In a welcome surprise, China plans to deep-six price caps on drugs

Some good news for emerging-market ambitions: China is backpedaling on price caps. After shortages prompted the government to ease up on certain price controls earlier this year, officials are now preparing to lift the price controls as early as Jan. 1.

The National Development and Reform Commission plans to sweep aside the caps on all drugs, Reuters reports. The agency is circulating a draft of a new pricing regime for comment from the industry.

It's a bit of welcome news for drugmakers, who've been under siege in China over the past couple of years. Big Pharma ratcheted up their China game early in the decade, wooed by double-digit pharma growth at a time when Europe was shrinking. By 2012, however, the government was promising to clamp down on prices, slapping controls on foreign pharma brands for the first time.

Not to mention the corruption crackdown launched last year. The investigation into improper payments by drugmakers snared GlaxoSmithKline ($GSK)--which ended up paying a fine of almost a half-billion dollars--and put a chill on other drugmakers' marketing efforts. GSK promised to cut its prices as part of an apology for misbehavior. On average, multinational companies saw profit margins slide to about 10% last year, from 15% in 2012.

Between the two, global drugmakers were dialing back their expectations for growth in China. The price caps and a slowing economy were already depressing pharma sales growth, and the corruption scandal spawned worries about everything from marketing strategies to security.

But though the price-cap lift is a positive, it's not likely to make a huge difference in China's drug growth. They apply to only about one-third of the drugs purveyed in the country, with the rest sold via China's hospital network, which buys its supplies via tender offers.

It's unclear at this point how, exactly, the post-price-cap world will operate. According to Reuters, prices will be set by health insurance departments, negotiations between pharma companies and domestic officials, and existing tender processes.

- read the Reuters news

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