Chinese pricing plan threatens pharma profits

This is for Big Pharma's should-have-seen-it-coming file: China is fast becoming the new frontier of drug-price cuts. A government pilot project in the hinterlands managed to lower prices by as much as 90% on essential meds, Bloomberg reports. So now, the approach may go nationwide. It also might be applied to more drugs.

It's telling that one source for Bloomberg's story was a lobbyist for 38 foreign companies. Big Pharma has spent hundreds of millions in China--just think of Novartis' $1 billion investment--and companies want a big bang for their bucks. And this isn't the first time the Chinese government has made noises about cutting drug prices charged by foreign drugmakers, which are currently exempt from many price reductions.

The program sets up a competition among drugmakers for state contracts. In Anhui province, it achieved an average 53% reduction off the central government's listed price. Foreign drugmakers aren't in favor because they'd have to slash prices to compete with copycat firms. In fact, even domestic companies are threatening to boycott the tenders, Bloomberg says.

After all, one of Big Pharma's key strategies for emerging markets is branded generics, which are designed to capture a premium price; consumers tend to be more confident in a well-known drugmaker's name, especially in a market in which counterfeiting is common. If drugmakers can't get that premium, then that dampens the hope of pumping up sales in China to offset slow growth at home.

- see the Bloomberg story