Drug tender in China's Hunan province has industry up in arms

SINGAPORE--A cross-section of pharmaceutical industry players in China has objected to the steep price cuts of as much as 50% in a late January tender process in China's Hunan province, fearing it will set a trend that will carry through the year and force many to reassess participation.

The tender came as the new commissioner of the China Food and Drug Administration (CFDA), Bi Jingquan, was appointed, bringing more than 20 years of experience in pricing and management, but with little background in the medical and pharmaceutical industries.

The Medical Concentrative Purchase of Hunan province was the first of the year by a Chinese province. It drew upon new methods such as digital systems and computer networks for price negotiation of bids rather than face-to-face. The process relied on guidelines given to the panel of 60 experts that included a requirement that drug prices must not be higher than the previous winning bids.

After the first and second round of bids on Jan. 27 and Jan. 28, more than 200 pharmaceutical companies signed a joint petition against the excessively low negotiated prices for drugs.

The China Pharmaceutical Innovation and Research Development Association (PHIRDA) wrote a letter in early February that said three aspects of the tender process will cause serious consequences to the healthcare and pharmaceutical industry:

  1. Aiming to reduce drug prices as much as 50% does not encourage and maintain a free and fair market with healthy competition. It goes against the bidding principal of "quality as a priority at reasonable prices" established by China, which may lead to serious issues and problems in drug safety.

  2. The process of evaluation and price negotiation between the panel of experts and pharmaceutical companies is flawed. Pharmaceutical companies can bid with a price lower than the cost price after learning about their quality and technical grading among similar companies to win the bid, leaving drugs of better quality and more trustworthy branding at a slightly higher price out of the gates.

  3. The pricing evaluation process lacks transparency. Innovative drugs with outstanding performance in both quality and effects are unable to acquire a reasonable rate of return and reward under this system. Companies will then not be able to afford ongoing R&D activities and meet clinical needs of the general public.

PHIRDA has urged the province to adjust the process and offered to collaborate even though manufacturers had expected prices to drop in the tender.

However, the winning bids were well below expectations with negotiation prices starting at 50% of the previous winning bid price for some drugs and a general price reduction of 20% to 30% in others.

"We can accept a price reduction of about 10%; a 30% to 40% reduction is unreasonable and 50% (reduction) is definitely unprofitable, which leaves us no choice but to give up on bidding," a manager and representative from a Hunan drug marketer and seller said in a conversation with local reporters.

He added that lower drug prices are impossible for manufacturers when the material and labour costs remain high.

- read the letter here (in Chinese)