China's latest bid to spur new drugs? A tax cut for rare disease treatments

Playing catch-up in the orphan drug field, China will cut the value-added tax rate for some rare-disease therapies by more than 80% in an effort to get new treatments to market faster. And multinational drugmakers are most likely to reap the benefits.

Starting March 1, the value-added tax rate for 21 drugs and four active pharmaceutical ingredients for rare diseases will come down to 3% from 16%, China’s State Council said on Monday after a meeting chaired by Premier Li Keqiang. The country made a similar move for VAT taxes on cancer drugs last year.

The list of the 21 orphan drugs has yet to be made public, but most orphan disease therapies in China—however few—are made by foreign companies.

Cutting these taxes is the Chinese government’s latest bid to speed up new innovative drug launches and incentivize their development. The move in orphan drug territory reflects China's renewed interest in ensuring treatment options for about 20 million rare disease patients in the country.

China has already taken steps toward the second goal after years of virtual negligence. Chinese authorities released the country’s first-ever catalog of orphan diseases last year, and among the 121 diseases listed, only about 20 have treatments approved in the country.

Consider Sanofi’s Pompe disease therapy Myozyme. It reached China in mid-2017—10 years after it was first approved in the U.S.—after the CFDA waived a China-specific phase 3 trial.

In 2017, China's then-FDA (now the National Medical Product Administration) updated policies that specifically named rare diseases as a focus for the agency’s priority review pathway, which offers faster evaluation of new drug candidates. For orphan drugs already approved abroad, the agency could offer conditional approval pending confirmatory trial data in China.

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Meanwhile, newer rare disease drugs are rolling out in China at unprecedented speed, thanks to the favorable review policies. Roche’s hemophilia A drug Hemlibra, for example, was approved in November, just one year after the U.S. FDA granted its go-ahead.

But getting rare disease drugs into China is just the first step. Because they're usually tagged with high prices, covering them on the drug reimbursement scheme could be less appealing for policymakers than covering more widely used drugs. Drugmakers could be less willing to offer big discounts to win that coverage because very few patients are eligible for treatment.

The tax cut policy mirrors a similar one unveiled last April for cancer medicines. At the State Council meeting on Monday, Li reiterated that the country will step up efforts to expand cancer screening and that it will speed up approval of new cancer drugs and cut their prices to get more anti-cancer therapies onto insurance.