Hong Kong's gray market draws mainland Chinese looking for lifesaving meds they can't afford at home

Duties and distribution costs have made top-tier drugs in China among the most expensive in the world. If they can be found cheaper, chances are they are counterfeit. As a result, a thriving gray market in Hong Kong is drawing tourists from the mainland looking to get drugs like Gilead Sciences' ($GILD) hep C med Sovaldi or Roche's ($RHHBY) breast cancer drug Herceptin, often without a prescription.

"We all know Hong Kong has better-quality products," says Li, a woman from Hebei province who told Bloomberg she was in a Hong Kong pharmacy buying the cancer drug for her cousin. She was able to buy a 440-mg vial there for about $2,500, roughly 30% less than it would have cost her at home. "This is life or death, so of course we will do all that it takes to get the best treatment," Li, who didn't want to give her first name, told Bloomberg.

Neil Wang, managing director for Frost & Sullivan in China, explained to Bloomberg that China levies a 17% duty on drugs. Then when you add in costs for distribution and other middlemen, China prices for treatments like Novartis' ($NVS) Glivec for leukemia, or Bayer's Nexavar for liver cancer, are often out of the reach of most Chinese, who have to pay for such drugs out of their own pockets, Bloomberg said.

It is a different story in Hong Kong, where the import duty is not applied. And because it has its own drug approval process, drugs not available on the mainland often can be found there, such as Gilead's hep C drugs or the competing treatment, Viekira Pak from AbbVie ($ABBV), which have been approved in Hong Kong but are not yet available on the mainland.  

Probably 90% of the drugs the pharmacies sell are to tourists from the mainland, William Chui, president of the Society of Hospital Pharmacists of Hong Kong, told Bloomberg. Local patients get their meds directly from their doctors. The pharmacies are not supposed to sell drugs to people without prescriptions, and drugmakers and Hong Kong regulators try to monitor the situation. Pharmacists caught violating the law can face a HK$100,000 fine and a couple of years in jail. But 4,775 inspections between 2011 and 2014 resulted in 67 convictions.

China is not the only country seeing medical tourists, and Chinese citizens are not the only ones willing to travel for a chance to get cheaper meds. Gilead priced Sovaldi at $84,000 and combo med Harvoni at $94,500 for a 12-week regimen in the U.S. In some developing countries where patients often lack insurance, it agreed to allow Indian generics makers to sell them at drastically reduced prices. Sovaldi can reportedly be bought in India for $1,000 for a full course instead of $1,000 a pill like in the U.S. So companies that have been in the business of arranging medical-related trips abroad for things like joint replacements are now offering channels for those looking to get their hepatitis C treatments cheaper.

- read the Bloomberg story