There are a couple of ways to deal with government drug price cuts. Throw up your hands and figure you will see revenue fall, or see it as an opportunity to grow volume. GlaxoSmithKline ($GSK) has chosen the second course for hepatitis B drug Viread in China, where it negotiated a deal to cut the price of the drug by two-thirds.
China, trying to lower its soaring healthcare costs, has been negotiating lower prices on some of the better selling drugs in the country in exchange for an indication that it will increase the volumes of the drugs it buys. Glaxo has agreed to cut the price of Viread--a Gilead Sciences ($GILD) hepatitis B drug that GSK sells in China--to 490 yuan ($75) a month from 1,500 ($229). But it acknowledged in an email that the new price represented a chance to increase sales because Viread will now be included under China’s reimbursement policies and patients will not have to pay out of pocket for the drug.
"Supporting the government’s initiative is an important aspect of GSK’s commitment to be in China, with China, for China,” Hervé Gisserot, GSK general manager of pharmaceuticals and vaccines in China, said in an emailed statement. “We are proud that Viread has been included in the Chinese government’s efforts to add innovative medicines to the reimbursement policies. This represents a defining moment in the government’s efforts to provide high quality, innovative products at more affordable prices, and ultimately improve patient outcomes in China."
Other drugmakers also have negotiated lower prices on some popular cancer drugs. The price of AstraZeneca’s ($AZN) lung cancer pill Iressa was cut by more than half to 7,000 yuan ($1,069) from 15,000 ($2,292). China's Betta Pharmaceuticals had the price of its lung cancer med Icotinib reduced to 5,500 from 12,000 yuan a month.
In an emailed statement, AstraZeneca said as a result of the price drop, Ireessa will be added to the Chinese governement's national reimbursement list, providing the drug to more patients who need it.
But not all drugmakers see the situation as an opportunity. Deutsche Bank analyst Jack Hu pointed out that Celgene ($CELG) pulled out of negotiations for its cancer med Revlimid, as did Roche ($RHHBY) for Tarceva, Reuters reports.
But GSK has decades of experience selling drugs in China and has sometimes found ways before to boost sales in the face the challenges there. Not all of those have worked out so well, as the bribery scandal that embroiled the drugmaker three years ago showed. But earlier this year, GSK’s HIV joint venture ViiV Healthcare got approval from the China FDA for Tivicay after first negotiating a deal with Shanghai-based Desano Pharmaceuticals to produce the med’s active ingredient at a lower price. Then GSK invested 1 million yuan to support a campaign from the National Health and Family Planning Commission, the Communist Youth League of China and others to go to university campuses to do AIDS education.
Still, GSK has seen sales suffer in China after reorganizing following the scandal for which it acknowledged its unit there paid bribes to doctors and government officials to win business. China revenues in fell 28% in Q1 after currency adjustments, following declining sales there last year. The company blamed its ongoing restructuring program in the country as well as cost pressures in tenders and reimbursement.
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Editor's Note: The story was updated with a comment from AstraZeneca.