China vowed to extend drug-price cuts,
rankling some of the country’s largest manufacturers, in an overhaul of its
health-care system to trim the cost of caring for an aging population.
Political
leaders, wrapping up their annual National People’s Congress in Beijing today,
pledged to make medical care more affordable and widen coverage of state-paid
health insurance. The plan will be supported by a tendering system tested in
Anhui province that encourages drugmakers to compete on price and quality for
state contracts.
While
the elderly were looked after in the past by their children, urbanization and
the nation’s one-child policy have eroded the tradition of family care,
shifting the burden to the state. The government wants to broaden the use of
the new procurement method, which led to price reductions of at least 30
percent on medicines on its essential drugs list in the past year, said Sun
Zhigang, the top official overseeing the changes.
“The
China government will keep increasing the number of drugs on the essential
drugs list and expand the coverage” from basic health centers to hospitals,
Nomura Holdings Inc. health- care analysts Gideon Lo and Sunny Ding said in a
March 13 report. “This move is positive for drugmakers long term as it will
likely help to drive volume growth.”
The
cost-cutting measures have so far led to profit warnings at United Laboratories
International Holdings and Wuyi International Pharmaceutical Company. United
Laboratories, whose shares trade in Hong Kong, warned investors
last month that its 2011 income would “decrease materially” because of the
government’s price reduction policies.
‘Irresponsible’
Policy
“Health-care
reform is basically about tendering to compete on prices, and I feel this is
irresponsible to the drug industry,” said Guo Guangchang, chairman and
co-founder of Fosun International Ltd. (656), which controls one of
China’s biggest drugmakers, Shanghai
Fosun Pharmaceutical Co. (600196) “They need to prioritize on
guaranteeing quality first, rather than focusing on just prices, or this will
be very unfair to China’s drugmakers,” Guo, ranked China’s 27th richest by
Forbes Magazine, told reporters on March 9 in Beijing, where he also attended
the legislative meeting.
The Research
and Development-Based Pharmaceutical Association Committee, an industry
group representing the interests of multinational drugmakers including Pfizer Inc.
(PFE) andMerck & Co. (MRK), is also lobbying against the
expansion of the so- called Anhui model tendering system.
Safety
Guarantee
“The
tendering system that we have implemented for basic drugs has proved to be
effective and able to guarantee the drugs’ safety, reasonable prices, and
timely supply,” Sun, deputy director of the National Development and Reform
Commission, said on March 7. “Our next step is to further improve on these
plans,” said Sun, who also heads the State Council health-care reform office.
GlaxoSmithKline
Plc (GSK), the U.K.’s largest drugmaker, hasn’t been treated unfairly by
the Chinese government compared with local companies, Chief Executive Officer Andrew Wittysaid.
“There
is a tension that the Chinese government needs to try and manage, but I feel
like we get a fair treatment here in China,” he said in an interview in Beijing
on March 5.
Witty
declined to say how much the government’s price cuts have affected Glaxo’s
margins in China.
No
‘Easy Ride’
“Nobody
expects drug companies to be given an easy ride,” he said. “What we do look for
is a fair playing field, and I think in China we’ve got that,” said Witty, who
has 4,000 medical representatives selling Glaxo’s drugs throughout China.
The
government isn’t likely to back down before a leadership transition in which
the ruling Communist Party will appoint a new generation of leaders this year,
said Jason Mann, a Hong Kong-based health-care analyst at Barclays Capital.
“Drug
companies face growing risk as political scapegoats,” he said in a telephone
interview on March 12. “Though profits are shrinking significantly, these firms
remain profitable, and in some conversations we’ve had within the government,
that reason alone is enough to support further price cuts this year.”
Mann
expects disappointing earnings announcements from Chinese drug manufacturers
whose shares trade in Hong Kong, especially United Laboratories, China Shineway
Pharmaceutical Group (2877) and Sino
Biopharmaceutical (1177), because of falling drug prices, he said.
China
Shineway fell as much as 5.8 percent in Hong Kong trading, the biggest intraday
drop in two weeks, and declined 1.2 percent at HK$13.66 as of 11:20 a.m. local
time. United Labs gained 0.2 percent to HK$5.56 and Sino Biopharmaceutical
gained 0.9 percent, while Hong Kong’s benchmark Hang Seng index advanced
1.3 percent.
Cancer
Treatments
In
addition, the government’s intention to target price reductions across more
expensive medicines, such as cancer treatments and heart pills, could mean more
drugmakers are affected, Mann said. The number of people with cancer in China
is increasing as the population lives longer.
China
had 178 million people over 60 in 2009. The tally could reach 437 million, one
third of the population, by 2050, according to the United Nations. After
expanding 2.5 percent a year for the past three decades, China’s working-age
population has stopped growing and will contract 1 percent a year by the
mid-2020s, according to the Center for Strategic and International Studies in Washington.
That’s
intensifying the need to drive down government-paid medical costs.
Foreign
Companies
China’s
Minister of Health Chen Zhu wants the tendering system to apply to about 800
medications, from 307 now, and include oncology drugs used in large hospitals.
The sale of expensive treatments for major illnesses mostly benefits “foreign
drug companies,” Zhao Ping, the former head of the Cancer
Institute and Hospital in Beijing, told reporters on March 10, adding
that he supports the government’s measures.
“At the
Cancer Hospital, most of the drugs we use are imported from overseas, and just
one oncology drug can cost as much as 20,000 yuan ($3,200),” said Zhao, who is
a member of theChinese
People’s Political Consultative Conference’s health- care committee, an
advisory body to the government. “A lot of our medical expenses goes needlessly
to foreigners.”
Zhao,
who was speaking at a briefing held alongside the legislative meetings, said he
has been “strongly proposing” that the government invest more to support local
drug companies to create their own drugs as a way to control prices.
Bloomberg
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