Chinese government slashes drug prices by 21%

China may be a new frontier for Big Pharma, but like the Old West, this land of opportunity has its dangers. Witness the government's latest pricing move, which will cut the maximum retail prices on more than 1,200 drugs by an average of 21 percent. The new rules take effect immediately.

The country's National Development and Reform Commission had warned earlier this month that hospitals and clinics would be required to cap the prices on certain drugs. Government officials say the caps are necessary to ward off inflation and to keep rising healthcare costs from fomenting resentment among the Chinese people. The NDRC expects to save 10 billion yuan, or about $1.5 billion, on the new rules.

But what about resentment among drugmakers? Well, the price cuts are expected to hit smaller domestic companies more than they will Big Pharma, First Shanghai Securities analyst Linus Yip told Reuters. Big Pharma is better able to weather price cuts, Yip figures. Nonetheless, "[t]he impact is definitely negative to the bottom line," he said.

The only problem with the notion that major drugmakers can better absorb pricing hits is the fact that these hits are coming on all sides lately, with European countries such as Germany and Greece slashing their drug reimbursements, and U.S. healthcare reform requiring bigger drug rebates to government programs.

Some analysts are expecting more drug-price cuts in China. "What becomes worrying is that there is at least a short term momentum for the government to irrationally slash prices further in order to contain inflation at a time of rising production and regulatory costs," James Shen, publisher of Pharma China, told Reuters.

- read the Reuters news

ALSO: Merck expects more than a quarter of its revenue to come from emerging markets, led by China, by 2013 as the government there carries out a plan to reform its healthcare system, according to CEO Kenneth Frazier. Report

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