China Drug Pricing Reforms – Potential Impact of IRP?
Pati Ladron – Client Solutions Lead at GPI
Published 6th July 2016
The Chinese government launched a healthcare reform programme in 2009 aiming to control healthcare expenditure and increase the quality of care. A new drug pricing policy, primarily driven by rising pharmaceutical costs, was initiated on the 1st of June 2015 by the National Development and Reform Commission (NDRC). Between 2006 and 2011, the market value of Western pharmaceuticals in China rose from USD 27 billion in 2006 to USD 71 billion in 2011 (based on ex-factory price) prompting authorities to take note.
As part of the Government’s initiative to make innovative pharmaceuticals more affordable, pharmaceutical companies recently agreed with regulators to cut prices on specific drugs by up to 67% as of May this year; drugs impacted include Iressa, Viread and Conmana and it is expected more cuts to other drugs are to follow.
The introduction of International Referencing as means to set prices for new launches is a likely scenario. Discussions have arisen on a rule that would not allow China to price pharmaceuticals higher than the approved price in their respective country of origin (or they should be comparable to that of neighbouring countries such as Japan, Korea, India, Hong Kong, Macao and Taiwan). GPI discusses the potential impact of this rule on local and global level using the case of Nexavar (indicated for hepatocellular, renal and thyroid carcinoma) as an example.
The public price for Nexavar 200 Mg per tablet in China is listed as 420 CNY (62.98 USD) as of June 1st 2015. The chart below shows a comparison between China’s Nexavar price with current prices in Japan, India, Taiwan and South Korea (prices are not available in Hong Kong and Macao):
The current price listed in China is 28.71% higher compared to Japan and 73.74% higher compared to South Korea.
The discussions regarding the application of International Reference Pricing are still ongoing and the exact pricing rule is still undecided. We’ve considered two possible scenarios:
1. Average of the basket
The price per tablet in China would be reduced from $62.98 to $32.59 meaning a price cut of 48.26%
2. Lowest of the basket
The price per tablet in China would be reduced from $62.98 to $16.54 meaning a substantial cut of 73.74%!
What does this mean for China and the Asia-Pacific area?
The price for new launches is certainly expected to fall, how low depends on the rule and country basket selected. It is worth noting that other countries that use IRP in the Asia-Pacific region, such as Japan and South Korea, reference against countries outside the Asia-Pacific region. China could be the first market within this region to solely reference against neighbouring countries resulting in significant impact on prices, launch sequence and, ultimately, could result in market access delays.