China pharmaceutical stocks fall after introduction of new tender process
Dec 07, 2018 (China Knowledge) - China’s pharmaceutical stocks fell sharply, yesterday, over concerns that a new government tender process would severely impact the profitability of their generic drugs.
The new tender process currently involves 11 major cities such as Beijing, Shanghai and Guangzhou in which these cities band together to bulk buy the drugs. Pharmaceutical firms are invited to bid for contracts to supply the drugs which range from allergy to high-blood pressure to cancer treatments. In this, there will only be 1 winner for each drug with the victor solely supplying the medication to all hospitals in the 11 cities.
This hurts pharmaceutical companies because the competitive tender process will result in drug prices being slashed and affect their profitability. For example, the winning bid for Entecavir made by Sino Biopharmaceutical which is used to treat hepatitis B was 90% lower than the previous winning bid, while the price of Irbesartan made by Jiangsu Hengrui Medicine used to treat hypertension was 60% lower.
The 11 cities currently involved make up 30% to 50% of total drug use in China and winning bidders of supply contracts can have a 60% to 70% of the market share of the drug. However, for companies such as Sino Biopharmaceutical that already holds a 40% market share for its drug, the additional 30% market share does not justify the 90% price cut.
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