18 September 2018

Makers of essential drugs get a shot in the arm

State-mandated price cuts on essential medicines have led to excessively low margins, discouraging manufacturers and causing a shortage of these drugs.

Now the government is moving to put a floor under the decline in a highly anticipated reform of the pharmaceutical market. This will involve 890 chemical drugs and Chinese patent medicines, according to reports.

The National Development and Reform Commission, China’s top economic planner, wants to cap the daily average cost of western medicine and Chinese drugs at no more than 3 yuan (49 US cents) and 5 yuan, respectively.

Since the target cost is above the prevailing market prices of most essential drugs, the move is seen as a way to stop prices falling any further.

The World Health Organization defines essential medicines as drugs “that satisfy the health care needs of the majority of the population” and “must be available at all times in adequate amounts and in appropriate dosage at a price the community can afford”.

However, aggressive government efforts to lower health care costs have caused a dramatic fall in the price of essential medicines.

As a result, drug makers have shied away from these types of medicines, resulting in shortages. Hospitals have been forced to procure alternative drugs at higher prices.

Even if the price of essential drugs remain lower than those of prescription medicines after the reform, drug makers would be willing to produce them in large quantities because they can be a source of stable income.

Essential drug makers such as Tong Ren Tang Technologies (01666.HK) and Guangzhou Baiyunshan Pharmaceutical (00874.HK) are expected to gain from the new policy but makers of prescription drugs and brand giants such as Johnson & Johnson and Merck could lose out.

– Contact the writer at [email protected]



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