Sanofi, AZ, Lilly and more win business in China's expanded cut-price purchase program

Good news for multinational drugmakers—or better-than-expected news, that is. After bracing for China’s expanded government procurement scheme and the price cuts destined to come with it, the countrywide rollout turned out to be less terrible than some had feared.

After a competitive bidding process, China’s drug joint procurement office Wednesday unveiled the winning prices for 25 off-patent drugs, which are also included in the so-called “4+7” program tested in 11 major cities.

Compared with the “4+7” prices—already cut in half—the nationwide tags saw drugmakers take a further 25% discount on average, the office said (Chinese). But Big Pharma companies won business with prices mostly on par with “4+7.”

More multinationals won contracts this time around, too, partly because more of them actually offered steep price cuts. Altogether, seven foreign pharmas won bids, compared with just two under “4+7”: Sanofi, AstraZeneca, Bristol-Myers Squibb, Merck & Co. (known as MSD in China) and Eli Lilly, plus two generic players, Novartis’ Sandoz unit and India-based Dr. Reddy’s.

Surprisingly, AstraZeneca's EGFR lung cancer drug Iressa and Bristol’s heart med Monopril, the only two brands that won in the “4+7” pilot, were chosen again even though the two firms didn't offer further discounts. Merck snagged a share for its asthma drug Singulair by matching the “4+7” price. And Eli Lilly’s chemotherapy Alimta also entered with price tags that weren’t much different.

Sanofi posted two important wins this time: one for its standard-of-care blood thinner Plavix and one for the irbesartan-hydrochlorothiazide combo Avalide. The French pharma is offering Plavix now at about CNY 2.54 per pill, a 20% discount from the “4+7” mark.

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Foreign pharmas’ successes have a rule revamp to thank. The “4+7” process was a game of winner take all; the lowest-priced bidder for a particular drug snagged the entire supply contract from public hospitals in all 11 cities.

In comparison, the new program allows up to three contractors to divide the market. Based on the number of winners, 50% to 70% of a drug’s total procurement amount was assigned, leaving 30% to 50% behind. Then the winning drugmakers choose the provinces they want to supply one by one in the order of their prices.

AZ, for example, is sharing Iressa’s market with Qilu Pharmaceutical—which prices its knockoff version at about half that of the Big Pharma's 547 yuan ($76.8) per 10-pill pack—and Chia Tai Tianqing Pharmaceutical. BMS is splitting the Monopril business with Zhejiang Huahai Pharmaceutical, which snagged seven contracts (including three sartan-based heart drugs), the most among all companies.

Qilu Pharma offered up some of the biggest discounts during this round of bidding. Its copycat to Pfizer’s blockbuster cholesterol fighter Lipitor—soon to be handed to Mylan—now stands at 1.68 yuan per box of 14 10-mg pills. The current “4+7” price? CNY 6.60 per box of seven 20-mg pills.

Novartis’ Sandoz is among three generic makers slated to eat away at AZ’s Crestor (rosuvastatin) share. According to local reports, all versions of the cholesterol fighter sold about CNY 5 billion ($700 million) via China’s public hospitals in 2017, with AZ’s originator taking the lion’s share.

The industry previously feared that Indian companies could disrupt the competition landscape. But that scenario didn’t happen. In the knockoff race for Lilly’s antipsychotic drug Zyprexa (olanzapine), Qilu Pharma again cut a whopping 75% off the “4+7” mark to about CNY 2.48 per pill, while the benchmark holder Jiangsu Hansoh Pharmaceutical’s new offer of CNY 6.23 per pill wasn't so different from the CNY 6.19 offered by Dr. Reddy’s.

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Winning those contracts means guaranteed sales and less spending on marketing. But growth in the face of big price cuts remains an uphill fight. That’s why Pfizer’s established medicines business Upjohn—on track to be folded into Mylan—AZ and Sanofi have all set out to expand into China’s less-developed regions.

Ensuring supply and quality is also key. Local media previously reported that BMS couldn’t meet demand for Monopril after Beijing’s neighboring province Hebei joined the original “4+7” pact. There were also myriad cases where API price jumps caused drug shortages. The procurement office has set up a blacklist for those that break supply promises or make substandard drugs.

For the Chinese government, the bulk procurement scheme is still in an experimental phase. Will the program expand to other drugs, even biologics? If losing firms simply lose interest and scale back their manufacturing, will that limit the government’s negotiating power in the future and eventually hurt patients’ access? Will low prices hurt local drugmakers’ R&D reinvestment? Those are just a few questions that remain unanswered.