and undergo a greater correction.”
To survive the shifting landscape and rely less on generics – drugs whose patents have expired – many companies are scrambling to pump money into research and development.
Discovering a new medicine allows companies to earn high profits for as long as the new drug is covered by a patent, balancing out the loss of revenue from the fall in generic drug prices.