China is on track to become the world's second-largest drug market by 2020, provided its policy of capping retail prices on drugs doesn't put the brakes on its explosive growth. The Chinese government seems to recognize that risk: On Tuesday it quietly announced that it is easing up on its policy of restricting drug prices and will allow pharmaceutical companies to set prices on some medicines, according to Reuters.
The move came after a string of bad press related to a shortage of Tapazole, an inexpensive thyroid medication that's widely used in China. It's one of several essential drugs that have disappeared from store shelves because price caps made it unprofitable for domestic manufacturers to produce, Reuters reports.
China has been struggling under the weight of skyrocketing drug costs for the past several years, and the price caps were meant to ease that pressure. But those price limits crippled local industry players: According to a Reuters analysis of more than 50 Chinese healthcare firms, combined profit growth fell from 15.2% in 2012 to around 2.6% last year, and profit margins plunged from about 17% to 10.5%.
The new, looser pricing policy is somewhat restricted, however. The Chinese government says it will apply only to "commonly used low-cost medicines," according to a statement accessed by Reuters on China's National Health and Family Planning Commission website. And pharma companies must keep prices low enough so the daily cost of taking them remains within a certain range, which was not specified. One positive aspect of the new policy is that hospitals will be able to choose their drug suppliers rather than having to participate in a provincial bidding system that kept prices down but also drove drug companies to restrict production.
China has not been an easy market to crack--for either domestic or foreign drugmakers. In 2012, the country slashed prices on 95 cancer and immune drugs by an average of 17%. And the country has launched public investigations of a number of Western pharma companies, including GlaxoSmithKline ($GSK), which is facing bribery allegations there. It's all part of China's effort to rein in its overall healthcare bill, which is expected to hit $1 trillion by 2020.
- here's the Reuters story
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