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Pharma nervous as China probes drug prices

Local affiliates of multinationals and domestic companies in the spot light

China has launched an inquiry into the cost of medicines sold on the domestic market, which could have an impact on the growth aspirations of multinational pharma companies.

The National Development and Reform Commission (NDRC) - which currently sets price ceilings for branded and generic drugs sold on the national market - has said it will investigate the production and distribution costs and prices of drugs sold by around 60 companies, focusing on the 2010 to 2012 period.

In the spot light domestic companies such as Sinopharm Group and Jiangsu Hengrui Medicine, as well as the local affiliates of multinationals such GlaxoSmithKline, Astellas, Baxter, Boehringer Ingelheim and Merck & Co.

GSK is already under investigation in China for alleged "economic crimes", although the precise focus of this inquiry has yet to emerge.

The official Securities Daily newspaper has suggested that the focus of the NDRC probe could be the difference between prices for pharmaceuticals sold in China and other world markets. 

Last month, Chinese pharma executives urged the NDRC to do away with a policy of preferential pricing for imported drugs, arguing that some patent-expired medicines can be sold in China at higher prices than other countries and at a premium to locally-made generics.

The NDRC has reviewed drug prices a couple of dozen times in the last 10 years, but the scale of the latest four-month investigation has sent a shockwave through the pharma industry as companies brace themselves for even deeper cuts. 

Most big pharma companies have been looking to emerging markets such as China to drive growth as established markets such as Europe retreat, pointing to its rapidly ageing population, the increasing spending power of consumers and a government commitment to the provision of medical services, for example by expanding the National Essential Drug List.

With China's economic growth showing signs of slowing and consumer inflation on the up, however, the government has been making noises for some time about new price-containment policies to help prevent a significant increase in healthcare expenditure. 

Last month, there were also calls for China to do away with a bidding mechanism for medicines purchased by public hospitals, which was designed to introduce competition in the market. However, the approach has resulted in a fragmented situation, according to Chinese pharma leaders, with provincial authorities applying different purchasing criteria. The system has also led to allegations of widespread corruption.

The NDRC recently undertook an investigation into pricing of infant formula products, which resulted in across-the-board price cuts of around 20 per cent.

5th July 2013

From: Sales

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